FINAL BILL REPORT

EHB 2971

C 138 L 16

Synopsis as Enacted

Brief Description: Addressing real estate as it concerns the local government authority in the use of real estate excise tax revenues and regulating real estate transactions.

Sponsors: Representatives McBride and Nealey.

House Committee on Finance

Senate Committee on Ways & Means

Background:

Real Estate Excise Tax - General Authorization for Counties and Cities.

County legislative authorities may impose an excise tax on each sale of real property in the unincorporated areas of the county. Similarly, city and town (city) legislative authorities may impose an excise tax on each sale of real property within their corporate limits. County and city real estate excise taxes (REET I) may not exceed a rate of 0.25 percent of the selling price of property. However, in lieu of imposing a local sales and use tax, a county or city may impose an additional excise tax on each sale of real property within its jurisdiction at a rate not to exceed 0.50 percent of the selling price.

Proceeds from the REET I may be used for capital purposes, improvements, and projects. In counties and cities with fewer than 5,000 residents, and in counties and cities that do not fully plan under the Growth Management Act (GMA), the proceeds may be used for any capital purpose identified in a capital improvements plan and local capital improvements. In counties with more than 5,000 residents, and cities with more than 5,000 residents that fully plan under the GMA, the proceeds may be used: (a) to finance capital projects specified in a capital facilities plan; (b) for housing relocation assistance for low-income tenants; (c) for qualifying debt retirement; and (d) for projects to which revenue was committed prior to April 30, 1992.

For purposes of using REET I proceeds, "capital project" (REET I capital projects) means public works projects of a local government for planning, acquisition, construction, reconstruction, repair, replacement, rehabilitation, or improvement of certain types of facilities and infrastructure, including:

• streets, roads, highways, and sidewalks;

• street and road lighting systems;

• storm and sanitary sewer systems;

• recreational facilities;

• parks;

• law enforcement and fire protection facilities;

• administrative and judicial facilities; and

• river and waterway flood control projects.

Real Estate Excise Tax - Additional Authorization for Fully Planning Counties and Cities.

Counties and cities that are required to plan under the GMA may impose an additional real estate excise tax (REET II) on each sale of real property within their jurisdictions. However, to impose the REET II, the tax must first be approved by voters at a general or special election. The REET II may not exceed a rate of 0.25 percent of the selling price of property.

Counties and cities may use revenue collected from the REET II for: (a) financing capital projects specified in the capital facilities element of a comprehensive plan; (b) qualifying debt retirement; or (c) for projects to which revenue was committed prior to March 1, 1992. For purposes of using REET II proceeds, "capital project" (REET II capital projects) means public works projects of a local government for planning, acquisition, construction, reconstruction, repair, replacement, rehabilitation, or improvement of certain types of facilities and infrastructure, including:

• streets, roads, highways, and sidewalks;

• street and road lighting systems; and

• storm and sanitary sewer systems.

Real Estate Excise Taxes – Authorization to Use Funds for Maintenance or Operation.

Funds for Operation and Maintenance – Authorization Expiring on December 31, 2016.

From July 22, 2011, to December 31, 2016, counties and cities may use the greater of either $100,000 or 35 percent of available funds collected under REET I, not to exceed $1 million per year, for the operation and maintenance of existing REET I capital projects.

Similarly, from June 30, 2012, to December 31, 2016, counties and cities may use the greater of either $100,000 or 35 percent of available funds collected under REET II, not to exceed $1 million per year, for: (a) the operation and maintenance of existing REET II capital projects; or (b) the payment of existing debt service incurred for REET I capital projects.

Funds for Maintenance – Continuing Authority.

In addition to authority that expires on December 31, 2016, counties and cities have continuing authority that does not expire to use funds from the REET I and REET II for maintenance of certain capital projects, or other authorized purposes.

Effective September 26, 2015, counties and cities that impose the REET I may use the greater of $100,000 or 25 percent of available funds, not to exceed $1 million per year, from collected revenues for maintenance of REET I capital projects. Similarly, effective September 26, 2015, counties and cities that impose the REET II may use the greater of $100,000 or 25 percent of available funds, not to exceed $1 million per year, from collected revenues:

• for maintenance of REET II capital projects; or

• for planning, acquisition, construction, reconstruction, repair, replacement, rehabilitation, improvement, or maintenance of some REET I capital projects (i.e., only projects included within the definition of REET I capital projects that are not also included within the definition of REET II capital projects).

For purposes of this additional authority, "maintenance" means the use of funds for labor and materials that will preserve, prevent the decline of, or extend the useful life of a capital project, and does not include labor or material costs for routine operations of a capital project.

To qualify under this additional authority to use funds from the REET I or REET II for maintenance or other authorized purposes, a county or city must prepare a written report demonstrating that it has or will have adequate funding to pay for all of its capital projects identified in a capital facilities plan or other document for the succeeding two-year period. The report must be prepared and adopted as part of the county or city's regular, public budget process and must provide specific information, including how revenues collected under the REET I or REET II were used in the preceding two years and how the funds will be used during the succeeding two-years.

Also, a county or city that enacts after September 26, 2015, any new requirement on the listing, leasing, or sale of real property may be disqualified from using the REET revenues for maintenance of its capital projects, or other authorized purposes. However, if a new requirement is specifically authorized by state or federal law, or is a landlord or seller disclosure statement that has been electronically posted in accordance with statute, the county or city is not disqualified.

Municipal Research and Services Center.

The Department of Commerce is required to contract for the provision of municipal research and services to cities, towns, counties, and special purpose districts. This directive is fulfilled through a contract with the Municipal Research and Services Center (MRSC), a nonprofit organization that provides policy, financial, and legal research and support services in accordance with the terms of the contract. The MRSC maintains a website where publications, reports, and materials associated with municipal research and services are posted.

Counties and cities must post on the MRSC website any ordinance, resolution, or policy adopted by the county or city that imposes a requirement on landlords or sellers of real property to provide information to a buyer or tenant pertaining to subject property or the surrounding area. The ordinance, resolution, or policy is not effective until posted in accordance with this requirement. If a local ordinance, resolution, or policy was adopted prior to September 26, 2015, the ordinance, resolution, or policy must be posted within 90 days or it will cease to be in effect.

The MRSC must provide a list of all requirements imposed by counties, cities, and towns on landlords or sellers of real property to provide information to a buyer or tenant pertaining to specific property or the surrounding area. The list must be posted in a specific section on the MRSC website, and it must list by jurisdiction all applicable local requirements.

Summary:

Cities and counties that have adopted an ordinance, resolution or policy imposing certain requirements on landlords or sellers, prior to June 9, 2016, rather than prior to September 26, 2015, must provide, within 90 days of June 9, 2016, a summary of the ordinance, resolution or policy to be posted with the MRSC.  In addition to the summary, a link to the actual ordinance, resolution or policy must also be posted, or the relevant portion of the ordinance, resolution or policy. The MRSC must comply with the new posting requirements. 

Provisions disqualifying a city or county from using REET revenues for maintenance of capital projects, or other authorized purposes, are modified. Instead of disqualifying a city or county that enacts any new requirement on the leasing of real property, a city or county is disqualified if it enacts any new requirement on landlords, at the time of executing a lease, to perform or provide physical improvements or modifications to real property or fixtures. A city or county is not disqualified, though, if the requirement is: (a) necessary to address an immediate threat to health or safety; (b) specifically authorized by certain statutes, including statutes relating to the regulation of nuisances and building codes; (c) specifically authorized by other state or federal law; or (d) a seller or landlord disclosure requirement posted electronically in accordance with statute.

Votes on Final Passage: