TAXATION ‑- REAL ESTATE CONTRACT ‑- TAXABILITY OF DECLARATION OF FORFEITURE
RCW 82.20.010 which imposes a tax upon certain conveyances does not apply to declarations of forfeiture recorded pursuant to chapter 61.30 RCW.
- - - - - - - - - - - - -
March 6, 1987
Honorable Paul Klasen
P.O. Box 37
Ephrata, WA 98823
Cite as: AGO 1987 No. 5
By letter previously acknowledged, you asked our opinion on a question which we paraphrase as follows:
Do the provisions of RCW 82.20.010, which impose a tax upon certain conveyances, apply to declarations of forfeiture recorded pursuant to chapter 61.30 RCW?
We answer your question in the negative.
Chapter 61.30 RCW, the real estate contract forfeiture act, establishes a procedure by which the seller, by serving and recording certain notices, may forfeit a defaulting purchaser's interest in the real estate contract and in the property. RCW 82.20.010(1) imposes a stamp tax
[o]n any deed, instrument, or writing. . . whereby any lands, tenements, or other realty sold shall be granted, assigned, transferred, or otherwise conveyed to, or vested in, the purchaser, or any other person by his direction, when the consideration or value of the interest or property conveyed, exclusive of the value of any lien or encumbrance remaining thereon at the time of sale, exceeds one hundred dollars and does not exceed five hundred dollars or fractional part thereof, one [[Orig. Op. Page 2]] dollar; and for each additional five hundred dollars or fractional part thereof, one dollar.1/ (Emphasis added.)
To determine whether a declaration of forfeiture is subject to the provisions of RCW 82.20.010(1), it is necessary to identify the interests in the land held by the seller and the purchaser at the time of forfeiture. These interests must be determined by reference to case law authority and the provisions of chapter 61.30 RCW.
Certainly, a declaration of forfeiture is a "writing" and an "instrument." Whether it grants, assigns, transfers, or conveys "realty sold" to a "purchaser" is far less clear. We look first, then, to whether a declaration of forfeiture involves the sale of realty. In this regard, it is helpful to understand the difference between a declaration of forfeiture and a mortgage or deed of trust foreclosure.
InRunkel v. United States, 527 F.2d 914, 917 (9th Cir. 1975), the Ninth Circuit Court of Appeals explained the distinctions between the two, saying:
Upon a declaration of forfeiture under a Washington real estate sales contract there is no passage of legal title to the realty. The seller has always retained legal title; the buyer merely has an equitable interest. The buyer upon default does not sell his interest in the property back to the seller but rather the seller exercises his contractual right to extinguish the interest of the buyer. This is not a sale of property within the meaning of [26 U.S.C. Sec. 7425(b)]. The distinction between mortgage and deed of trust foreclosures on one hand, and a declaration of forfeiture under a real estate contract, on the other, reinforces this conclusion. Under a declaration of forfeiture, the property is merely returned to the seller. That is not true, in Washington, of foreclosure of a mortgage or deed of trust. In these cases there must be a sale so that others can bid on the property. The creditor must bid at [[Orig. Op. Page 3]] the sale to obtain the property; its return to his possession is not automatic as with a forfeiture under a real estate contract. See Wash. Rev. Code Ann. §§61.12.040, 61.12.060, 61.24.040. There is a clear distinction between the sale of property and the mere forfeiture of an interest in that property.
The term "sold" was addressed in Berkeley Sav. & Loan Ass'n. v. United States, 301 F. Supp. 22 (D.N.J. 1969). Although the court was construing the federal documentary stamp tax statute,2/ the provisions of the federal statute were virtually identical to RCW 82.20.010(1).3/ The Berkeley court held:
From the language of [the federal documentary stamp tax statute] it is clear that not all deeds, instruments, or writing [sic] conveying land or other realty are to have stamps affixed to them; only those deeds, instruments, or writings conveying land or other realtysold need have stamps affixed.
301 F. Supp. at 25 (emphasis by the court).
[[Orig. Op. Page 4]]
In reaching this conclusion, the court relied in part upon United States v. Niagara Hudson Power Corp., 53 F. Supp. 796, 801 (S.D.N.Y. 1944), a case involving a transfer of realty between two subsidiary corporations, in which the court held:
[A] mere transfer or change of legal title is not a taxable transaction under [a predecessor to the federal documentary stamp tax statute] which, as it now stands, expressly confines taxable transfers to "realty sold".
We believe the same rationale should apply to the instant question. InBerkeley the court explained that the courts were concerned more with the realities of the transaction at issue and whether the transaction was in fact a sale of realty. Because there is no sale of a realty interest with a declaration of forfeiture, we believe the provisions of RCW 82.20.010(1) do not apply to such forfeitures. A declaration of forfeiture is not a sale and it does not convey title. Under an executory contract for the sale of land, title remains with the seller. Cascade Sec. Bank v. Butler, 88 Wn.2d 777, 567 P.2d 631 (1977); Freeborn v. Seattle Trust & Sav. Bank, 94 Wn.2d 336, 617 P.2d 424 (1980); RCW 61.30.010(1), (6).
We next examine the provisions of chapter 61.30 RCW. RCW 61.30.010 defines certain critical terms:
(1) "Contract" or "real estate contract" means any written agreement for the sale of real property in whichlegal title to the property is retained by the seller as security for payment of the purchase price. . . .
. . .
(4) "Forfeit" means tocancel the purchaser's rights under a real estate contractand to terminate all right, title, and interest in the property of the purchaser. . . .
. . .
(6) "Property" means that portion of the real property which is the subject of a real estate contract, legal title to which has not been conveyed to the purchaser.
[[Orig. Op. Page 5]]
(7) "Purchaser" means the person denominated as the purchaser of the property or an interest therein in a real estate contract . . . However, "purchaser" does not include an assignee or any other person whose only interest or claim is in the nature of a lien or other security interest.
. . .
(9) "Seller" means the person denominated as the seller of the property or an interest therein in a real estate contract . . . However, "seller" does not include an assignee or any other person whose only interest or claim is in the nature of a lien or other security interest and does not include an assignee who has not been conveyed legal title to any portion of the property.
RCW 61.30.010(1), (4), (6), (7), (9) (emphasis supplied).
A seller of real property pursuant to contract retains legal title and the purchaser acquires an inchoate right to legal title upon satisfaction of the terms of the contract. This is consistent withCascade Sec. Bank v. Butler and Freeborn v. Seattle Trust & Sav. Bank, supra.
Thus, by definition, a seller is not a purchaser. RCW 61.30.010(7), (9). Declarations of forfeiture do no more than quiet title in the seller who already had legal title. Pursuant to RCW 61.30.010(4), a forfeiture "terminates" all title of the purchaser. A "termination" does not seem to be a "grant, assignment, transfer, or other conveyance" as contemplated by RCE 82.20.010 nor, as previously discussed, is it a sale.
For these reasons we conclude that the provisions of RCW 82.20.010(1) do not apply to declarations of forfeiture under chapter 61.30 RCW. The conveyance of purchasers' interests under real estate contracts by means other than declarations of forfeiture may meet all of the requirements for taxation under RCW 82.20.010, and we express no opinion as to such conveyances.
[[Orig. Op. Page 6]]
We trust the foregoing will be of assistance to you.
Very truly yours,
KENNETH O. EIKENBERRY
THOMAS R. CHAPMAN
Assistant Attorney General
1/This section was enacted in 1935; the underscored language in subsection (1) has remained substantially unchanged since then. See Laws of 1935, ch. 180, § 53, p. 738.
2/Revenue Act of 1932, ch. 209, § 725, 47 Stat. 169, 275 (last codified as amended at 26 U.S.C. § 4361; repealed effective January 1, 1968 by Excise Tax Reduction Act of 1965, Pub. L. No. 89-44, § 401(b), 79 Stat. 136, 148). This 1932 federal statute imposed a conveyance tax on each "deed, instrument, or writing . . . whereby any lands, tenements, or other realty sold shall be granted, assigned, transferred, or otherwise conveyed to, or vested in, the purchaser or purchasers, or any other person or persons, by his, her, or their direction . . ."
3/It is apparent that RCW 82.20.010(1) is derived from the federal documentary stamp tax statute. Therefore, federal court constructions of the federal statute, although not controlling, are relevant and persuasive in construing the state statute. See McClellan v. Sundholm, 89 Wn.2d 527, 531, 574 P.2d 371 (1978).