TAXATION - REAL ESTATE EXCISE TAX - TRANSFER OF REAL PROPERTY TO A CORPORATION BY A SOLE STOCKHOLDER IN EXCHANGE FOR COMMON STOCK AS CONSTITUTING A SALE; THE RIGHT OF COUNTY COMMISSIONERS TO WAIVE...

TAXATION - REAL ESTATE EXCISE TAX - TRANSFER OF REAL PROPERTY TO A CORPORATION BY A SOLE STOCKHOLDER IN EXCHANGE FOR COMMON STOCK AS CONSTITUTING A SALE; THE RIGHT OF COUNTY COMMISSIONERS TO WAIVE PAYMENT OF TAX IN THE TRANSACTION.

(1) The transfer of real property to a corporation by the sole stockholder, the consideration being the issuance of common stock to said stockholder, constitutes a sale under chapter 28.45 RCW, the real estate excise tax statute.  (2) The board of county commissioners is not legally authorized to waive payment of the tax in the described transaction.

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                                                                February 10, 1960

Honorable Herbert E. Wieland
Prosecuting Attorney
Pacific County
431 Second
Raymond, Washington                                                                                  Cite as:  AGO 59-60 No. 100

Dear Sir:

            By letter previously acknowledged, you requested the opinion of this office on two questions which we paraphrase as follows:

            (1) Does the transfer of real property to a corporation by the sole stockholder, the consideration for such transfer being the issuance of common stock from the corporation to said stockholder, constitute a sale under the provisions of chapter 28.45 RCW (excise tax on real estate sales)?

            (2) Does RCW 28.45.035 or any other provision of chapter 28.45 RCW authorize the board of county commissioners to waive payment of this tax in the transaction described in question (1) above?

            We answer the first question in the affirmative and the second in the negative.

             [[Orig. Op. Page 2]]

                                                                     ANALYSIS

            (1) The real estate excise tax is imposed by counties pursuant to the provisions of chapter 28.45 RCW (chapter 11, Laws of 1951, 1st Ex. Sess., as amended).  The term "sale" is defined by RCW 28.45.010 as follows:

            "As used in this chapter, the term 'sale' shall have its ordinary meaning and shall include any . . . transfer of the ownership of or title to real property, . . . for avaluable consideration, . . ." (Emphasis supplied)

            Thus, taxability is conditioned upon: (1) Transfer of an interest in land, and (2) valuable consideration.  The fact of transfer in the present instance is obvious, a corporation being an entity entirely separate and distinct from the person or persons owning its stock.  (See Title 23 of RCW, andState v. Northwest Magnesite Co., 28 Wn. (2d) 1, 182 P. (2d) 643 (1947).  Subsequent to the transfer, the corporation is the owner of the real property which before the transaction was owned by the sole stockholder.

            Consideration is also present and binding in the situation you describe.  An interest in real property has been exchanged for common stock in the corporation.  The shareholder receives certain rights relative to sharing in the control, operation and profits of the corporate entity in exchange for the ownership of the particular real property in question.  Each party has exchanged one set of rights for another and such an exchange is the very essence of consideration.  See Restatement, Contracts, § 75 (1930).  Accordingly, both conditions essential to taxability are met.

            (2) RCW 28.45.010,supra, sets out what is meant by the phrase "real estate transaction."  In addition, RCW 28.45.060 provides that:

            "The real estate sales tax provided for herein shall be levied upon each sale of real property located within the county."  (Emphasis supplied)

            Thus, the statute requires that the tax be applicable to every sale as authorized and described therein.  RCW 28.45.035, which was added by § 3, chapter 19, Laws of 1951, Second Ex. Sess., and subsequently amended by § 1, chapter 208, Laws of 1959, relates to the determination of the selling price in certain cases.  That section reads in part as follows:

             [[Orig. Op. Page 3]]

            "The board of county commissioners shall provide by ordinance for the determination of the selling price in the case of leases with option to purchase, and shall further providethat the tax shall not be payable, where inequity will otherwise result, until and unless the option is exercised and accepted. . . ."  (Emphasis supplied)

            This section, by its clear and unambiguous terms, is limited in application to those situations expressly stated.  Nonpayment of the tax is confined to cases involving leases with option to purchase where the option has not been exercised and inequity will otherwise result.  Clearly, this section has no application to the transaction with which we are concerned.  Although a county is not required to enact an ordinance levying a real estate sales tax, once such tax is levied, the county commissioners have no discretionary authority as to its application.  Neither chapter 28.45 RCW nor any other statute authorizes a waiver of this tax by the county commissioners in the transaction described.

            We trust the foregoing will be of assistance to you.

Very truly yours,

JOHN J. O'CONNELL
Attorney General

JOHN W. RILEY
Deputy Assistant
Attorney General