Washington State

Office of the Attorney General

Attorney General

Bob Ferguson

AGO 1953 No. 6 -
Attorney General Don Eastvold


The real estate sales tax applies to the assignment of a vendee's interest at an execution sale.  The tax becomes due upon the transaction becoming executed by expiration of the redemption period and issuance of the sheriff's deed.

                                                              - - - - - - - - - - - - -

                                                                   April 14, 1953


Honorable Joe L. Johnson
Cowlitz County Prosecuting Attorney
Cowlitz County Court House
Kelso, Washington                                                                                                                  Cite as:  AGO 53-55 No. 6


Dear Sir:

            You request our opinion whether the negotiated purchase of land by a federal instrumentality (the Reconstruction Finance Corporation) is exempt real estate sales tax.

            We conclude that it is not.


            1. Preface

            The Reconstruction Finance Corporation is an instrumentality of the United States,Boeing Aircraft Co. v. R. F. C., 25 Wn. (2d) 652, 171 P. (2d) 838 (1946), and thusit is exempt state taxation by virtue of the federal constitution,McCulloch v. Maryland, 4 Wheat. 316 (17 U.S. 1819).  However, Congress may waive immunity.  Maricopa County v. Valley National Bank, 318 U.S. 357 (1943).

                        2. Statutory Provisions

            The real-estate sales tax statute does not apply to sales by the United States or its instrumentalities ‑-RCW 28.45.010 excludes from the definition of taxable sale

            "a sale by the United States or this state," and

            RCW 28.45.020 excludes from the definition of "seller"

            "the United States or the state of Washington."

            Thus, when the United States is the vendor, the tax is not imposed upon the sale.  Since RCW 28.45.080 imposes the tax on the seller, this follows the constitutional formula.

             [[Orig. Op. Page 2]]

            When the United States or its instrumentalities is the buyer, the tax applies unless the purchase is by

            "appropriation or decree in condemnation" RCW 28.45.010.

            This equitably means that when a sale is forced by government action, the seller is burdened with no tax.  This exemption also avoids possible constitutional problems involved in computation of the condemnation award.

                        3. Constitution

            The tax is solely and specifically upon the seller, RCW 28.45.080‑-it is his legal obligation even though (1) the economic burden may, as is usual with all taxes, be passed to the buyer, and (2) even though the amount of the tax for security purposes is a lien on the property, RCW 28.45.070.  (The lien is remedial in nature and should not be confused with problems involving the substantive validity of the tax under constitutional dual sovereignty concepts.)

            Thus when property is sold to a federal instrumentality by negotiated sale, theseller is liable for a tax and federal instrumentality takes the property subject to a prior lien.  This is not an unusual situation.  In many instances a lien will follow property purchased by the United States prior to either a federal lien or title interest.  Under constitutional government, the United States can no more take property free of prior valid liens than it can take property without paying the full purchase price.  The question resolves, therefore, to whether chapter 28.45 RCW, on this set of facts attempts an unconstitutional tax upon the United States.  We conclude that it does not.

            There are two incidents of a tax, legal and economic.  The legal incidence is upon the one who is required by law to pay and this is the important criterion.  The economic incidence of taxes is upon the consumer or buyer and that it may be upon the United States or its instrumentality

            "is but a normal incident of the organization within the same territory of two independent taxing authorities."  Alabama v. King & Boozer, 314 U.S. 1, 8-9 (1941).

             [[Orig. Op. Page 3]]

            The validity of a tax upon one who contracts with or sells to the federal government or its instrumentalities is not

            "dependent upon the ultimate resting place of the economic burden of the tax."  United States v. Allegheny County, 322 U.S. 174, 189 (1944).

            The legal incidence of the Washington real estate sales tax is upon an independent contractor with the federal government.  It is no different than the particular state taxes and other taxes upheld in Alabama v. King & Boozer, supra (sales tax); the companion case ofCurry v. United States, 314 U.S. 14 (1941) (use tax);James v. Dravo Contracting Co., 302 U.S. 134 (1937) (income and gross receipts taxes); and Silas Mason Co. v. Washington State Tax Commission, 302 U.S. 186 (1937) (business and occupation taxes).  TheDravo andSilas Mason decisions held valid a state tax upon an independent contractor with the United States measured by the contract and reimbursed by the government as a part of the contractor's costs.

            A state may constitutionally impose its tax upon one who is an independent contractor with (seller to) the federal government or its instrumentalities when the legal incidence of that tax falls upon the contractor, despite the resultant increased economic burden to the United States, and even though the event giving rise to the tax is a transaction with the United States.  The position of the United States Attorney General in the Alabama v. King & Boozer, supra, 314 U.S. at 4-6 aptly and quite clearly states its position:

            "When the Government buys an article, or receives goods or services under contract, it must in the normal course pay all costs required for the finished product.  These costs include taxes of all forms.  There is no economic reason why these taxes should be valid and a tax upon the final transaction, sale or delivery to the Government, invalid.  True, it is probable that the final tax would somewhat more certainly be shifted to the Government than those anterior in point of time.  But even the final tax is by no means certain to be shifted.  See Mr. Justice Stone  [[Orig. Op. Page 4]] dissenting in Indian Motorcycle Co. v. United States, 283 U.S. 570, 581.  And the earlier taxes could easily be isolated through accounting procedures and by contract be made specifically reimbursable by the Government; yet none would suppose the resulting certainty of tax incidence upon the Government would invalidate taxes otherwise unobjectionable.

            "For these reasons, the economic test is illusory and incapable of consistent application.  * * *

            "The rules of intergovernmental tax immunity, so far as they have been developed and applied to private persons who deal with the Government, exhibit a great diversity of decision and reasoning.  A number of cases have expressly been overruled; many more have been distinguished on the narrowest of grounds; and in still other decisions technical rules have been devised to reach results in practical contradiction of earlier cases.  In short there is no single decision exempting a private taxpayer from a nondiscriminatory tax which can with confidence be said to be good law today.  * * *

            "The validity of taxes challenged as invading the immunity of the government should be decided, we therefore submit, in terms of the legal incidence of the tax."  (Emphasis Supplied)

            See alsoTrinityfarm Construction Co. v. Grosjean, 291 U.S. 466 at 471 (1934).  The validity of a state tax

            "does not depend upon the amount of the exaction, the weight of the burden or the extent of the resulting interference with sovereign independence.  Where it applies the principle is an absolute one wholly unaffected by matters or distinctions of degree.  Indian Motorcycle Co. v. United States, 283 U.S. 570-575 and cases cited."

            "The question is one of power and not economics" Home Savings Bank v. Des Moines, 205 U.S. 503, 519 (1907) and the economic burden is the only peg upon which the contentions of the federal instrumentality-buyer may be hung.

             [[Orig. Op. Page 5]]

            We have located no single case, "which is good law today," decreeing an independent contractor immune from state taxes when the legal incidence of that tax fell upon him despite the resultant increased, and ofttimes heavy, economic burden upon the government.  Every time the validity of a state tax has been denied, the legal incidence of that tax was upon government property, its instrumentalities, or its contracts.  For example, seeSmith v. Kansas City Title and Trust Co., 255 U.S. 180, 211-212 (1921);Federal Land Bank v. Crosland, 261 U.S. 374 (1923);Pittman v. H.O.L.C., 308 U.S. 21 (1939); Federal Land Bank v. Bismarck Lumber Co., 314 U.S. 95 (1941);Maricopa County v. Valley National Bank of Phoenix, 318 U.S. 357 (1943);City of Cleveland v. United States, 323 U.S. 329, 333 (1945); and seeMetcalf and Eddy v. Mitchell, 269 U.S. 514 (1926);Mayo v. United States, 319 U.S. 441 (1943); Educational Film Corp. v. Ward, 282 U.S. 379, 386 et seq. (1931); Alward v. Johnson, 282 U.S. 509 (1931); Liggett & Myers Co. v. United States, 299 U.S. 383 (1937);Standard Oil Co. v. Johnson, 316 U.S. 481 (1942); and seeNelson v. Sears, Roebuck & Co., 312 U.S. 359 (1941); Nelson v. Montgomery Ward & Co., 312 U.S. 373 (1941);Buckstaff Co. v. McKinley, 308 U.S. 358 (1939); and particularlyFidelity & Deposit Co. v. Penn., 240 U.S. 319 (1916).

            The economic burden is the normal and expected burden of the government entering into contracts‑-it is the product of dualism of sovereignty.  Without more, neither sovereign can escape it.  Theright of one to be free of taxation by the other does not spell immunity from the added cost attributable to the taxation of those who sell either supplies or land to the government.

                        4. Validity of Lien

            The federal instrumentality-buyer can little complain of a tax not upon it.  The effect in law on the buyer is that he takes the property impressed with a lien.  The constitutional validity of a tax is not dependent upon the enforceability of one of the remedies of collection.  As a practical matter buyers, federal or otherwise, can and should assure themselves of payment by contract, escrow or other various suitable methods.

            Tax liens do not become extinguished by the transfer of the property on which the lien is impressed to the United States even though the lien may not mature until title is in the government.  See AGO No. 3-9 [[Opinion No. 51-53-404]]to the Prosecuting Attorney, Yakima County, September 12, 1952;  [[Orig. Op. Page 6]] Wash. Const., Art. VII, sec. 3 (19th Amend. 1946); RCW 82.08.180; United States v. Alabama, 313 U.S. 274 (1940);New York v. Maclay, 288 U.S. 290, 292 (1932);Osterberg v. Union Trust Co., 93 U.S. 424, 425, 428 (1876); People v. Commissioners, 104 U.S. 466 (1881); andShotwell v. Moore, 129 U.S. 590, 598 (1889).

            The lien remains unenforceable while the property is in the United States but subsequent purchasers take the property subject to that lien, United States v. Alabama, supra.  Thus if the tax is unpaid, the county treasurer may not foreclose the lien while the United States has the property but he may bring a simple action of debt against the vendor.  If the tax is not paid the lien will be enforceable when the land again reaches the hands of a private individual.

                        5. Recordation

            The recording of a contract or conveyance is a privilege granted by this state.  This particular privilege in Washington is conditioned upon the tax being paid.  Thus the county treasurer may not record the document of sale, RCW 28.45.090 and section V of the Uniform County Ordinance, if the federal instrumentality does not require and the seller does not pay the tax.  The state need not provide either recordation to anyone or preferential treatment to any buyer not constitutionally entitled thereto.  If a state need provide no recordation, it may make the use of the privilege conditional.  SeePittman v. H. O. L. C., 308 U.S. 21 (1939).


Yours very truly,


Attorney General

Assistant Attorney General