[WSBAPT] REET Exemption for Partition

[Eric Nelsen]

My first thought while reading your post was that there was a WAC exemption example that fit your facts precisely. I don't know why DOR would object on that basis-TICs owing multiple parcels together partitioning so that they each own whole parcels.

Sincerely,

Eric

Eric C. Nelsen
Sayre Law Offices, PLLC
1417 31st Ave South
Seattle WA 98144-3909
206-625-0092
eric at sayrelawoffices.com<mailto:eric at sayrelawoffices.com>

From: wsbapt-bounces at lists.wsbarppt.com <wsbapt-bounces at lists.wsbarppt.com> On Behalf Of John Sullivan
Sent: Tuesday, February 6, 2024 4:45 PM
To: listsender-rppt-kcba at info.kcba.org <listsender-rppt-kcba at lists.kcba.membercentral.org>
Cc: wsbarp at lists.wsbarppt.com; wsbapt at lists.wsbarppt.com
Subject: [WSBAPT] REET Exemption for Partition

Fellow Listservers:

Has anyone else had a client's REET affidavit that claimed the exemption under WAC 458-61A-204(2) audited and the exemption denied following Det. No. 21-0045, 41 WTD 333 (2022) (copy attached)?

The WTD Deals with an agreed partition between two tenants in common. They owned six parcels in common. The properties were mortgaged, and they were both on the notes. Under a voluntary partition agreement (no lawsuit) they each received three properties. But they must have gotten the lender to bifurcate the underlying debt, so that each would be liable for half of the total, secured only by the properties that tenant received. The DOR denied the exemption. IMHLO they could have done so in the case at hand because there was "additional consideration passing" in the form of the debt restructuring. But that's not where the DOR took it. Instead, they relied on a strained interpretation of the WAC language. They held that the WAC provision that "A partition results when tenants in common agree that certain tenants will be assigned certain particular tracts within the property that they own together." limits the scope of the exemption to those rare partitions where a single parcel is actually physically divided through a lot line adjustment or short plat.

I have not yet discussed the case with the auditor, but I have a great deal of difficulty agreeing with the WTD. First, the statute, RCW 82.45.010(3)(e) simply provides that a "sale" does not include "The partition of property by tenants in common by agreement or as the result of a court decree."

RCW 82.45.010: "Sale" defined. (<i>Effective until January 1, 2030.</i>) (wa.gov)<https://app.leg.wa.gov/RCW/default.aspx?cite=82.45.010>

But the part that really causes me cognitive dissonance is the fact that the first example in WAC 458-61A-204 flies in the face of the WTD. That example clearly contemplates a situation where the tenants partition common ownership of several parcels into each tenant owing a single parcel.

"(a) Betsy, Haley, and Kalli own five riverfront parcels as tenants in common. One parcel is worth twice as much as any of the others, which are all equivalent in value. The property is partitioned. Betsy receives the especially valuable parcel; Haley and Kalli receive two parcels each. No real estate excise tax is due, since the partition of the property is by agreement and no additional consideration passed between the parties."

WAC 458-61A-204:<https://app.leg.wa.gov/WAC/default.aspx?cite=458-61A-204>

In my client's case the parcels involved were owned free and clear, and the partition was pursuant to a settlement agreement ending an actual partition lawsuit.

I am at a loss to understand this so far but hope a conversation with the auditor will suffice to clarify things.

Anybody else run into this?
Best regards,
John J. Sullivan
Attorney

Lyons | Sullivan
10655 NE 4th Street, Suite 704
Bellevue, WA  98004
425*451*2400 tel 425-451-7385 fax
www.dljslaw.com<http://www.dljslaw.com/>

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