Source: http://lawfilesext.leg.wa.gov/law/wsr/2011/07/11-07-068.htm
Timestamp: 2020-04-09 11:32:28
Document Index: 199566127

Matched Legal Cases: ['§ 458', '§ 458', '§ 458', '§ 458', '§ 458', '§ 458']

WSR 11-07-068
[ Filed March 21, 2011, 3:28 p.m. ]
Title of Rule and Other Identifying Information: WAC 458-61A-100 Real estate excise tax -- Overview, 458-61A-101 Taxability of the transfer or acquisition of the controlling interest of an entity with an interest in real property located in this state, 458-61A-102 Definitions, 458-61A-107 Option to purchase, and 458-61A-301 Payment of tax, collection responsibility, audit responsibility, and tax rulings.
THIS RULE IS BEING PROPOSED UNDER AN EXPEDITED RULE-MAKING PROCESS THAT WILL ELIMINATE THE NEED FOR THE AGENCY TO HOLD PUBLIC HEARINGS, PREPARE A SMALL BUSINESS ECONOMIC IMPACT STATEMENT, OR PROVIDE RESPONSES TO THE CRITERIA FOR A SIGNIFICANT LEGISLATIVE RULE. IF YOU OBJECT TO THIS USE OF THE EXPEDITED RULE-MAKING PROCESS, YOU MUST EXPRESS YOUR OBJECTIONS IN WRITING AND THEY MUST BE SENT TO Margaret Partlow, Department of Revenue, P.O. Box 47453, Olympia, WA 98504-7453, e-mail MargaretPa@dor.wa.gov , AND RECEIVED BY May 23, 2011.
Purpose of the Proposal and Its Anticipated Effects, Including Any Changes in Existing Rules: The department proposes to amend these rules to recognize provisions of 2ESSB 6143, Part II Tax Avoidance Transactions, sections 207-213. The proposed rule amendments include the following legislative changes and clarifications:
• The date on which an option agreement is executed is the date on which the transfer or acquisition of a controlling interest pursuant to the option is deemed to occur, for the purpose of determining whether a controlling interest was transferred or acquired within a twelve-month period;
• The department may collect REET on the transfer or acquisition of a controlling interest in a corporation from either the corporation or the buyer, or, if the corporation is not publicly traded, from the seller;
• A parent corporation of a wholly-owned subsidiary is responsible for REET if the subsidiary transfers real property to a third party and then dissolves before payment of the tax;
• Providing notice to the department within thirty days of a sale no longer exempts a buyer from liability for REET that has not been paid by the seller; and
• A lien for any unpaid REET attaches to each parcel of property in this state owned by an entity in which a controlling interest has been transferred.
Statutory Authority for Adoption: RCW 82.45.150, 82.32.300, and 82.01.060.
Statute Being Implemented: Provisions of chapter 82.61A RCW and 2ESSB 6143, Part II.
Name of Agency Personnel Responsible for Drafting: Margaret Partlow, 1025 Union Avenue S.E., Suite #544, Olympia, WA, (360) 534-1581; Implementation and Enforcement: Stuart Thronson, 1025 Union Avenue S.E., Suite #100, Olympia, WA, (360) 534-1300.
OTS-3363.1
[Statutory Authority: RCW 82.32.300, 82.01.060(2), and 82.45.150. 05-23-093, § 458-61A-100, filed 11/16/05, effective 12/17/05.]
OTS-3362.5
Legislation adopted in 2010. Effective May 1, 2010, chapter 23, Laws of 2010 1st sp. sess. established new requirements regarding option agreements and regarding enforcement of tax liability. See subsections (3) and (6) through (8) of this section.
(i) In the case of a corporation, either fifty percent or more of the total combined voting power of all classes of stock of the corporation entitled to vote, or fifty percent of the capital, profits, or beneficial interest in the voting stock of the corporation; and
(ii) In the case of a partnership, association, trust, or other entity, fifty percent or more of the capital, profits, or beneficial interest in such partnership, association, trust, or other entity.
(d) "Twelve-month period" is any period of twelve consecutive months and may span two calendar years.
(a) The transfer or acquisition of the controlling interest occurred within a twelve-month period((;)).
Effective May 1, 2010, solely for the purpose of determining whether a transfer or acquisition pursuant to the exercise of an option occurred within a twelve-month period, the date on which the option agreement was executed is deemed to be the date of the transfer or acquisition;
(5) Persons acting in concert. The tax applies to acquisitions made by persons acting in concert, as defined in subsection (2)(f) of this section.
((However, if)) (b) When the parties enter into an agreement to acquire or transfer a controlling interest over time through a series of transactions, the date of sale is deemed the date of the agreement arranging the transactions. The agreement results in the transfer of both a present interest and a beneficial interest in the entity, the sum of which results in a controlling interest, regardless of whether the first of the successive transactions is more than twelve months prior to the final transaction.
(((b))) (c) When the controlling interest is transferred or acquired pursuant to the exercise of an option, the date upon which the option is exercised is the date of sale.
(i) Andrew owns 100% of the voting shares of Topaz Corporation. Andrew signs a binding agreement to transfer 51% of his shares in the corporation to Ted. The agreement states that the transfer will occur as follows: 49% of the shares will be transferred on January 1st, and the remaining 2% of the shares will be transferred on February 1st of the following year. Andrew has contractually agreed to sell 51% of the voting shares in Topaz within a twelve-month period, even though the shares will not actually be transferred to Ted until later. The date of sale is the date of the agreement, and REET is due upon the true and fair value of the property as of the date of the agreement.
(ii) Matt acquires a 10% interest in an entity which owns an apartment building under construction worth $500,000 from Simon on January 30th. On July 30th Matt acquires a 30% interest in the same entity from Mary, but the building is now worth $900,000. On September 30th Matt acquires a 10% interest in the same entity from Ruth, but the building is now worth $1,000,000. These are three separate and completely independent transfers. The final transfer allowed Matt to acquire, within twelve months, a controlling interest in an entity that owns real property. September 30th is the date of sale.
(a) Prior to May 1, 2010, when the seller ((has)) had not paid the tax by the due date and neither the buyer nor the seller ((has)) notified the department of the sale within thirty days of the sale, the buyer ((is)) was also liable for the tax. (((b))) When the buyer ((has)) notified the department of the sale within thirty days of the sale, the buyer ((will not be)) was not held personally liable for any tax due. Effective May 1, 2010, however, notice to the department by either the seller or the buyer does not exempt the buyer from liability for the tax, if the department cannot collect the tax from the seller.
(b) Effective May 1, 2010, the department may, at the department's option, enforce the obligation of the seller.
(c) Unpaid tax is a specific lien on each parcel of real property in this state owned by an entity in which a controlling interest has been transferred or acquired. The lien attaches from the time of sale until the tax is paid, which lien may be enforced in the manner prescribed for the foreclosure of mortgages.
(((a))) (i) The sale must be reported by the seller to the department within five days from the date of the sale on the department of revenue affidavit form, DOR Form 84-0001B. The affidavit form must be signed by both the seller and the buyer, or their agent, and must be accompanied by payment of the tax due.
(((b))) (ii) The affidavit form may also be used to disclose the sale, in which case:
(((i))) (A) It must be signed by the person making the disclosure; and
(((ii))) (B) It must be accompanied by payment of the tax due only when submitted by a seller reporting a taxable sale.
(((c))) (iii) Any person who intentionally makes a false statement on any return or form required to be filed with the department under this chapter is subject to penalty of perjury.
(((d))) (iv) Examples. The following examples, while not exhaustive, illustrate some of the circumstances in which the transfer of an interest in an entity must be reported to the department. These examples should be used only as a general guide. The status of each situation must be determined after a review of all of the facts and circumstances.
(((i))) (A) Simon and Peter each own 40% of the voting shares of a corporation. Paul, Matthew, Mark, and John each own 5% voting shares. Paul acquires Peter's 40% interest, and Matthew's and Mark's 5% interests. This is a taxable acquisition because a controlling interest (50% or more) was acquired by Paul (40% from Peter plus 5% from Matthew and 5% from Mark). This transaction must be reported.
(((ii))) (B) Assume same facts as in example (((d)(i))) (iv)(A) of this subsection. ((Paul's attorney advises him that for his protection, Paul should file an affidavit to disclose the sale.)) Paul files an affidavit to disclose the sale to the department within thirty days of the date of sale. Peter, Matthew, and Mark go on vacation and the affidavit and required tax payment is not sent to the department. The department notifies Peter, Matthew, and Mark of their tax liability, which now includes interest and penalties. ((Due to Paul's disclosure,)) Effective May 1, 2010, Paul is not relieved of ((any)) personal liability for the tax, interest, or penalties, if the department cannot collect from Peter, Matthew, and Mark.
(((iii))) (C) Assume the same facts as in example (((d)(i))) (iv)(A) of this subsection, except Paul only acquires Peter's 40% interest and Matthew's 5% interest. This is not a taxable acquisition because a controlling interest (50% or more) was not acquired by Paul. This transaction does not need to be reported.
(b) Under RCW 43.07.390, an entity must report the transfer of a controlling interest to the secretary of state, and, effective May 1, 2010, also the granting of any option that, if exercised, would result in a transfer or acquisition of a controlling interest. Failure to report a taxable transfer subjects the entity to interest and penalties.
(10) Transfers after tax has been paid. When there is a transfer or acquisition of a controlling interest in an entity and the real estate excise tax is paid on the transfer, and there is a subsequent acquisition of an additional interest in the same entity within the same twelve-month period by a person acting in concert with the previous buyer(s), the subsequent seller is liable for its proportional portion of the tax. After payment by the subsequent seller of its proportional share, the person(s) who previously paid the tax may apply to the department for a refund of the amount overpaid because of the new proportional amount paid as a result of the subsequent transfer or acquisition.
[Statutory Authority: RCW 82.32.300, 82.01.060(2), and 82.45.150. 05-23-093, § 458-61A-101, filed 11/16/05, effective 12/17/05.]
OTS-3364.1
AMENDATORY SECTION(Amending WSR 08-24-095, filed 12/2/08, effective 1/2/09)
(7) "Domestic partner" means one of two adults who are "state registered domestic partners" as defined in RCW 26.60.020.
(8) "Floating home" means a building on a float used in whole or in part for human habitation as a single-family dwelling, which is not designed for self-propulsion by mechanical means or for propulsion by means of wind, and which is on the property tax rolls of the county in which it is located.
(9) "Governmental entity" means the United States, any agency or instrumentality of the United States, the state of Washington ("state"), any government agency, commission, college, university, or other department of the state, any political subdivision of the state, counties, any county agency, council, instrumentality, commission, office, or department, any Washington taxing district, municipal corporations of this state, and any office, council, department, or instrumentality of a Washington municipal corporation.
(10) "Mining property" is property containing or believed to contain metallic or nonmetallic minerals, and sold or leased under terms that require the buyer or lessee to conduct exploration or mining work thereon, and for no other purpose.
(11) "Mobile home" means a mobile home as defined by RCW 46.04.302.
(12) "Mortgage" has its ordinary meaning, and includes a "deed of trust" for the purposes of this chapter, unless the context clearly indicates otherwise. The term "underlying debt" may also be used to refer to a mortgage or other security interest.
(13) "Park model trailer" means a park model trailer as defined in RCW 46.04.622.
(14) "Real estate" or "real property" means any interest, estate, or beneficial interest in land or anything affixed to land, including the ownership interest or beneficial interest in any entity that owns land, or anything affixed to land, including standing timber and crops. The term includes condominiums and individual apartments for which the buyer receives a warranty deed. The term includes used mobile homes, used park model trailers, used floating homes, and improvements constructed upon leased land. The term also includes any part of an irrigation system that is underground or affixed to the land. The term does not include irrigation equipment that is above the ground or that is not affixed to land. See RCW 82.12.020 for the tax treatment of sales of irrigation equipment that is not included in the definition of "real estate."
(15) "Real estate contract" or "contract" means any written agreement for the sale of real property in which legal title to the property is retained by the seller as security for the payment of the purchase price. The term does not include earnest money agreements or options to purchase real property.
(16) "Sale" means:
(b) 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 the purposes of this chapter, all acquisitions of persons acting in concert are aggregated for the purpose of determining whether a transfer or acquisition of a controlling interest has taken place. For purposes of establishing the applicable twelve-month period for a transfer or acquisition pursuant to the exercise of an option, see WAC 458-61A-101.
(17) "Seller" means any individual, receiver, assignee, trustee for a deed of trust, trustee in bankruptcy, trust, estate, firm, partnership, joint venture, club, company, joint stock company, limited liability company, business trust, municipal corporation, quasi municipal corporation, association, society, or any group of individuals acting as a unit, whether mutual, cooperative, fraternal, nonprofit or otherwise, but it does not include the United States or the state of Washington. The term "grantor" is used interchangeably with the term "seller" in this chapter and has the same meaning for purposes of the real estate excise tax.
(18) "Selling price" means the true and fair value of the property conveyed. There is a rebuttable presumption that the true and fair value is equal to the total consideration paid or contracted to be paid to the seller or to another person for the seller's benefit.
[Statutory Authority: RCW 82.45.150. 08-24-095, § 458-61A-102, filed 12/2/08, effective 1/2/09. Statutory Authority: RCW 82.32.300, 82.01.060(2), and 82.45.150. 05-23-093, § 458-61A-102, filed 11/16/05, effective 12/17/05.]
OTS-3365.1
[Statutory Authority: RCW 82.32.300, 82.01.060(2), and 82.45.150. 05-23-093, § 458-61A-107, filed 11/16/05, effective 12/17/05.]
OTS-3366.1
WAC 458-61A-301 Payment of tax, collection responsibility, audit responsibility, and tax rulings. (1) Tax imposed.
(5) Evidence of payment. The county agent stamps the instrument of sale or conveyance prior to its recording as evidence that the tax has been paid or that an exemption from the tax was claimed. In the case of a used mobile home, the real estate excise tax affidavit is stamped as evidence of payment or a claimed exemption. The stamp references the affidavit number, date, and payment of or exemption from tax, and identifies the person stamping the instrument or affidavit.
(6) Compliance with property tax statutes. The county agent will not stamp the instrument of conveyance or affidavit if:
(7) Prerequisites to recording. The county auditor will not file or record the instrument of conveyance until all taxes due under this section have been paid or the transfer is determined to be exempt from tax as indicated by a stamped document.
(11) Tax rulings. Any person may request a written opinion from the department regarding their real estate excise tax liability pertaining to a proposed transfer of real property or a proposed transfer or acquisition of the controlling interest in an entity with an interest in real property. The request should include sufficient facts about the transaction to enable the department to ascertain the proper tax liability. The department will advise the taxpayer in writing of its opinion. The opinion is binding upon both the taxpayer and the department under the facts presented in accordance with WAC 458-20-100(9), appeals, small claims and settlements. To obtain a written opinion, send your request to:
You may also use the "contact" information available online at dor.wa.gov.
(c) Forms and documentation. Refund request forms are available from the department or the county. The completed form along with supporting documentation is submitted to the county office where the tax was originally paid. If the tax was originally paid directly to the department, the claim form and supporting documentation are submitted to:
(i) Real estate excise tax was paid on the conveyance back to the seller in a transaction that is completely rescinded (as defined in WAC 458-61A-209);
(ii) Real estate excise tax was paid on the conveyance back to the seller on a sale rescinded by court order. The county treasurer must attach a copy of the court decision to the department's affidavit copy (see also WAC 458-61A-208, Deeds in lieu of foreclosure);
(iii) Real estate excise tax was paid on the initial conveyance recorded in error by an escrow agent before the closing date, provided that the property is conveyed back to the seller;
(iv) Real estate excise tax was paid on the conveyance back to the seller in accordance with (d)(iii) of this subsection;
(v) Real estate excise tax was paid on the initial conveyance recorded before a purchaser assumes an outstanding loan that represents the only consideration paid for the property, provided:
(vi) The conveyance back to the seller in (d)(v) of this subsection;
[Statutory Authority: RCW 82.32.300, 82.01.060(2), and 82.45.150. 05-23-093, § 458-61A-301, filed 11/16/05, effective 12/17/05.]