WSR 00-05-032

PROPOSED RULES

DEPARTMENT OF REVENUE


[ Filed February 9, 2000, 2:22 p.m. ]

Original Notice.

Preproposal statement of inquiry was filed as WSR 99-24-032.

Title of Rule: Amend WAC 458-16-080 Improvements to single family dwellings -- Definitions -- Exemption -- Limitation -- Appeal rights, and repeal WAC 458-16-081 Improvements to single family dwellings -- Definitions.

Purpose: WAC 458-16-080 presently defines the terms "single family dwelling" and "physical improvements" that are used in RCW 84.36.400 which confers a property tax exemption on improvements to single family dwellings. WAC 458-16-081 explains how the exemption authorized by RCW 84.36.400 may be obtained. This rule describes the amount, duration, and value limitation of the property tax exemption.

Statutory Authority for Adoption: RCW 84.36.365 and 84.36.400.

Statute Being Implemented: RCW 84.36.400.

Summary: WAC 458-16-080 currently contains two definitions and WAC 458-16-081 explains the requirements, conditions, and duration of the exemption related to the property tax exemption for improvements to single family dwellings. The proposed rule expands the number of terms defined, explains the process of obtaining the exemption authorized by RCW 84.36.400, and describes how the amount of the exemption is calculated. The amended rule combines the two existing rules.

Reasons Supporting Proposal: The proposed rule will be used by local taxing officials in administering the property tax exemption authorized by RCW 84.36.400. It consolidates all information needed to understand and administer the exemption. It will combine two rules concerning the same subject matter, thereby eliminating one overlapping rule. The proposed rule will provide information to taxpayers and local taxing officials about the property tax exemption for improvements to single family dwellings.

Name of Agency Personnel Responsible for Drafting: Kim M. Qually, 711 Capitol Way South, #303, Olympia, WA, (360) 664-0086; Implementation and Enforcement: Sandy Guilfoil, 6004 Capitol Boulevard, Tumwater, WA, (360) 753-5503.

Name of Proponent: Department of Revenue, governmental.

Rule is not necessitated by federal law, federal or state court decision.

Explanation of Rule, its Purpose, and Anticipated Effects: WAC 458-16-080 currently defines the critical terms used in administering the property exemption provided in RCW 84.36.400 to taxpayers that improve their single family dwellings. WAC 458-16-081 describes how the exemption is obtained and its duration and limitation. The proposed rule, WAC 458-16-080, combines the two existing rules on the same exemption into one comprehensive rule. It expands the number of terms defined and explains the process of obtaining the exemption. The rule also describes how the amount of exemption is calculated and other procedures used in administering this exemption. The proposed rule consolidates all the information necessary to understand and administer this property tax exemption. It provides information vital to taxpayers and local taxing officials.

Proposal Changes the Following Existing Rules: WAC 458-16-081 will be consolidated into the proposed rule WAC 458-16-080. The consolidated rule will contain all the information to understand and administer the exemption for improvements to single family dwellings. WAC 458-16-081 will be repealed when the revised version of WAC 458-16-080 is permanently adopted thereby eliminating an overlapping rule from the administrative code.

No small business economic impact statement has been prepared under chapter 19.85 RCW. A small business economic impact statement is not required because the rule and the proposed amendments do not impose any requirements or burdens upon small businesses that are not already specifically required by statute.

RCW 34.05.328 does not apply to this rule adoption. This rule is an interpretive rule as defined in RCW 34.05.328.

Hearing Location: Evergreen Plaza Building, 711 Capitol Way South, 2nd Floor Conference Room, Olympia, WA, on March 23, 2000, at 1:30 p.m.

Assistance for Persons with Disabilities: Contact Ginny Dale no later than ten days before the hearing date, TDD 1-800-451-7985, or (360) 586-0721.

Submit Written Comments to: Kim M. Qually, Department of Revenue, P.O. Box 47467, Olympia, WA 98504-7467, fax (360) 664-0693, e-mail kimq@dor.wa.gov, by March 23, 2000.

Date of Intended Adoption: March 31, 2000.

February 9, 2000

Claire Hesselholt

Rules Manager

Legislation and Policy Division

OTS-3625.1


AMENDATORY SECTION(Amending Order PT 75-3, filed 5/23/75)

WAC 458-16-080
Improvements to single family dwellings -- Definitions--Exemption--Limitation--Appeal rights.

((For the purpose of WAC 458-16-080 and 458-16-081 and RCW 84.36.400:

(1) The term "single family dwelling" shall mean a detached dwelling unit and the lot on which the dwelling stands which is designed for, and not occupied by, more than one family. Said dwelling unit must meet the definition of real property contained in WAC 458-12-010 and RCW 84.04.090.

(2) The term "physical improvement" shall mean any addition, improvement, remodeling, renovation, structural correction or repairs which shall materially add to the value or condition of an existing dwelling. It shall also include the addition of, or repairs to, garages, carports, patios or other improvements attached to and compatible with similar dwellings, but shall not include swimming pools, outbuildings, fences, etc., which would not be common to or normally recognized as components of a dwelling unit.)) (1) Introduction. This section explains the property tax exemption available to taxpayers when they make physical improvements to their single family dwelling under the provisions of RCW 84.36.400. It explains the process by which this exemption is obtained and how the amount of the exemption is calculated.

(2) Definitions. For purposes of this section, the following definitions apply:

(a) "Department" means the department of revenue.

(b) "Single family dwelling" or "dwelling" means a structure maintained and used as a residential dwelling that is designed exclusively for occupancy by one family.

(i) It is an independent and free-standing structure containing one dwelling unit and having a permanent foundation.

(ii) For the purposes of this exemption, a manufactured home, mobile home, or park model trailer will be considered a "single family dwelling" if it has substantially lost its identity as a mobile unit by virtue of its being permanently fixed in location upon land owned or leased by the owner of the manufactured home, mobile home, or park model trailer and placed on a foundation (posts or blocks) with fixed pipe connections with sewer, water, or other utilities.

(c) "Physical improvement" means any addition, improvement, remodel, renovation, or structural enhancement that materially adds to the value of an existing single family dwelling. It is an actual, material, and permanent change that increases the value of the dwelling.

(i) The term includes the addition of a garage, carport, patio, or other improvement to the dwelling that materially adds to its value.

(ii) The term does not include a swimming pool, outbuilding, fence, landscaping, barn, shed, shop, or other item that enhances the land upon which the dwelling stands, but is not common to or normally recognized as a structural component of a single family dwelling.

(iii) The term does not include repairs to or deferred maintenance of a dwelling.

(d) "Physical inspection" means, at a minimum, an exterior observation of the dwelling to determine what physical improvements have been made and whether they increase its true and fair value.

(e) "Real property" has the same meaning as contained in RCW 84.04.090 and chapter 458-12 WAC; these definitions should be consulted as a matter of course in interpreting and administering this exemption.

(f) "Repairs" means work that preserves the dwelling or returns it to its original condition or use.

(g) "Taxpayer" means any person charged, or whose property is charged, with property tax for the dwelling.

(3) Exemption - taxpayer's obligations. Physical improvements to a single family dwelling upon real property are exempt from property tax for three assessment years after the improvements are completed. The amount of the exemption is the difference between the true and fair value of the dwelling before and after the physical improvement. However, the amount of the exemption cannot exceed thirty percent of the true and fair value of the dwelling prior to the improvements.

(a) The following conditions must be met to receive this exemption:

(i) The dwelling must be a "single family dwelling" as defined in subsection (2) of this section;

(ii) The taxpayer must file a claim for the exemption with the assessor of the county in which the real property is located before the improvements are completed. All claims shall be made on forms prescribed by the department and signed by the taxpayer or the taxpayer's authorized agent. Claim forms may be obtained from the assessor's office or the department; and

(iii) The taxpayer may not claim this exemption more than once in a five-year period on the same dwelling. The five-year period begins the first assessment year the exemption appears on the county's assessment roll.

(b) When the improvements are completed, the taxpayer must submit a written notice of completion to the assessor.

(c) The following examples show how eligibility requirements for this exemption will be applied. These examples should be used only as a general guide and cannot be relied upon for any other purpose.

(i) Example 1. The addition of a garage or carport to a single family dwelling may qualify for exemption because it may increase the value of and is compatible with the existing residential dwelling. Conversely, the construction of a swimming pool, shed, barn, or shop, which are not commonly attached to a dwelling, does not qualify for the exemption; even though the construction of such a structure may increase the value of the parcel as a whole.

(ii) Example 2. The replacement of a composition roof with a tile roof on a dwelling may qualify for exemption because a tile roof may increase the value of the dwelling. If the composition roof is repaired or replaced with the same type of composition roofing materials, the repair or replaced roof will not qualify for the exemption.

(4) Assessor's duties. Upon receipt of a taxpayer's claim for exemption, the assessor shall determine the true and fair value of the unimproved dwelling. This value may be determined by means of a physical inspection and appraisal or a statistical update of the value shown on the county's current assessment roll. After receiving a notice of completion from the taxpayer, the assessor shall revalue the improved dwelling by means of a physical inspection to determine the amount of the exemption.

(5) Amount of exemption. The amount of the exemption is the difference between the dwelling's true and fair value before and after improvements, but this amount cannot exceed thirty percent of the true and fair value of the original unimproved dwelling. In other words, the amount of the exemption is determined by subtracting the true and fair value of the unimproved dwelling from the true and fair value of the dwelling including improvements. The cost of the physical improvements is not the basis for the exemption granted under RCW 84.36.400 and, as a result, the exemption granted is not normally equivalent to the costs incurred by the taxpayer.

(a) The amount of the exemption shall be deducted from the assessed value of the improved dwelling for the three assessment years immediately following completion of the improvement.

(b) The dwelling must at all times be a "single family dwelling" as defined in subsection (2) of this section. If the assessor determines the dwelling does not meet this definition, the exemption will be denied or canceled.

(c) When an exemption has been granted and placed on the assessment roll, the exemption will continue for the three-year exemption period even if the single family dwelling is sold. The exemption pertains to the dwelling and is not personal to the individual property owner.

(d) Example. The following example should be used only as a general guide and cannot be relied upon for any other purpose. In 1998, Taxpayer A completed the addition of a family room and the renovation of the kitchen. These improvements cost the taxpayer $60,000. (As the following example will show, the cost of improvements is not the basis of the amount of the exemption.)


True & fair value of dwelling prior to
improvements . . . . . . . . . . . . $150,000
True & fair value of improved dwelling . . . . . . . . . . . . $200,000
Difference (value of physical improvements) . . . . . . . . . . . . $50,000
Amount of exemption . . . . . . . . . . . . $45,000
The difference between the value of the improved dwelling and the value of the unimproved dwelling ($50,000) or 30% of the unimproved dwelling ($150,000 x 30% = $45,000), whichever is less.
The assessed value of the improved dwelling will be reduced by $45,000 for the next three assessment years (1999, 2000, and 2001).

(6) Limitation. This exemption may not be claimed on the same dwelling more than once in a five-year period. This five-year period begins the first year the exemption appears on the county's assessment roll. (In the example above, the taxpayer may not file another claim for an exemption on this dwelling under RCW 84.36.400 until 2003.)

(7) Relationship to revaluation cycle. Chapter 84.41 RCW requires each county to establish and maintain a systematic program to revalue all taxable real property within the county at least once every four years.

(a) When an exemption has been granted under RCW 84.36.400, the dwelling may be revalued during the three assessment years the exemption is in effect in accordance with the county's scheduled revaluation plan. The revaluation program will proceed as usual, but the amount of the exemption will remain unchanged.

(b) Example. The following example, which is a continuation of the example set out in subsection (5)(d) of this section, should be used as a general guide and cannot be relied upon for any other purpose.


The scheduled revaluation plan for the county in which the single family dwelling is located calls for all property to be revalued every four years. The unimproved dwelling was revalued in 1997. The dwelling is improved and a claim for exemption is submitted and approved in June 1998. The first year the exemption will be reflected on the assessment roll is 1999.



1997

Revaluation

& Assessment

Year

1998

Assessment

Year

Improvements

are completed

1999

Assessment

Year

2000

Assessment

Year

2001

Revaluation

& Assessment

Year

2002

Assessment

Year

True & fair value

of dwelling

$150,000
$150,000

+50,000*

$200,000
$200,000
$225,000
$225,000
Amount of

exemption

none
none
- 45,000**
- 45,000
- 45,000
none
True & fair value

of dwelling

minus exemption

n/a
n/a
$155,000
$155,000
$180,000
$225,000
Assessed value

of dwelling

$150,000
$200,000
$155,000
$155,000
$180,000
$225,000
*New

construction

value on 7/31

n/a
$50,000*
n/a
n/a
n/a
n/a

*RCW 36.21.080 authorizes the assessor to place the increased value of any property that is increased in value due to construction or alteration for which a building permit was issued, or should have been issued, on the assessment rolls for the purposes of tax levy up to August 31st of each year. The assessed value of the property shall be considered as of July 31st of that year.

**Even though the value of the dwelling increased by $50,000, the amount of the exemption cannot exceed 30% of the true and fair value of the unimproved single family dwelling (i.e., $150,000 x 30% = $45,000).


(8) Exemption in relationship to destroyed property. If the value of a dwelling has been reduced under the provisions of chapter 84.70 RCW because it was destroyed, the dwelling is ineligible to receive the exemption authorized by RCW 84.36.400.

(9) Right to appeal. A taxpayer who applies for an exemption under RCW 84.36.400 may file an appeal with the county board of equalization under the following circumstances:

(a) The application for exemption is denied;

(b) The exemption is removed prior to the expiration of the three-year exemption period; or

(c) The taxpayer disputes the amount of the exemption granted.

[Order PT 75-3, 458-16-080, filed 5/23/75.]

Washington State Code Reviser's Office