AN ACT Relating to taxation of rehabilitated residential property; and adding a new chapter to Title 84 RCW.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION. Sec. 1. The legislature finds that it is in the public interest to encourage the rehabilitation of existing rental units in substandard condition and the conversion of units of transient accommodation to permanent residential units and the conversion of nonresidential structures to permanent residential units in order to make these units sound additions to the housing stock of the state. The legislature further finds that cities and counties of this state should be enabled to establish and design programs to stimulate such rehabilitation or conversion based on the incentive of a local property tax exemption.

NEW SECTION. Sec. 2. Unless the context clearly requires otherwise, the definitions in this section apply throughout this chapter.

(1) "Governing body" means the city or county legislative body having jurisdiction over the property for which a limited exemption may be applied for under this chapter.

(2) "Rehabilitation improvements" means modifications to existing structures which are made to achieve a condition of substantial compliance.

(3) "Rehabilitated rental residential property" means land and the improvements thereon:

(a) Which are either single or multifamily residential units and not owner-occupied or are not residential units but which will become nonowner-occupied residential units through rehabilitation improvements;

(b) Which fail to comply with one or more standards of the applicable state or local building or housing codes on or after the effective date of this act;

(d) Which provide at least fifty percent of their accommodations for residential and not transient occupancy; and

(e) On which sums have been expended after the effective date of this act, and prior to January 1, 1999, for the purpose of making rehabilitation improvements, and which sums in the aggregate equal or exceed five percent of the true cash value of the land and improvements thereon as reflected in the last equalized assessment roll next preceding the date on which the application for limited exemption is filed with the assessor pursuant to this chapter.

(4) "Substantial compliance" means compliance with local building or housing code requirements, or where there is no building or housing code, with basic health and safety standards, as described in the Uniform Housing Code, as published by the International Conference of Building Officials. It shall not mean that all heating, plumbing, and electrical systems be replaced with systems meeting current standards for new construction, notwithstanding that the cost of rehabilitation may exceed fifty percent of the value of the structure before rehabilitation.

NEW SECTION. Sec. 3. This chapter applies to rehabilitated rental residential property located within the jurisdiction of a governing body which adopts, by resolution or ordinance, the provisions of this chapter. Except as provided in subsection (2) of this section, the limited exemption provided by this chapter only applies to the tax levy of a governing body which adopts the provisions of this chapter.

(2) The limited exemption provided by this chapter shall apply to the tax levy of all taxing districts in which property certified for limited exemption under this chapter is located when, upon request of a governing body which has adopted the provisions of this chapter, the rates of taxation of such taxing districts whose governing boards agree to the policy of limited exemption as provided in this chapter, when combined with the rate of taxation of the governing body which adopts the provisions of this chapter, equal fifty-one percent or more of the total combined rate of taxation on the property certified for limited exemption.

(3) The governing body shall adopt standards and guidelines to be utilized in making the determinations required by section 6 of this act, including standards and guidelines to be applied if the governing body desires to enter into negotiations with the owner regarding rental rates to be charged during the period of the limited exemption.

(4) This chapter does not apply to increases in assessed valuation made by the assessor or by lawful order of a county board of equalization, the department of revenue, or a court, to a class of property throughout the county or any specific area of the county to achieve the uniformity of assessment or appraisal required by law.

NEW SECTION. Sec. 4. Rehabilitation improvements qualifying for exemption under this chapter shall be exempt from ad valorem taxation for the ten assessment years following the completion of the improvements. The true cash value of rehabilitated rental residential property shall be not more than its true cash value as it appears in the last equalized assessment roll next preceding the date on which the application for limited exemption is filed with the assessor. If the certificate of qualification under section 6 of this act is filed with the assessor on or after January 1, and before April 1, the limited exemption shall apply with respect to the first assessment roll equalized after that date, and if the certificate of qualification is filed on or after April 1, and before January 1, the limited exemption shall apply as of the following January 1, and shall continue to apply for a total of ten consecutive assessment rolls.

NEW SECTION. Sec. 5. An owner of property seeking exemption under this chapter shall:

(1) Prior to commencement of rehabilitation improvements, secure from the governing body or its duly authorized agent, verification of noncompliance with code as defined in section 2(3)(b) of this act;

(2) File an agreement with the governing body, where required by the governing body, between the owner and the governing body to negotiate rates to be charged for the rehabilitated rental units during the period of the limited exemption; and

(3) File an application for limited exemption with the governing body which contains any information the governing body deems necessary to determine whether the property qualifies for limited exemption under this chapter.

The application shall include a statement that the applicant is aware of the potential tax liability involved when the property ceases to be eligible for the limited exemption provided for under this chapter. Applications shall be made no later than October 1 of the calendar year preceding the first assessment year for which classification is requested.

NEW SECTION. Sec. 6. (1) The governing body or its duly authorized agent shall approve or deny an application filed under section 5 of this act within ninety days after receipt of the application. An application not acted upon within ninety days shall be deemed approved.

(2) Subject to section 8 of this act, the governing body shall complete a certificate of qualification on a form approved by the department of revenue and file the certificate with the county assessor. The certificate shall contain a statement by a duly authorized agent of the governing body that the property is in substantial compliance and that the owner of the property has complied with section 8 of this act. In addition, the governing body shall file with the county assessor copies of applications filed and deemed approved under subsection (1) of this section, together with copies of those statements filed under sections 5 and 8 of this act.

(3) If the application is denied, the governing body or its authorized agent shall state in writing the reasons for denial and send the notice to the applicant at his or her last-known address within ten days after the denial.

(4) Upon denial by a duly authorized agent, an applicant may appeal the denial to the governing body within thirty days after receipt of the denial. Upon denial of the appeal by the governing body, or denial of the application, the applicant may appeal to superior court, and from the decision of the superior court to the court of appeals, as provided by law.

NEW SECTION. Sec. 7. The governing body, after consultation with the county assessor, shall establish an application fee in an amount sufficient to cover the cost to be incurred by the governing body and the assessor in administering this chapter. The application fee shall be paid at the time the application for limited exemption is filed. If the application is approved, the governing body shall pay the application fee to the county assessor for deposit in the county current expense fund, after first deducting that portion of the fee attributable to its own administrative costs in processing the application. If the application is denied, the governing body shall retain that portion of the application fee attributable to its own administrative costs and refund the balance to the applicant.

NEW SECTION. Sec. 8. (1) Upon completion of the rehabilitation improvements for which an application for limited exemption under this chapter has been approved, the owner shall file with the governing body the following:

(a) A statement of rents charged for each rental unit for the twelve-month period preceding the commencement of rehabilitation improvements, if an agreement has been filed under section 5(2) of this act;

(b) A statement of the amount of rehabilitation expenditures made with respect to each rental unit and the composite expenditures made in the rehabilitation of the entire property; and

(c) A statement that the rehabilitation improvements to the owner's property qualify such property for limited exemption under this chapter.

(2) Within thirty days after receipt of the statements required by subsection (1) of this section, the governing body shall determine whether or not the owner's property is qualified for limited exemption under this chapter.

(3) If the rehabilitation was completed within two years of the date the application for limited exemption was filed pursuant to section 5 of this act and the governing body determines that the owner's property is qualified for limited exemption under this chapter, the governing body shall file the certificate of qualification required by section 6 of this act with the county assessor within ten days after the expiration of the thirty-day period provided by subsection (2) of this section.

(4) If the governing body determines that rehabilitation was not completed within two years of the application date or that the owner's property is otherwise not qualified for limited exemption under this chapter, the governing body or its agent shall state in writing reasons why the property is not qualified and send such writing to the owner within ten days after the determination.

(5) An owner may appeal an adverse determination by the governing body to the governing body within thirty days after receipt of the writing required by subsection (4) of this section. If the governing body rejects the appeal, the owner may appeal to superior court, and from the decision of the superior court to the court of appeals, as provided by law.

NEW SECTION. Sec. 9. If an agreement has been filed under section 5(2) of this act, within thirty days following each anniversary of the date of the certificate described in section 6 of this act, the owner of the rehabilitated property shall file with a designated agent of the governing body the following:

(1) A statement of occupancy and vacancy of the rehabilitated property during the twelve months ending with the anniversary date;

(2) A statement of all rental rates, and increases in rental rates and operating costs, during the twelve months ending with the anniversary date; and

(3) A certification by the owner that the property has been held continuously for the production of rental income since the date of the certificate approved by the governing body, pursuant to section 6 of this act.

NEW SECTION. Sec. 10. (1) If, after a certificate of qualification has been filed with the county assessor under section 6 of this act, the governing body finds that the rehabilitation improvements were not completed on or before January 1, 1999, unless extended under section 12 of this act, or that any provision of this chapter is not being complied with, or any provision required by the governing body pursuant to this chapter is not being complied with, it shall give notice in writing to the owner, mailed to the owner's last-known address, of the proposed termination of the limited exemption. The notice shall state the reasons for the proposed termination and shall require the owner to appear at a specified time, not less than twenty days after mailing the notice, to show cause, if any, why the limited exemption should not be terminated.

(2) If the owner does not appear or appears and fails to show cause why the limited exemption should not be terminated, the governing body shall terminate the limited exemption. A copy of the termination shall be filed with the county assessor and a copy sent to the owner at the owner's last-known address, within ten days after its adoption.

(3) The owner may appeal the termination to superior court, and from the decision of the superior court to the court of appeals, as provided by law.

(4) If the termination of the exemption is not reviewed as provided in subsection (3) of this section, or upon final adjudication, the county officials having possession of the assessment and tax rolls shall correct the rolls in the manner provided for omitted property under RCW 84.40.080 to provide for the assessment and taxation of any value not included in the valuation of the rehabilitation improvements during the period of limited exemption prior to termination by the governing body or by a court, in accordance with the findings of the governing body or the court as to the assessment year in which the limited exemption is to terminate. The county assessor shall make the valuation of the property necessary to permit correction of the rolls, and the owner may appeal the valuation to the county board of equalization under chapter 84.48 RCW. Where there has been a failure to comply, as provided in subsection (1) of this section, the property shall be listed as an omitted assessment for assessment years beginning January 1 of the calendar year in which the noncompliance first occurred.

NEW SECTION. Sec. 11. (1) If, after a certificate of qualification has been filed with the county assessor under section 6 of this act, the county assessor discovers that a portion of the rehabilitated rental residential property is changed to a use that is other than residential or housing:

(a) The limited exemption provided for under this chapter shall terminate immediately, without right of notice or appeal;

(b) The property or portion shall be assessed and taxed in the same manner as other property similarly situated is assessed and taxed; and

(c) There shall be added to the general property tax roll for the tax year next following the presentation or discovery, to be collected and distributed in the same manner as other real property tax, an amount equal to:

(i) The difference between the amount of tax levied with respect to the property or portion for the tax year for which the property or portion was last granted limited exemption and an amount equal to the tax that would have been levied if the property or portion had not been granted limited exemption for that year, multiplied by the tax rate of the tax levy in the taxing district in which the property is located for that same year, multiplied by

(ii) A number equal to the number of years, not to exceed ten years, during which the property was granted limited exemption under this chapter.

(2) If, at the time of presentation or discovery, the property is no longer receiving limited exemption, additional taxes shall be imposed as provided in this section, but the number of years that would otherwise be used to compute the additional taxes shall be reduced one year for each year that has elapsed since the year the property was last granted limited exemption.

(3) The assessment and tax rolls shall show "potential additional tax liability" for each property granted limited exemption under this chapter.

NEW SECTION. Sec. 12. If the governing body finds that the rehabilitation improvements were not completed by January 1, 1999, due to circumstances beyond the control of the owner, and that the owner had been acting and could reasonably be expected to act in good faith and with due diligence, the governing body may extend the deadline for completion for a period not to exceed twelve consecutive months.

NEW SECTION. Sec. 13. If any provision of this act or its application to any person or circumstance is held invalid, the remainder of the act or the application of the provision to other persons or circumstances is not affected.

NEW SECTION. Sec. 14. Sections 1 through 13 of this act shall constitute a new chapter in Title 84 RCW.