[WSBARP] REET Affidavit and Gifts - RE: Recording Standards Commission

[Eric Nelsen]

Apologies for cross-posting but this I think will be of interest to real estate lawyers statewide, regarding deeds that gift equity in a property and the REET exemption. I am doing further research but I think this is where things stand. Title officers and escrow personnel will probably roll their eyes at my naivete.

DOR's policy appears to be that, in order to assert the gift exemption from excise tax, the REET Affidavit must cite a non-existent WAC.

The spreadsheet of valid exemption codes is available on DOR's website, at a link shown at:
https://dor.wa.gov/taxes-rates/other-taxes/real-estate-excise-tax/real-estate-excise-tax-exemptions-commonly-used#gift
The "valid exemption codes" link embedded in the "Disclaimer" section on that page leads to a download of an Excel spreadsheet:
https://dor.wa.gov/sites/default/files/legacy/Docs/forms/RealEstExcsTx/REETExemptions.xlsx
These are apparently all the allowed exemption codes.

So, on gifts:

WAC 458-61A-201(3)<https://app.leg.wa.gov/WAC/default.aspx?cite=458-61A-201> is the exemption for gifts of equity where grantor's debt is assumed or refinanced by the grantee. It reads in its entirety:
(3) Assumption of debt. If the grantee agrees to assume payment of the grantor's debt on the property in return for the transfer, there is consideration, and the transfer is not exempt from tax. Real estate excise tax is due on the amount of debt assumed, in addition to any other form of payment made by the grantee to the grantor in return for the transfer. However, equity in the property can be gifted.

However, you cannot cite that WAC subsection. Nor are you permitted to cite the bare "WAC 458-61A-201" without a subsection. It will be bounced, because you are required to choose one of the following non-existent subsections:
WAC 458-61A-201(a)(1)
WAC 458-61A-201(a)(2)
WAC 458-61A-201(b)(1)
WAC 458-61A-201(b)(2)
WAC 458-61A-201(b)(3)
WAC 458-61A-201(b)(4)

These "subsections" are actually derived from the paragraph numbers on the Supplemental Statement https://dor.wa.gov/sites/default/files/legacy/Docs/forms/RealEstExcsTx/RealEstExTxSpplmtlStmt.pdf, for:
A. Gifts with consideration
1. Grantor (seller) has made and will continue to make all payments after this transfer on the total debt of $ and has received from the grantee (buyer) $ (include in this figure the value of any items received in exchange for property). Any consideration received by grantor is taxable.
2. Grantee (buyer) will make payments on % of total debt of $ for which grantor (seller) is liable and pay grantor (seller) $ (include in this figure the value of any items received in exchange for property). Any consideration received by grantor is taxable.
B. Gifts without consideration
1. There is no debt on the property; Grantor (seller) has not received any consideration towards equity. No tax is due.
2. Grantor (seller) has made and will continue to make 100% of the payments on the total debt of $ and has not received any consideration towards equity. No tax is due.
3. Grantee (buyer) has made and will continue to make 100% of the payments on total debt of $ and has not paid grantor (seller) any consideration towards equity. No tax is due.
4. Grantor (seller) and grantee (buyer) have made and will continue to make payments from joint account on total debt before and after the transfer. Grantee (buyer) has not paid grantor (seller) any consideration towards equity. No tax is due.

DOR's website states<https://dor.wa.gov/taxes-rates/other-taxes/real-estate-excise-tax/real-estate-excise-tax-exemptions-commonly-used#gift>:
The exemption code entered in section 7 of the affidavit must reference the WAC 458-61A-201 and the selection made on the supplemental statement in section A (Gifts with consideration) or section B (Gifts without consideration).

Which would be (sort of) okay if the Affidavit itself actually said that. But the Affidavit form says "If claiming an exemption, list WAC number and reason for exemption. WAC number (section/subsection)." And the instructions attached to the form state: "If you are claiming a tax exemption, cite the specific Washington Administrative Code (WAC) number, section and subsection and provide a brief explanation." So whatever you do, for a gift, don't follow the instructions on the form! Follow the hidden instructions on DOR's website!

Interestingly, DOR apparently does allow a cite to WAC 458-61A-201(2), even though (2) does not define an exemption. It reads:
(2) Consideration. See WAC 458-61A-102<http://app.leg.wa.gov/WAC/default.aspx?cite=458-61A-102> for the definition of "consideration." Consideration may also include:
(a) Monetary payments from the grantee to the grantor; or
(b) Monetary payments from the grantee toward underlying debt (such as a mortgage) on the property that was transferred, whether the payments are made toward existing or refinanced debt.

SO: You can't cite WAC 458-61-A-201(2)(a) or (2)(b), even though those exist (though it's true they do not define exemptions). You can cite (2), though it's not at all clear what exemption that is supposed to mean. Instead, you can cite (a)(2) or (b)(2), even though those don't exist and actually refer to paragraph numbers in the Supplemental Statement and not WAC subsections.

In conclusion-in dealing with a gift transfer that is exempt under WAC 458-61A-201, pursuant to DOR's published spreadsheet, it appears that the only WAC "exemption cites" that DOR will accept are:

WAC 458-61A-201(2) (which isn't an exemption)
WAC 458-61A-201(a)(1) (which doesn't exist)
WAC 458-61A-201(a)(2) (which doesn't exist)
WAC 458-61A-201(b)(1) (which doesn't exist)
WAC 458-61A-201(b)(2) (which doesn't exist)
WAC 458-61A-201(b)(3) (which doesn't exist)
WAC 458-61A-201(b)(4) (which doesn't exist)

Happy Tuesday.

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>

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From: wsbarp-bounces at lists.wsbarppt.com <wsbarp-bounces at lists.wsbarppt.com> On Behalf Of Chris B
Sent: Friday, December 3, 2021 10:09 AM
To: WSBARP at lists.wsbarppt.com
Subject: [WSBARP] Recording Standards Commission

RCW 65.24.040 established a new entity, known as the Recording Standards Commission (RSC).  Its purpose, per that statute is:


The Recording Standards Commission is intended to clarify existing laws regarding the recording of documents with county recording departments and county auditors. Recording standards and practices vary from county to county which creates confusion and liability. Simplified and standardized recording standards and fees are therefore needed to better harmonize practices throughout the state.

The 13 members of the commission are mostly county auditors, as well as a representative from the Washington Mortgage Bankers Assn, Escrow Association of Washington and Washington Land Title Association.  One seat was also set aside for a member of the WSBA.  I was nominated and approved to represent WSBA.

The Commission held its first meeting yesterday, with the attachment as its starting point re: issues to work on.  As you can see, most of the issues are technical in nature as to how the various recorder's/auditor's offices work.

I want to bring to the RSC all of your various gripes about county recorders/auditors offices.  One thing I have learned already is that these offices consider themselves entirely separate (and mostly with no accountability) on issues from the DOR relating to REET.  However, I am pushing for them to at least become aware of these sorts of issues from practitioners.  So (at the risk of blowing up my email in-box), I invite all member of the WSBA Real Property section to email me your issues and concerns with various recording offices.  Please identify which county office you are writing about when you respond.

I have a one year appointment to the RSC, so please bookmark my contact info.


Please note our new website and email address as of 1/1/21.

Chris Benis
First Avenue Law Group, PLLC
321 First Avenue West, Seattle, WA  98119
206.447-1900 office - 206.447.9075 fax - www. firstavenuelaw.com

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