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AGO 1952 No. 289 -
Attorney General Smith Troy


The inter-transfer of the general partners' interests in the real property of the partnership, pursuant to dissolution, is subject to the county real estate sales tax on the value of the interest transferred.

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                                                                   April 22, 1952

Honorable John J. O'Connell
Pierce County Prosecuting Attorney
Pierce County Court House
Tacoma, Washington                                                                                                             Cite as:  AGO 51-53 No. 289

 Attention:  Robert Jacques, Deputy

 Dear Sir: 

            You request our opinion on whether

             (1) the inter-transfer [[intertransfer]]of interests in the real property of a general partnership pursuant to dissolution agreement is subject to the real estate sales tax;

             (2) if so, how will the selling price be computed; and

             (3) whether dissolution by court order effects nontaxability.

             We conclude:

             (1) the tax is applicable;

             (2) measured by the market value of the interest transferred; and

              [[Orig. Op. Page 2]]

            (3) the method of dissolution is of no moment.



             The applicable cases are few and inapposite.  However, logic supports the following analysis.  We will use these facts for illustration: the partnership of Smith and Jones owns in fee, lots "A" and "B."  By dissolution agreement, Smith receives fee title to lot "A" and Jones receives title to lot "B."  Our above conclusions will remain the same where one partner receives both lots and the other receives personal property (often cash) in exchange for his interest in such real property.

             Chapter 28.45 RCW permits counties to levy an excise tax on the sale of or the

             "transfer * * * of or title to real property, * * * or any estate or interest therein for a valuable consideration," RCW 28.45.010.

             Three elements are necessary to constitute a taxable transfer:  (1) an interest in land, and (2) a transfer of that interest, (3) for consideration.

             Interest in Land:

             The sum of the various estatual [[estate]]interests and rights in land totaling a fee is owned by the partnership.  Under RCW 25.04.260 (RRS § 9975-65, 1945 Supp.) the individual partner holds as a

             "tenant in partnership"

             in the specific property of the partnership.  He is a "co-owner" in such property and his rights and obligations relative to that tenancy or co-ownership lie primarily in statute.  See chapter 25.04 RCW (RRS § 9975-40, et seq. 1945 Supp., as amended).  His interest in the partnership, as distinct from the specific partnership property, is his right to share in the management and profits and is personal property, RCW 25.04.260 (RRS § 9975-65, 1945 Supp.)

             The general American rule is that partnership real estate is regarded as personal property but only insofar as to effectuate payment of partnership debts, adjust partnership equities, and as necessary to conduct partnership affairs.   [[Orig. Op. Page 3]] SeeDavis v. Alexander, 25 Wn. (2d) 458, 171 P. (2d) 167 (1946); 25 A.L.R. 408 (1923); and 40 Am.Jur. 206 § 112.  The fiction of the equitable conversion should not be held to relieve from taxation.

             Thus the partner has a form of interest in land prior to dissolution.  Further, he has a different and larger interest in land after dissolution and equitable conversion will not work the transfer.  In other words, prior to dissolution, by statute, the individual partner has a specific but limited tenancy in all the specific real property of the partnership.  Subsequent to dissolution he has an estate in fee, but only in a portion of that same real property.


             Smith, by the dissolution agreement, has received the real property interests necessary to bring the sum total of his interests in lot "A" to that of an estate in fee.  As to lot "B," he has relinquished or transferred his interests as a tenant in partnership to Jones, which, added to Jones' tenancy in partnership, increase the latter's interest to a fee.  Paraphrased for explanatory purposes, Smith, instead of owning half of lot "A," owns all‑-he has had the other one‑half transferred to him.  See 7 U.L.A. 144-159; §§ 25 and 26, on a similar problem.

             A transfer of an interest in land occurs under either the entity or the individual theory of partnerships.  Subsequent to dissolution, Smith and Jones have something they had not before.  Each hasreceived those additional interests in land necessary to increase the sum total of his rights to an estate in fee, and the other partner has transferred to him those rights.  This is not far from the understanding and intention of the partners.  Smith has exchanged his interest in lot "B" for Jones' interest in lot "A."  An exchange of an interest for consideration is within the normal contemplation of a sale.


             Consideration is the exchange of price received by a promisor for his promise.  Rest. Contracts, Section 75 (1).  In an executed transaction, it is the item of value which has been exchanged for another item of value.  In our example above, Smith transferred his interest in lot "B" to Jones in exchange for Jones' interest for lot "A."  Contractual consideration is present and binding.

             One argument points to the language of the statute relating to the "normal meaning of a sale."  However, an exchange or sale of interests, for consideration, is intended and occurs‑-the transaction is fully within the specific  [[Orig. Op. Page 4]] taxable scope of the statute.  Further, even assuming, which we do not, that this exchange of interests is not within the "normal" meaning of a sale, the legislature did not intend this to be conclusive.  RCW 28.45.010 provides:

             "the term 'sale' shall have its ordinary meaningand shall include * * *" (Emphasis supplied)

             Computation of the Selling Price:

             RCW 28.45.030 defines the taxable selling price as the consideration for the transfer without deductions for liens or encumbrances other than for taxes.  In our example, Smith received Jones' one‑half interest in lot "A."  The tax is therefore imposed on one‑half the market value of lot "A."  This is the most true and fair measure of what Smith received.  Note that as to lot "A," Jones is the seller and liable for the tax.  The formula is no different of application when more than two partners are involved.

             Dissolution by Court Order:

             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).

             We therefore conclude that the tax applies and the method of dissolution is of no moment.

             In answer to your inquiry regarding transfers by a dissolving partnership to a newly created corporation, we enclose our opinion of April 4, 1952, to the Prosecuting Attorney of Spokane County [[Opinion No. 51-53-280]]holding such transfers taxable.  We adhere thereto.

 Very truly yours,
Attorney General 

Assistant Attorney General