TAXATION ‑- REAL ESTATE SALES TAX ‑- DISSOLUTION OF GENERAL PARTNERSHIP ‑- RIGHTS FIXED BY STATUTE AND NOT AGREEMENT ‑- TRANSFER OF REALTY TO PARTIES.
Where the rights of partners of a general partnership are only those fixed by statute rather than by agreement, the transfer of realty to the partners upon dissolution of the partnership is not subject to the real estate sales tax except in limited cases.
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April 17, 1963
Honorable Sid Buckley
Cite as: AGO 63-64 No. 18
You have requested that we reconsider a previous opinion of this office dated April 22, 1952, No. 51-53-298 [[to Department of Fisheries on May 6, 1952]], in the light ofDeer Park Pine Industry v. Stevens County, 46 Wn. (2d) 852, 286 P. (2d) 98 (1955). We held in that opinion that the real estate excise tax applies to the transfer of partnership real property to partners on the dissolution of a general partnership.
We conclude that our prior opinion should be modified as hereinafter set forth.
It was held in theDeer Park case that no tax was due on the transfer of corporate real estate to stockholders upon the voluntary dissolution of a solvent corporation except in a case where the stockholders had agreed to assume the liabilities of the liquidating corporation. In such event, the tax is to be measured by the amount of liabilities assumed. See, also, TheDoric Co. v. King County, 57 Wn. (2d) 640, 358 P. (2d) 972 (1961).
The court reasoned that, because the ownership of corporate stock carries with it the inherent right to participate in the control of the corporation while it is operating as such, and the inherent right to share in the assets, after creditors, when the corporation is dissolved, [[Orig. Op. Page 2]] a transfer of realty, as above described, was without valuable consideration, the change in title being but the fruition of a right which the stockholder acquired when he bought his stock.
However, creditors have a paramount right to the corporate assets, to if the stockholders agree to pay the corporate debts in order to have the realty distributed to them in kind, they are in effect purchasing such realty from the creditors, and valuable consideration is present.
For purposes of the question we are considering, there would appear to be some similarities between the rights of general partners and the rights of corporate stockholders. Washington has adopted the Uniform Partnership Act, chapter 25.04 RCW, to govern general partnerships. Under this act the partners have:
1. Equal rights in the management and conduct of the partnership business and the right to share in the partnership assets (after creditors) upon dissolution. RCW 25.04.180 (5); RCW 25.04.380 and 25.04.400.
2. The right to dissolve the partnership for reasons contained in RCW 25.04.310 and 25.04.320.
3. The right to wind up the partnership affairs if not done by the court (RCW 25.04.370).
All of the foregoing rights are subject to change by the partnership agreement. The right of partnership creditors to the partnership assets is, of course, unaffected by any agreement between the partners.
We believe that the reasoning of the Deer Park case, supra, applies to the dissolution of a general partnership subject to the limitations hereinafter noted. In the absence of any agreement to the contrary, the transfer of partnership real estate to the partners upon dissolution of the firm is but the realization of a right which the partners had at the time the partnership was formed. There is no valuable consideration for such a transfer within the intent of RCW 28.45.010.
However, as we have said, the statutory right of partners to share in the assets upon dissolution can be changed by the partnership agreement (RCW 25.04.380 ‑ 25.04.400) so that there could be valuable consideration in the transfer of the assets. For example, a partnership agreement provides that upon dissolution, certain real estate shall all go to a partner A and not to partner B. Upon winding up the firm and by further agreement B receives an interest in the property. Valuable consideration making the transfer to B subject to tax could well be found. On the other hand, if it all was transferred to A in accordance with the agreement, A would be only receiving what he had a right to receive in the first place.
We would conclude that if the rights of the partners are those as fixed by statute, unaffected by the partnership agreement, there would be no tax upon a transfer of the type we are considering. The partnership agreement would have to be examined in each case.
While general partners, unlike stockholders, are by law made personally responsible for the payment of partnership liabilities RCW 25.04.180(1), a situation could arise whereby a partner might contribute more toward payment of liabilities that he was legally bound to do so that he might receive partnership realty in kind, and which otherwise would go to creditors to satisfy partnership liabilities. In such a case he would in effect be purchasing the property from the creditors, and the tax would be due on the transfer of title.
AGO 51-53-298 should be modified in accordance with the views herein expressed.
Very truly yours,
JOHN J. O'CONNELL
HENRY W. WAGER
Assistant Attorney General