REAL ESTATE SALES TAX ‑- CORPORATIONS ‑- EXCHANGE OF LAND FOR CAPITAL STOCK.
The county real estate sales tax applies to the transfer of real property by a corporation to a stockholder in exchange for his stock whether or not the stock is cancelled and capital reduced.
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March 5, 1953
Honorable Charles O. Carroll
King County Prosecuting Attorney
602 County-City Building
Seattle, Washington Cite as: AGO 51-53 No. 490
Attention: !ttMr. K. G. Smiles, Chief Civil Deputy
You request our opinion whether
the tax on real estate sales applies to the transfer of real property by a corporation to a stockholder in exchange for his stock. The corporation then cancels the stock and reduces its capital.
We conclude that the tax applies.
Chapter 28.45 RCW authorizes counties to levy an excise tax upon sales of real estate. The term "sale" is defined by RCW 28.45.010 as having its ordinary meaning and including
"any * * * transfer of the ownership of or title to real property, * * * for a valuable consideration, * * *" (Emphasis supplied)
Taxability is conditioned upon two essentials: (1) Transfer of an interest in land, and (2) valuable consideration. Both elements are here present. The corporation, an entity entirely separate and distinct from its shareholders, (see Title 23 RCW, andState v. Northwest Magnasite Co., 28 Wn. (2d) 1, 41, 182 P. (2d) 643 (1947), and cases cited therein), transfers its land to another.
Consideration is the exchange of promise for promise. SeeRest of Contracts, sec. 75 (1). In an executed transaction, it is the items of value which have been exchanged for each other. In the situation you describe, an interest in real property has been exchanged for capital stock in a corporation. The shareholder receives, in exchange for certain rights relative to sharing in the control, [[Orig. Op. Page 2]] operation, and the profit of the corporate entity, ownership and title to a particular land.
Contractual consideration is present and binding. Each party has exchanged one set of rights for another and such an exchange is the very essence of executed consideration. The concept of consideration does not include "profit" and, of course, need not be in money. The fact that this results in a reduction of capital stock (see RCW 23.08.080) is not material.
We are not unaware of our opinion to yourself of August 10, 1951 [[Opinion No. 51-53-101]]. Not only did that problem involve a different factual situation but on page 3 of that opinion it is stated:
"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 the real property owned by the corporation. The latter situations amount to a 'sale' of real property within the definition of the ordinance because there is a transfer in exchange for the stock."
We therefore advise that the transfer of real property by a corporation to a stockholder in exchange for its own shares is a transfer subject to the tax on real estate sales, whether or not the stock is cancelled and capital reduced.
Very truly yours,
JENNINGS P. FELIX
Assistant Attorney General