MORTGAGES ‑- REAL ESTATE SALES TAX.
The real estate sales tax is measured by the full amount of the contract price for land without deduction for the mortgage debt, even though the buyer is already personally liable on such debt.
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March 5, 1952
Honorable Maloy Sensney
Benton County Prosecuting Attorney
Prosser, Washington Cite as: AGO 51-53 No. 251
Attention: Mr. Herbert H. Davis, Deputy
You request our opinion relative to:
The measure of real estate sales tax applicable to a contract to sell real property to persons who had conveyed their interests to the seller but who were still personally liable on the mortgage debt.
The tax is measured by the full contract price without deduction for the amount of the mortgage.
We first state, as a general proposition, that under Washington law:
"* * * a mortgage is only a lien upon the property to secure payment of a mortgage debt * * *."
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Fleishbein v. Thorne, 193 Wash. 65, at 71-72, 74 P. (2d) 880 (1937). It does not create an interest or estate in land, Walsh on Mortgages, (1934) 19, et seq.; Swanson v. United States, 156 F. (2d) 442 (Wash. 9-Cir. 1946), A.L.R. 258, cert. den. 329 U.S. 800. Parks v. Yakima Valley Production Credit Assn., 194 Wash. 380, at 386, 78 P. (2d) 162 (1938).
The following facts appear. "A," "B" and "C" purchased Blackacre for $90,000. There was either a purchase money mortgage of $40,000 incurred, or the property was at that time mortgaged for that amount and the purchasers assumed the entire obligation, as you indicate that "A," "B" and "C" were personally liable.
Thereafter "B" and "C," prior to imposition of the real estate sales tax, quitclaimed their interest to "A." "B" and "C" then no longer had any interest or "estate" in Blackacre even though they stillpersonally remained contingently liable unless the mortgagee validly released them, which you indicate did not occur. (Note that as between the three, "A" became primarily liable.)
After the enactment of the real estate sales tax, (see RCW 28.45.010) "A" sold Blackacre to "B" and "C" for the sum of $87,000. "A" had, and sold, the entire fee, subject, of course, to the mortgage lien. The same property interest passed to "B" and "C" as would have passed had the purchasers been "X" and "Y" or others.
The amount of tax on the sale to "X" and "Y" would have been the full consideration, and the same is true of the sale to "B" and "C"‑-their contingent personal liability has no effect since it vests them with no property interest in Blackacre. (Note that this second transfer makes "B" and "C" primarily rather than secondarily liable, but only as between themselves and "A.")
Further, RCW 28.45.030 defines the taxable "selling price" upon which the tax is based as including
"* * * the amount of any lien, mortgage, contract indebtedness, or other incumbrance, either given to secure the purchase price, * * * remaining unpaid on such property at the time of sale."
Thus if the whole of a mortgage could not be deducted, neither could any of its parts.
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We hope that the above may be of assistance and if you have any further questions regarding our analysis and conclusions, please do not hesitate to convey them to us.
Very truly yours,
JENNINGS P. FELIX
Assistant Attorney General