TAXATION ‑- REAL ESTATE SALES TAX ‑- "SELLING PRICE" FOR TRANSFER OF PROPERTY IN LIEU OF CONDEMNATION PROCEEDINGS.
Where the United States Government purchases from a private owner a portion of his tract of real property in lieu of appropriating the portion in condemnation proceedings, and pays to the owner a certain amount therefor arrived at by adding an amount determined as the value of the land taken and another amount as the "severance damage" to the remainder of the tract not purchased, severance damage should be included in the measure of real estate sales tax.
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March 6, 1952
Honorable Roger L. Olson
Franklin County Prosecuting Attorney
Pasco, Washington Cite as: AGO 51-53 No. 249
You have requested our opinion upon a problem concerning the real estate sales tax, which may be paraphrased as follows:
Where the United States Government purchases from a private owner a portion of his tract of real property in lieu of appropriating the portion in condemnation proceedings, and pays to the owner a certain amount therefor arrived at by adding an amount determined as the value of the land taken and another amount as the "severance damage" to the remainder of the tract not purchased, is such "severance damage" subject to inclusion in the measure of the real estate sales tax?
It is our conclusion that the amount paid as "severance damage" under the above circumstances is a part of the selling price which is subject to the real estate sales tax.
[[Orig. Op. Page 2]]
The factual situation giving rise to your problem may best be set forth by quoting from your letter:
"The problem is as follows: A good deal of land in Franklin County lying along the Columbia River is being purchased by the U.S. Government. The Government is purchasing this land so as to build a dyke to contain the waters which will be backed up behind McNary Dam. The Government, when they appraise the land, contemplate and pay what is known as 'severance damage' in addition to a price paid for the land to which they take title. The Government, of course, has included this 'severance damage' with the purchase price when paying the Seller. The question is whether the 'severance damage' portion of the payment should be included for the purpose of the federal excise tax.
"The particular case that is presently before us, which is only a forerunner of many more, is as follows: A certain party owned a home and several acres of land along the Columbia River. The Government has purchased .04 of an acre lying adjacent to the river. On this land, which the Government has purchased, they contemplate erecting a 30 foot dyke, which dyke will rise about the house retained by the grantor and will be within a few yards of the house. The dyke will completely obstruct the grantor's view of the river and will completely cut him off from access to it. The Government has notified this individual that they will give him $150.00 for the land and $10,850.00 by way of 'severance damages.'
"Thus far the Government has been including the total price paid on their deeds. However, they have indicated they would change and list separately the 'severance damages' if 'severance damages' do not constitute an interest in the realty within the meaning of the law."
[[Orig. Op. Page 3]]
While the transfer of an interest in real property by condemnation proceedings is expressly exempted from the real estate sales tax by RCW 28.45.010 (section 1, chapter 19, Laws of 1951, 2d Ex. Sess.), we have held that sales of real property by a private person to the United States or to the state, or a political subdivision thereof, under the pressure of condemnation proceedings as the alternative is subject to the real estate sales tax. See our opinion of May 29, 1951, to the Honorable Ole H. Olson, State Representative for the 16th District. Inasmuch as the legislature has met since that date, and at that time expressly exempted transfers by condemnation but made no mention of negotiated transfers in anticipation of condemnation, we must conclude that the legislature did not intend that such latter transfers be exempt.
The gross damages awarded in condemnation proceedings is determined by adding a sum established as the fair market value of the piece taken to an amount established as the damage to the portion of the tract which is not taken. Seattle & Montana Railroad Co. v. Roeder, 30 Wash. 244, 255, 70 Pac. 498; Sultan Water and Power Co. v. Weyerhaeuser Timber Co., 31 Wash. 558, 72 Pac. 114;Yakima County v. Olson, 94 Wash. 579, 581, 162 Pac. 987. From this it is arguable that the "selling price" of the real property transferred should be restricted to the amount established as the fair market value of the piece actually taken, and that the portion established as severance damage should not be included.
The measure of the real estate sales tax is the "selling price," defined as meaning:
"* * * the consideration, in money or anything of value , paid or delivered or contracted to be paid or delivered in return for the transfer of the real property or estate or interest therein * * *."
We have taken this definition from the model ordinance in effect in most counties, which follows that provided at RCW 28.45.030 (section 8, chapter 11, Laws of 1951, 1st Ex. Sess., as amended by section 2, chapter 19, Laws of 1951, 2d Ex. Sess.). Applying that definition to the problem before us, it is our opinion that the selling price is comprised of the entire amount paid as a result of the negotiation because that entire amount is paid "in return for the transfer of the real property." We believe that the segregation does not indicate that a certain amount is given for the piece of property transferred and that another amount [[Orig. Op. Page 4]] is given for the taking of an interest in the remainder, but rather that the piece taken has a certain value to the owner both in itself and as a part of the whole. Proof of this is that the piece would not be transferred without payment of the whole amount.
Very truly yours,
C. JOHN NEWLANDS
Assistant Attorney General