Court Opinion

ID: 9549565
Source: CourtListenerOpinion
Date Created: 2023-08-07 18:21:00.703584+00
Date Added: 2024-06-11T15:20:30.238745
License: Public Domain

Hill, J.
(concurring in the result) — While still a member of this court, Judge Charles T. Donworth wrote a concurring opinion in this case which I now adopt verbatim as my own. It is as follows: I do not reach the issue of the validity of the King County Resolution No. 29779, which is discussed in the majority opinion.
As I view the principal legal issue presented by the stipulated facts, it is whether, under RCW 28.45.010 et seq., the county may validly impose a 1 per cent sales tax on the lessor of real property where the lease contains an option (which the lessee may or may not exercise) to purchase the leased property at any time during the 7-year term of the lease. The instrument was executed on March 19, 1965.
The important provisions of the lease-option are stated in appellant’s brief as follows:
(1) There is an initial term of seven years at a monthly rental of $5,500.00; (2) There is an option to purchase during initial term for the established price of $528,000.00; (3) In the event the lessees exercise their option a formula provides that rentals would be applied toward the purchase price according to a detailed calcu*13lation set forth in the instrument. This formula in essence provides that a part of the rentals would be considered to apply against principal and interest of the option purchase price as though, for the purposes of that calculation only, the option had been exercised at the commencement of the initial lease term. If the option to purchase is not exercised, the lessees are not entitled to a refund of any of the rentals paid.
Appellant tendered a memorandum of the lease to the county auditor for recording, but it was refused because it did not bear the stamp of the county treasurer showing payment of the 1 per cent excise tax on real-estate sales required by Resolution No. 29779. Upon appellant’s request to the treasurer to affix such stamp on the document, his request was refused unless appellant paid an excise tax in the amount of $5,280. This mandamus proceeding was then instituted to compel the county officers above referred to to comply with appellant’s requests.
The question for decision presented by this case is one which was not passed upon by this court in Mahler v. Tremper, 40 Wn.2d 405, 243 P.2d 627 (1952), when the issue of the validity of the same statute was before us. See concurring opinion in that case.
In the Mahler case, it was held by a unanimous court sitting en banc that the tax there involved was an excise tax on the sale of real estate, the court saying, at 406:
The tax incidence in the case at bar relates to the sale of real estate. The tax sustained in the Morrow case, supra [Morrow v. Henneford, 182 Wash. 625, 47 P. (2d) 1016], related to, or was imposed upon, the sale of personal property. Appellant has advanced many ingenious arguments, but we can visualize no distinction between the Morrow case and the one at bar, except the fact that the former was concerned with a transaction tax involving personal property, while the latter is concerned with a transaction tax involving real estate. We recognize the distinction between real and personal property and realize quite well that many arguments involving the difference can be made in an effort to distinguish the tax in the Morrow case from the one in the case at bar. Without more, we are convinced that chapter 11 imposes an excise, and that constitutional provisions relative to taxes *14on property are no more applicable here than they were in Morrow v. Henneford, supra.
After quoting from the Morrow case, supra, and Newman v. Schlarb, 184 Wash. 147, 50 P.2d 36 (1935), we then stated, at 409:
We are committed to the proposition that a tax upon the sale of property is not a tax upon the subject matter of that sale. A sales tax upon personal property or a sales tax upon real property is a tax upon the act or incidence of transfer. The imposition relates to an exercise of one of several rights in and to property. Imposition is not upon each and every owner merely because he is the owner of the property involved.
The act with which we are here concerned was passed by the legislature in 1951.2 See Laws of 1951, 1st Ex. Ses., ch. 11. It is entitled:
An Act relating to the support of the common schools, providing for the levy by counties of excise taxes upon the sale of real estate for the support thereof; repealing sections 28.47.030 and 28.47.040, R.C.W.; and declaring an emergency.
Its stated purpose is to empower counties to levy an excise tax upon the sale of real estate for the support of the common schools. Nothing in the title advises legislators or the public that such excise taxes are also to be levied on the execution of leases of real property wherein the lessee is granted an option to purchase the property during the term thereof.
Article 2, section 19 of the Washington State Constitution provides that:
*15No bill shall embrace more than one subject, and that shall be expressed in the title.
In YMCA v. State, 62 Wn.2d 504, 506, 383 P.2d 497 (1963), this court stated that:
The purposes of this constitutional mandate are: (1) to protect and enlighten the members of the legislature against provisions in bills of which the titles give no intimation; (2) to apprise the people, through such publication of legislative proceedings as is usually made, concerning the subjects of legislation that are being considered; and (3) to prevent hodgepodge or logrolling legislation. Miller v. Tacoma, 61 Wn. (2d) 374, 378 P. (2d) 464, and cases cited therein. As we said in that case, a title complies with the constitution if it gives notice that would lead to an inquiry into the body of the act, or indicate to an inquiring mind the scope and purpose of the law.
In my view, a person reading the title of this act would reasonably infer that the incidence of the tax was the transfer of title to real estate or the execution of a contract between a seller and buyer to convey it upon certain terms. These are the only taxable events indicated by the title. Therefore, in so far as the act purports to levy an excise tax upon a lease with option prior to the exercise of the option, I am of the opinion that the act is repugnant to article 2, section 19 of the state constitution.3
In the body of the act (RCW 28.45.010), the term “sale” is defined as having its ordinary meaning and, in addition, to include
*16[A]ny conveyance, grant, assignment, quitclaim, or transfer of the ownership of or title to real property, including standing timber, or any estate or interest therein . . . and any contract for such conveyance . . . and any lease with an option to purchase real property ....
The second paragraph of the section specifies what is not included in the term “sale.” Among other exclusions is “a transfer of any leasehold interest other than the type mentioned above,” {i.e., a lease with an option to purchase real property).
Thus the act does not authorize the collection of an excise tax by the county upon the execution of a lease of real property or the execution of an option to buy real property. It is only when the two legal transactions are contained in one instrument that the act declares the transaction to constitute a taxable event.
A transfer of a leasehold interest is expressly exempted by the statute. Obviously, a lease does not constitute a “sale,” and cannot come within the ambit of the title of the enactment.
The same is true of an option. In 8 G. Thompson, Real Property § 4569 (perm, ed.), it is stated that:
An option is not an actual or existing contract, but merely a right reserved in subsisting agreement. It is a continuing offer of a contract, and if the offeree decides to exercise his right to demand the conveyance, he must signify that fact to the offerer. The option is not a sale. It is not even an agreement for a sale. At best, it is but a right of election in the party securing the same to exercise a privilege, and only when that privilege has been exercised by acceptance does it become a contract to sell. . . . A contract of sale imposes upon the vendee an obligation to buy. An option confers a privilege or right to elect to buy, but it does not impose any obligation to buy. “An option is nothing more than a continuing offer to sell; but until it is accepted it does not become a contract of sale, for it lacks the element of agreement between the minds of the parties. It is only when there has been an acceptance of a proposal to sell that the vendee becomes in any sense the equitable owner of the subject-matter of the option.” “There is a decided distinc*17tion between an ‘option’ to purchase, which may be exercised or not by the prospective purchaser, and an absolute contract of sale, where one of the parties agrees to sell and the other to buy certain property; the sale to be completed within an agreed time. In the latter case the mere lapse of time with a contract unperformed does not entitle either party to refuse to complete it, and therefore time is not of the essence of the contract; . . . .” (Footnotes omitted.) (Italics mine.)
This court recognized the distinction some 54 years ago in Wright v. Suydam, 72 Wash. 587, 595, 131 Pac. 239 (1913), wherein we said:
In 1 Warvelle on Vendors (2d ed.), §125, the distinction between an option and a contract for sale is commented upon as follows:
“There is a marked distinction between an option of sale and a contract for sale, although such distinction is frequently overlooked. If without consideration an option is a mere proposal which may be retracted at any moment; if given for a consideration it amounts to nothing more than a privilege to purchase at a certain price or within a certain time. It is not a sale; it is not even an agreement for a sale; at best it is but a right of election in the party receiving same to exercise a privilege, and only when that privilege has been exercised by acceptance does it become a contract to sell. If based upon a consideration it cannot be extended beyond the time limited without a new consideration, and even though this is attempted and such extension is evidenced by a writing it is still nudum pactum and void.”
Again, in Jacobson v. Barnes, 158 Wash. 691, 694, 291 Pac. 1109 (1930), we said:
An option does not constitute a sale or contract of sale, and cannot be enforced as such by either party thereto until such option is exercised by acceptance of the offer. 39 Cyc. 1237.
Yet, although the combining of a lease with an option to purchase the leased property changes the nature of neither, the combination is, by RCW 28.45.010, made a taxable event under a statute which purports in its title to impose an excise tax only on the “sale” of real property. This, in *18my opinion, is impermissible under article 2, section 19 of the constitution.
It is to be recognized that the legislature may, by defining the terms used in an enactment, broaden or limit the application of those particular terms. The power is not, however, without limit. One such limit is, it would seem obvious, imposed by article 2, section 19 of the state constitution. If, by use of a definition, the legislature seeks to include within a term used (i.e., sale), matters which bear no reasonable relation to that term and which, therefore, fail to accomplish the threefold purpose of article 2, section 19 (see discussion at page 15, supra), it must be plain that the mandate of article 2, section 19, has been violated by Laws of 1951,1st Ex. Ses., ch. 11.
Therein lies the vice of the present enactment. The legislature has sought to include within the term “sale” (which involves the transfer of an interest for a consideration called the “selling price,” as defined in RCW 28.45.030), matters (i.e., lease-options) which bear no reasonable relation to the term in that the term “sale” fails to (1) enlighten the members of the legislature and apprise them of the provision of which the title gives no intimation; (2) apprise the public concerning the subject of the legislation; and (3) prevent hodgepodge or logrolling legislation.
A second reason upon which I base my view that the act sought to be enforced by King County is void is found in the legislature’s inclusion within its definition of the term “sale” (which is the taxable event upon which the excise tax is based), a lease with an option to purchase. In so doing, the legislature ignored the basic legal distinction between a conveyance of title and the granting of a leasehold interest in real property, and between a contract of sale and an option to purchase. These firmly established and settled distinctions have already been set forth in this concurring opinion in relation to the insufficiency of the title of the act. See, also, Wright v. Suydam, 72 Wash. 587, 131 Pac. 239 (1913), in which this court recognized the antithetical meanings of the terms “sale” and “option to purchase.”
*19But even conceding, arguendo, the sufficiency of the title of the act, I can hardly concede the legislature’s power to abolish such basic distinctions in order to prematurely impose an excise tax on a taxable event which has not yet taken place and may never take place.
There has not been, and may never be, a “transfer of the real property or estate or interest [therein],” which is the event made taxable under this chapter. Unless and until the option is exercised, there has been no “sale” of real property.
A further objection to the imposition of this excise tax in the case of a lease with an option to purchase prior to the exercise of the option is to be found within the act itself.
RCW 28.45.050 provides that the excise tax here in dispute may be imposed by the county commissioners by ordinance:
[U]pon sales of real estate not exceeding one percent of the selling price. (Italics mine.)
Selling price is defined generally by RCW 28.45.030, which provides, in part, that:
As used in this chapter, the term “selling price” means the consideration, including money or anything of value, paid or delivered or contracted to be paid or delivered in return for the transfer of the real property or estate or interest in real property .... (Italics mine.)
It should be readily apparent, even on casual reading, that the excise tax thus provided for cannot be levied, prior to exercise of the option, upon the price for which the optionee may purchase the property should he choose to purchase. Such sum has not been “paid or delivered or contracted to be paid or delivered,” nor has any sum in the present case been so paid or contracted to be paid. It is inconceivable that a tax may be imposed upon such a basis.
In Deer Park Pine Indus., Inc. v. Stevens Cy., 46 Wn.2d 852, 286 P.2d 98 (1955), we had under consideration the applicability of the 1 per cent tax on real-estate sales authorized by RCW 28.45 to the distribution of real prop*20erty to stockholders by the statutory liquidating trustee of a corporation in dissolution. After quoting the definition of selling price, set forth above, the court said, at 855:
The science of semantics would be stretched beyond permissible limits to conclude that the transaction under examination constitutes a sale in “its ordinary meaning.” If the event is a taxable one, it must be held to be such because it constitutes a “conveyance . . . for a valuable consideration.”
There has been, in this case, no conveyance or contract to convey, nor has there been any valuable consideration paid or contracted to be paid upon which the 1 per cent excise tax may be levied under RCW 28.45.030.
Finally, it seems to me that the equities of the situation must not be overlooked. RCW 28.45.035, which was in effect at the time this dispute arose, provided that the board of county commissioners4 shall provide that the tax:
[S]hall not be payable, where inequity will otherwise result, until and unless the option is exercised and accepted.
In Perkins v. King Cy., 51 Wn.2d 761, 321 P.2d 903 (1958), a tax was imposed upon the execution of a contract of sale under which appellant agreed to transfer the title to certain real estate to the purchaser. The vendee defaulted in its payments due under the contract and the parties thereafter agreed to rescind the contract. Appellant applied for a refund of the excise tax which he had paid, and, when the county refused the refund, appellant instituted action in superior court to recover the amount of the tax. The superior court sustained a demurrer to the complaint, and *21the action was dismissed. Upon appeal to this court, we said, at 762:
[A] sale, as defined by RCW 28.45.010, had been consummated, and a so-called taxable event or incident had occurred within the contemplation of the statute. The tax accrued. It was paid by the real-estate vendor to the proper county official. That should be — and as far as we are concerned it is — the end of the matter, because the legislature made no provision in the tax statute for a refund of the excise imposed and collected under the circumstances involved in the instant case.
It should be noted that Ban-Mac, Inc. v. King Cy., 69 Wn.2d 49, 416 P.2d 694 (1966); Estep v. King Cy., 66 Wn.2d 76, 401 P.2d 332 (1965); Senfour Inv. Co. v. King Cy., 66 Wn.2d 67, 401 P.2d 319 (1965); and Doric Co. v. King Cy., 57 Wn.2d 640, 358 P.2d 972 (1961), all permitted recovery of the tax paid under protest which had been levied under the authority of RCW 28.45 and the county enactments pursuant thereto. The court, in the Doric Co. case further held that is was proper for the trial court’s judgment against the county in the action to recover taxes paid under protest to include 6 per cent interest on the amount of the taxes from the date of payment. Doric Co. v. King Cy., 59 Wn.2d 741, 370 P.2d 254 (1962).
The distinction between the Perkins case, supra, and the others above cited is apparent. In Perkins, the tax' was properly levied in the first instance, and was, therefore, not refundable. A taxable event had occurred upon which the tax was lawfully imposed. In the subsequent cases cited, no taxable event had occurred, and the tax was improperly exacted. In such a case, the taxpayer may recover the tax so paid in an action for that purpose.
Applying the rule to the present case, if the giving of a lease containing an option to purchase were properly a taxable event, then the tax could be imposed upon the transaction prior to the exercise of the option. The lessor could not thereafter obtain a refund of the money so paid even though the option was never exercised and no sale ever occurred. Although he never received the purchase *22price, nor even acquired a contract right to that sum, appellant, if denied the mandatory relief prayed for, will be compelled to pay a nonrefundable tax ($5,280) computed on the price for which the optionee can, but may never, purchase the property if he shall choose to do so prior to April 1,1972.
In my view, the imposition of an excise tax in such circumstances would be inequitable per se, and should not be permitted in the case of a lease with an option to purchase unless and until the option is exercised.
This case is before us on an agreed statement of facts. There is nothing in the statement to suggest that the lessor and the lessees were not acting entirely in good faith in negotiating the executing of the lease with the option to purchase. It is not contended by the county that there was any attempt to fix the option price at other than the fair value of real estate involved.
Since I am of the opinion that, as applied to the agreed facts in this case, RCW 28.45 is violative of article 2, section 19, with respect to the title of Laws of 1951, 1st Ex. Ses., ch. 11, and for the reasons stated above, the county is attempting to exact a tax which is not yet due, and hence denies appellant due process and equal protection of the law, I concur in the result of the majority opinion.
I would reverse the trial court’s judgment of dismissal and remand the case with directions to grant appellant’s application for a writ of mandamus, unless, meanwhile, the lessees elect to exercise their option.
Weaver and Rosellini, JJ., concur with Hill, J.

 RCW 28.45.010, the provision of the act which defines “sale,” was first enacted in Laws of 1951, 1st Ex. Ses., ch. 11, § 7, p. 110. It was amended in Laws of 1951, 2d Ex. Ses., ch. 19, § 1, p. 74, again amended by Laws of 1953, ch. 94, § 1, p. 183, and again by Laws of 1955, ch. 132, § 1, p. 574. As originally enacted, the provision read: “. . . and any lease with an option to purchase real property or any estate or interest in real property . . . .” As first amended, the clause read: “. . . and any lease with an option to purchase real property, including standing timber, or any estate or interest therein . . . .” The clause presently provides that: “. . . and any lease with an option to purchase real property, including standing timber, or any estate or interest therein . . . .”

 It should be pointed out that this was the position taken by appellant at the proceedings in the trial court.
I am cognizant of the challenge to RCW 28.45.010 on the ground that it violates article 2, section 19 of the constitution, which was before this court in Mahler v. Tremper, 40 Wn.2d 405, 243 P.2d 627 (1952). In that case, appellant contended that the title was constitutionally defective in that more than one subject was embraced in the text of the bill; specifically, that the provision provided general and unrestricted revenue for the counties by allowing one half of one per cent of the proceeds of the tax to be placed in the current county expense fund, i.e., that the provision constituted a general revenue raising provision which is inconsistent with or beyond the matters enumerated in the title.

 The 1967 legislature substantially altered the provisions oí RCW 28.45.035, which now provides, in part, that: “The state department of revenue shall provide by rule . . . that the tax shall not be payable, where inequity will otherwise result, until and unless the option is exercised and accepted.” (Italics mine.) See Laws of 1967, Ex. Ses., ch. 149, § 1, effective July 1, 1967. A new section was also added to RCW 28.45, which provides that: “The departmnt of revenue is authorized and directed to prescribe minimum standards for uniformity in reporting, application, and collection of the real estate excise tax imposed by this chapter.” See Laws of 1967, Ex. Ses., ch. 149, § 3.