BP BHEAD INT S

AN ACT Relating to limiting tax increases on residential real property; adding a new section to chapter 84.55 RCW; adding a new chapter to Title 84 RCW; and providing a contingent effective date.

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

NEW SECTION. Sec. 1. This chapter provides a limitation on the rate of increase of the taxes assessed on residential real property in order to spread rising property taxes over a period of years.

NEW SECTION. Sec. 2. For purposes of this chapter, unless the context requires otherwise:

(1)(a) "Change of ownership" means a transfer of a present interest in real property and includes:

(i) A transfer of the beneficial use of real property and includes the contracting to convey the title to or ownership of real property upon the fulfillment of one or more stated conditions where the right to possession of the property is transferred currently;

(ii) The creation, transfer, or termination of a joint tenancy interest;

(iii) The creation, transfer, or termination of a tenancy-in-common interest;

(iv) The vesting of a right of possession or enjoyment of a remainder or reversionary interest that occurs upon the termination of a life estate or other similar precedent property interest;

(v) An interest that vests in persons other than the trustor where a revocable trust becomes irrevocable; and

(vi) The transfer of stock of a cooperative housing corporation, vested with legal title to real property, that conveys to the transferee the exclusive right to occupancy and possession of such property, or a portion of the property.

(b) "Change of ownership" does not include:

(i) A transfer between coowners that results in a change in the method of holding title to the real property transferred without changing the proportional interests of the coowners in the real property, such as a partition of a tenancy-in-common;

(ii) A transfer for the purpose of merely perfecting title to the real property;

(iii) The creation, assignment, termination, or reconveyance of a security interest in real property; or the substitution of a trustee under a security instrument;

(iv) A transfer of real property by the trustor, or by the trustor's spouse, or by both, into a trust for so long as the transferor is the sole present beneficiary of the trust, or the trust is revocable; or any transfer of real property by a trustee of such trust back to the trustor;

(v) A transfer of real property by an instrument whose terms reserve to the transferor an estate for years or an estate for life. However, the termination of such an estate for years or life estate shall constitute a change of ownership;

(vi) A transfer of real property between or among the same parties for the purpose of correcting or reforming a deed to express the true intention of the parties, if the original relationship between the grantor and grantee is not changed; and

(vii) An interspousal transfer of real property, including, but not limited to:

(A) Transfers to a trustee for the beneficial use of a spouse, or the surviving spouse of a deceased transferor, or by a trustee of such trust to the spouse of the trustor;

(B) Transfers that take effect upon the death of a spouse;

(C) Transfers to a spouse or former spouse in connection with a property settlement agreement or decree of dissolution of marriage or legal separation; and

(D) The creation, transfer, or termination, solely between spouses, of any coowner's interest.

(2) "Residential property" means a single-family dwelling unit, regardless of whether such unit shares a common wall with one or more other units, including the land upon which such dwelling stands, and that is owned in its entirety either by a natural person or persons, a housing cooperative, or a trust.

"Residential property" also includes a mobile home that has substantially lost its identity as a mobile unit by virtue of its being fixed in location upon land owned or leased by the owner of the mobile home and placed upon a foundation (posts or blocks) with fixed pipe, connections with sewer, water, or other utilities.

"Residential property" does not include a dwelling unit primarily used in the conduct of a commercial enterprise or a dwelling unit located upon real property that is primarily used in the conduct of a commercial enterprise. Property is considered primarily used in the conduct of a commercial enterprise if more than one-half of the total square footage of the property is devoted to commercial use.

NEW SECTION. Sec. 3. (1) The aggregate of all regular property tax levies upon residential real property by the state and all taxing districts shall not increase by more than four percent per year, compounded annually, except upon a change of ownership of the property. In applying this limitation for any year, the taxes due in the previous year shall be the amount of taxes that could have been levied on the property if the assessed value of the property for taxes due in 1997 were equal to its true and fair value.

(2) The limit under this section does not apply to the first levy on increases in value resulting from improvements made to property in the previous year, but the limit shall apply to the extent the improvements restore the property to its previous condition and value after substantial damage due to fire, storm, or other catastrophic event.

(3) This section does not apply to taxes that have been approved by the voters pursuant to Article VII, section 2 of the state Constitution.

NEW SECTION. Sec. 4. A new section is added to chapter 84.55 RCW to read as follows:

In order to prevent a shift in taxes from residential real property to other property because of the tax limit under chapter 84.-- RCW (sections 1 through 3 of this act), the amount of taxes that may be levied by a taxing district under this chapter shall be reduced by any reduction in taxes for the appropriate year resulting from the tax limit under chapter 84.-- RCW (sections 1 through 3 of this act).

NEW SECTION. Sec. 5. Sections 1 through 3 of this act shall constitute a new chapter in Title 84 RCW.

NEW SECTION. Sec. 6. This act shall take effect for taxes payable in 1997 if the proposed amendment to Article VII of the state Constitution (SJR S-1439.1/95) is validly submitted to and is approved and ratified by the voters at a general election held in November 1995. If the proposed amendment is not so approved and ratified, this act shall be null and void in its entirety.