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Office of the Attorney General

Attorney General

Bob Ferguson

AGO 1964 No. 86 - Feb 27 1964
Attorney General John J. O'Connell


The transfer of real property to a corporation by the sole stockholder, the consideration being the issuance of common stock to said stockholder, constitutes a sale under chapter 28.45 RCW, the real estate excise tax statute.

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                                                                February 27, 1964

Honorable John G. McCutcheon
Prosecuting Attorney
Pierce County
Tacoma, Washington

                                                                                                                Cite as:  AGO 63-64 No. 86

Dear Sir:

            By a previously acknowledged letter you have requested that we reconsider AGO 59-60 No. 100 [[to Prosecuting Attorney, Pacific County on February 10, 1960]]to determine whether we still adhere to the views expressed therein.

            It was concluded in that opinion that the transfer of real estate to a corporation by the sole stockholder in exchange for additional shares of stock constituted a transaction taxable under chapter 28.45 RCW relating to the real estate excise tax.

            We conclude that the result reached in AGO 59-60 No. 100 is correct.


            The tax in question is imposed pursuant to RCW 28.45.050 which provides:

            "The county commissioners of any county are authorized by ordinance to levy an excise tax upon sales of real estate not exceeding one percent of the selling price.  The rate of the levy shall be determined annually by the commissioners.  The proceeds of the tax provided for in this chapter shall be placed in the county school fund and shall be used exclusively for the support of the common schools:  Provided, That one percent of the proceeds of the tax provided for herein may be placed in the current expense fund of the county."

             [[Orig. Op. Page 2]]

            The contention has been made that the opinion which you have asked us to review is erroneous because in such a transfer there is no valuable consideration present as required by RCW 28.45.010,

             It is fundamental that a corporation is an entity separate and distinct from its shareholders and this is true even though all of the corporate stock is owned by one person.  Patterson v. Ford, 167 Wash. 121, 8 P.2d 1006 (1932); State v. Northwest Magnesite Co., 28 Wn.2d 1, 182 P.2d 643 (1947).  The sole shareholder is not the legal owner of the assets of the corporation, nor has he any property interest therein.  Patterson v. Ford, supra; State of Cal. v. State Tax Comm., 55 Wn.2d 155, 346 P.2d 1006 (1959).

            Shares of corporate stock are personal property and may be bought and sold.  Their value is measured by the value of all the corporate assets, 11 Fletcher, Cyc. Corporations (Perm. Ed.) §§ 5096, 5100, and when issued, such shares must be paid for in money or in  [[Orig. Op. Page 3]] money's worth.  RCW 23.01.150;Electromatic Cooling Co. v. Milne‑Ryan-Gibson, 160 Wash. 320, 294 Pac. 1113 (1931).

            Under the facts we are considering, the corporation has received something of value‑-real estate, and the transferor has received additional shares which are also of value.  The sole shareholder had the right to use the land, and now, when converted into stock, to use the stock for his own purposes.

            As was said in AGO 59-60 No. 100:

            ". . . An interest in real property has been exchanged for common stock in the corporation. . . . Each party has exchanged one set of rights for another and such an exchange is the very essence of consideration.  See Restatement, Contracts, § 75 (1930). . . ."

            It has been suggested that AGO 59-60 No. 100 is inconsistent with AGO 63-64 No. 44 [[to Prosecuting Attorney, Stevens County on July 31, 1963]]and that the latter is a correct statement of the AGO 63-64 No. 44 and that the latter is a correct statement of the law.  AGO 63-64 No. 44 concluded that the tax in question does not apply to the transfer of real property by one corporation to another corporation where the transferor owns all of the outstanding capital stock of the transferee and no additional stock is to be issued in exchange for the property.

            There is, however, a definite distinction between the two opinions.  In 63-64 No. 44, the sole shareholder transferred real estate and the corporation gave nothing in return.  The real estate became a corporate asset in which the shareholder had no property interest.  Patterson v. Ford, supra.  The shares owned by the transferor may have increased in value as a result of the increase in corporate assets but this was automatic and not because of any action on the part of the transferee.  The corporation did not pay or deliver anything in return for the real property.  There was no "selling price" by which the tax could be measured.  See, RCW 28.45.030.

            In 59-60 No. 100, as we have heretofore stated, there was an exchange of rights.  The corporation received real estate and gave its shares of stock in return.  These shares are personal property, have a determinable value and could have been sold for cash to any willing buyer.  They constituted valuable consideration for the transfer of the real estate.

            It has also been suggested that the sole stockholder can obtain  [[Orig. Op. Page 4]] the additional shares by a "stock split" of the stock already issued and that in such a situation there would be no tax.  This may or may not be true.  We do not consider it necessary to discuss this possibility because it involves a different factual situation.  In the transaction here under consideration the additional shares were not obtained in that manner.

            Having re‑examined [[reexamined]]AGO 59-60 No. 100 we are of the opinion that the conclusion stated therein is correct and we now reaffirm it.

            We trust the foregoing will be of assistance to you.

Very truly yours,

Attorney General

Assistant Attorney General

                                                         ***   FOOTNOTES   ***

1/RCW 28.45.010:

            "As used in this chapter, the term 'sale' shall 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 thereinfor a valuable consideration, and any contract for such conveyance, grant, assignment, quitclaim, or transfer, and any 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 . . ."  (Emphasis supplied.)

RCW 28.45.030:

            "As used in this chapter, the term 'selling price' means the consideration, including money or anything of value,paid or delivered or contracted to be paid or delivered in return for the transfer of the real property or estate or interest in real property, and shall include the amount of any lien, mortgage, contract indebtedness, or other incumbrance, either given to secure the purchase price, or any part thereof, or remaining unpaid on such property at the time of sale."  (Emphasis supplied.)