SENATE BILL REPORT

SB 5160

As Reported by Senate Committee On:

Housing Stability & Affordability, January 21, 2019

Ways & Means, February 26, 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, 1/21/19 [DP-WM, w/oRec].

Ways & Means: 1/17/19 [w/oRec-HSA]; 1/31/19, 2/26/19 [DPS, w/oRec, DNP].

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 Substitute Senate Bill No. 5160 be substituted therefor, and the substitute bill do pass.

Signed by Senators Rolfes, Chair; Frockt, Vice Chair, Operating, Capital Lead; Mullet, Capital Budget Cabinet; Honeyford, Assistant Ranking Member, Capital; Billig, Carlyle, Conway, Darneille, Hasegawa, Hunt, Keiser, Liias, Palumbo, Van De Wege, Wagoner and Warnick.

Minority Report: That it be referred without recommendation.

Signed by Senator Schoesler.

Minority Report: Do not pass.

Signed by Senators Braun, Ranking Member; Brown, Assistant Ranking Member, Operating; Bailey, Becker, Rivers 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. A surviving spouse or domestic partner of a claimant may continue the deferral program upon the death of the claimant if they are at least 57 years of age and meet all other residency and income requirements.

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 (First Substitute): Senior Citizen, Individuals with Disabilities, and Veterans Tax Relief. The income qualification thresholds for the exemption program are modified beginning with taxes levied for collection in calendar year 2022, 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.

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 (DOR) must authorize an option for electronic filing of applications and renewal applications for the senior citizen, individuals with disabilities, and veterans tax relief program. 

Beginning March 1, 2021, and by March 1st every fifth year thereafter, DOR 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.

Beginning December 1, 2021, and every fifth year thereafter, to assist the Legislature in evaluating the extent in which the property tax exemption program is uniformly and equitably benefiting residential property owners across the state, DOR must submit a report to the Legislature that includes the following information:

• the most recently available income thresholds for each county;

• the number of additional properties exempted resulting from the changes under this act; and

• any other information DOR deems relevant to the Legislature's evaluation of the efficacy of this act in providing additional, uniform, and equitable statewide16residential property tax relief.

DOR must use data provided by county assessors when compiling its report to the Legislature.

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 "relative" means any individual related to the claimant by blood, marriage, or adoption.

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

Property Tax Deferral Program. 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.

Heirs and devisees are added to those individuals who may continue the deferral program upon the death of a claimant.

"Heirs" means those persons, including the surviving spouse, who are entitled under the statutes of intestate succession to the property of a decedent.

"Devisee" means any person designated in a will to receive a disposition of real or personal property.

Tax Preference Performance Requirements. The act is exempt from the tax preference performance review and automatic expiration provisions.

EFFECT OF CHANGES MADE BY WAYS & MEANS COMMITTEE (First Substitute):

• Adds a definition of relative.

• Revises the language around an electronic filing option for program applications so that DOR is required to authorize rather than required to provide an option.

• Changes the month and year in which DOR must publish updated income thresholds.

• Adds heirs and devisees to those eligible to continue the deferral program upon the death of the claimant.

• Requires DOR to report to the Legislature, beginning December 1, 2021, and every fifth year thereafter, the extent to which the changes under this act are uniformly and equitably benefitting residential property owners across the state.

• Makes the act effective with taxes levied for collection in 2022, rather than 2020.

Appropriation: None.

Fiscal Note: Available.

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

Effective Date: The bill takes effect on August 1, 2021.

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): The committee recommended a different version of the bill than what was heard. 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.