TAXATION ‑- REAL ESTATE SALES TAX ‑- PROPERTY SETTLEMENTS BETWEEN HUSBAND AND WIFE.
Property settlements between husband and wife incident to adjustment of the marital relationship by divorce or separation are not "sales" within the meaning of RCW 28.45.010.
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October 29, 1953
Honorable Ronald R. Hull
Suite 102, County Court House
Yakima, Washington Cite as: AGO 53-55 No. 158
We have your request that we reconsider the opinion of September 5, 1951, addressed to the prosecuting attorney of Franklin county, AGO 51-53 No. 120, [[to Roger L. Olson]], concerning the applicability of the excise tax on real estate sales to property settlements between husband and wife.
We conclude property settlements incident to the adjustment of the marital relationship by divorce or separation do not effectuate taxable transfers and accordingly AGO 51-53 No. 120 is superseded.
The taxability of any transaction involving real property interests pursuant to the authorization of chapter 28.45 RCW depends upon inclusion of the transaction within the definition of "sale" in RCW 28.45.010. In previous opinions attention has been focused upon particular words in the section without reflection upon the meaning to be derived from the definition as a whole.
[[Orig. Op. Page 2]]
Except as mentioned below amendments to the original act are not material to determination of the applicability of the statute to settlements between husband and wife. The original act (§ 7, chapter 11, 1st Ex. Sess. 1951) provided in part:
"* * * the term 'sale' shall have its ordinary meaning and shall include any conveyance, grant, assignment, quit-claim [[quitclaim]], or transfer of the ownership of or title to real property, or any estate or interest in real property for a valuable consideration, and any contract for such conveyance, grant, assignment, quit-claim [[quitclaim]], or transfer, and any lease with an option to purchase real property or any estate or interest in real property * * *"
It is clear that marital property settlements are not within the ordinary meaning of "sale" which is defined as follows:
"Act of selling, a contract whereby the absolute, or general ownership of property is transferred from one person to another for a price, or sum of money, or, loosely, for any consideration * * *" Webster's, New International Dictionary, "Sale."
"A contract between two parties * * * by which the [seller], in consideration of the payment or promise of payment of a certain price in money, transfers to the [buyer] the title and the possession of property. * * *
"A contract whereby property is transferred from one person to another for a consideration of value, implying the passing of the general and absolute title, as distinguished from a special interest falling short of complete ownership. * * *" Black'sLaw Dictionary, 3rd ed. "Sale."
Taxability of these transactions can be found then only if they fall within the additional language of definition quoted above beginning with "and shall include any conveyance * * *." This is, of course, a tax statute and initial [[Orig. Op. Page 3]] problems of the meaning or applicability of such statutes are to be resolved against the taxing authority and in favor of the taxpayer or citizen. Union Trust Co. v. Spokane County, (1927) 145 Wash. 193, 259 Pac. 9;State v. Lawton, (1946) 25 Wn. (2d) 750, 172 P. (2d) 465; 51 Am.Jur. 366 ff., "Taxation" § 316. In addition, the "and shall include" phraseology is language of extension of meaning of the basic term "sale" and as such extension is to be strictly construed. As stated in 50 Am.Jur. 255 "Statutes" § 263; citing State v. Standard Oil Co., (1912) 61 Ore. 438, 123 Pac. 40, Ann. Cas. 1914B 179:
"* * * Moreover, where a clause is employed, as it often is, to make particular words mean something other or more than they would naturally and ordinarily signify, it should be construed strictly. * * *"
With these principles at hand, the determination is not how far the language of definitioncan plausibly reach, but rather whether there is substantial significance in the language which is short of its extreme possible limits. It is our opinion that a substantial extension beyond the ordinary meaning of sale can be found in the additional language of the definition without reaching property settlements between husband and wife which are incident to adjustment of the marital relationship.
There is a recognized distinction between a sale and a barter or exchange transaction. See Black'sLaw Dictionary, 3rd ed. "Sale." The definitions of sale quoted above indicate that its ordinary meaning refers to transfer of total ownership or title. The language of extension of the meaning clearly encompasses exchanges not only of total ownership but also of any lesser interest in real property for a valuable consideration. Further there is a recognized distinction between a sale and an executory contract to sell, but the additional language in the statute encompasses the executory contract both as to total ownership and lesser interests. Compare the additional definition of "sale" in Webster's New International Dictionary:
"* * * a contract for such transfer of ownership in the future or upon the future fulfillment of some condition (this latter being by some differentiated as an agreement to sell)."
[[Orig. Op. Page 4]]
The definition then encompasses present transfers for a price in money, transfers and exchanges of less than total ownership for a price in money or other valuable consideration, exchanges involving total ownership, and executory contracts for a subsequent transfer under any of the mentioned forms of present transfer.
"Sale" in its ordinary meaning connotes a business transaction, and while the extension of the meaning includes different types of transfers and different interests, there is no necessity to conclude that the basic concept of sale as a business transaction be abandoned in identifying the inclusions of the extended definition. The principles of strict construction indicate the propriety of a contrary view that the basic concept not be abandoned.
In addition the paramount interest of the state and the court in the marital relationship and the proper resolution of controversies with reference thereto, including appropriate adjustment of property right between the spouses with regard to each and to the dependent children, all indicate that property settlements between husband and wife, incident to either separation or divorce, should not be held "sales" within the meaning of the real estate sales tax. Cf. Graham v. Graham, (1909) 54 Wash. 70, 102 Pac. 891; Jarrard v. Jarrard, (1921) 116 Wash. 70, 198 Pac. 741;Davis v. Davis, (1940) 3 Wn. (2d) 448, 101 P. (2d) 313;Robinson v. Robinson, (1945) 23 Wn. (2d) 93, 159 P. (2d) 903. There are four situations of property settlements arising in adjustments of the marital relationship: (1) a divorce decree fixing the respective property rights without previous agreement or understanding between the spouses, (2) an agreement to propose certain settlement to the court for adoption and inclusion in the decree, (3) an agreement designed by the spouses to be a final adjustment even though divorce is contemplated, and (4) an agreement in connection with the separation of the spouses not preliminary to divorce.
In these situations the primary purpose of the spouses is an adjustment of the marital relationship, and even though the (usually) incidental adjustment of the property relationships may be reached as a result of being bargained for (which is the significant element of "valuable" consideration, see Corbin,Contracts, §§ 131, 132), the transaction is not ordinarily a "business" transaction. In the last three situations, the substantial power of the court in decreeing separate maintenance (RCW 26.08.120) and the almost plenary power of the court in decreeing divorce (RCW 26.08.110;Munroe v. Munroe, (1947) 27 Wn. (2d) 556, 178 P. (2d) 983: Luithle v. Luithle, (1945) 23 Wn. (2d) 494, 161 P. (2d) 152; cf.Arneson v. Arneson, (1951) 38 Wn. (2d) 99, 227 P. (2d) 1016) make it even more unrealistic [[Orig. Op. Page 5]] to characterize such arrangements as business transactions. The property settlement by such decree is only incidental to the determination of the marital status of the parties. State ex rel. Atkins v. Superior Court, (1939) 1 Wn. (2d) 677, 97 P. (2d) 139;Robinson v. Robinson, (1945) 23 Wn. (2d) 93, 159 P. (2d) 903. To say that such adjustments of property relationships can be made in disregard of the court's power is equally unrealistic.
Since the original enactment of the statute, the only clarification of the definition of sale, other than exclusions, added "including standing timber" to the term real property. Additional changes all also relate to business transactions involving real property interests. The original statute excluded a transfer by gift, devise, or inheritance from the meaning of "sale." Except for the rare contract to devise, these three "donative" transactions must have been listed out of an abundance of precaution since they obviously are not sales in any ordinary sense, nor transfers for a valuable consideration. The maxim,expressio unius est exclusio alterius, and rules of strict construction of exemptions from tax statutes consequently are inapplicable.
In summary, the whole tenor of the definition section relates to business transactions involving real property interests, such a statute is to be strictly construed on the basis of two principles, and there is no necessity to include these nonbusiness transactions within the definition to give meaning to the extension. The doubt as to meaning is fairly resolved by a conclusion of nontaxability of property settlements between husband and wife incident to the separation or divorce of the spouses. AGO 51-53 No. 120 is hereby superseded.
Very truly yours,
HARRY M. CROSS
Special AssistantAttorney General