REAL ESTATE EXCISE TAX

REAL ESTATE EXCISE TAX

Real estate excise tax does not apply where vendor of real estate assigns his interest therein to third party.

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                                                               November 13, 1951

Honorable Roger L. Olson
Prosecuting Attorney
Franklin County
Pasco, Washington                                                                                                              Cite as:  AGO 51-53 No. 169

Dear Sir:

            We have your request for our opinion on the following question relative to the Real Estate Sales Tax authorized by chapter 11, Laws of 1951, First Ex. Sess.

            If the vendor of a real estate contract assigns his interest therein to a third party, does the Real Estate Sales Tax apply to such assignment?

            Our conclusion is:

            1. Where the assignment of the vendor's rights in an executory contract for the sale of realty which contains a forfeiture clause is not accompanied by a conveyance of the vendor's legal title to the realty, the assignment is not subject to such tax.

            2. The tax does not apply to an assignment of the vendor's interest in an executory contract for the sale of real property which does not contain a forfeiture clause even where accompanied by a conveyance by the assignor of whatever interest he may have in the real property.

            3. Where the assignment of the vendor's rights in an executory contract for the sale of realty which contains a forfeiture clause occurred after the tax was first imposed in the county and before September 6, 1951, and was accompanied by a conveyance of the vendor's legal title to the assignee, the assignment is subject to the Real Estate Sales Tax.

             [[Orig. Op. Page 2]]

            4. The tax does not apply to the assignment of the vendor's rights in an executory contract for the sale of realty which contract contains a forfeiture clause even though such assignment is accompanied by a conveyance of the vendor's legal title to the assignee, if such transaction occurred on or after September 6, 1951.  However, where the contract between the vendor and vendee is not performed and the assignee thereby obtains the interest of the vendee therein, a sale of real property shall then be deemed to have occurred and said sale is then subject to the tax.

                                                                     ANALYSIS

            A "sale," as defined in part by the model ordinance implementing chapter 11, Laws of 1951, First Ex. Sess., is as follows:

            "'Sale' shall have its ordinary meaning and shall in addition include any conveyance * * * or transfer of ownership of or title to real property or an estate or interest therein for a valuable consideration * * *."

            Thus the tax is in general imposed on transfers of interests in real property for a valuable consideration.  The statute also establishes exceptions to this general rule.

            1. Where the assignment of the vendor's rights in an executory forfeitable contract is not accompanied by a conveyance of the vendor's legal title to the realty there is no transfer of an interest in real property, and consequently the assignment is not subject to the tax.  The right of the vendor in and to the land is preserved to him by retaining title; i.e., the vendor's interest in the land flows from the retained title.  Shelton v. Jones, 4 Wash. 692, 30 Pac. 1061.  Where the vendor merely assigns the contract right to receive the payments, such transfer is not of an interest in land.  Accordingly a transfer of such right is not subject to the Real Estate Sales Tax.

            2. The assignment by a vendor of his interest in a nonforfeitable executory contract for the sale of land, even where accompanied by a conveyance by the vendor-assignor of whatever interest he may have in the land, is not subject to the Real Estate Sales Tax because there is no transfer of an interest in real property.  The Washington courts hold that such a contract works an equitable conversion whereby the vendee is looked upon as the owner of the land, a full equitable estate vesting in him; the vendor retains the naked legal title in trust for the vendee accompanied by a lien upon the land as security for the  [[Orig. Op. Page 3]] payment by the purchaser of the purchase price.  Taylor v. Interstate Investment Co., 75 Wash. 490, 135 Pac. 240; Aylward v. Lally, 147 Wash. 29, 264 Pac. 983;Dean v. Woodruff, 200 Wash. 166, 93 P. (2d) 357.  Such title is not an interest in land; no beneficial interest in the land adheres to such title; it is a naked title.  It is, in effect, a lien or encumbrance upon the land.  Taylor v. Interstate Investment Co., supra.  The rationale upon which this rule of law is based is aptly set forth in Jones, Cyclopedia of Real Property Law, Vendor and Purchaser, section 408:

            "Strictly speaking, an executory vendor has no lien, but he retains the naked legal title as security for the payment of the purchase money.  As a practical matter, he has, however, what is tantamount to a 'lien,' since he stands substantially in the position of a mortgagee and can enforce his rights as such."

            This being so, a transfer of a vendor's interest in such a nonforfeitable contract is not a transfer of an interest in land and is accordingly not subject to the Real Estate Sales Tax.

            3. It is our opinion that there is a transfer of an interest in real property where the vendor in an executory forfeitable contract for sale of realty assigns his interest therein and conveys his remaining title by a deed to the assignee.  Accordingly such transactions entered into after the tax was first imposed in the county, but before September 6, 1951, are subject to the Real Estate Sales Tax.  (Concerning such transactions on and after September 6, 1951, see section 4, below).

            The question as to the applicability of the tax to this type of transaction turns on the character of the interest the vendor retains.  This leads us into the doctrine of "equitable conversion" and Ashford v. Reese, 132 Wash. 649, 233 Pac. 29.

            InAshford v. Reese, supra, the court held:

            "* * * an executory contract of sale in this state conveys no title or interest, either legal or equitable, to the vendee * * *."

            The contract conveying no title or interest to the vendee, all title and interest in the property must remain in the vendor.  There have been many cases which hold with the Ashford doctrine in respect to forfeitable contracts.  Surry v.  [[Orig. Op. Page 4]] Baker, 132 Wash. 188, 231 Pac. 791;In re Kuhn's Estate, 132 Wash. 678, 233 Pac. 293;Brown v. Northwestern Mutual Fire Assn., 176 Wash. 693, 30 P. (2d) 640;First National Bank v. Mapson, 181 Wash. 196, 42 P. (2d) 782;Hubbard v. Grandquist, 191 Wash. 442, 71 P. (2d) 410.  However, there have been other decisions subsequent to Ashford v. Reese, supra, which indicate that the rule in that case, "insofar as it rejected the doctrine of equitable ownership, is no longer the law in Washington."  See 22 Wash. L.R. 110 [[22 Wash. L. Rev. 110]]for a collection of such decisions which indicate that our court now recognizes that the vendee has some equitable rightsin the land which is the subject of the contract.  Aylward v. Lally, 147 Wash. 29, 264 Pac. 983; Vandin v. McCleary Timber Co., 157 Wash. 635, 289 Pac. 1016;Griffith v. Whitter, 37 Wn. (2d) 351, 223 P. (2d) 1062.  The fact to be noted is that the courts recognize that an executory forfeitable contract for the sale of land confers on the vendee certain rights in the land, but that such contract does not deprive the vendor of all his interest in the land.  Consequently when the vendor's assignment is accompanied by a conveyance of his remaining title, an interest in realty is passed.  Assuming valid consideration for the transfer, such transfer is subject to the Real Estate Sales Tax.

            We realize such a conclusion may lead to a double tax in a given circumstance:  The vendor pays the tax at the time he contracts to sell the land and again when he assigns such contract.  Whether or not the legislature had this result in mind is open to question, but our interpretation of the statute requires this conclusion:  That the assignment of the vendor's interest is a taxable transfer.  A prospective correction has since been enacted by the legislature.

            This conclusion raises another problem.  The assignee of the vendor in a contract for the sale of realty generally acquires two things, namely:  The right to receive future payments under the contract and the title which the vendor retained.  The assignee's primary interest lies in the right to receive the future payments; he acquires the title merely as security for the payment of the purchase price.  The tax herein being one on the transfers of realty or on interest therein the question arises as to whether the tax should be levied on the total consideration given by the assignee, or whether it should be levied against only that part of the consideration given for the transfer of title‑- the interest in land.  As aforesaid, the tax being only on transfers of realty it does seem equitable that the tax should be levied only on the latter amount, if determinable.  However, the legislature not having provided a method by which to prorate the tax to be imposed in such a situation, the tax is to be measured by theentire amount of the transaction.

            4. Chapter 11, Laws of 1951, First Ex. Sess., has been amended in part by chapter 19, Laws of 1951, Second Ex. Sess.  The term "sale" was amended so as to exclude therefrom

             [[Orig. Op. Page 5]]

            "* * * the assignment * * * of a vendor's interest in a contract for the sale of real property, even though accompanied by a conveyance of the vendor's interest in the real property involved (but in any case where such contract is forfeited, foreclosed, or otherwise not performed, and the assignee thereby obtains the interest of the purchaser therein, a sale of real property shall then be deemed to have occurred) * * *."

            The effective date of this amendment is September 6, 1951; consequently, an assignment by a vendor on or after September 6, 1951, of his interest in an executory forfeitable contract for the sale of realty accompanied by a conveyance of the vendor's legal title is not subject to the Real Estate Sales Tax.  However, as stated by the statute, if the contract between the vendor and vendee is not performed and the assignee thereby obtains the interest of the purchaser therein, a sale of real property shall at that time (upon the fulfillment of these two conditions) be deemed to have occurred, and the same would then be subject to the tax.

            As to such assignments on or after the effective date of the county ordinance imposing the Real Estate Sales Tax but before September 6, 1951 (considered in section 3 above) it is our opinion that these are not affected by the amendment.  An amendment may either change the law or interpret it; however, a presumption exists in favor of the former.  1 Sutherland, Statutory Construction (3d Ed.) section 1930.  We are able to see nothing which would overcome the presumption that the legislature intended by its amendment to change the then-existing provision.

            Nor is the amendment retroactive.  It is presumed that provisions added by an amendment affecting substantive rights are intended to operate prospectively; they will not be construed to apply retroactively unless the legislature has so expressed its intent.  1 Sutherland, Statutory Construction (3d Ed.), section 1936.  There being no legislative indication in the amendment that it is to apply retroactively nor circumstances surrounding the amendment requiring such application, it is our opinion that it does not.

Very truly yours,

SMITH TROY
Attorney General

WILLIAM G. JENKINS
Assistant Attorney General