DEPARTMENT OF REVENUE

[Filed January 18, 2019, 1:44 p.m.]

Preproposal statement of inquiry was filed as WSR 18-22-111.

Title of Rule and Other Identifying Information: WAC 458-61A-103 Transfers involving an underlying debt.

Hearing Location(s): On February 27, 2019, at 10:00 a.m., at Conference Room 252, 6400 Linderson Way S.W., Tumwater, WA 98501.

Date of Intended Adoption: March 6, 2019.

Submit Written Comments to: Rex Munger, P.O. Box 47453, Olympia, WA 98504-7453, fax 360-534-1606.

Assistance for Persons with Disabilities: Contact Julie King or Renee Cosare, phone 360-704-5733 or 360-704-5734, TTY 800-833-6384.

Purpose of the Proposal and Its Anticipated Effects, Including Any Changes in Existing Rules: The department plans to amend WAC 458-61A-103. WAC 458-61A-103(1), which is derived from RCW 82.45.030(3), discusses debt remaining at the time of sale as part of the consideration subject to the real estate excise tax. Additional wording derived from RCW 82.45.030(3), is added for clarification. Current WAC 458-61A-103(2) is not supported by chapter 82.45 RCW, Excise tax on real estate sales, and is deleted. WAC 458-61A-103(3) is also deleted as unnecessary when subsection (2) is deleted. The rule is renumbered to reflect additional examples.

Reasons Supporting Proposal: WAC 458-61A-103(1) is derived from RCW 82.45.030(3), and describes debt remaining at the time of sale as part of the consideration subject to the real estate excise tax. Additional wording derived from RCW 82.45.030(3), is added for clarification. Current WAC 458-61A-103(2) is not supported by RCW 82.45.030(3) or chapter 82.45 RCW. WAC 458-61A-103(3) is also deleted as unnecessary when subsection (2) is deleted. Additional examples are added to illustrate when debt is [a] consideration.

Statutory Authority for Adoption: RCW 82.01.060(2), 82.32.300, and 82.45.150.

Statute Being Implemented: RCW 82.45.030.

Rule is not necessitated by federal law, federal or state court decision.

Agency Comments or Recommendations, if any, as to Statutory Language, Implementation, Enforcement, and Fiscal Matters: WAC 458-61A-103 should be amended, as described above to conform with the statutory basis for this rule in RCW 82.45.030(3).

Name of Proponent: Department of revenue, governmental.

Name of Agency Personnel Responsible for Drafting: Rex Munger, 6400 Linderson Way S.W., Tumwater, WA, 360-534-1554; Implementation and Enforcement: Randy Simmons, 6400 Linderson Way S.W., Tumwater, WA, 360-534-1605.

A cost-benefit analysis is not required under RCW 34.05.328. This is an interpretative rule under RCW 34.05.328 (5)(c)(ii).

This rule proposal, or portions of the proposal, is exempt from requirements of the Regulatory Fairness Act because the proposal:

Is exempt under RCW 19.85.025(3) as the rules are adopting or incorporating by reference without material change federal statutes or regulations, Washington state statutes, rules of other Washington state agencies, shoreline master programs other than those programs governing shorelines of statewide significance, or, as referenced by Washington state law, national consensus codes that generally establish industry standards, if the material adopted or incorporated regulates the same subject matter and conduct as the adopting or incorporating rule.

AMENDATORY SECTION(Amending WSR 05-23-093, filed 11/16/05, effective 12/17/05)

WAC 458-61A-103Transfers involving an underlying debt.

(1) Introduction. The real estate excise tax applies to transfers of real property when the grantee relieves the grantor from an underlying debt on the property or makes payments on the grantor's debt. The measure of the tax is the combined amount of the underlying debt on the property and any other consideration.

((For example,))(2) Consideration. Consideration includes the amount of any lien, mortgage, contract indebtedness, or other encumbrance remaining unpaid on the property at the time of sale. It does not include the amount of any outstanding lien or encumbrance in favor of the United States, the state, or a municipal corporation for taxes, special benefits, or improvements. RCW 82.45.030(3).

(3) Examples. This rule includes a number of examples that identify a set of facts, and then state a conclusion. These examples are only a general guide. The tax results of other situations must be determined after a review of all facts and circumstances.

(a) Example 1. Yen transfers property to Lee that is subject to an underlying debt (i.e., mortgage). ((Yen is personally liable for the debt, meaning that if Yen does not make the payments the lender may foreclose on the property and obtain a judgment against Yen if the value of the property is insufficient to pay the debt.)) Lee agrees to make all future mortgage payments on Yen's debt, but gives no other consideration for the property. Yen owes real estate excise tax on the amount of the underlying debt. Lee's payments on the underlying debt relieve Yen of her debt obligation. Therefore, Yen receives consideration.

(((2) Transfers where grantor has no personal liability for the underlying debt. Real estate excise tax does not apply to transfers of real property subject to an underlying debt when the grantor has no personal liability for the debt and receives no other consideration for the transfer.

For example, Yen purchases property with funds obtained from PSP Corporation and secured only by the property. Yen has no personal liability for this debt. If Yen fails to make payments on the debt, PSP may foreclose on the property but it may not obtain a judgment against Yen. Yen transfers the property to Lee subject to the underlying debt. Lee takes the property subject to the underlying debt, and does not give any other consideration for the property. If Lee fails to make payments, PSP may foreclose on the property but it may not obtain a judgment against Lee (who, like Yen before, has no personal liability for the debt). Because Yen is not personally liable for the debt, Lee's payments on the underlying debt to PSP do not relieve Yen of any liability for the debt. The real estate excise tax does not apply to this transfer because there is no consideration.

(3) Documentation. In order to avoid the incidence of the tax, the grantor must present and maintain proper documentation to verify the type of debt and to confirm that fact that the grantor is not personally liable for the debt.))(b) Example 2. Same facts as above, except Lee also paid Yen $10,000 in addition to making the mortgage payments. In this circumstance, the measure of the real estate excise tax is the amount of the mortgage outstanding at the time of sale, plus the additional consideration paid of $10,000.