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AGO 1977 No. 14 - June 29, 1977
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Slade Gorton | 1969-1980 | Attorney General of Washington


A transfer of real property from a corporation, prior to but in anticipation of its dissolution, to a partnership consisting of all of the shareholders of the corporation, is not subject to the one percent real estate excise tax under chapter 28A.45 RCW where, under the factual circumstances involved, the transferor corporation does not receive any valuable consideration in return.

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                                                                   June 29, 1977

Honorable Christopher T. Bayley
Prosecuting Attorney
King County Court House
Seattle, Washington 98104

                                                                                                                 Cite as:  AGO 1977 No. 14

Dear Sir:

            By letter previously acknowledged you have requested our opinion regarding the applicability of the one percent real estate excise tax provided for under chapter 28A.45 RCW to the following transaction:

            "A corporation desires to change its business structure from that of a corporation to a partnership.  For federal tax purposes, the corporation will be liquidated and a new partnership formed in which the shareholders will become general partners in the same percentage of ownership as they held stock in the corporation.  Rather than transferring the stock of the corporation to the partnership and then liquidating directly into the partnership, the shareholders will retain their stock through the liquidation, but will direct the corporation to distribute all corporate assets including real property (no liabilities) in the shareholders' names to the new partnership.  The transfer will be consummated by this one deed from the corporation, on behalf of the shareholders, to the partnership."

            For the reasons set forth in our analysis, it is the opinion of this office that the one percent real estate excise tax  [[Orig. Op. Page 2]] is not applicable to the conveyance involved in the foregoing factual situation.


            The one percent real estate excise tax is imposed pursuant to chapter 28A.45 RCW upon sales of real property.  RCW 28A.45.010 defines a sale, for the purposes of this tax, as follows:

            "As used in this chapter, the term 'sale' shall have its ordinary meaning and shall include any conveyance, grant, assignment, quitclaim, or transfer of the ownership of or title to real property, including standing timber, or any estate or interest thereinfor a valuable consideration. . . ."  (Emphasis supplied.)

            Thus, the two prerequisites for a taxable transaction are (1) actualtransfer of real property and (2) actual consideration paid or contracted to be paid in exchange for the ultimate transfer of the designated interest in real property.  State ex rel. Namer Inv. Corp. v. Williams, 73 Wn.2d 1, 435 P.2d 975 1968; and see, also, AGLO 1977 No. 6 [[to Christopher T. Bayley, Prosecuting Attorney of King County, on February 10, 1977, and Informal Opinion, AIR-77506]], the most recent of several opinions on the subject which we have written to your office during the past several years.

            Under the factual situation which you have described there will clearly be a conveyance (i.e., a transfer of real property) ‑ from the corporation (prior to its dissolution) to the new partnership (subsequent to its formation).  That conveyance will, in essence, constitute the second of three distinct steps in the transaction.  The first step, of course, will be the formation of the partnership by the shareholders of the corporation and the third, in turn, will be dissolution of the corporation after the conveyance of its real property to the partnership.  Assuming that the transaction follows that sequence, however, it is our opinion that the second requisite element of a taxable sale ‑ i.e., a valuable consideration ‑ will be lacking and it is for this reason that we answer your question in the negative.

            As we further explained in AGLO 1977 No. 6, supra, the tax base against which the one percent rate applies is the "selling price."  "Selling price" is defined in RCW 28A.45.030 as follows:

             [[Orig. Op. Page 3]]

            "As used in this chapter, the term 'selling price' means the consideration, including 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 in real property, and shall include the amount of any lien, mortgage, contract indebtedness, or other incumbrance, either given to secure the purchase price, or any part thereof, or remaining unpaid on such property at the time of sale."  (Emphasis supplied.)

            Construing RCW 28A.45.010 and 28A.45.030 together, our state supreme court has set forth the following guidelines for determining whether (or to what extent) the consideration requirement for the tax has been satisfied:

            ". . .  The basis for any excise tax to be levied, then, must be the actual consideration paid or delivered or contracted to be paid or delivered in exchange for the ultimate transfer of the designated interest in real property. . . ."  (Emphasis supplied.)  State ex rel. Namer Inv. Corp. v. Williams, at p. 9.

            If, in the instant case, the sequence of events were to be altered so as to cause the first step to be that of dissolution of the "old corporation" ‑ coupled with a transfer of all of its assets (including real property) to the shareholders but with no assumption of any of the liabilities of the corporation by them ‑ such conveyances as were thus involved would clearly not be taxable, for want of a "valuable consideration," under the rationale expressed by our state supreme court inThe Doric Co. v. King County, 57 Wn.2d 640, 358 P.2d 972 (1961), andDeer Park Etc. v. Stevens County, 46 Wn.2d 852, 286 P.2d 98 (1955).  If, however, the former shareholders of the "old corporation" were then to form a new corporation and, in the process of formation, were to convey the same realty to the new corporation in exchange for its stock, there would thus be a valuable consideration and, hence, that conveyance (or set of conveyances) would be taxable under the court's reasoning in Christensen v. Skagit County, 66 Wn.2d 95, 401 P.2d 335 (1965).  And, arguably, the same result would be reached if, instead, the former shareholders of the old corporation formed a partnership (rather than a new corporation) and, in the process, conveyed the real property received by them through dissolution of the corporation to their new partnership ‑ although here, the answer could, conceivably, depend upon whether the court determined to treat the partnership as a separate legal entity or merely as an "aggregate" of all of the  [[Orig. Op. Page 4]] participating partners.1/

             But in the instant case, in actuality, that is not the sequence which would be followed and thus, irrespective of which theory of partnerhsip is utilized, neither theChristensen,supra, nor any other decided case (or, for that matter, any prior opinion of this office) supports a conclusion that the conveyance (or conveyances) involved would be subject to the one percent real estate excise tax.  Instead, in this case, the described conveyance or conveyances of real property by the "old" corporation to the "new" partnership, because of the absence of any corresponding receipt of a valuable consideration by the grantor corporation, would not constitute "sales" (as defined in RCW 28A.45.010, supra) and, hence, would not be taxable.

            We trust that the foregoing will be of assistance to you.

Very truly yours,

Attorney General

Deputy Attorney General

                                                         ***   FOOTNOTES   ***

1/That question is one which has not yet been passed upon by the Washington courts.  Generally speaking, a partnership is treated as an aggregate of its members for some purposes and as a legal entity for other purposes.  As stated by one learned author:

            "Neither the common law nor the English or American codifications of the law of partnerships have avowedly and consistently personified the partnership as a legal unit or entity.  For many purposes, the partnership is treated by decision and by legislation as though it were a legal unit."  Crane on Partnership (2d ed.), page 9 (1952).

            Similarly, the Uniform Partnership Act (codified in Washington as chapter 25.04 RCW) is regarded as taking a middle ground in regard to the entity theory.  Accord, 1 Rowley on Partnership, § 1.3, p. 22 (2d ed. 1960).

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