Washington State

Office of the Attorney General

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Bob Ferguson

AGO 1954 No. 225 - Mar 19 1954
Attorney General Don Eastvold


Where an original corporation is divided into two new corporations, the real estate being transferred to one of the new corporations add the personalty to the other, the original corporation retaining all of the capital stock of the two new corporations, the transfer of real property from the original corporation to one of the new corporations constitutes a transfer subject to the real estate excise tax.  The amount of tax payable is based upon the fair market value of the stock in the new corporation which is retained by the original corporation.

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                                                                  March 19, 1954

Honorable Hugh H. Evans
Prosecuting Attorney
Spokane County
Spokane 1, Washington                                                                                         Cite as:  AGO 53-55 No. 225

Attention:  Robert J. McNichols, Civil Deputy

Dear Sir:

            In a recent letter you ask our opinion upon the applicability of the one per cent tax on real estate (chapter 28.45 RCW) to a certain corporate reorganization.  You set forth these facts:

            "A certain corporate business has gone through a re‑organization [[reorganization]]plan.  The original business was entitled, "Corporation A."  Pursuant to the plan, two new corporations were formed, "B" and "C."  The real estate of Corporation A was deeded to Corporation B. The personal property of Corporation A was transferred to Corporation C.  All of the capital stock of the two new corporations, B and C, was issued to Corporation A.  The name of Corporation A was then changed to Corporation A-X.

             [[Orig. Op. Page 2]]

            "When the above transaction had been completed, the original corporation, now entitled "A-X," was dissolved and all of the capital stock of the two new corporations, B and C, was issued to the shareholders of the dissolved corporation in proportion to the shares they owned in that dissolved corporation prior to its dissolution.  The end result is that the stockholders of the original corporation now own the stock in the two new corporations in proportion to their original interests in the business."

            And regarding this factual situation, you ask:

            "(1) Is the transfer of the real property from Corporation A to Corporation B subject to the real estate excise sales tax?

            "(2) If the transaction is subject to the tax, upon what basis would the amount of the tax be determined?"

            It is our opinion that such a transfer is subject to the real estate tax, and that the amount of the tax is to be based upon the "selling price" ‑ the value of the stock received by the seller.


            The term "sale" is defined by RCW 28.45.010 as having its ordinary meaning and including any:

            "* * * transfer of the ownership of or title to real property, including standing timber, or any estate or interest therein for a valuable consideration, * * *"

            Taxability is conditioned upon two essentials:  (1) transfer of an interest in land (2) for a consideration.  The fact of transfer here is obvious; corporation B now is the owner of what, before the transaction, was owned by corporation A.  The fact that the stockholders of the two corporations, and their interests, are identical makes no difference.  A corporation exists entirely separate  [[Orig. Op. Page 3]] and distinct from the persons owning its stock.  State v. Northwest Magnesite Co., 28 Wn. (2d) 1, 182 P. (2d) 643 (1947).  The consideration flowing to corporation B is ownership in the property, and that flowing to corporation A is the stock of B corporation.  The conditions of being a taxable transfer are met.

            We have previously held that the so-called "casual sales" doctrine does not apply to situations of this kind.  It was said in Opinion 53-55-116:

            "* * * This doctrine argues that where a transaction contemplates no commercial profit, or where the beneficial interest is not transferred or the holding entity substantially altered, such as here, or a transfer from a parent corporation to a totally owned subsidiary, the transfer should not be taxed.  This is a legislative, not a judicial doctrine.  Exempting such transactions is valid legislative classification but until such a transaction is made exempt by specific statute it does not and cannot apply.  See Volume 1, 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 at 634, 47 P. (2d) 1016 (1935).

            "The legislature only may grant exemptions, and exemptions are strictly construed.  Boeing Aircraft Co. v. R. F. C., 25 Wn. (2d) 652, 171 P. (2d) 838, 168 A.L.R. 539 (1946);Yakima Fruit Growers Assn. v. Henneford, 182 Wash. 437, 47 P. (2d) 831, 100 A.L.R. 435 (1935); and Norwegian Lutheran Church v. Wooster, 176 Wash. 581, 30 P. (2d) 381 (1934).  The doctrine of 'piercing the corporate veil' does not exist to permit tax avoidance.  Palmolive Co. v. Conway, et al., 43 F. (2d) 226 (D.C.), affirmed 56 F. (2d) 83 (1932) cert. denied 287 U.S. 601 (1932); see also 7 Wis. Law Rev. 250 [[7 Wis. L. Rev. 250]](1932); and 80 U. Pa. Law Rev. 892 [[80 U. Pa. L. Rev. 892]](1932)."

             [[Orig. Op. Page 4]]

            The tax upon this transaction should be based upon the "selling price" as specified in RCW 28.45.030.  That price, in this case, would be the value of the stock of B corporation transferred to A corporation in consideration of the sale.  If this value is not apparent, resort may be made to the appraisement provisions of the act.

Very truly yours,

Attorney General

Assistant Attorney General