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Bob Ferguson

AGO 1957 No. 31 - Mar 13 1957
Attorney General John J. O'Connell


Sales tax applies to construction of buildings, including schools, unless purchaser has no immediate possessory right in the real property upon which the building is constructed.

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                                                                  March 13, 1957

Honorable Lee J. Reynolds
Prosecuting Attorney of Clallam County
Kuppler Building
Port Angeles, Washington                                                                                                                Cite as:  AGO 57-58 No. 31

Attention:  Mr. Nathan G. Richardson, Deputy

Dear Sir:

            You have inquired whether, in view of a recent decision of the supreme court involving the applicability of the state retail sales tax to the construction of homes, such tax is still to be applied to the purchase price of constructing schools.

            Our answer is in the affirmative.


            We assume the decision to which you have reference is Rigby v. State and Century Builders, Inc. v. State, 149 Wash. Dec. 675 [49 Wn. 2d 707], consolidated on appeal.  This decision held that the state retail sales tax did not apply to the purchase price of constructing homes wherein the purchasers contracted to acquire unimproved real property and in the same document contracted to have a home built thereon.  In such a case the court reasoned that when the transaction was closed the purchasers were buying real property, and accordingly they were not "consumers" within RCW 82.04.190 (1955 Supp.), infra.  The facts giving rise to the two cases are as follows:

            The contractor owned large tracts of real property and improved them by clearing, grading and constructing roads, installing water mains and platting them into lots.  The contractor would have various plans for the construction of homes upon these lots which it would offer for sale to the public.  Prospective purchasers would be shown the lots and the plans, and if they were interested would sign an earnest money agreement wherein for a small down payment  [[Orig. Op. Page 2]] the contractor would then be obligated to construct a home according to the plan selected by the purchaser on the real property described in the agreement.  The credit of the purchaser had to be approved by the Veterans Administration before the transaction was closed.  After the home was constructed and had been approved, a deed and mortgage would be executed in accordance with the earnest money agreement.  The earnest money agreement provided that the purchasers were entitled to possession upon the closing of the transaction.

            With reference to the applicability of the retail sales tax, RCW 82.04.050 (1955 Supp.) reads in pertinent part as follows:

            "The term 'sale at retail' or 'retail sale' shall include the sale of or charge made for tangible personal property consumed and/or for labor and services rendered in respect to the following: . . . (2) the constructing, repairing, decorating, or improving of new or existing buildings or other structures under, upon, or above real property of orfor consumers. . ."  (Emphasis supplied.)

            In RCW 82.04.190 (4) (1955 Supp.) "consumer" is defined as including

            "Any person who . . . has the right of possession to . . . real . . . property . . ."

            From the facts above, the court concluded that the earnest money purchasers were not consumers within the meaning of the latter statute, since they did not have the right to possession until the transaction was closed, and at that time the transfer constituted a sale of real property.

            Thus, the decision of the court was predicated upon the applicability of the phrase "right of possession" to purchasers whose earnest money agreements entitled them to possession when the house was completed and the transaction closed.  If a purchaser owns the real property, is a lessee, has an easement in the property, or a right to immediate possession, the construction of a building upon property in which such an interest is held clearly is subject to the retail sales tax.  RCW 82.04.190 (1955 Supp.).

             [[Orig. Op. Page 3]]

            In conclusion, the retail sales tax still applies to the purchase price of constructing buildings, including schools, unless the transaction comes within the narrow fact pattern involved in the above decision.

            We trust the foregoing will be of assistance to you.

Very truly yours,

Attorney General

Assistant Attorney General