BILL REQ. #:  S-0408.2 

Read first time 01/21/2003.   Referred to Committee on Natural Resources, Energy & Water.

     AN ACT Relating to the collection of the real estate excise tax upon transfers of water rights; amending RCW 90.03.280, 82.45.010, and 82.45.090; adding a new section to chapter 90.03 RCW; adding a new section to chapter 90.44 RCW; creating a new section; prescribing penalties; and providing an effective date.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION.  Sec. 1   The legislature intends to improve the real estate excise tax reporting and collection process for the transfer of water rights that are transferred separately from the land. The legislature intends to improve reporting by requiring the department of ecology and water conservancy boards to provide the department of revenue with information about these transfers and to allow the reporting and payment of any real estate excise tax for these transfers to be made directly to the department of revenue, thereby relieving the counties of responsibility for collection of such tax payments and reports. The legislature intends for these improvements in processing to result in a simpler and more coordinated system for collection of the real estate excise tax for these types of water rights transfers.

Sec. 2   RCW 90.03.280 and 1994 c 264 s 83 are each amended to read as follows:
     Upon receipt of a proper application, the department shall instruct the applicant to publish notice thereof in a form and within a time prescribed by the department in a newspaper of general circulation published in the county or counties in which the storage, diversion, and use is to be made, and in such other newspapers as the department may direct, once a week for two consecutive weeks. Upon receipt by the department of an application it shall send notice thereof containing pertinent information to the director of fish and wildlife. Within thirty days of receipt, the department shall provide to the department of revenue a copy of any application to change the place of use of a water right to be transferred from the land to which it is appurtenant and to become appurtenant.

NEW SECTION.  Sec. 3   A new section is added to chapter 90.03 RCW to read as follows:
     In addition to filing with the county auditor under RCW 90.03.380(1), the department shall also provide to the department of revenue a copy of the certificate and report of examination where the department has approved a change in the place of use of a water right to be transferred from the land to which it is appurtenant and to become appurtenant.

NEW SECTION.  Sec. 4   A new section is added to chapter 90.44 RCW to read as follows:
     Within thirty days of receipt, the department shall provide to the department of revenue a copy of any application filed pursuant to RCW 90.44.100 to change the place of use of a ground water right to be transferred from the land to which it is appurtenant and to become appurtenant.

Sec. 5   RCW 82.45.010 and 2000 2nd sp.s. c 4 s 26 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 sale to a regional transit authority or public corporation under RCW 81.112.320 under a sale/leaseback agreement under RCW 81.112.300.
     (o) 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.
     (p)(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 (p)(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 (p)(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)(p)(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)(p)(ii) is imposed upon the person or persons who previously held a controlling interest in the entity.
     (q) The transfer of a water right to the state of Washington for administration as a trust water right under chapter 90.38 or 90.42 RCW.
     (r) The transfer of a water right to a municipally owned public water system or to an irrigation district for the purpose of consolidation of the water right into the water supply services provided by the system or district.
     (s) The transfer of a water right to the United States for purposes of instream flows, municipal water supply, irrigation, or other beneficial uses.
     (t) An exchange of a water right for inclusion of the land associated with that right in an area served by a water system as defined by RCW 80.04.010 when such inclusion is the sole compensation received.

Sec. 6   RCW 82.45.090 and 1993 sp.s. c 25 s 506 are each amended to read as follows:
     (1) Except for: (a) A sale of a beneficial interest in real property where no instrument evidencing the sale is recorded in the official real property records of the county in which the property is located, or (b) the sale of a water right that is transferred separately from the land, or (c) both (a) and (b) of this subsection, the tax imposed by this chapter shall be paid to and collected by the treasurer of the county within which is located the real property which was sold. In collecting the tax the treasurer shall act as agent for the state. The county treasurer shall cause a stamp evidencing satisfaction of the lien to be affixed to the instrument of sale or conveyance prior to its recording or to the real estate excise tax affidavit in the case of used mobile home sales and used floating home sales. A receipt issued by the county treasurer for the payment of the tax imposed under this chapter shall be evidence of the satisfaction of the lien imposed hereunder and may be recorded in the manner prescribed for recording satisfactions of mortgages. Except for an instrument of sale or conveyance for the sale of water right that is transferred separately from the land, no instrument of sale or conveyance evidencing a sale subject to the tax shall be accepted by the county auditor for filing or recording until the tax shall have been paid and the stamp affixed thereto; in case the tax is not due on the transfer, the instrument shall not be so accepted until suitable notation of such fact has been made on the instrument by the treasurer.
     (2) For a sale of a beneficial interest in real property where a tax is due under this chapter and where no instrument is recorded in the official real property records of the county in which the property is located, the sale shall be reported to the department of revenue within five days from the date of the sale on such returns or forms and according to such procedures as the department may prescribe. Such forms or returns shall be signed by both the transferor and the transferee and shall be accompanied by payment of the tax due. Any person who intentionally makes a false statement on any return or form required to be filed with the department under this chapter shall be guilty of perjury.
     (3) For the sale of a water right that is transferred separately from the land and tax is due under this chapter, the sale shall be reported to the department within five days from the date of the sale on such returns and according to such procedures as the department may prescribe. The transferor and the transferee must sign such returns. Payment of the tax due must accompany the return. Any person who intentionally makes a false statement on any return required to be filed with the department under this chapter is guilty of perjury.

NEW SECTION.  Sec. 7   If any provision of this act or its application to any person or circumstance is held invalid, the remainder of the act or the application of the provision to other persons or circumstances is not affected.

NEW SECTION.  Sec. 8   This act takes effect August 1, 2003.