COUNTIES ‑- REAL ESTATE SALES TAX ‑- TAXABLE SELLING PRICE ‑- LIFE INSURANCE EXPECTANCY TABLES
The determination of selling price for real estate sales tax purposes, where actual price is not ascertained at time of sale, is a discretionary problem for the county commissioners.
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July 22, 1952
Honorable Hugh H. Evans
Spokane County Prosecuting Attorney
Spokane 11, Washington Cite as: AGO 51-53 No. 357
Attention: Willard J. Sharpe
You have asked our opinion relative to the determination of the sales price for real estate sales tax purposes in the following situations:
(1) "A" sells Blackacre, valued at $2,500, to "B" for a down payment of $250 plus an annual payment of $250, so long as "A" shall live, the maximum payment being limited to $2,500. "A" is 85 years of age.
(2) "X" sells Whiteacre, a farm valued at $100,000, to "Y" for $10,000 in cash, plus one‑third of the annual net proceeds of the crops so long as "X" shall live. "X" is 65 years of age.
We conclude that:
The taxable sales price is a matter of determination by the Board of County Commissioners.
[[Orig. Op. Page 2]]
The county excise tax on the sale of real estate is imposed by ordinance pursuant to chapter 11, Laws of 1951, Ex. Sess., as amended (chapter 28.45 RCW) upon each sale of real property in the county. The uniform proposed county ordinance, as amended, in setting out the "selling price," paraphrases RCW 28.45.030, and states that it shall mean
"* * * the consideration, including money or anything of value, paid or delivered or contracted to be paid or delivered in return for the transfer * * *"
RCW 28.45.035 provides for the determination of the selling price by ordinance of the county commissioners in relation to options to purchase. The uniform proposed ordinance provides for this in its section 6.
That section further provides:
"* * *. 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."
The primary responsibility, therefore, for determining the taxable selling price lies in the sound discretion of the Board of County Commissioners since in both situations, the exact sales price will not be "ascertainable" until the death of the grantor. The county, upon suitable security, may withhold collection of the tax until that time. However, the discretion to act in a particular manner posits the discretion not to so act. Thus the county may properly determine the taxable selling price at the time of sale and collect the tax immediately.
[[Orig. Op. Page 3]]
To examine the problem, we first eliminate the element of gift which is not presented in your inquiry. Most formulae, in these matters, are directed toward the determination of the market value of the land received since in a business transaction a quid pro quo is presumed. Life expectancy tables have been used but because of the necessary methods of computing such tables and the medical fact that life expectancy is increasing, they are not only generally inaccurate but especially so when applied to one who has lived beyond the age allotted: See Vance on Insurance. These tables, as all realize, are only averages, but courts have permitted their use as the best of available methods.
The following possibilities appear:
(1) In situation "(1)", obtain the life expectancy of the grantor through such tables if possible, and multiply that by the annual payments to obtain the selling price. This would appear unsatisfactory because of the age of the grantor and the inherent inapplicability of averages to individuals.
(2) In situation "(2)," determine on the basis of past crop returns the reasonable future expectancy with regard to price, weather and market contingencies and multiply one‑third the net return by the life expectancy of the grantor. However, we would be less than frank if we did not point out that this but compounds speculation upon speculation.
(3) The third, the simplest, and probably the most just solution would be to base the tax on present market value alone. Being a business transaction, it must be presumed each party is receiving theapproximate worth of his consideration. Each party takes a chance on the actual amount to be paid, but the amounts paid, plus or minus the positive or negative worth of the chance, should equal market value.
This is a sufficiently fair, equitable and reasonable determination of taxable amount to be within the area of permissible discretion of the county commissioners. The county, a governmental entity, should be bound by the speculative and chance nature of such a contract. We therefore suggest that market value in these and like cases should measure the tax but point out that other methods are available.
[[Orig. Op. Page 4]]
We further mention that as the element of gift appears, so does the element of gift tax under chapter 83.56 RCW. Therefore the grantor who may contend a portion of the value of such a transfer is a gift will be subject to its provisions and if he did not comply, could hardly claim that it was not purely a business transaction to which the above analysis would be applicable.
Very truly yours,
JENNINGS P. FELIX
Assistant Attorney General