TAXATION ‑- REAL ESTATE SALES TAX ‑- TRANSFER OF REAL PROPERTY INTEREST OF CORPORATION TO SHAREHOLDERS IN VOLUNTARY DISSOLUTION PROCEEDINGS

TAXATION ‑- REAL ESTATE SALES TAX ‑- TRANSFER OF REAL PROPERTY INTEREST OF CORPORATION TO SHAREHOLDERS IN VOLUNTARY DISSOLUTION PROCEEDINGS

A transfer of real property or an interest therein, by a corporation to its shareholders as surplus assets in voluntary dissolution proceedings is not subject to the Real Estate Sales Tax.

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

                                                                 August 10, 1951

Honorable Charles O. Carroll
Prosecuting Attorney, King County
County-City Building
Seattle 4, Washington                                                                                                              Cite as:  AGO 51-53 No. 101

Attention:  !ttK. G. Smiles
            Chief Civil Deputy

Dear Sir:

            We have your request for our opinion on the following question:

            Where a Washington corporation is being dissolved under voluntary proceedings, and there exist as surplus assets of the corporation after payment of all debts and liabilities thereof numerous contracts for the sale of real property, and these contracts are assigned to the shareholders by the trustee, are such assignments subject to the Real Estate Sales Tax?

            Our conclusion may be summarized as follows:

            A transfer of real property, or an interest therein, by a corporation to its shareholders as surplus assets in voluntary dissolution proceedings is not subject to the Real Estate Sales Tax.

                                                                     ANALYSIS

            You state the facts as follows:

             [[Orig. Op. Page 2]]

            "The situation is as follows.  A Washington corporation is being dissolved and a trustee for the corporation is being appointed for liquidation of the corporation under the statutes of the State of Washington as a voluntary proceeding.  The assets of the corporation consist of real estate contracts for the sale of homes, approximately 40 in number.  These assets will be distributed in kind to the stockholders.  There are mortgages on each of the houses and the net value of the contracts represents slightly over $1,000.00 each.  The mortgages each average about $4,400.00.

            "It is proposed to have the trustee for dissolution execute seller's assignments of the contracts to the stockholders as a distribution in kind of the assets of the corporation.  The stockholders in return for the assignments of the contracts will surrender their stock to the corporation.  In other words, it would seem that the trustee is assigning the real estate contracts now in the name of the corporation to the individual stockholders in return for the stockholders' surrender of the stock to the corporation."

            Under our understanding of the facts, the trustee has proceeded under section 52, chapter 185, Laws of 1933 (Rem. Rev. Stat. Supp. 3803-52) in winding up the corporate affairs after a resolution calling for voluntary dissolution out of court.  We assume that all debts and liabilities of the corporation have been paid and that the vendor's interest in the real estate contracts remain as surplus assets of the corporation.  Under subsection 2 of the above statute, the trustee is then directed as follows:

            "Any surplus remaining after paying off all debts and liabilities of the corporation shall be paid by the trustee or trustees to the shareholders according to their respective rights and preferences."

            Such has long been the law in this state: Upon dissolution of a corporation, its property rights pass to its stockholders, subject to corporation liabilities.  Taylor v. Interstate Investment Co. (1913) 75 Wash. 490, 496, 135 Pac. 240, is  [[Orig. Op. Page 3]] the leading case on the point.  See also, Cohen v. L. & G. Investment Co. (1936) 186 Wash. 308, 310, 57 P. (2d) 1042;Schroeder v. Meridian Improvement Club (1950) 36 Wn. (2d) 925, 930, 221 P. (2d) 544.

            The Real Estate Sales Tax is imposed by ordinance of the various counties, pursuant to authority of chapter 11, Laws of 1951, Ex. Sess., upon each "sale" of real property in the county.  The term sale is defined to include any

            "* * * transfer of ownership of or title to real property or any estate or interest in real property for a valuable consideration * * *."

            We need not here decide if the assignment of a vendor's interest in a contract to convey real property is such a transfer as to amount to a "transfer of ownership of or title to real property."  We will assume,arguendo, that it is.

            We believe there is no "sale" because there is no valuable consideration for such a transfer.  The shareholder gives nothing in exchange for the distribution of surplus assets in dissolution proceedings where such distribution is in proportion to the respective rights and preferences of the shareholders at the time of dissolution.  The transfer is a matter of law.  Nothing of value is given to the corporation.  The shareholder is distributed assets which are already his, and he gives nothing to the dissolved corporation.  If the assets were not so transferred he could sue for his rightful share.  We acknowledge the difference where a corporation exchanges its capital stock for real property, or where it purchases its own shares, as treasury stock, giving in exchange to the shareholder title to real property owned by the corporation.  The latter situations amount to a "sale" of real property within the definition in the ordinance because there is a transfer in exchange for the stock.

            We are of the opinion that a transfer of real property by a corporation to its shareholders as surplus assets in voluntary dissolution proceedings is not subject to the Real Estate Sales Tax.

Very truly yours,

SMITH TROY
Attorney General

C. JOHN NEWLANDS
Assistant Attorney General