Three bills (SB 5998, SB 5997, and HB 2158) that change state taxes passed the Legislature as part of the state operating budget revenue package. The Legislature also passed a bill funding the capital budget that reforms the Model Toxics Control Account (see article on SB 5993).
An amended version of SB 5998 passed out of the House Finance Committee and passed the Legislature on April 27. The final version of the bill would implement a graduated state 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 $500,000 to 1.1%, and raising rates for the portion of the value above each threshold for sales greater than $1.5 million. The rates would remain 1.28% for the portion of sales between $500,000 and $1.5 million and 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:
- $500,000 or less: rate reduced to 1.1%;
- For portion of sale $500,000 to $1.5 million: rate remains 1.28%;
- For portion of sale $1.5 million to $3 million: rate increased to 2.75%; and
- For portion of sale greater than $3 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 five percent, effective January 1, 2023, and updated every four years.
The bill also changes the tax distribution formula for the new REET, decreasing the percentages in the state tax formulas so that they are equivalent to current funding levels. 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. As a result, the bill also changes the proportions dedicated to the PWTF and city-county assistance so that these accounts are funded at current levels and do not benefit from the increased revenues raised by the graduated rate changes.
Local authority to impose REET would remain unaffected by the state REET changes.
SB 5997, the amended Senate version of proposed bills changing tax preferences and exemptions, also passed. Provisions of this bill include replacing the non-resident sales tax exemption with a refund process.
Finally, HB 2158, imposing a state B&O tax surcharge on certain services reliant on a highly educated workforce, passed out of the Senate Ways & Means Committee on April 27 and passed the Legislature on April 28. HB 2158 was amended before final passage to exclude utilities from the surcharge.
The bill would impose a 20% B&O surcharge on the tax rate for service and other activities of select businesses resulting in a tax rate increase from 1.5% to 1.8% if more than 50% of annual gross revenues was generated from engaging in the service activities, and additional tax surcharges for high income technology businesses, to fund workforce education.