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AGO 1991 No. 11 - March 27, 1991
AGO Opinion Header Image
Ken Eikenberry | 1981-1992 | Attorney General of Washington

TAXATION ‑- PROPERTY ‑- AGRICULTURAL ‑- OPEN SPACE ‑- TIMBER LAND ‑- FOREST LAND ‑- ASSESSOR ‑- INHERITANCE OF CLASSIFIED OR DESIGNATED LAND

1.  Chapter 84.34 RCW provides for current use valuation for the purpose of property tax assessments of land classified as agricultural, open space, or timber land.  RCW 84.34.108 sets out the consequences when classified land is transferred.  The term "transfer" in RCW 84.34.108 includes a transfer of ownership by inheritance.

2.  Chapter 84.33 RCW creates a special system of taxation for property which is classified or designated as forest land.  RCW 84.33.120 and RCW 84.33.140 set out the consequences when forest land is transferred.  The term "transfer " in RCW 84.33.120 and 84.33.140 includes a transfer of ownership by inheritance.

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                                                                  March 27, 1991

Honorable C. Dan Clem
Kitsap County Prosecuting Attorney
Kitsap County Courthouse
Port Orchard, Washington 98366-4676
                                                                                                                 Cite as:  AGO 1991 No. 11

 

Dear Mr. Clem:

            By letter previously acknowledged, you requested our opinion on a question that we have paraphrased as follows:

            Is an inheritance a "transfer" under RCW 84.34.108(5)(c), RCW 84.33.120(9)(c), and RCW 84.33.140(5)(c)?

We answer your question in the affirmative.

                                                                BACKGROUND

            You have asked about an aspect of the statutory scheme in two chapters of the state tax laws, chapter 84.34 RCW, relating  [[Orig. Op. Page 2]] to "Open Space, Agricultural, and Timber Lands," and chapter 84.33 RCW, relating to "Timber and Forest Lands."

            The purpose of chapter 84.34 RCW is to preserve open space lands for food and forest crop production, for scenic beauty and enjoyment and for the economic and social well-being of the state and its citizens.  RCW 84.34.010.  Chapter 84.34 RCW seeks to accomplish this purpose through the state's taxation powers.1/

            The statute provides an incentive mechanism whereby a property owner applies to the county assessor to have the land classified under the act as "agricultural," "open space" or "timber land."  RCW 84.34.030.

            If the application is approved, the land is assessed for tax purposes at its "current use" (as agricultural, open space or timber land).  RCW 84.34.060, RCW 84.34.065.  Assessing the property at its "current use" will usually result in a lower assessed value than if the land were assessed at its "highest and best use."  See Van Buren v. Miller, 22 Wn. App. 836, 837-38, 592 P.2d 671, review denied, 92 Wn.2d 1021 (1979).  Thus, an owner has a tax incentive to have the property classified under chapter 84.34 RCW.

            The statute couples this incentive with a disincentive for withdrawing the land from classification or changing the use of the property.  In general, if the land is withdrawn from classification or its use changes, it becomes subject to an additional tax representing the difference between the property tax paid as classified land and the amount of tax which would have been paid (for the previous seven years) had the land not been classified, plus interest.  RCW 84.34.070 ‑ [84.34].108.2/

            See AGLO 1978 No. 23.

            However, this additional tax for withdrawing the land from classification or changing its use is not imposed in certain  [[Orig. Op. Page 3]] situations, one of which gives rise to your inquiry to us.  RCW 84.34.108(5)(c) provides:

            The additional tax specified in subsection (3) of this section shall not be imposed if the removal of designation pursuant to subsection (1) of this section resulted solely from:

                       . . .

                        (c) Sale or transfer of land within two years after the death of the owner of at least a fifty percent interest in such land;

                       . . . .

See alsoRCW 84.34.080.

            Turning now to chapter 84.33 RCW, this set of statutes parallels chapter 84.34 RCW in many respects.  Chapter 84.33 RCW was enacted to change the then existing ad valorem property tax system for standing timber and forest land and, through this modernization, to assure the advantages of continuous production of timber and forest products.  RCW 84.33.010.

            Chapter 84.33 RCW creates a special system of taxation for property qualifying as "forest land" under its provisions.  This is accomplished by having the land either "classified" (initiated by the assessor) or "designated" (initiated by the property owner) as forest land.  RCW 84.33.020, RCW 84.33.130.  If the land is removed from classification or designation, the landowner is subject to a compensating tax.  RCW 84.33.120(7), [84.33].140(3).  See Weyerhaeuser Co. v. Cowlitz Cy., 109 Wn.2d 363, 368-69, 745 P.2d 488 (1987).

            As in chapter 84.34 [RCW], payment of this compensating tax under chapter 84.33 [RCW] is not required in certain situations.  RCW 84.33.120(9)(c), relating to land "classified" as forest land, provides:

            The compensating tax specified in subsection (7) of this section shall not be imposed if the removal of classification as forest land pursuant to subsection (5) of this section resulted solely from:

                       . . .

             [[Orig. Op. Page 4]]

                        (c) Sale or transfer of land within two years after the death of the owner of at least a fifty percent interest in such land;

                       . . . .

            RCW 84.33.140(5)(c), relating to land "designated" as forest land, provides:

            The compensating tax specified in subsection (3) of this section shall not be imposed if the removal of designation pursuant to subsection (1) of this section resulted solely from:

                       . . .

                        (c)Sale or transfer of land within two years after the death of the owner of at least a fifty percent interest in such land;

                       . . . .

            Your question is whether inheritance of property constitutes a "transfer of land within two years after the death of the owner of at least a fifty percent interest in such land" under RCW 84.34.108(5)(c), RCW 84.33.120(9)(c), and RCW 84.33.140(5)(c).3/

                                                                     ANALYSIS

            In interpreting a statute our fundamental object "is to ascertain, if possible, and to give effect to, the intention of the lawmakers in enacting the particular statute."  Graffell v. Honeysuckle, 30 Wn.2d 390, 399, 191 P.2d 858 (1948).  The intention of the Legislature "is to be deduced, if possible, from what it said."  Id.

             [[Orig. Op. Page 5]]

            "As a general rule, where a term is not defined in the statute, the term must be accorded its plain and ordinary meaning unless a contrary intent appears."  Dennis v. Department of Labor & Indus., 109 Wn.2d 467, 479-80, 745 P.2d 1295 (1987).

            Although chapters 84.33 RCW and 84.34 RCW contain several definitional sections (see RCW 84.33.035, RCW 84.33.073, RCW 84.34.020, RCW 84.34.065, RCW 84.34.310) the term "transfer" is not defined anywhere in either chapter.  Accordingly, we next look to its "plain and ordinary meaning."  Dennis v. Department of Labor & Indus., 109 Wn.2d at 479-80.  This meaning may be derived from a dictionary.  Seattle Times Co. v. Benton Cy., 99 Wn.2d 251, 256-57, 661 P.2d 964 (1983).

            Webster's Third New International Dictionary (1966) includes the following definition of "transfer" at 2427:  "[T]he conveyance of right, title, or interest in either real or personal property from one person to another by sale, gift,or other process. . . ."  (Emphasis added.)  Black's Law Dictionary (5th ed. 1979) defines "transfer" at 1342 as:  "An act of the parties, or of the law, by which the title to property is conveyed from one person to another. . . .  The word is one of general meaning and may include the act of giving property by will."  (Emphasis added.)

            Washington cases have recognized that "transfer" has a broad meaning.  See, e.g.,Marino Property Co. v. Port of Seattle, 88 Wn.2d 822, 833, 567 P.2d 1125 (1977);Hull v. Minkler, 51 Wn.2d 508, 514, 319 P.2d 815 (1958).

            InIn re McCulloch's Estate, 193 Wash. 145, 148, 74 P.2d 877 (1938), our state supreme court recognized that "transfer" includes "'all transactions whereby property of one person becomes that of another, whether by descent or purchase . . . .'"  (Emphasis added) (Quoting 63 C.J. 780, § 4).

            Thus, both dictionaries and Washington cases indicate that the "plain and ordinary" meaning of "transfer" includes receiving property by inheritance.  This meaning prevails "unless a contrary intent appears" in chapters 84.33 or 84.34 RCW.  Dennis v. Department of Labor & Indus., 109 Wn.2d at 479-80.

            We find nothing in chapter 84.33 or 84.34 RCW that establishes a contrary intent.  We have also examined the legislative history of RCW 84.33.120(9)(c), RCW 84.33.140(5)(c) and RCW 84.34.108(5)(c) and have found no indication of a legislative intent to exclude inheritance from the term "transfer" in these statutes.

             [[Orig. Op. Page 6]]

            Our conclusion that the term "transfer" includes inheritance has implications beyond the exemptions in RCW 84.34.108(5)(c), 83.33.120(9)(c) and 84.33.140(5)(c).  Our interpretation will require the removal of property from its classified status (e.g., open space) where there is a "transfer [inheritance] of all or a portion of [the] land to a new owner, unless the new owner has signed a notice of classification continuance."  RCW 84.34.108(1)(c).4/

            RCW 84.33.120(5)(e) and 84.33.140(1)(c) also provide for removal from classification or designation as forest land upon transfer (inheritance), unless the new owner has signed a notice of classification or designation continuance.

            If property is removed from classified or designated status, there are two consequences:  (1) an additional tax or compensating tax may be imposed; (2) the property is no longer entitled to the special property tax treatment as classified land (e.g., open space) under chapter 84.34 RCW, or forest land under chapter 84.33 RCW.

            The imposition of the additional tax or the compensating tax can be avoided in one of two ways.  First, the new owners, in this case the heirs, can execute a classification or designation continuance.  The current language in RCW 84.34.108(1)(c), 84.33.120(5)(e) and 84.33.140(1)(c) now ties the notice of classification continuance to the execution of the real estate excise tax affidavit required by RCW 82.45.120.  Rules adopted by the Department of Revenue require execution of the affidavit where there is a conveyance to heirs in the settlement of an estate.  See WAC 458-61-080(1)(g).  See also WAC 458-61-460.

             [[Orig. Op. Page 7]]

            Second, because we find that the term "transfer" must refer to transfers by inheritance throughout the statutes, the two-year exemption in RCW 84.34.108(5)(c), 84.33.120(9)(c) and 84.33.140(5)(c) will excuse the additional tax or compensating tax when a transfer occurs by reason of death.

            It is important to note that the two-year exemption only applies when the transfer is from an owner of at least 50 percent of the property.  On the other hand, a transfer of a lesser portion of the property will remove it from classification or designation.  Thus, if one inherits classified or designated property from a decedent, with less than a 50 percent ownership interest, the property will be removed from classification or designation.  However, the two-year exemption is not available.  In this case, the only way to avoid the additional tax or the compensating tax is to execute a continuation of classification or designation.

            If the property is removed from classified or designated status as a result of the death of the owner, the heir need not notify the assessor to take advantage of the two-year exemption in RCW 84.34.108(5)(c), 84.33.120(9)(c) and 84.33.140(5)(c).  The operative event is the death of the owner.  Under Washington law title to a decedent's lands vests immediately in his or her heirs or devisee.  RCW 11.04.250.  See Kerns v. Pickett 49 Wn.2d 770, 773, 306 P.2d 1112 (1957); In re Schmidt's Estate 134 Wash. 525, 527, 236 Pac. 274 (1925).  The two-year exemption takes effect upon the death of the decedent and the transfer to the heirs.

            The death of the owner also results in a transfer that takes the land out of classified or designated status, resulting in the loss of the special property tax treatment as classified land (e.g., open space) or forest land.  The two-year exemption only applies to the additional tax or the compensating tax.  It does not operate to maintain the special property tax treatment.

            When the property is removed from classified status (e.g., open space), RCW 84.34.108(3) provides that the assessor shall "revalue the affected land with reference to full market value on the date of removal from classification."  RCW 84.33.120(7) and 84.33.140(3) provide that when land is removed from classified or designated status as forest land it "shall be assessed on the same basis as real property is assessed generally in that county."  The only way to maintain the special property tax treatment is to execute a continuance of classification or  [[Orig. Op. Page 8]] designation.  If the heir fails to execute a continuance of classification or designation, he or she will lose the special property tax treatment.5/

             An heir who executes a continuance of classification or designation to maintain the special property tax treatment does not lose the ability to take advantage of the two-year exemption.  An heir can execute a continuance of classification or designation to maintain special property tax treatment and, within two years of the death of the owner of at least a 50 percent ownership interest in the property, sell it or otherwise remove it from classification or designation without paying the additional tax or the compensating tax.

            Where an heir continues the property in classification or designation, the assessor must be notified if the heir also chooses to take advantage of the two-year exemption within that period.  This is in contrast to the situation where classification continuance is not elected following the death of the former owner of the property, in which case notification is not required.  If the property is sold within two years, the assessor may be notified through the filing of the real estate excise tax affidavit required by RCW 82.45.120.  If the heir simply wishes to remove the property from classified or designated status, he or she should give notice of removal pursuant to RCW 84.34.108(1)(a), 84.33.120(5)(a) and 84.33.140(1)(a).

            In summary, we conclude that the term "transfer" in RCW 84.34.108, 84.33.120 and 84.33.140 includes a succession in property by inheritance.

             [[Orig. Op. Page 9]]

            We trust the foregoing is of assistance to you.

Very truly yours,

KENNETH O. EIKENBERRY
Attorney General

SPENCER W. DANIELS
Assistant Attorney General

LELAND T. JOHNSON
Senior Assistant Attorney General

                                                         ***   FOOTNOTES   ***

1/Tax laws are one of several means used by states and other governmental bodies to try to preserve open space lands.  See Comment, 15Gonz. L. Rev. 675 (1980); Comment, 15 Gonz. L. Rev. 765 (1980).
2/If the use is changed without the withdrawal procedure being followed, the additional amount plus a 20 percent penalty is levied.  RCW 84.34.080.
3/You also noted at the time of your request, that with respect to chapter 84.34 RCW a rule adopted by the State Department of Revenue, WAC 458-30-300(3)(c), specifically provided in part:  "An inheritance is not a transfer under the provisions of chapter 84.34 RCW."  Since your inquiry was received, the Department of Revenue amended this rule to delete the above sentence.  See WSR 90-24-087 (Dec. 5, 1990).  Thus, the rule now implies that an inheritance is to be regarded as a transfer.
4/Under our interpretation classified property (e.g., open space) is also removed from classification where there is a "transfer to an ownership making all or a portion of [the] land exempt from ad valorem taxation".  RCW 84.34.108(1)(b).  RCW 84.33.120(5)(b) and 84.33.140(1)(b) also provide for removal from classification or designation as forest land upon transfer to an ownership making the land exempt from property tax.  The provisions of RCW 84.34.108(1)(b), 84.33.120(5)(b) and 84.33.140(1)(b) do not offer the transferee the opportunity to execute a notice of classification continuance.  However, in RCW 84.34.108(5), 84.33.120(9) and 84.33.140(5), the Legislature has provided exemptions from the additional tax or tax for particular kinds of transfers to tax-exempt entities.
5/Although RCW 11.04.250 immediately vests title in the heir upon the death of the decedent, we recognize that the identity of the heir may not be known.  In these situations the executor or personal representative of the estate would have the authority to execute the required continuance of classification or designation on behalf of the heir.

 

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