BILL REQ. #:  S-4042.1 

READ FIRST TIME 01/22/04.   

     AN ACT Relating to restoring the American dream by eliminating the state sales tax on construction labor and services in counties where the first-time home buyers housing affordability index shows that housing is not affordable; adding a new section to chapter 82.08 RCW; and creating a new section.

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

NEW SECTION.  Sec. 1   The legislature finds that first-time home buyers in Washington state have been priced out of the housing market in many counties. The legislature finds that many organizations, including local governments, have recognized the affordable housing crisis for first-time home buyers. The legislature finds that, for example, as reported in King county's benchmark growth report, "buying a first home remains extremely difficult for those under one hundred twenty percent of median income."
     The legislature further finds that the state sales tax on construction labor and services contributes to the high cost of housing in many Washington counties, and that eliminating this tax will reduce housing prices. The legislature also recognizes that the Washington state tax structure study committee suggested that exempting construction labor from the state sales tax would improve economic vitality and harmonize Washington's sales tax provisions with other nearby states.
     The legislature intends to make housing more affordable for first-time home buyers in counties where housing is currently not affordable for first-time home buyers. The legislature intends to do this by eliminating the state sales tax on construction labor and services in counties where the first-time buyer housing affordability index demonstrates that housing is not affordable for first-time home buyers.

NEW SECTION.  Sec. 2   A new section is added to chapter 82.08 RCW to read as follows:
     (1) The tax levied by RCW 82.08.020 does not apply to the sale of or charge made for labor and services rendered in respect to clearing land, moving earth, site preparation, or constructing, repairing, renovating, expanding, or improving of new or existing buildings, structures, or other facilities under, upon, or above real property for qualifying residential construction within qualifying counties for two calendar years beginning January 1st following the department's determination that a county is a qualifying county.
     (2) The exemption under this section only applies to the state portion of the sales tax.
     (3) The seller shall retain any documentation the department deems necessary for the proper administration of this section.
     (4) If the department determines that the seller improperly exempted a sale of labor or services under this section, a fifteen-percent penalty shall apply to taxes owed to the department as well as interest and penalties under chapter 82.32 RCW.
     (5) For the purposes of this section, the following definitions apply:
     (a) "Qualifying county" means a county for which the first-time buyer housing affordability index is less than one hundred for three of four quarters in any given year, as determined by the Washington center for real estate research at Washington State University. The index year shall begin July 1st and end June 30th of each year.
     (b) "Qualifying residential construction" means the construction of residential property where the residential property will be listed for sale for less than the county average sales price for homes.
     (c)(i) "First-time buyer housing affordability index" means the index maintained by the Washington center for real estate research at Washington State University that calculates whether a person who earns seventy percent of the area median household income can make principal and interest payments equal to twenty-five percent of household income on a home priced at eighty-five percent of the county median sales price for homes, if the person made a ten percent down payment and has a mortgage with a term of thirty years at the prevailing average fixed rate of interest;
     (ii) The first-time buyer housing affordability index shall be scaled so that a score of one hundred means that a potential first-time homebuyer with an income of seventy percent of the area median household income who purchases a home priced at eighty-five percent of the county median sales price for homes, using a ten percent downpayment and a thirty-year mortgage at the prevailing average fixed rate of interest will pay twenty-five percent of household income for principal and interest. A score of less than one hundred indicates that this buyer cannot afford this home without paying more than twenty-five percent of household income.