What Is a Stamp Duty?
A stamp duty is a tax that governments place on legal documents, usually involving the transfer of real estate or other assets. Governments can impose stamp duties, also known as stamp taxes, on documents that are needed to legally record those types of transactions, as well as on documents recording marriages, military commissions, copyrights, patents, and so forth.
Historically, governments have used stamp taxes as a way to raise money to fund their activities. Stamp duties are thought to have originated in Spain in the early 17th century. They were called "stamp" duties because a physical stamp was put on the document as proof that it had been officially recorded and the tax liability had been paid.
- A stamp duty—also known as a stamp tax or documentary stamp tax—is a tax a government levies on documents that are required to legally record certain types of transactions.
- Governments have imposed stamp duties on a variety of documents, including those related to the sale or transfer of real estate, patents, securities, and copyrights.
- Governments use these taxes as a source of revenue to fund government programs and activities. In some cases they are referred to as revenue stamps.
Understanding a Stamp Duty
The stamp duty is also known as a documentary stamp tax. Governments around the world levy these taxes on a variety of legally recorded documents.
As income and consumption have grown, it might have made sense to do away with stamp duties. So why do we still have them in many places? Simply put, they provide a steady stream of income for governments.
Today, however, stamp duties apply to far less than the broad category of "financial transactions." They do remain on properties, though. They are often levied when real estate is transferred or sold, and, additionally, many states impose taxes on mortgages and other instruments securing loans against real estate.
While the United States once imposed stamp taxes on a variety of transactional documents, there is no federal stamp tax today, except in very limited circumstances. One is a tax on the transfer of certain firearms and accessories that are subject to the National Firearms Act.
The U.S. Fish & Wildlife Service also requires waterfowl hunters age 16 or older to purchase Federal Duck Stamps, which serve as both a hunting license and a free pass for any national wildlife refuge that otherwise charges an entry fee. The agency says that "nearly all of the proceeds are used to conserve habitat for birds and other wildlife, birders, nature photographers, and other outdoor enthusiasts." Some states also issue their own versions of duck stamps for similar conservation purposes.
Otherwise, only state and local governments currently impose stamp taxes in the United States. In addition to various legal documents, "48 states and the District of Columbia, Guam, and Puerto Rico currently require a tax stamp affixed to tobacco products," according to the Centers for Disease Control and Prevention.
History of Stamp Duties in the United States
By the 17th century, governments had introduced stamp duties throughout Europe. Over the next century, they became a common form of taxation in the Netherlands, France, Denmark, Prussia, and England.
In 1765, the British parliament passed a stamp tax to be imposed on American colonists, requiring them to pay tax on all printed papers, such as licenses, newspapers, ships' papers, and even playing cards. The British government said the funds collected from stamp duties were needed to pay for positioning troops in certain locations of America and to pay for the massive war debt it had incurred during the Seven Years' War.
American colonists were outraged by the imposition of the taxes, which they believed were a deliberate attempt by Britain to control commerce and curtail colonial independence. The Stamp Tax was enacted without the knowledge or input from the colonies, becoming a prime example of taxation without representation. The Stamp Act led to the first concentrated effort by the colonists to resist British authority and became a milestone event leading up to the American Revolution.
Stamp taxes have endured much longer in Britain itself. Today the U.K. imposes a stamp duty land tax (SDLT) on home purchases, although homes under a certain value are not subject to it. For example, the current threshold for residential properties is £125,000. However, first-time homebuyers get a break; their threshold is £500,000.
What Is a Transfer Tax?
Are Stamp Taxes Tax-Deductible?
Not directly, although the law does offer a tax break on some of them. As the Internal Revenue Service explains, in the case of home purchases, "You can't deduct transfer taxes and similar taxes and charges on the sale of a personal home. If you are the buyer and you pay them, include them in the cost basis of the property. If you are the seller and you pay them, they are expenses of the sale and reduce the amount realized on the sale."
Are Tax Stamps Collectible?
Yes, some postage stamp collectors also collect tax stamps, often referred to in the hobby as "revenue stamps."
The Bottom Line
A stamp duty, also known as a stamp tax, is a tax imposed on certain transactions, typically by state or local governments. In many cases a stamp duty will represent a charge for recording the transfer of real estate or other assets from seller to buyer, but it can also be levied on other types of documents and even some products, such as cigarettes. Stamp taxes were a major factor leading to the American Revolution.