Washington Administrative Code › Title 458 - Revenue, Department of › Chapter 458-61A - Real estate excise tax › GENERAL INFORMATION AND TAXABILITY OF TRANSFERS › Section 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

Current through Register Vol. 24-14, July 15, 2024
(1)
Introduction.
The transfer of a controlling interest in an entity
				that has an interest in real property in this state is considered a taxable
				sale of the entity's real property for purposes of the real estate excise tax
				under chapter 82.45 RCW. This rule explains the application of the tax on those
				transfers.
Legislation adopted in
2019.
Effective January 1, 2020, chapter 424, Laws of 2019 established new
				  requirements , extending the time period in which a controlling interest
				  transfer occurs for real estate excise tax purposes from twelve months to
				  thirty-six months.
(2)
Definitions.
For the purposes of this chapter, the following
				definitions apply unless the context requires otherwise.
(a)
"Controlling interest"
means:
(i) In the case of a profit
				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 any other corporation, or a partnership, association, trust, or other
				entity, fifty percent or more of the capital, profits, or beneficial interest
				in such corporation, partnership, association, trust, or other entity.
Examples.
The following examples, while not
				  exhaustive, illustrate some of the circumstances in which the transfer of an
				  interest in an entity may or may not be taxable. 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.
(A) Able and Baker each own 40% of the voting
				shares of a corporation, Flyaway, Inc. Charlie, Delta, Echo, and Frank each own
				5% voting shares. Charlie acquires Baker's 40% interest, and Delta's and Echo's
				5% interests. This is a taxable acquisition because a controlling interest (50%
				or more) was acquired by Charlie (40% from Baker plus 5% from Delta and 5% from
				Echo). However, if Charlie, Delta, and Echo were to transfer their shares
				(totaling 15%) to Able, those transfers would not be taxable. Although Able
				would own 55% of the corporation, only a 15% interest was transferred and
				acquired, so the acquisition by Able is not taxable.
(B) Melody LLC consists of a general partner
				and three limited partners, each possessing a 25% interest. Even though the
				general partner controls the management and daily operations, a 25% interest is
				not a controlling interest. If someone were to acquire a 50% or greater
				interest from any of the existing partners, there would be a taxable
				acquisition of a controlling interest. If one partner acquires an additional
				25% interest from another partner for a total of a 50% interest, no transfer or
				acquisition of a controlling interest occurs because less than 50% is
				transferred and acquired.
(C) Anne,
				Bobby, Chelsea, and David each own 25% of the voting shares of a corporation.
				The corporation redeems the shares of Bobby, Chelsea, and David. Anne now owns
				all the outstanding shares of the corporation. A taxable transfer occurred when
				the corporation redeemed the shares of Bobby, Chelsea, and David.
(D) Andrew owns 75% of the voting shares of a
				corporation. Andrew transfers all of his stock by 25% portions of the shares in
				three separate and unrelated transactions to Betsy, Carolyn, and Daniel, who
				are not acting in concert. A taxable transfer of a controlling interest occurs
				when Andrew transfers 75% of the voting shares of the corporation, even though
				no one has subsequently acquired a controlling interest.
(E) Big Corporation has two stockholders,
				Adrian and Britain. Adrian owns 90 shares of stock (90%) and Britain owns 10
				shares of stock (10%). Big Corporation owns 60% of the stock of Little
				Corporation, which owns real property. Adrian, by virtue of owning 90% of Big
				Corporation's stock, has a 54% interest in Little Corporation (90% interest in
				Big multiplied by the 60% interest Big has in Little equals the 54% interest
				Adrian has in Little). Adrian sells his 90 shares of stock in Big to Britain.
				Adrian, by selling his 90 shares of Big stock, has transferred a controlling
				interest (54%) in an entity that owns real property (Little). This transfer is
				subject to the real estate excise tax.
(F) Assume the same facts as in Example (E)
				of this subsection, except that Big owns only 50% of Little's stock. Since
				Adrian has not transferred and Britain has not acquired a controlling interest
				in Little (90% x 50%=45%), the real estate excise tax does not apply. If,
				however, Big had transferred its 50% interest in Little, that would be a
				transfer of a controlling interest and it would be subject to the real estate
				excise tax.