TAXATION - REAL ESTATE EXCISE TAX - APPLICABILITY TO SALE OF TIMBER BY INDIANS

TAXATION - REAL ESTATE EXCISE TAX - APPLICABILITY TO SALE OF TIMBER BY INDIANS.

The real estate excise tax does not apply to sales of timber made by Indians holding trust allotments where after the execution of the contracts the Indians have received fee patents to their lands.

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                                                                    July 27, 1960

Honorable James J. Solan
Prosecuting Attorney
Grays Harbor County
322 West Heron Street
Aberdeen, Washington                                                                                             Cite as:  AGO 59-60 No. 131

Dear Sir:

            You have requested an opinion of this office on the application of the real estate excise tax to the sale of timber on Indian land.

            It appears that in 1952 the Superintendent, Western Washington Indian Agency, on behalf of the Indian owners, entered into a contract with a purchaser for the sale of merchantable timber located on the Quinault Indian Reservation.  Pursuant to the terms of this contract, individual contracts were executed by the purchaser and the Superintendent on behalf of individual Indians holding trust allotments under 25 U.S.C.A. 331 et seq., who wished to sell the timber on their allotment under the terms of the first contract.  Each Indian executed a power of attorney authorizing the Superintendent to enter into the latter contracts.  The entire contracts provide,inter alia, that all timber shall be cut and removed by the purchaser on or before 1986, and that title to the timber will not pass to the purchaser until it has been severed, removed for scaling and payment made.

            Since the execution of the timber contracts the Indians have received fee patents to their lands.

            We conclude that these transactions are not subject to the real estate excise tax.

             [[Orig. Op. Page 2]]

                                                                     ANALYSIS

            At the time the contracts were entered into the title to the lands and timber was held by the United States in trust for the individual Indians.  25 U.S.C.A. 348.  In effect, the contracts were made by the United States and exempt from the tax.  RCW 28.45.010.  This is in accord with a previous opinion of this office, AGO 53-55 No. 341 [[to Prosecuting Attorney, Snohomish County on November 9, 1954]], in which we said:  previous opinion of this office, AGO 53-55 No. 341, in which we said:

            ". . . It is necessary then to actually trace the title on each piece of property so sold to determine whether (1) it is unallotted land belonging to the United States as fee owner of Indian lands, or (2) land held in trust by the United States for individual Indians, or (3) land upon which patents have been issued to the individual Indian.  In the latter case the Indian is the fee owner with restrictions in the deed on alienation to persons other than Indians without approval of the Department of Interior.  Such restrictions are for the protection of the Indian against possible improvident business dealings and does not change the character of the sale.  Therefore, only in the latter instance could a real estate excise tax be levied on the sale."

            Category (3) refers to lands for which the Indian has received a fee patent by virtue of 25 U.S.C.A. 349 or a patent under a particular federal statute which grants him the fee restricting only the right of alienation.  Exemption from taxation is not to be implied merely because of such restrictions.  Shaw v. Gibson-Zahniser Oil Corp., 276 U.S. 575, 72 L.Ed. 709, 48 S.Ct. 333.

            The facts disclose that the transactions here involved would fall within the second category in the above quote.  Assuming these transfers to be otherwise taxable, our conclusion is not altered by the fact that the contracts may be executory and that the individual Indians have now received fee patents without restrictions.  RCW 28.45.010 provides:

            "As used in this chapter, the term 'sale' shall have its ordinary meaning and shall include any conveyance, grant, assignment, quitclaim, or transfer of the ownership of or title to real property, including standing timber, or any estate or interest therein for a valuable consideration, and any contract for such conveyance, grant, assignment, quitclaim, or transfer, and any lease with an option to purchase real property, including standing timber, or any estate or interest therein or other contract under which possession of the property is given to  [[Orig. Op. Page 3]] the purchaser, or any other person by his direction, which title is retained by the vendor as security for the payment of the purchase price."

            Under this statute, for tax purposes, the "sale" took place when the contracts were entered into and at a time when the transfers were exempt.  Such a sale is not dependent upon the passage of title.

            According to your letter it has been contended that the tax is inapplicable because the contracts provide for the passage of title to the timber after severance which makes them contracts for the sale of personal property.  However, the contracts expressly provide that the seller agrees to sell and the purchaser agrees to buy "all merchantable dead timber, standing or fallen, and all the merchantable live timber, marked or otherwise designated."  It is our opinion that these are contracts for the conveyance of an estate or interest in standing timber under RCW 28.45.010.

            Furthermore, the actual nature of the property, whether real or personal, as of the time of passage of title is of no importance; for if there is an estate or interest in standing timber which is transferred, there is a "sale" by virtue of the statute; and although title does not pass until the timber is felled and paid for and thus becomes personal property, the purchasers still obtained an estate or interest in standing timber at the time when the contracts were executed.  This is the time which is determinative under the statute.

            We trust the foregoing will be of assistance.

Very truly yours,

JOHN J. O'CONNELL
Attorney General

HENRY W. WAGER
Assistant Attorney General