I Transferred an Interest in an Entity that Owns Real Estate in Washington. Is Excise Tax Due on the Transaction?
The Washington Department of Revenue imposes excise tax on each sale of real estate. See RCW 82.45.060. The term “sale” includes the transfer of a controlling interest in any entity with an interest in real property located in Washington for valuable consideration. See RCW 83.45.010(2). The transfer or acquisition of the controlling interest must occur within a twelve-month period. See WAC 458-61A-101.
The definition of a “controlling interest” varies, based on the type of entity involved (i.e. corporation, partnership, association, trust, or other entity). RCW 82.45.033. The Washington Department of Revenue aggregates acquisitions of “persons acting in concert” to determine whether a transfer of a controlling interest has taken place. See RCW 82.45.010. For example, if two individual shareholders in a corporation were acting in concert and transferred more than a 50% interest in the corporation to a third-party, it is likely excise tax would be due on the transaction. See id.
Washington courts have defined “acting in concert” as persons who have a relationship with each other “such that one person influences or controls the actions of another through common ownership.” See Homeowners’ Ass’n v. Hal Real Estate, 148 Wn.2d 319, 335, 61 P.3d 1094 (2002); see also RCW 82.45.010(2)(a). When units of ownership or shares are not commonly owned or controlled, Washington law treats the sale of such units or shares as acting in concert only “when the unity with which the purchasers have negotiated and will consummate the transfer of ownership interest supports a finding that they are acting as a single entity.” RCW 82.45.010(2)(b). Thus, if the acquisitions are completely independent and each buyer of an interest in an entity purchases the interest “without regard to the identity of the other purchasers,” then the transactions are not aggregated for the purposes of applying excise tax. Id.
Transferring an interest in an entity can be a confusing process. A Spokane business law attorney can guide you through the process and help you avoid common pitfalls. Wolff, Hislop & Crockett prides itself on being a trusted legal resource for businesses in the Spokane, Spokane Valley, and Liberty Lake areas and beyond. Contact us today for a consultation.