SENATE BILL REPORT

SB 5160

As of February 28, 2019

Title: An act relating to property tax exemptions for service-connected disabled veterans and senior citizens.

Brief Description: Concerning property tax exemptions for service-connected disabled veterans and senior citizens.

Sponsors: Senators Dhingra, Wellman, Palumbo, Keiser, Rolfes, Das, Randall, Wilson, C., Fortunato, Hasegawa, King and Kuderer.

Brief History:

Committee Activity: Housing Stability & Affordability: 1/21/19 [DP-WM, w/oRec].

Ways & Means: 1/17/19 [w/oRec-HSA]; 1/31/19.

Majority Report: Do pass and be referred to Committee on Ways & Means.

Signed by Senators Kuderer, Chair; Das, Vice Chair; Zeiger, Ranking Member; Darneille, Fortunato and Saldaña.

Minority Report: That it be referred without recommendation.

Signed by Senator Warnick.

Staff: Jeff Olsen (786-7428)

Majority Report: That it be referred without recommendation and be referred to Committee on Housing Stability & Affordability.

Signed by Senators Rolfes, Chair; Frockt, Vice Chair, Operating, Capital Lead; Mullet, Capital Budget Cabinet; Braun, Ranking Member; Brown, Assistant Ranking Member, Operating; Honeyford, Assistant Ranking Member, Capital; Bailey, Becker, Billig, Carlyle, Conway, Darneille, Hunt, Keiser, Liias, Pedersen, Wagoner, Warnick and Wilson, L..

Staff: Alia Kennedy (786-7405)

Background: Property Tax.  All real and personal property in the state is subject to property tax each year based on its value, unless a specific exemption is provided.  The Washington State Constitution limits regular property tax levies to a maximum of 1 percent of the property's value—$10 per $1,000 of assessed value.  Excess levies are not subject to this constitutional limit and require voter approval.  There are statutory rate maximums for individual taxing districts and aggregate rate maximums to keep the total tax rate of regular property taxes within the constitutional limit.  All regular levies, except the state levies, are subject to a statutory revenue growth limit.  If the taxing authority has a population of 10,000 or more, the revenue growth limit is the lesser of inflation or 1 percent plus the valuation of new construction.  If the taxing authority has a population of less than 10,000, the revenue growth limit is 1 percent plus the value of new construction.

The state collects two regular property tax levies for common schools.  The original state levy was first imposed when Washington achieved statehood in 1889.  In 2017, the Legislature adopted EHB 2242, which created the additional state levy.  For taxes levied for collection in calendar years 2018-2021, the combined rate for both state levies is $2.70 per $1,000 of assessed value.  The revenue growth limit does not apply to the state levies during this time.  Beginning with taxes levied for collection in calendar year 2022 and thereafter, the revenue growth limit applies to both levies.  Participants in the senior citizen, individuals with disabilities, and qualifying veterans property tax exemption program receive a partial exemption from the original state levy and a full exemption from the additional state levy.

Senior Citizen, Individuals with Disabilities, and Veterans Tax Relief.  Authorized by a constitutional amendment, qualifying senior citizens, persons retired due to disability, and veterans entitled to and receiving compensation from the United States Department of Veterans Affairs at a total disability rating for a service-connected disability are entitled to property tax relief on their principal residence—property tax exemption program.  To qualify, a person must be sixty-one years old in the year of the application or retired from employment because of disability; own their principal residence; and have a combined disposable income of less than $40,000 a year.  Eligible individuals may qualify for a partial property tax exemption and a valuation freeze.

Combined disposable income is defined as the sum of federally defined adjusted gross income and the following, if not already included:  capital gains; amount deducted for losses; depreciation; pensions and annuities; military pay and benefits; veterans' benefits except attendant care, medical aid, disability compensation, and dependency and indemnity compensation; Social Security and federal railroad retirement benefits; and dividends and interest income on state and municipal bonds.  Payments for the care of either spouse received in the home, in a boarding home, in an adult family home, or in a nursing home; prescription drugs; and Medicare health care insurance premiums are deducted when determining disposable income.

Exemptions for eligible individuals are provided as follows:

• if disposable income is $30,000 or less, all excess levies, the additional state levy, and regular levies on the greater of $60,000 or 60 percent of assessed valuation of a person's residence are exempted;

• if disposable income is $30,001 to $35,000, all excess levies, the additional state levy, and regular levies on the greater of $50,000 or 35 percent of assessed valuation, at a $70,000 maximum, are exempted; and

• if disposable income is $35,001 to $40,000, all excess levies and the additional state levy are exempted.

The valuation of the residence of an eligible individual is frozen, for the purpose of calculating property tax liability, at the assessed value of the residence on the later of January 1, 1995, or January 1 of the assessment year in which a person first qualifies for the program.

Property Tax Deferral Program. The property tax deferral program allows qualifying property owners to make payments of property taxes and special assessments for current and delinquent years. The deferred amount accrues five percent simple interest until repayment is complete. Deferrals must be repaid when the home is sold, the applicant passes away, or the home is no longer used as the primary residence.

To qualify, applicants must own and occupy a primary residence in the state, have a combined disposable income of $45,000 or less, and have enough equity to secure the interest of the state in the property.

Tax Preferences.  State law provides for a range of tax preferences that confer reduced tax liability upon a designated class of taxpayer.  Tax preferences include tax exclusions, deductions, exemptions, deferrals, credits, and preferential tax rates.  All new tax preferences automatically expire after ten years unless an alternative expiration date is provided.  The Joint Legislative Audit and Review Committee is responsible for periodic review of tax preferences.

Summary of Bill: The income qualification thresholds for the exemption program are modified beginning with taxes levied for collection in calendar year 2020, and thereafter, as follows:

• Income Threshold 1 replaces the $30,000 income threshold—Income Threshold 1 is defined as equal to the greater of Income Threshold 1 for the previous year or 45 percent of the county median household income (CMI);

• Income Threshold 2 replaces the $35,000 income threshold—Income Threshold 2 is defined as equal to the greater of Income Threshold 2 for the previous year or 55 percent of CMI; and

• Income Threshold 3 replaces the $40,000 income threshold—Income Threshold 3 is defined as equal to the greater of Income Threshold 3 for the previous year or 65 percent of CMI.

The income threshold for the deferral program is defined as equal to the greater of the income threshold for the previous year or 75 percent of CMI, replacing the $45,000 income threshold.

CMI is defined as median household income estimates for Washington by county of the legal address of the principal place of residence, as published by the Office of Financial Management (OFM).

The Department of Revenue must provide an option for electronic filing of applications and renewal applications for the senior citizen, individuals with disabilities, and veterans tax relief program.  Beginning July 1, 2019, and by January 1 every fifth year thereafter, the department must publish updated income thresholds.  The adjusted thresholds must be rounded to the nearest dollar.  The thresholds must be adjusted to reflect the most recent year available of estimated CMI, including preliminary estimates or projections, as published by the OFM.

A claimant may, among other stated exceptions, be confined to the home of a relative for the purpose of long-term care without disqualification to the property tax exemption program.

The term "principal place of  residence" is defined to mean a residence occupied for more than nine months each calendar year. 

The bill includes language that states the tax preference is exempt from the tax preference performance statement and ten-year expiration date requirements for new tax preferences because the Legislature intends for the preference in this act to be permanent.

Appropriation: None.

Fiscal Note: Available.

Creates Committee/Commission/Task Force that includes Legislative members: No.

Effective Date: The bill contains an emergency clause and takes effect on July 1, 2019.

Staff Summary of Public Testimony on Original Bill (Housing Stability & Affordability): PRO: The changes in the bill help vulnerable populations, including low-income seniors, individuals with disabilities, and disabled veterans, afford to stay in their own homes. With rising housing costs, many seniors and veterans that have lived in their homes for thirty years, find it difficult to stay in their community. The current income thresholds in the bill do not serve the entire state. By tying the thresholds to county median income, it allows for income thresholds to be adjusted to reflect varying incomes and costs across the state, especially in central Puget Sound. Increasingly, seniors are reaching out for assistance with rising tax bills, and property tax relief is needed as soon as possible. The electronic filing requirements may need to be modified or removed.

Persons Testifying (Housing Stability & Affordability): PRO: Senator Manka Dhingra, Prime Sponsor; Joanna Grist, AARP Washington; Jay Arnold, Deputy Mayor, City of Kirkland; Ted Wicorek, Veterans Legislative Coalition (VLC); Dianne Dorey, Lewis County Assessor; Jerry Fugich, VLC; Denise Rodriguez, Washington Homeownership Resource Center.

Persons Signed In To Testify But Not Testifying (Housing Stability & Affordability): No one.

Staff Summary of Public Testimony on Original Bill (Ways & Means): PRO: There is a housing crisis. Senior citizens are in fear of losing their homes. The property tax exemption program does not currently help enough people. Applying the same income threshold across the state does not take into consideration the dramatic differences in average household income among counties and creates inequity in the level of relief. Many seniors are failing to qualify for the program. This bill creates an orderly process that is fair across the state. The earlier effective date than previous versions of this bill is good because people can more quickly begin to qualify and age in place. The Legislature should consider providing funding to support community-based organizations that help seniors through the application process. Many eligible seniors are not taking advantage of the program because the enrollment process too onerous.

OTHER: Under current law, the property tax deferral program may only be extended to a qualifying spouse or domestic partner in the event the claimant passes away, which precludes certain individuals, such as adult children with disabilities, from staying in the home upon the death of the claimant. Extending the deferral program to heirs and devisees would allow those individuals, so long as they independently qualify for the program, to continue the property tax deferral and stay in the home.

Persons Testifying (Ways & Means): PRO: Ted Wicorek, Veterans Legislative Coalition; Jerry Fugich, Veterans Legislative Coalition; John Wilson, King County Assessor; Joanna Grist, AARP; Andy Nicholas, Washington State Budget and Policy Center; Steven Drew, Thurston County Assessor, Association of County Assessors.

OTHER: Chelsea Hicks, Northwest Justice Project.

Persons Signed In To Testify But Not Testifying (Ways & Means): No one.