Five bills (HB 2157, HB 2156, HB 2158, SB 5998, and SB 5997) that create new state taxes for the proposed state operating budget moved out of their respective committees this week. Expect action on these bills as we head into the last week of the legislative session, as well as on SB 5993, which reforms the Model Toxics Control Account (see previous article). These bills start to give some insight into the final mix and parameters of new revenues the Legislature is considering for the final versions of the budgets that are currently under negotiation.
An amended version of SB 5998 passed out of the Senate Ways & Means Committee on April 18. The current version of the bill would implement a graduated real estate excise tax (REET), effective on January 1, 2020, that would change the current state rate of 1.28% by lowering tax rates for property sales under $450,000 to 1%, and raising rates for the portion of the value above each threshold for sales greater than $450,000. The rates would remain 1.28% for sales of undeveloped land, timberland, agricultural land, or water or mineral rights.
The state REET tax rates would be as follows based on the value of the sale:
- $450,000 or less: rate reduced to 1%
- For portion of sale $450,00 to $900,000: rate increased to 1.5%
- For portion of sale $900,000 to $1.8 million: rate increased to 2%
- For portion of sale $1.8 million to $3.6 million: rate increased to 2.5%
- For portion of sale greater than $3.6 million: rate increased to 3%.
The thresholds would be adjusted by the lesser of inflation on housing (based on the consumer price index for shelter) or 5%, effective in 2023 and updated every four years.
The bill also caps the tax distribution formula for the new REET. It continues the existing diversion of a portion of the state REET from the Public Works Trust Fund (PWTF) to the state education account until 2023. The bill also dedicates new revenues greater than what would have been raised under the current state rate of 1.28% to the state general fund, limiting future growth in the amount raised by the rate changes for the 6.1% portion historically dedicated to the PWTF.
Senate and House versions of bills changing tax preferences and exemptions also passed out of committees last week. An amended version of SB 5997 passed out of the Senate Ways & Means Committee on April 18. The amended bill provides a new state B&O preferential tax rate for travel agents.
The provisions of the bill include:
- Replacing the non-resident sales tax exemption with a refund process; and
- Replacing the preferential rate for B&O taxes on travel agents of 0.275% with a rate of 0.9%.
In the House, HB 2157, which changes tax preferences and extends the State Tax Structure Work Group, passed out of the House Finance Committee on April 19.
The committee-passed provisions of the bill include:
- Reauthorizing the State Tax Structure Work Group;
- Replacing the non-resident sales tax exemption with a refund process;
- Replacing the preferential rate for B&O taxes on travel agents of 0.275% with a rate of 0.9%;
- Providing a tax exemption for a community hospital in King County; and
- Extending the senior citizen property tax exemption.
Two other bills, HB 2156 imposing a capital gains tax and modified REET, and HB 2158 related to a state B&O tax surcharge, also passed out of the House Finance Committee on April 19. These two bills were scheduled for hearing in the House Appropriations Committee on Monday, April 22 at 1:30 pm. HB 2158 would impact cities with sewer and water utilities. Please see our previous article for details. We encourage cities to let you legislators know of this potential impact to sewer rates.
Any final action on these revenue bills will likely await compromise versions of the budgets released in this last week of session once budget negotiations reach agreement.