Washington State

Office of the Attorney General

Attorney General

Bob Ferguson

AGO 1952 No. 313 -
Attorney General Smith Troy


The real estate sales tax applies to the transfer of land from the members of a dissolving partnership to a corporation in return for capital stock.

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                                                                   May 22, 1952

Honorable Ronald R. Hull
Yakima County Prosecuting Attorney
102 County Court House
Yakima, Washington                                                                                                              Cite as:  AGO 51-53 No. 313

Attention:  !ttLon Boyle
            Deputy Prosecutor

Dear Sir:

            You request our opinion whether

            the real estate sales tax applies to land transferred by the partners of a dissolving partnership to a newly created corporation in consideration for capital stock.

            We conclude:

            the tax is applicable.


            Upon certification of school necessity, counties, pursuant to chapter 11, Laws of 1951, Ex. Sess., as amended chapter 28.45 RCW, may impose an excise tax on the sale or transfer of realty.  A taxable transaction is defined to include any

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

             [[Orig. Op. Page 2]]

            In the situation you present, a transfer of real property occurs from the individual partners to a separate legal person, the corporation.  The corporation is an entity entirely distinct and separate from its stockholders.  See Title 23 RCW andState v. Northwest Magnesite Co., 28 Wn. (2d) 1, 41, 182 P. (2d) 643 (1947).  Thus, the remaining question relates to consideration.

            Consideration is the exchange of promises for value, or as sometimes stated, the exchange of a matter of value, received by a promisor for his promise.  See Rest. of Contracts, sec. 75 (1).  In an executed transaction, it is the item of value which has been exchanged for another item of value.  In the situation you describe, an interest in real property has been exchanged for capital stock in a corporation.  Contractual consideration is present and binding upon all parties.  Consideration does not require a "profit" and, of course, need not be in money.

            The transferring partners no longer have an interest in real property.  Their interests have been exchanged for capital stock and the rights, duties and immunities with relation to each are entirely different.  An exchange has been made and an exchange is the very essence of consideration.

            The so-called "casual" sales theory is arguable, but it is primarily a legislative rather than a judicial doctrine and is a valid legislative exemptive classification.  See Vol. I, Prentice‑Hall, State and Local Tax Service, par. 92, 572, and C.C.H. State Tax Cases Reporter, All States, par. 60-203; and see Reif v. Barrett, 355 Ill. 104, 188 N.E. 889 (1933) cited inMorrow v. Henneford, 182 Wash. 625, 634, 47 P. (2d) 1016 (1935).  However, the theory applies only to situations where the beneficial interest has been neither transferred to a different entity nor substantially altered, as it has been here.  The doctrine of "piercing the corporate veil" should not, and as far as we are able to determine has not, been held to be applicable to avoid taxes.

            We enclose for your perusal two opinions of this office, one to the Prosecuting Attorney of Spokane County dated April 4, 1952 [[Opinion No. 51-53-280]], and the other to the Prosecuting Attorney of Pierce County dated April 22, 1952 [[Opinion No. 51-53-289]], which deal with the various aspects of this and related matters.

Very truly yours,

Attorney General

Asistant Attorney General