COUNTIES ‑- REAL ESTATE SALES TAX ‑- FORECLOSURE ACTIONS ‑- FORFEITURE ACTIONS ‑- VENDEE'S INTEREST TRANSFERRED BACK TO VENDOR ‑- ASHFORD v. REESE DOCTRINE

COUNTIES ‑- REAL ESTATE SALES TAX ‑- FORECLOSURE ACTIONS ‑- FORFEITURE ACTIONS ‑- VENDEE'S INTEREST TRANSFERRED BACK TO VENDOR ‑- ASHFORD v. REESE DOCTRINE.

The county real estate sales tax is imposed upon the transfer back of the vendee's interest in a breached contract to purchase real property unless the transfer is by court action to forfeit (not foreclose) based upon a proper forfeiture clause in the contract.

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                                                               December 22, 1952 

Honorable John J. O'Connell
Prosecuting Attorney
Pierce County Courthouse
Tacoma, Washington                                                                                                              Cite as:  AGO 51-53 No. 447

 Attention:  Civil Department

 Dear Sir:

             You request our opinion whether the county real estate sales tax falls:

             1.         upon the vendee's quitclaim to the vendor of his interest in a real property contract; and

             2.         upon the transfer back made mandatory by foreclosure or forfeiture action brought by the vendor upon the vendee's default.

             We conclude respectively:

             1.         The tax, measured by approximately the full contract price, is due.

              [[Orig. Op. Page 2]]

            2.         (a) If the contract has no proper forfeiture clause, the vendor's action is to foreclose his lien on the title.  This results in a judgment and sale on execution, which is taxable whether made to the vendor or to another.

             (b) If the contract contains a proper forfeiture clause, the action is one to forfeit the vendee's interest to the seller, consideration for which is lacking and thus no tax applies.

                                                                      ANALYSIS

             It is of no consequence that the original contract of sale was entered into either before or after the enactment of the real estate sales tax.  The taxability of the subsequent transaction only is involved.

             RCW 28.45.010 and the Uniform County Ordinance enacted thereunder provide:

            "* * * 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, * * * or any estate or interest therein for a valuable consideration," (Emphasis Supplied)

             The above section also imposes the tax upon:

             "* * * any contract for such conveyance, grant, assignment,quitclaim, or transfer, and any lease with an option to purchase real property, including standing timber, or any estate or interest therein or other contract under which possession of the property is given to the purchaser, or any other person by his direction, which title is retained by the vendor as security for the payment of the purchase price."

             1. Vendee's Voluntary Transfer.  If the transfer back is by quitclaim or other contract of transfer, it is of no consequence that the vendee may have been in default and the transfer was under pressure thereof.  Such is but one of the economic factors or pressures which operate upon one or both of the parties to  [[Orig. Op. Page 3]] any transaction.  It is but a reason or motive for the inter vivos transfer of the interest which is made taxable if consideration is present.

             The transfer of the interest received by the vendee (whether legal or equitable in nature) is taxable; therefore, unless the statute provides otherwise, or unless consideration is lacking, that same interest transferred either to another or back to the vendor being the same taxable interest received, is also taxable.  ("Quitclaim," we note, is specifically made a taxable transfer, RCW 28.45.010).  This is consistent with that portion of the statute providing that the vendor's assignment of his interest is not taxable until and unless there is a forfeiture of the contract by which the assignee of the vendor receives legal title to the land

             Consideration:  Consideration exists for such a transfer or "quitclaim."  (A "gift" is, of course, not contemplated.)  If it is not an arm's length transaction but caused by the vendee's breach, the patent consideration is the promise of the vendor not to sue for damages and/or the waiving of other remedies.  A recited consideration of one dollar cannot be used to measure the tax.

             The consideration against which the tax is measured is defined by RCW 28.45.030 as "selling price."  It

             "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)

             That section should answer the question.  Moreover, we find it difficult to see how the taxable measurement of the consideration for the transfer back can be substantially less than the measure of consideration against which the tax was imposed for the transfer of the taxable interest to the vendee.  In other words, the vendor transferred an interest in that property to B, which was taxed at the full amount of the contract consideration without deduction for unpaid balances, etc.  The transfer back of the same interest must measure close to that selling price if the original price approximated the value of the land.  Stated in still another manner, an offset imparts consideration and the obligation to pay the  [[Orig. Op. Page 4]] balance due (which is easily measured) is offset against the vendor's contractual right to that balance, and which is satisfied by the transfer back.

             2. Court Action to Foreclose or Forfeit.  The applicable rule as to the taxability of court ordered transfers was stated in our opinion to your office dated April 22, 1952, that

             "The statute does not exempt taxable transactions merely because they have been made mandatory by court order.  To conclude otherwise would permit simple and easy tax avoidance.  Further 'Taxation is the rule, and exemption is the exception,' Spokane County v. Spokane, 169 Wash. 355, 358, 13 P. (2d) 1084 (1932) and tax statutes are strictly construed in favor of taxation and against exception or exemption.  Norwegian Lutheran Church v. Wooster, 176 Wash. 581, 30 P. (2d) 381 (1934)."

             Your attention is further directed to our opinion to yourself dated September 4, 1952, in which we held and now affirm that the tax applies on an execution sale pursuant to mortgage foreclosure or an execution sale of real property pursuant to judgment.  See also the following provisions of the Uniform County Ordinance enacted by your county:

             "Any transfers or conveyances pursuant to any proceedings for the foreclosure of any mortgage, lien or other encumbrance, except a satisfaction thereon, whether executed by the sheriff by public sale or by anyone by public or private sale to satisfy a debt shall be subject to this tax."

             (a) If the Contract Contains No Forfeiture Clause.  If the contract contains no forfeiture clause the action will be by foreclosure of the vendor's lien on the title and a sale on execution.  SeeTaylor v. Interstate Investment Co., 75 Wash.y 490, 135 Pac. 240 (1913);Aylward v. Lally, 147 Wash. 29, 264 Pac. 963 (1928);First National Bank v. Mapson, 181 Wash. 196, 42 P. (2d) 782 (1935); andDean v. Woodruff, 200 Wash. 166, 93 P. (2d) 357 (1939).  The sale on execution, whether to another or to the vendor, if he buys in, is taxable.  See our opinion to the Franklin County Prosecuting Attorney dated November 13, 1951, and the Uniform Ordinance, supra.

              [[Orig. Op. Page 5]]

            (b) Contract With A Forfeiture Clause.  Ashford v. Reese, 132 Wash, 649, 233 Pac. 29 (1925), holds that an executory forfeitable contract for the sale of real property conveys no title or interest either legal or equitable to the vendee.  See alsoSurry v. Baker, 132 Wash. 188, 231 Pac. 791 (1925);In re Kuhn's Estate, 132 Wash. 678, 233 Pac. 293 (1925); Brown v. Northwestern Mutual Fire Association, 176 Wash. 693, 30 P. (2d) 640 (1934); First National Bank v. Mapson, supra; Hubbard v. Grandquist, 191 Wash, 442, 71 P. (2d) 410 (1937).  However, as pointed out in 22 Wash. L. Rev. 110 (1947), the court recognizes that such a vendee has certain equitable rightsin the land which are the subject of the contract.  SeeAylward v. Lally, supra;Vandin v. McCleary Timber Co., 157 Wash. 635, 289 Pac. 1016 (1930);Griffith v. Whittier, 37 Wn. (2d) 351, 233 P. (2d) 1062, and the transfer of such interest is specifically made taxable.  The result may probably most accurately be stated that the courts recognize in the vendee of an executory forfeitable contract for the sale of realty certain real property or estatual [[estate]]rights but that such contract does not deprive the vendor of all his interest in such land.

             By the real estate sales tax statute the vendee of such a contract, whether forfeitable or not, has received such an interest as is taxable.  The action on the contract to forfeit the interest of the vendee is, in essence, to require a return transfer of the same taxable interest by court proceedings.  However, there is no

             "valuable consideration" (RCW 28.45.010)

             "paid or delivered or contracted to be paid or delivered" (RCW 28.45.030)

            for such a transfer.  See Rest. of Contracts, sec. 75.  Non-taxability [[Nontaxability]]therefor automatically follows.

             Your attention is called to the seeming but inaccurate applicability of RCW 28.45.010 stating the term "sale" does not include:

             "a transfer in compliance with the terms of any lease or contract upon which the tax as imposed by this chapter has been paid."

              [[Orig. Op. Page 6]]

            At first glance it might be thought that a transfer as a result of a court forfeiture action based on such a provision in the contract might be a "transfer in compliance with the terms of any" contract upon which the tax has been paid.  However, examination will disclose this section to relate only to the conveyance in pursuance to the option to purchase or the deed given upon completion of contract payments.  One transfer only has there occurred.  There are two transfers in the matters you raise.

             The other question you raise will be considered in a separate opinion.

 Very truly yours,
 SMITH TROY
Attorney General 

JENNINGS P. FELIX
Assistant Attorney General