TAXATION ‑- REAL ESTATE EXCISE ‑- JOINT PURCHASE OF PROPERTY ‑- SALE OF ESTATE OF ONE VENDEE TO REMAINING VENDEES.
Where a number of vendees under an executory contract for the sale of real estate are jointly and severally liable for payment of the full purchase price, the real estate tax on the transfer of one of the vendees' interest to the remaining vendees is measured by the amount paid for the transferring vendee's equity in the land plus the proportional share of the transferring vendee remaining unpaid on the balance of the contract of sale at the time of the transfer to the remaining vendees.
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December 30, 1965
Honorable Arthur R. Eggers
Walla Walla County
Walla Walla, Washington
Cite as: AGO 65-66 No. 64
By a previously acknowledged letter you have requested an opinion on a question which may be paraphrased as follows:
What is the measure of the real estate excise tax where a number of vendees under an executory contract for the sale of real estate are jointly and severally liable for payments of the full purchase price and one vendee transfers his proportional interest to the other vendees who pay him for his equity in the land and assume his share of the contractual balance owing although he is not released from his contractual obligation by the original vendor?
The answer to your question is contained in the following analysis.
The transfer by a vendee of his interest in a contract of sale is subject to the real estate excise tax unless the transfer is to avoid a forfeiture and no consideration passes other than the assumption by the transferee of the unpaid contract balance. AGO 57-58 No. 95 [[to George W. Kupka, State Senator on July 9, 1957]].
Under the facts we are considering the transfer to the assuming grantees is not to avoid a forfeiture. Additionally, there is "other consideration" passing in that the grantee will pay for the equity the transferor has in the land.
[[Orig. Op. Page 2]]
The real estate excise tax is measured by the "selling price" which is defined in RCW 28.45.030 as follows:
"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.
"The term shall not include the amount of any outstanding lien or incumbrance in favor of the United States, the state, or a municipal corporation for the taxes, special benefits, or improvements."
Thus, the "selling price" expressly includes the amount of any contract indebtedness remaining unpaid at the time of the transfer. It makes no difference whether the transferees obligate themselves or incur any new obligation to pay the share of the contract balance owed by their transferor. The statute above quoted is clear on this point. The fact that the transferor is not released from possible liability by the original contract vendor will not exclude his share of the existing contract balance from the measure of the tax. See AGO 57-58 No. 11 [[to Prosecuting Attorney, Kitsap County on February 1, 1957]], which supports this conclusion.
In any event, by assuming payment of the share of the contract balance of the transferring vendee the transferees will acquire a new liability. Prior to the transfer if one of the vendees is called upon to pay the entire contract balance to the original vendor, he would be able to recover by way of contribution from his co-obligors only the excess he paid over his share. Proff v. Maley, 14 Wn.2d 287, 128 P.2d 330 (1942).
Subsequent to the transfer if the transferor were compelled to pay all or only his share of the contract balance to the original vendor he could, by virtue of the rule ofProff v. Maley, supra, and the agreement he made with the transferees to assume his share, recover the full amount paid from those transferees. Of course, co-obligors cannot, by agreement among themselves, affect their liability to the common creditor, but they may by such an agreement determine the amount of contribution each must make and a release of one obligor by the other obligors from the obligation itself renders him immune from contribution. 18 Am.Jur 2d, Contribution, §§ 6, 23.
We conclude that the tax is to be measured by the amount paid for the transferring vendee's equity in the land plus the proportional share of the transferring vendee remaining [[Orig. Op. Page 3]] unpaid on the balance of the contract of sale at the time of the transfer to the remaining vendees.
We trust the foregoing will be of assistance to you.
Very truly yours,
JOHN J. O'CONNELL
HENRY W. WAGER
Assistant Attorney General