Rev. Rul. 58-161

Advice has been requested concerning the applicability of the documentary stamp tax imposed on conveyances of realty to a deed conveying real property to a state by one of the cities located within that state.

A city, in compliance with a resolution of its Common Council, conveyed certain city-owned real property to its parent state, such property to be used for the construction of a state highway. The property was previously a part of the city's waterworks system.

Section 4361 of the Internal Revenue Code of 1954 imposes a tax on each deed, instrument, or writing whereby lands, tenements, or other realty sold shall be granted, assigned, transferred, or otherwise conveyed to, or vested in, the purchaser or purchasers, or any other person or persons, by his, her, or their direction, when the consideration or value of the interest or property conveyed, exclusive of the value of any lien or encumbrance remaining thereon at the time of the sale exceeds $100. Section 4383 of the Code provides that the tax imposed by section 4361 shall be paid by any person who makes, signs, issues, or sells any of the documents and instruments which are subject to tax or for whose use or benefit the same are made, signed, issued, or sold.

M.T. 39, C.B. 1950-1, 141, holds that conveyances of real property to or by a state or a political subdivision or corporate instrumentality thereof are not exempt from the documentary stamp tax merely by reason of the governmental character of one of the parties to the transaction. However, where a state, or a political subdivision or instrumentality thereof, is acting in its governmental capacity, it is considered immune from the tax imposed by section 4361 of the Code. See Revenue Ruling 56-259, C.B. 1956-1, 530, which relates to insurance surance policies purchased from foreign insurers by instrumentalities of a state, and Revenue Ruling 57-349, C.B. 1957-2, 770, which relates to sales or transfers of corporate securities to or by a state or a political subdivision thereof.

The above principle is also applicable where the conveyance is between parties both of which are governmental in character. Therefore, where a deed is given by a county to a town or by a town to a county, if both the county and the town are functioning in a governmental capacity, as distinguished from a proprietary capacity, no liability is incurred by either party because both parties are immune from the tax. For the purpose of determining which functions are governmental and which are proprietary, the presumption may be made that when a state or a political subdivision, or instrumentality thereof, transfers or acquires real property, such transfer or acquisition may be said to be in the exercise of a governmental function. In the situation set forth above, relating to the conveyance of real property from a city to a state, there are no facts which would overcome this presumption.

Accordingly, it is held that, even though the transaction described above is not exempt from the documentary stamp tax, each party to the transaction is immune from the tax imposed by section 4361 of the Code.