AN
ACT Relating to preventing the use of step transactions to avoid real estate
excise tax; amending RCW 82.45.010; and creating a new section.
BE IT
ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:
NEW
SECTION. Sec. 1. In
chapter 25, Laws of 1993 sp. sess., the legislature found that transfer of
ownership of entities can be equivalent to the sale of real property held by
the entity. The legislature further found that all transfers of possession or
use of real property should be subject to the same excise tax burdens.
The
legislature intended to apply the real estate excise tax of chapter 82.45 RCW
to transfers of entity ownership when the transfer of entity ownership is
comparable to the sale of real property. The legislature intends to equate the
excise tax burdens on all sales of real property and transfers of entity
ownership essentially equivalent to a sale of real property under chapter 82.45
RCW.
Sec.
2. RCW
82.45.010 and 1993 sp.s. c 25 s 502 are each amended to read as follows:
(1)
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 therein for 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 at the purchaser's
direction, and title to the property is retained by the vendor as security for
the payment of the purchase price. The term also includes the grant,
assignment, quitclaim, sale, or transfer of improvements constructed upon
leased land.
(2)
The term "sale" also includes the transfer or acquisition within any
twelve-month period of a controlling interest in any entity with an interest in
real property located in this state for a valuable consideration. For purposes
of this subsection, all acquisitions of persons acting in concert shall be
aggregated for purposes of determining whether a transfer or acquisition of a
controlling interest has taken place. The department of revenue shall adopt
standards by rule to determine when persons are acting in concert. In adopting
a rule for this purpose, the department shall consider the following:
(a)
Persons shall be treated as acting in concert when they have a relationship
with each other such that one person influences or controls the actions of
another through common ownership; and
(b)
When persons are not commonly owned or controlled, they shall be treated as
acting in concert only when the unity with which the purchasers have negotiated
and will consummate the transfer of ownership interests supports a finding that
they are acting as a single entity. If the acquisitions are completely
independent, with each purchaser buying without regard to the identity of the
other purchasers, then the acquisitions shall be considered separate
acquisitions.
(3)
The term "sale" shall not include:
(a)
A transfer by gift, devise, or inheritance.
(b)
A transfer of any leasehold interest other than of the type mentioned above.
(c)
A cancellation or forfeiture of a vendee's interest in a contract for the sale
of real property, whether or not such contract contains a forfeiture clause, or
deed in lieu of foreclosure of a mortgage.
(d)
The partition of property by tenants in common by agreement or as the result of
a court decree.
(e)
The assignment of property or interest in property from one spouse to the other
in accordance with the terms of a decree of divorce or in fulfillment of a
property settlement agreement.
(f)
The assignment or other transfer of a vendor's interest in a contract for the
sale of real property, even though accompanied by a conveyance of the vendor's
interest in the real property involved.
(g)
Transfers by appropriation or decree in condemnation proceedings brought by the
United States, the state or any political subdivision thereof, or a municipal
corporation.
(h)
A mortgage or other transfer of an interest in real property merely to secure a
debt, or the assignment thereof.
(i)
Any transfer or conveyance made pursuant to a deed of trust or an order of sale
by the court in any mortgage, deed of trust, or lien foreclosure proceeding or
upon execution of a judgment, or deed in lieu of foreclosure to satisfy a
mortgage or deed of trust.
(j)
A conveyance to the federal housing administration or veterans administration
by an authorized mortgagee made pursuant to a contract of insurance or guaranty
with the federal housing administration or veterans administration.
(k)
A transfer in compliance with the terms of any lease or contract upon which the
tax as imposed by this chapter has been paid or where the lease or contract was
entered into prior to the date this tax was first imposed.
(l)
The sale of any grave or lot in an established cemetery.
(m)
A sale by the United States, this state or any political subdivision thereof,
or a municipal corporation of this state.
(n)
A transfer of real property, however effected, if it consists of a mere change
in identity or form of ownership of an entity where there is no change in the
beneficial ownership. These include transfers to a corporation or partnership
which is wholly owned by the transferor and/or the transferor's spouse or
children: PROVIDED, That if thereafter such transferee corporation or
partnership voluntarily transfers such real property, or such transferor,
spouse, or children voluntarily transfer stock in the transferee corporation or
interest in the transferee partnership capital, as the case may be, to other
than (1) the transferor and/or the transferor's spouse or children, (2) a trust
having the transferor and/or the transferor's spouse or children as the only
beneficiaries at the time of the transfer to the trust, or (3) a corporation or
partnership wholly owned by the original transferor and/or the transferor's
spouse or children, within three years of the original transfer to which this
exemption applies, and the tax on the subsequent transfer has not been paid
within sixty days of becoming due, excise taxes shall become due and payable on
the original transfer as otherwise provided by law.
(o)(i)
A transfer that for federal income tax purposes does not involve the
recognition of gain or loss for entity formation, liquidation or dissolution,
and reorganization, including but not limited to nonrecognition of gain or loss
because of application of section 332, 337, 351, 368(a)(1), 721, or 731 of the
Internal Revenue Code of 1986, as amended.
(ii)
However, the transfer described in (o)(i) of this subsection cannot be preceded
or followed within a twelve-month period by another transfer or series of transfers,
that, when combined with the otherwise exempt transfer or transfers described
in (o)(i) of this subsection, results in the transfer of a controlling interest
in the entity for valuable consideration, and in which one or more persons
previously holding a controlling interest in the entity receive cash or
property in exchange for any interest the person or persons acting in concert
hold in the entity. This subsection (3)(o)(ii) does not apply to that part of
the transfer involving property received that is the real property interest
that the person or persons originally contributed to the entity or when one or
more persons who did not contribute real property or belong to the entity at a
time when real property was purchased receive cash or personal property in
exchange for that person or persons' interest in the entity. The real estate
excise tax under this subsection (3)(o)(ii) is imposed upon the person or
persons who previously held a controlling interest in the entity.
