[WSBAPT] [ADV] Re: Excise Tax on Easement

[Matt Yates]

It looks like John had the “last word” so I am replying here with Scott’s ultimate resolution.  We enjoyed the lively and thoughtful discussion and valued the perspectives and input.

Scott says as follows:

Thank you for your responses.  I called the Dept of Revenue and I explained the fact pattern and they quoted me:


WAC 458-61A-111
Easements, development rights, water rights, and air rights.
(1) Easements. The real estate excise tax applies to the conveyance of an easement for the use of real property in return for valuable consideration. The real estate excise tax affidavit is required only if the transfer is taxable.
The DOR rep said since there is no consideration, there is no tax owed.  I again asked whether the mutual granting of use of the other party's side of the easement would be considered 'consideration,' and she told me no, not in this this circumstance.  She also told me if the County becomes a stickler and will not record without a Tax Affidavit, to put zeros in the sale value tab and put the above WAC section in the exemption tab and to state 'no consideration given' in the explanation tab.  So that is what I will do.

In doing the math, it would only be a $69 excise tax if we value each half of the easement at $2,000 - totaling $4,000.  So, even if we had to pay the tax, it would be a small amount.

Again, thanks for the great discussion.

--Scott


From: wsbapt-bounces at lists.wsbarppt.com On Behalf Of John J. Sullivan, Esq.
Sent: Sunday, April 12, 2020 10:43 AM
To: 'WSBA Probate & Trust Listserv' <wsbapt at lists.wsbarppt.com>
Subject: Re: [WSBAPT] [ADV] Re: Excise Tax on Easement

The facts are clear in the hypothetical that no cash will exchange hands. It is an easement trade – neighbors granting access easements in mutual consideration of receiving the same.

It is simply not the case that the REET only applies where consideration is in the form of cash, or that it does not apply to grants of easements, or that the WAC is invalid because the statutory authority does not exist to tax the grant of an easement for consideration.

                1.            Application of REET to grants of easements and rights of way: https://www.atg.wa.gov/ago-opinions/taxation-real-estate-sales-tax-application-easements-pipelines-right-ways

                2.            “The REET applies whenever the transfer is for “consideration.” It follows that a transfer for “no consideration” is not taxable. Consideration means money or anything of value, either tangible or intangible, paid or delivered, or contracted to be paid or delivered, including the performance of services, in return for the transfer of real property. The REET applies to both transfers when two properties are exchanged and there is no exemption when the transaction involves an IRC §1031 exchange. “ https://washingtonstaterealestateattorneys.com/2014/11/21/ten-things-you-should-know-about-the-washington-real-estate-excise-tax/

                3.            REET applies to property interests traded for other property interests: https://apps.leg.wa.gov/WAC/default.aspx?cite=458-61A-109

John J. Sullivan


From: wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com> <wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com>> On Behalf Of Inge Fordham
Sent: Saturday, April 11, 2020 1:37 PM
To: WSBA Probate & Trust Listserv <wsbapt at lists.wsbarppt.com<mailto:wsbapt at lists.wsbarppt.com>>
Subject: Re: [WSBAPT] [ADV] Re: Excise Tax on Easement

It seems the assumption in this chain is that money always exchanges hands for an easement. That’s often not the case - for a variety of reasons. Where no consideration is given, it’s my understanding that an excise tax affidavit is not necessary. If two neighbors want to execute an easement regarding a driveway, assuming neither is paying for the easement, I don’t believe an excise tax affidavit is necessary.
Inge A. Fordham
Fordham Law, PLLC
3218 Sixth Avenue
Tacoma, WA 98406
(253) 348-2657

On Apr 11, 2020, at 1:27 PM, "mlstone at rockisland.com<mailto:mlstone at rockisland.com>" <mlstone at rockisland.com<mailto:mlstone at rockisland.com>> wrote:


Definitely if you receive cash in exchange for an easement, excise tax must be paid.

From: wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com> <wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com>> On Behalf Of John J. Sullivan, Esq.
Sent: Saturday, April 11, 2020 12:21 PM
To: 'WSBA Probate & Trust Listserv' <wsbapt at lists.wsbarppt.com<mailto:wsbapt at lists.wsbarppt.com>>
Subject: [ADV] Re: [WSBAPT] Excise Tax on Easement

Reaching back to first year of law school, I’ve always understood a grant of an easement as a conveyance of a property interest that runs with title, not just a license for use. That’s something different.

https://realestate.findlaw.com/land-use-laws/easement-basics.html

If there’s no consideration. There’s no REET or affidavit. I’m not a dirt attorney, just a dumb tax attorney, so I’m not certain when that would occur. Maybe easements to municipalities in lieu of condemnation? But if I receive cash in exchange for an access easement across my neighbor’s land I would fully expect to pay REET on that grant. In this hypothetical the consideration is also in the form of a grant of an easement. The thing too is the easements may not be of equal value. But each does have value. It will run with the land.


From: wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com> <wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com>> On Behalf Of Bryce Dille
Sent: Saturday, April 11, 2020 11:39 AM
To: 'WSBA Probate & Trust Listserv' <wsbapt at lists.wsbarppt.com<mailto:wsbapt at lists.wsbarppt.com>>
Subject: Re: [WSBAPT] Excise Tax on Easement

I think there is no statutory basis for that WAC on easements look at  RCW 82.45.010 which defies a sale as a conveyence, grant , assignment, quitclaim, or transfer of or title to real property. An easement only conveys the right to use the property subject to the easement and doesn’t affect the title or ownership. The balance of that WAC talks about tax on development rights etc

From: wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com> <wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com>> On Behalf Of John J. Sullivan, Esq.
Sent: Saturday, April 11, 2020 1:37 AM
To: 'WSBA Probate & Trust Listserv' <wsbapt at lists.wsbarppt.com<mailto:wsbapt at lists.wsbarppt.com>>
Subject: Re: [WSBAPT] Excise Tax on Easement

Matt and Bryce:

How is it not taxable?? There is valuable consideration being paid by both fee owner. Up to now they’ve been tolerating trespass by each other. Now they’re going to formalize the arrangement and grant each other enforceable rights to trespass.  It’s not adverse possession, since it’s been with permission. But for the mutuality there would be a cash payment by the recipient.

Sorry, but I think you get an appraiser to value each easement grant. I’m not a dirt attorney, so I can’t tell you whether the neighbors record one easement that applies to both parcels, or separate ones from each side, but either way the value is the same. In the case of a single recording the consideration is combined and presumably the tax is split. In the case of separate recordings, they each pay there respective shares of the overall value – assuming the easement extends equally into parcels of equal value.

You could go for a letter ruling, but I’m not sure what argument you would have for exemption. There’s definitely consideration being exchanged between the parties.

Unless … and this is a half-baked thought … you take the position the easement existed at the time the current owners took title (if supported by the facts) and you can get the prior owners to rerecord the prior deeds, with the “easement” recited in the deed, and claim exemption under WAC 458-61A-217. But that’s really a half-baked idea. The dirt attorneys would have to opine on whether the “easement” existed at the time of the prior conveyance and should have been included in the old deeds. I think that’s the only way this would pass muster.

It’s late. If I’m way off base, let me know.

John J. Sullivan

From: wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com> <wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com>> On Behalf Of Bryce Dille
Sent: Friday, April 10, 2020 5:14 PM
To: 'WSBA Probate & Trust Listserv' <wsbapt at lists.wsbarppt.com<mailto:wsbapt at lists.wsbarppt.com>>
Subject: Re: [WSBAPT] Excise Tax on Easement

WAC 458-61A-111 states that an excise tax affidavit is only required where  valuable consideration is given It states the affidavit is not required if not taxable and your transaction would not fall under that category since it is not taxable under the WACS you cited.

From: wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com> <wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com>> On Behalf Of Matt Yates
Sent: Friday, April 10, 2020 4:50 PM
To: wsbapt at lists.wsbarppt.com<mailto:wsbapt at lists.wsbarppt.com>
Subject: [WSBAPT] Excise Tax on Easement

Hello Listmates.  Posting the question below for another attorney at my firm.  Any input is welcome since we have not encountered this issue before.

Two adjacent lots share a driveway.  The owners want to establish a mutual easement for use of the shared driveway before one of the properties is sold to a third party.  The driveway easement will straddle the property line 10 feet on each side, and both lot owners will drive over the easement.  I'm looking at the excise tax WACs and see no exemption for this transaction - WAC 458-61A-11 says easements are taxed.

No money is being exchanged - the parties are just trying to forestall any disputes about the use of the shared driveway before selling to someone they don't know (there's also an included road maintenance agreement that is new).  This transaction feels more akin to the boundary line adjustment exception under WAC 458-61A-109(2)(b) and example (3)(a).  I know it's not a boundary line dispute and no quit claim deed is being given, but it still feels like it's a resolution of a dispute over USE of the property.  Would WAC 458-61A-215 apply?  Again that exemption talks about quit claim deeds, not easements.

Am I missing an exemption here?

If it will be taxed, how do I determine the value of the property to be taxed?

Also, since each is giving an easement to the other, are there 2 transactions requiring two separate Affidavits and taxes to be paid? (I feel I'm overthinking this part).

Matthew D. Yates
Attorney at Law
Yates Marshall, PLLC
10000 NE 7th Avenue, Suite 200
Vancouver, WA 98685
Phone: (360) 449-6100
Fax: (360) 449-6111
matt at yatesmarshall.com<mailto:matt at yatesmarshall.com> (New Email Address)
www.yatesmarshall.com<http://www.yatesmarshall.com>

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