TAXATION - REAL ESTATE EXCISE TAX - APPLICABILITY TO CONVEYANCES WHERE THE OWNER CONVEYS TO A CONTRACTOR WHO IN TURN CONVEYS TO A THIRD PARTY

TAXATION - REAL ESTATE EXCISE TAX - APPLICABILITY TO CONVEYANCES WHERE THE OWNER CONVEYS TO A CONTRACTOR WHO IN TURN CONVEYS TO A THIRD PARTY.

The county real estate excise tax applies to both conveyances where an owner desiring a new home conveys his existing home to a contractor who first uses the old home as collateral to secure a loan under FHA to finance the construction of the new home and then conveys the old home to a third person.

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                                                                 August 15, 1960

Honorable John G. McCutcheon
Prosecuting Attorney
Pierce County
Tacoma, Washington                                                                                                   Cite as:  AGO 59-60 No. 135

Dear Sir:

            By letter previously acknowledged you requested an opinion as to the tax implication of transactions stemming from new rules and regulations promulgated by the Federal Housing Administration.  For purposes of simplification we set out a hypothetical situation which is illustrative of the general question presented: When an owner desiring a new home conveys his existing home to a contractor which is used by the contractor as collateral to secure a loan to finance the construction of the new home, and upon completion of the new home the contractor conveys the old home to a third person, are both conveyances subject to the real estate excise tax?

            It is our opinion that both conveyances are subject to the county real estate excise tax.

                                                                     ANALYSIS

            The real estate excise tax is imposed by counties pursuant to authority of the enabling legislation enacted by chapter 11, Laws of 1951, 1st Ex. Sess., as amended.  Chapter 28.45 RCW.  RCW 28.45.050 authorizes imposition of a tax "upon sales of real estate."  Sale is defined in part by RCW 28.45.010 to:

            ". . . have its ordinary meaning and shall include any conveyance, grant, assignment, quitclaim, or transfer of the ownership of or title to real property, including standing timber, or any estate or interest therein for a valuable consideration, and any contract for such conveyance, grant, assignment, quitclaim, or transfer, and any  [[Orig. Op. Page 2]] lease with an option to purchase real property, including standing timber, or any estate or interest therein or other contract under which possession of the property is given to the purchaser, or any other person by his direction, which title is retained by the vendor as security for the payment of the purchase price."

            Under this definition, sale includes a transfer of any interest in real estate for a consideration.  Thus, if either of the conveyances described in the hypothetical situation effects the transfer of an interest in real estate for a consideration, a sale occurs, and the tax applies.

            We have previously held in AGO 53-55 No. 288 [[to Prosecuting Attorney, Spokane County on July 23, 1954]]that when an owner transfers an unimproved parcel of real property to a builder so as to secure financing of a building, and when, upon completion of the building, the builder transfers the real property back to the owner, separate consideration exists for each transfer, and hence both transfers are taxable.  Transposing the facts at hand to the rationale expressed in AGO 53-55 No. 288, we likewise find separate considerations existing for the two transfers.

            Note that AGO 53-55 No. 288 confined its facts to deeds "absolute in form."  We raise this question in anticipation that some of the deeds executed by an owner to a contractor are not "absolute in form."  In other words, these deeds may be executed in blank.  We deem this fact immaterial under the authority of AGO 57-58 No. 70 [[to Prosecuting Attorney, Yakima County on May 23, 1957]], which held that one who gives consideration and accepts a deed in blank receives equitable title to the property.  As stated in AGO 57-58 No. 70,

            ". . . the delivery of the deed to the realtor vests in him at least an equitable title.  When he in turn finds a buyer, and inserts that person's name in the deed, the deed thereupon becomes operative to convey to such buyer the legal title.  At that time the realtor's equitable ownership is merged in the legal title and his recently acquired interest in the property is transferred for a consideration to the buyer."

            We, therefore, conclude that in both transfers an "interest in real estate" passes for a consideration, and consequently both transfers are taxable.

Very truly yours,

JOHN J. O'CONNELL
Attorney General

JAMES A. FURBER
Assistant Attorney General