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Office of the Attorney General

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Bob Ferguson

AGO 1951 No. 158 -
Attorney General Smith Troy


A corporate merger is not a transfer of property as contemplated in the real estate excise tax, and therefore such tax does not apply.

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                                                                October 29, 1951

Honorable Phillip G. Sheridan
Snohomish County Prosecuting Attorney
Central Building
Everett, Washington                                                                                                              Cite as:  AGO 51-53 No. 158

Dear Sir:

            You inquire:

            Whether a corporate merger under the uniform business corporations act constitutes a "sale" within the meaning of the real estate sales tax.

            We conclude that it does not.


            The "merger," or consolidation, of two corporations is a fusion of entities or an absorption of the lesser into the whole.  Black's Law Dict. (3d Ed. 1933) 1180-1181.  The governing statutory procedure is set out in the Uniform Business Corporation Act adopted by this state.  Rem. Rev. Stat., §§ 3803-41 to 3803-46.  The effect, simply described, is to make one where before there were more.  By operation of law, the stockholders of each corporation receive a proportionate interest in the other or others in exchange for a like proportional interest.  We assume from your inquiry that either one or both of the corporations here involved has a taxable interest in real property.

            The stockholders of each corporation, of course, receive consideration for the merger.  Whether the corporations, as separate entities, receive consideration is debatable since the fusion operates to extinguish them.  The question is,  [[Orig. Op. Page 2]] therefore, whether the transaction either (1) as to the corporate entities, or (2) as to the stockholders, is contemplated as taxable by the real estate sales tax imposed by various counties, as authorized by chapter 11, Laws of 1951, 1st Ex. Sess. as amended by section 1, chapter 19, Laws of 1951, 2d Ex. Sess.

            The term "sale" of real property is defined as carrying its

            "ordinary meaning."

            The statute then specifies certain transactions, an examination of which indicates a primary intent to describe, although certain specific additions appear made.  A "sale" is ordinarily defined as a completed contract by which one party has transferred an interest in property (normally title and possession) to another in exchange for consideration.  Vold on Sales (1931) 5, 125-130.  Its nature presupposes the existence of the parties after the completion of the transaction.


            A corporation is an entity existing separately and irrespective of the persons owning its stock.  State vs. Tacoma Railroad and Power Co., 61 Wash. 507, 112 Pac. 506, 32 L.R.A. (N.S.) 720 (1911),State vs. Northwest Magnasite Co., 28 Wn. (2d) 1, 182 P. (2d) 643 (1947).

            A merger or consolidation of two corporate entities, although involving consideration is not a transfer, but a fusion of assets.  Dodier Realty and Inv. Co. vs. St. Louis Nat. Baseball Club, 238 S.W. (2d) 321 (Mo. 1951);Electric Bond Share Co. vs. New York, 249 App. Div. 371, 293 N.Y.S. 175, affirmedper curiam, 274 N.Y. 625, 10 N.E. (2d) 583.  See also 15 Fletcher on Corporations, § 7044 and annotations;Rochelle Investment Corporations vs. Fontenot, 34 F. Supp. 118; (D.C. 1940)U. S. vs. Seattle First National Bank, 136 F. (2d) 676 (9-Cir. 1943)cert. denied, 321 U.S. 583 but see State Street Co. v. Hassett, 134 F. (2d) 156, 159 (1-Cir. 1943).  We therefore conclude a corporate merger is not such a transfer of assets so as to be within the "ordinary meaning" of a "sale."  The terms of the statute discloses that it is not within any of the transactions specifically included in the term.


            The stockholders' interest is separate and distinct from that of the corporation.  It has been generally described as the right to participate in management, to share in net earnings, and to be subject to corporate liabilities to the extent of  [[Orig. Op. Page 3]] the stock investment.  Whitman vs. Consol. Gas, Elec. Light & Power Co., 148 Md. 90, 129 A. 22 [[129 Atl. 22]], 27 (1925).  The stockholder has an interest in seeing that corporate real property is managed properly, etc., but he has no interest or estate in the real property as such.  Miller v. United States, 78 U.S. (Wall.) 268 (1870); 13 Am.Jur. 465 § 412.  It is only the transfer of real property interests with which the real estate sales tax is concerned.  Therefore, the transfer of a stockholder's interest is not subject to that tax.

            We therefore conclude that the merger of two or more corporations is not a "sale" or transfer of real property subject to the real estate sales tax.

Very truly yours,

Attorney General

Assistant Attorney General