REAL ESTATE SALES TAX ‑- BANKRUPTCY ‑- TRUSTEES IN BANKRUPTCY

REAL ESTATE SALES TAX ‑- BANKRUPTCY ‑- TRUSTEES IN BANKRUPTCY

A conveyance of real property by a trustee in bankruptcy is taxable under the real estate sales tax statutes when made by a trustee conducting the business of the bankrupt.  However, such a conveyance is not taxable when made by a trustee authorized only to liquidate the bankrupt's estate, in which case the lien provided by RCW 28.45.070 does not attach.

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                                                                 August 28, 1953

Honorable Don G. Abel
Prosecuting Attorney
Grays Harbor County
Aberdeen, Washington                                                                                                              Cite as:  AGO 53-55 No. 124

Dear Sir:

            You have requested our opinion whether a conveyance by deed of the fee title to real estate in Grays Harbor County by a trustee in bankruptcy is subject to the real estate sales tax, and if not taxable, whether a lien attaches against the property in the amount that would have been payable but for the status of the grantor.

            We conclude that such a conveyance is taxable when made by a trustee conducting the business of the bankrupt.  However, such a conveyance is not taxable when made by a trustee authorized only to liquidate the bankrupt's estate, in which case the lien provided by RCW 28.45.070 does not attach.

                                                                     ANALYSIS

            The real estate sales tax expressly applies to sales of real estate by trustees in bankruptcy, RCW 28.45.020, and in such cases payment of the tax is the obligation of the trustee, RCW 28.45.080.  Consequently, a sale of real estate by such a trustee is clearly taxable unless constitutional considerations and federal law prohibit imposition of the tax.

             [[Orig. Op. Page 2]]

            We do not doubt that a trustee in bankruptcy is a federal instrumentality and as such is immune from state taxation.  SeeIn re Leary, 85 F. (2d) 25 at 27 (2nd C.C.A.) (1936).  However, Congress has consented to taxation of certain trustees in bankruptcy.  28U.S.C.A. § 960 (formerly § 124a) states:

            "Any officers and agents conducting any business under authority of a United States court shall be subject to all Federal, State and local taxes applicable to such business to the same extent as if it were conducted by an individual or corporation."

            Pursuant to this statute, trustees in bankruptcy authorized to conduct the bankrupt's business clearly may be subjected to state taxation.  However, a sharp conflict in the federal cases has arisen over applicability of this statute to trustees authorized only to liquidate the bankrupt's estate.  See 27 A.L.R. (2d) 1219.

            In three cases it has been decided that a trustee in bankruptcy authorized only to liquidate the bankrupt's estate is subject to direct state taxes of one kind or another.  In re Mid America Co., 31 F. Supp. 601 (D.C., Ill.) (1939); Missouri v. Glieck, 135 F. (2d) 135 (8th C.C.A.) (1943);In re Loehr, 98 F. Supp. 402 (D.C., Wis.) (1950).

            However, several federal cases in the ninth federal circuit involving the California retail sales tax have reached a contrary result.  It was stated in bothIn re California Pea Products, 37 F. Supp. 658 (D.C., Cal.) (1941), andIn re Davis Standard Bread Co., 46 F. Supp. 841 (D.C., Cal.) (1941), affirmedState Board v. Boteler, 131 F. (2d) 386 (9th C.C.A.) (1942), that 28U.S.C.A. § 124a (now § 960) is inapplicable to sales made in liquidation of a bankrupt's estate by a trustee in bankruptcy.  The court inIn re West Coast Cabinet Works, 92 F. Supp. 636 (D.C., Cal.) (1950) at p. 643, stated:

            "It is our view that after adjudication, when such conduct of the business has been authorized by the court, a subsequent order to sell in liquidation marks the termination of such authority, as well as the termination of the business, and is the line of cleavage between conducting the business and liquidating it.  A trustee cannot then be considered as 'conducting the business of the bankrupt' within the meaning of Section 2 (5) of the Bankruptcy Act, 11 U.S.C.A. § 11 (5), nor as 'conducting any business' within the meaning of Section 124a of Title 28 U.S.C.A., * * *."

             [[Orig. Op. Page 3]]

            TheMid America and Glieck cases,supra, were discussed, but the court expressly declined to follow them.  The West Coast case was affirmed in California etc. v. Goggin, 191 F. (2d) 726 (9th C.C.A.) (1951).

            We agree with the interpretation that

            "conducting any business"

            does not include liquidating the bankrupt's business.  California etc. v. Goggin, supra, at p. 728.  Under this interpretation, Congress has not consented to state taxation of trustees in bankruptcy when liquidating the bankrupt's estate.  Where there has been no consent there is complete immunity.

            Since no taxable event transpires upon a conveyance of real estate by a liquidating trustee, no tax is payable, and consequently no lien comes into existence.  This situation is not analogous to a transfer of taxable property after assessment day to the United States, in which case the property tax lien subsists although the tax may not be collected from the exempt transferee.  See our opinion to the Yakima Prosecuting Attorney, September 12, 1952 [[Opinion No. 51-53-404]].

            We caution that the incidence of Washington's real estate sales tax is wholly different from that of its retail sales tax.  While the latter is imposed directly upon the purchaser, the real estate sales tax is imposed directly upon the seller himself.  (The California retail sales tax is imposed upon the seller and in that respect resembles the Washington real estate sales tax.)  This difference in tax incidence makes this opinion inapplicable to the Washington retail sales tax.

Very truly yours,

DON EASTVOLD
Attorney General

KEITH GRIM
Assistant Attorney General