Property Tax. All real and personal property in the state is subject to property tax each year based on its value, unless a specific exemption is provided by law. There are numerous exemptions from property tax established either by statute or constitutionally. Exemptions include intangible property, churches, nonprofit hospitals, private schools and colleges, agricultural products, and affordable housing.
The Multi-Family Property Tax Exemption. The multi-family property tax exemption exempts real property associated with the construction, conversion, or rehabilitation of qualified, multiple-unit residential structures. Property owners must submit an application for the tax exemption to the designated city or county. The city or county may include additional eligibility requirements for the tax exemptions. Tax exemptions available under the statute include:
Retail Sales and Use Tax. Retail sales taxes are imposed on retail sales of most articles of tangible personal property, digital products, and some services. A retail sale is a sale to the final consumer or end user of the property, digital product, or service. If retail sales taxes were not collected when the user acquired the property, digital products, or services, then use tax applies to the value of property, digital product, or service when used in this state. The state, all counties, and cities levy retail sales and use taxes. The state sales and use tax rate is 6.5 percent.
Tax Preference Performance Statement. State law provides a range of tax preferences that confer reduced tax liability upon a designated class of taxpayer. Tax preferences include tax exclusions, deductions, exemptions, preferential tax rates, deferrals, and credits. Legislation that establishes or expands a tax preference must include a tax preference performance statement that identifies the public policy objective of the preference, as well as specific metrics that the Joint Legislative Audit and Review Committee (JLARC) can use to evaluate the effectiveness of the preference. All new tax preferences automatically expire after ten years unless an alternative expiration date is provided or the tax preference is exempted from expiration.
Property Tax Exemption. A city governing authority may establish a new property tax exemption program for commercial buildings converted to provide affordable housing units for low-income households. Unless a different income or rent level is established by the governing authority, rent levels for qualifying affordable units, including any mandatory fees for tenant-paid utilities, may not exceed 30 percent of the income limit for the affordable housing unit.
To be eligible for the property tax exemption:
The exemption may not be granted if the owner receives a multi-family property tax exemption. The exemption excludes the land and any nonhousing related improvements.
Application. To receive an exemption an owner of property must apply, on or before December 31, 2029, to the city on forms adopted by the city and verify the information provided in the application by oath or affirmation. The application must contain:
Applications should be processed by the governing authority within 30 days.
Certificate of Tax Exemption. If the application is approved, a conditional certificate of tax exemption will be issued containing a statement that the applicant complies with the application requirements. The city and applicant must enter into a contract stipulating a tax exemption will be provided if the applicant complies with the provisions outlined in the conditional certificate of tax exemption.
The applicant must submit information indicating compliance with the terms of the conditional certificate of tax exemption within two years of its issuance. The applicant can apply for a 12-month extension to receive a final certificate of tax exemption. Within 30 days of receipt of the statement, the governing authority must determine whether the affordability of units is consistent with the conditional tax exemption and, within ten days, either:
The applicant may appeal the decision within 30 days after receipt.
The city must submit to the county assessor a single communication containing the list of all properties that have been issued a final certificate of tax exemption by August 1st the year preceding the effective date of the exemption.
Reporting. The owner receiving a tax exemption must obtain annual certification of family size and annual income from the tenant living in an affordable housing unit and report that information annually to the governing authority along with a statement of occupancy and vacancy and a schedule of rents charged in market rate units. The governing authority must report annually to the Department of Commerce and Department of Revenue (DOR) on the:
Cancelation of an Exemption. If the owner intends to discontinue compliance with the affordable housing requirements or any other conditions to the exemption, they must notify tenants and the jurisdiction 60 days prior to discontinuance. If the city is notified by the owner or discovers that a portion of the property no longer meets the qualifications, the tax exemption is canceled, and the following must occur:
Upon determination that a tax exemption is canceled, the governing authority must notify the taxpayer by certified mail, and the county assessor. The owner may appeal the determination within 30 days by filing a notice of appeal with the clerk of the governing authority. The governing authority may hear the appeal and the decision maker must affirm, modify, or overturn the decision to cancel the tax exemption based on the evidence received.
The governing authority must notify the county assessor of the final decision. The county assessor must annually value the exempt and nonexempt portion of the property and improvements as necessary to permit the correction of the tax rolls.
If the owner intends to convert any affordable housing rental units to market rate units before the 30 year exemption period or after the exemption ends, they must provide tenants with notification of intent to provide the tenant with rental relocation assistance in the amount equal to one month's rent within the final month of the low-income household's lease. To be eligible for assistance the tenant must occupy an affordable housing unit at the time the exemption expires and must qualify as a low-income household at the time relocation assistance is sought.
Sales and Use Tax Exemption. The retail sales and use tax does not apply to tangible personal property incorporated as a component of a conversion of a commercial building into affordable housing and labor and services rendered for the conversion.
A qualifying owner must rent or sell a minimum of 10 percent of residential units in a multiunit residential building to low-income households for at least ten years to claim the exemption. The exemption is in the form of a remittance for 100 percent of the state sales tax paid on qualifying purchases. Local sales and use taxes paid do not qualify for remittance. DOR will determine eligibility.
The owner receiving a tax exemption must obtain annual certification of family size and annual income from the tenant living in an affordable housing unit and report that information annually to DOR along with a statement of occupancy and vacancy and a schedule of rents charged in market rate units.
If the owner intends to discontinue compliance with affordable housing requirements or any other conditions to the exemption, they must notify DOR 60 days prior to discontinuance. If DOR discovers eligibility conditions for the exemption are no longer met or the annual certification is delinquent for more than 24 months, they must notify the owner within 60 days. The owner must pay total remittance granted under this section and an additional 20 percent of the total remittance granted as penalty.
The exemption expires December 31, 2029.
Tax Preference Performance Statement. A tax preference performance statement specifies that the exemption is intended to incentivize the repurposing of existing buildings for affordable housing. The JLARC review should consider, among other measures, the:
The JLARC Review must be complete by December 31, 2028.
The committee recommended a different version of the bill than what was heard. PRO: The goal of this bill is to leverage existing buildings to create more affordable units as quickly as possible. Lack of housing is not keeping up with the growth we are experiencing so we need every tool to keep up with the housing needs in our area. This bill allows for tax exemption tools to incentivize these projects and will help ensure that they are adding affordable units to the marketplace. It advances equity by creating mixed income buildings providing a social benefit by having people with different lived experience living in the same place. When children grow up in mixed income communities and buildings their long term health is improved.
The residential to residential components of the bill allows affordability to be integrated into existing market rate buildings near job centers to address workforce shortage issues and prevent long commutes to work. Urbanized areas have limited land remaining for new construction. The public benefit for rent savings is greater than the exemption value. These incentives are only available through projects that are financed using government programs which have rigorous standards.
The second option incentivizes converting commercial to residential. Commercial real estate lives by a 5-7 year leasing cycle and many leases put in place before COVID will begin to terminate soon making a commercial cliff that threatens the viability of downtown areas. There is a lot of vacant space available now due to changes in the workforce which has made office space less desirable. Transitioning these buildings to residential is not easy from a construction standpoint and so the projects only move forward if the cost of the commercial building is at most equal to the cost of vacant land and framing.
Anytime you can convert existing buildings and keep them in active service is a good thing for sustainability. This has alignment with historic preservation by converting existing building that are attractive places to live. Would like consideration to include historic buildings in the buildings that qualify. Raising the area median income to align with the MFTE, including 80-115 percent AMI, would make this bill better.
OTHER: This as an additional tool to increase housing options. We have used similar programs such as the MFTE program to increase housing in our city and have had success in increasing the variety of housing in our city and increase the number of workforce housing in our city. The sales tax exemptions have also been very helpful to us. Would request adjusting the language to match the workforce housing 80-115 percent be part of this legislation because having more mixed income housing in the city would be helpful.
PRO: Senator Yasmin Trudeau, Prime Sponsor; Tim Cavanaugh, Urban Housing Ventures; Marc Angelillo, Urban Housing Ventures; Jonathan Bingle; CHRIS BATTEN, 135; Andrew Rolwes, Downtown Spokane Partnership; Angela Rozmyn, Natural and Built Environments; Briahna Murray, Urban Housing Ventures; Chris Moore, Washington Trust for Historic Preservation.