FINAL BILL REPORT

SHB 1097

                                  C 379 L 89

BYHouse Committee on Revenue (originally sponsored by Representatives Appelwick, Locke, O'Brien, Kremen, R. King and Sprenkle)

Exempting property used by homes for the aged from taxation.

House Committe on Revenue

Senate Committee on Ways & Means

SYNOPSIS AS ENACTED

BACKGROUND:

In the first Washington territorial revenue act, in 1854, "charitable institutions" were exempted from property tax.  In 1891, the Legislature enacted a specific list of charitable exemptions that included "homes for the aged and infirm."  In 1893, the Legislature limited this exemption to homes for the aged and infirm that "are supported in whole by public appropriations or by private charity, or are supported in part by charity, and all of the income and profits of such institutions are devoted to charitable purposes."  In addition, the 1893 Legislature required that the institution's books be open to public health and tax officials.  The Legislature continued to strengthen the non-profit and reporting requirements for the various charitable exemptions several times over the years.

In 1965, the Legislature granted relief to senior citizens and disabled persons with low incomes.  A $50 property tax exemption was granted for persons living in their own homes with incomes below $3,000.  In 1971, the exemption was changed from a flat amount to one based on the value of the property.  The Legislature adjusted the exemption for inflation every three to five years.  In 1987, the income levels for exemption were increased:  $18,000 or less to be exempt from special levies; $12,000 to $14,000 to be exempt from regular levies on the greater of $24,000 or 30 percent of assessed value; and less than $12,000 is exempt on the greater of $28,000 or 50 percent of assessed value.  Eligibility is based on a statutory definition of "disposable income" which in turn is based in part on adjusted gross income as defined for federal income tax.

Interpretations varied as to whether the exemption for "homes for the aged and infirm" meant "homes for persons who are aged and at the same time infirm," or "homes for aged persons and homes for infirm persons."  In 1973, the Legislature amended the statute to provide clearly separate exemptions for homes for the aged and homes for the infirm.  The 1973 legislation also defined "non-profit" as meaning no part of income may be paid directly or indirectly to members, directors, stockholders, officers, or trustees except for services rendered.

In 1986, concern arose regarding a "luxury condominium" style retirement complex that became exempt from property taxes by qualifying as a non-profit home for the aged.  Local government officials and others expressed two concerns: (1) the provision of city services to the complex without revenues paid by the complex for those services; and (2) the inequity of senior citizens living in their own home having to pay property taxes while those living in the complex did not.  Legislation was proposed which would have limited the exempt status of "homes for the aged" based on the income of the residents in those homes.  The bill failed to pass.

In 1987, a retirement community changed from profit to non-profit and met the statutory requirements for property tax exemption as a "home for the aged."  This action resulted in an unexpected revenue loss to the surrounding city, the state, and the local school district. The equity of property tax exemptions between residents of the retirement community and other seniors living in their own residences was raised because residents of the retirement community tend to have higher incomes than seniors in the general population.  As a result, legislation similar to the 1986 bill was introduced in 1988.  The bill would have "grandfathered" all homes for the aged which had obtained tax exempt status before 1987.  Those not grandfathered would have had to meet various criteria in order to achieve tax exempt status.  A key criterion was that at least 60 percent of the residents of the home had to meet the senior citizen property tax exemption requirements.  The bill failed to pass.

If the status of any property changes from exempt to taxable, the property taxes that would have been paid during the preceding three years are due, plus interest.

SUMMARY:

Prior property tax exemptions for "homes for the aged" are eliminated and replaced by new exemptions for "homes for the aging."

A home for the aging is exempt from property tax if it is exempt from federal income tax as a charity, and either (1) 50 percent of the occupied dwelling units in the home are occupied by eligible residents or (2) the home is operated by the U.S. Department of Housing and Urban Development.

Homes for the aging are defined as residential housing facilities that: (1) are chosen voluntarily by residents; (2) have residents who are at least 62 years of age or who have care needs compatible with persons 62 years of age or older, and (3) provide varying levels of care and supervision according to resident needs.

Eligible residents of a home for the aging are defined as persons who would qualify for a senior citizen property tax exemption if they owned a separate residence.  Residents are required to submit a form to the county assessor by July 1 of each year in order to determine eligibility.

Homes that cannot meet the 50 percent eligible residency or federal subsidy requirements are entitled to partial property tax exemptions. For each 1 percent of the dwelling units that are occupied by eligible residents, 2 percent of the assessed value of the home is exempt.

Homes for the aging receiving a partial property tax exemption are to be taxed on the basis of the current use of the land on which the home is located.

For homes that will lose all or some of their exemption under this act, a phase-out of existing exemptions is provided.  For taxes levied for collection in 1991, two-thirds of the assessed value that would otherwise be subject to tax will be exempt.  For taxes levied for collection in 1992, one-third of the assessed value that would otherwise be subject to tax will be exempt.

Homes for the aging will not be subject to back taxes merely because a portion of the home becomes taxable when the number of eligible residents declines from year to year.  A previously exempt home for the aging will not be liable to back taxes as a result of the phasing out of its exemption under this act.

The definition of federal adjusted gross income, which is the basis of the disposable income definition used for eligibility standards, is linked to the federal internal revenue code in effect on January 1, 1989, or such later date as provided by rule by the director of the Department of Revenue.

VOTES ON FINAL PASSAGE:

      House 97   0

      Senate    40     6 (Senate amended)

      House 96   1 (House concurred)

EFFECTIVE:April 1, 1990