TAXATION ‑- 1 PERCENT REAL ESTATE EXCISE TAX ‑- SALE, CONSIDERATION

TAXATION ‑- 1% REAL ESTATE EXCISE TAX ‑- SALE, CONSIDERATION.

Transfer of lot by owner to contractor, with subsidiary agreement to reconvey after contractor builds home, constitutes two taxable transactions under 1% real estate excise sales tax.

                                                                  - - - - - - - - - - - - -

                                                                    July 23, 1954

Honorable Hugh H. Evans
Prosecuting Attorney
Spokane County
Spokane 1, Washington                                                                                                 Cite as:  AGO 53-55 No. 288

Attention:  !ttMr. Robert J. McNichols,  Civil Deputy Prosecuting Attorney

Dear Sir:

            In your letter requesting our opinion regarding the application of the excise tax on real estate sales, you present the following factual situations:

            "The owner of an unimproved parcel of real property enters into a contract with a builder for the construction of a building upon said tract.  The owner executes a deed to the tract to the building contractor and the contractor then procures a loan secured by a mortgage on the real property for the purpose of financing the construction of the building.  When the building is completed the improved property including the building is conveyed by deed from the contractor back to the original owner for a sum of money equal to the contract price and representing the value of the improvements."

             [[Orig. Op. Page 2]]

            You ask whether or not either of the transfers described above are taxable and if either is, how the tax should be computed.

            We conclude that both transfers are taxable under the 1 per cent excise tax on real estate sales; the tax should be based upon the selling price in each case.

                                                                     ANALYSIS

            The taxability of a real estate transaction under chapter 28.45 RCW depends upon two essentials:  (1) the transfer of an interest in land for (2) a valuable consideration.

            If the deeds from the owner to the contractor and from the contractor back to the owner are absolute in form, there clearly is a transfer of an interest in land in each case.  The consideration for the first transfer is the promise of the contractor to perform certain services as provided in the contract between these parties, and upon completion thereof to reconvey the property to the original owner.  The consideration for the second transfer is specified by the contract to be a certain sum of money ‑ the contract price.

            The "selling price" or basis of tax computation is defined by RCW 28.45.030:

            "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 other incumbrance, either given to secure the purchase price, or any part thereof, or remaining unpaid on such property at the time of sale."

            In the second transaction the selling price is determined by the parties.  In the first transaction since the price is not stated nor readily ascertainable, resort may be had to RCW 28.45.035:

            "The board of county commissioners shall provide by ordinance for the determination of the selling  [[Orig. Op. Page 3]] price in the case of leases with option to purchase, and shall further provide that the tax shall not be payable, where inequity will otherwise result, until and unless the option is exercised and accepted.  The board shall further provide by ordinance for cases where the selling price is not separately stated or is not ascertainable at the time of sale, for the payment of the tax at a time when the selling price is ascertained, in which case suitable security may be required for payment of the tax, and may further provide for the determination of the selling price by an appraisal by the county assessor, based on the full and true market value, which appraisal shall beprima facie evidence of the selling price of the real property."

            to determine the value of this consideration.

Very truly yours,

DON EASTVOLD
Attorney General

HENRY W. WAGER
Assistant Attorney General