REAL ESTATE SALES TAX -- EXCLUSIONS FROM SALES -- MORTGAGES -- CONTRACTS OF SALE -- ASSUMPTION OF BALANCE -- MEASURE OF TAX WHEN CONSIDERATION PASSES

REAL ESTATE SALES TAX -- EXCLUSIONS FROM SALES -- MORTGAGES -- CONTRACTS OF SALE -- ASSUMPTION OF BALANCE -- MEASURE OF TAX WHEN CONSIDERATION PASSES

Chapter 132, Laws of 1955, amending RCW 28.45.010, excludes from the term "sale" those transactions where the "deed in lieu of foreclosure of a mortgage" and the assumption by the grantee of the balance owing on an obligation which is secured by a mortgage is to a third person rather than the original parties.When consideration has been passed, the tax applies to the selling price which includes the other consideration and the balance owing on the obligation secured by a mortgage on the balance owing on the contract of sale.

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                                                              September 29, 1955

Honorable John J. O'Connell
Prosecuting Attorney
Pierce County Courthouse
Tacoma, Washington                                                                                                              Cite as:  AGO 55-57 No. 141

Attention:  Mr. Thomas R. Garlington, Deputy

Dear Sir:

            You have requested our opinion on questions pertaining to the application of the real estate excise tax under chapter 132, Laws of 1955, amending RCW 28.45.010.  Your questions may be paraphrased as follows:

            1. Does the exclusion from the term "sale" in the amendment apply to those transactions where the deed in lieu of foreclosure of a mortgage is to a third person rather than the original grantor or mortgagee?

            2. Does the exclusion from the term "sale" in the amendment apply to those transactions where the assumption of the balance owing on an obligation which  [[Orig. Op. Page 2]] is secured by a mortgage is by a third person rather than a transfer back to the original seller or mortgagee.

            3. Assuming that a deed in lieu of the foreclosure of a mortgage or the assumption by a grantee of the balance owing on an obligation which is secured by a mortgage or deed in lieu of forfeiture of the vendee's interest in a contract of sale are excluded from the term "sale" only where no other consideration passes, what is the proper measure of the tax where other consideration does in fact pass?

            Our conclusions are as follows:

            1. Yes.

            2. Yes.

            3. The proper measure of tax when other consideration does in fact pass is the "selling price" as defined by RCW 28.45.030, and the tax would apply to both the other consideration and the balance owing at the time of the sale.

                                                                     ANALYSIS

            Chapter 132, Laws of 1955, amending RCW 28.45.010 provides:

            "The term [sale] shall not include * * *, or deed in lieu of foreclosure of a mortgage or the assumption by grantee of the balance owing on an obligation which is secured by a mortgage or deed in lieu of forfeiture of the vendee's interest in a contract of sale where no consideration passes otherwise * * *"

            The provision, "or deed in lieu of foreclosure of a mortgage", ordinarily would apply to a transaction where the original two parties, the mortgagor and the mortgagee, agree that the mortgagor deed the property back to the mortgagee "in lieu of" or to avoid a foreclosure of the mortgage, but it would appear from the amendment that the same exclusion would apply when the transfer was to a third party for the same purpose. The exclusion is not restricted to the original parties but applies as well to a third party grantee when the purpose of the transfer is to avoid a foreclosure of the mortgagor's interest.

             [[Orig. Op. Page 3]]

            The provision, "the assumption by a grantee of the balance owing on an obligation which is secured by a mortgage", appears to us to contemplate that a third party is involved. The deed in the transaction would appear to go from the mortgagor and holder of the title to the property, to a third person, who assumes the balance owing on the obligation of the mortgagor. Therefore, it is our opinion that the exclusion would equally apply to those transactions where a third party assumes the balance owing on an obligation.

            The second portion of your question deals with the effect of the provisions of the 1955 amendment relating to a deed in lieu of foreclosure of a mortgage or the assumption of a balance owing on an obligation secured by a mortgage, or deed in lieu of forfeiture of a real estate contract, where consideration does in fact pass, other than the balance of the debt or obligation under the mortgage or contract of sale. The amendment seems clear in this regard wherein it states "where no consideration passes otherwise."  This clause appears to be an express limitation on the exclusions hereinbefore discussed. Therefore it is our opinion that where other consideration does in fact pass, with the exclusion applying only to the situation "where no consideration passes otherwise," then both the other consideration and the balance owing are taxable.

            Furthermore, RCW 28.45.030 defines "selling price" as follows:

            "As used in this chapter, the term 'selling price' means the consideration, including money or anything of value, paid or delivered or contracted to be paid or delivered in return for the transfer of the real property or estate or interest in real property, and shall include the amount of any lien, mortgage, contract indebtedness, or incumbrance, either given to secure the purchase price, or any part thereof, or remaining unpaid on such property at the time of sale."

            For discussion in this regard we call attention to AGO 55-57 No. 95 [[to Don J. Clark, Prosecuting Attorney, Yakima County on June 8, 1955]]. For discussion in this regard we call attention to AGO 55-57 No. 95.

            The proper measure of tax is provided in RCW 28.45.050 as follows:

            " The county commissioners of any county are authorized by ordinance to levy an excise tax  [[Orig. Op. Page 4]] upon sales of real estate not exceeding one percent of the selling price. * * *."

Very truly yours,

DON EASTVOLD
Attorney General

W. DELMORE McDOWELL
Assistant Attorney General