BILL REQ. #:  H-3707.1 

Read first time 01/25/2006.   Referred to Committee on Housing.

     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)(a) As used in this chapter, "first-time buyer housing affordability index" means the index determined by the Washington center for real estate research that measures the ability of a typical renter household to afford the purchase of a typical starter home by assuming: (i) The household will purchase a home priced at eighty-five percent of area median household income with a ten percent downpayment; (ii) the home mortgage loan is for a term of thirty years at the prevailing average fixed rate of interest; (iii) the potential first-time home buyer earns seventy percent of the area median household income and twenty-five percent of household income can be used for principal and interest payments.
     (b) For purposes of this chapter, a first-time buyer housing affordability index of: (i) One hundred indicates that a household of the defined income can afford a home of the defined price; (ii) less than one hundred indicates that a household of the defined income cannot afford a home of the defined price without spending more than twenty-five percent of their income on mortgage payments; and (iii) greater than one hundred indicates that a household of the defined income can afford a home of the defined price while spending less than twenty-five percent of their income on mortgage payments.
     (2)(a) In any county in which the first-time buyer housing affordability index, as defined by subsection (1) of this section and as determined by the Washington center for real estate research at Washington State University, is less than one hundred for three quarters in any given year, or in any city located within a county in which the first-time buyer housing affordability index, as defined by subsection (1) of this section and as determined by the Washington center for real estate research at Washington State University, is less than one hundred for three quarters in any given year, for the following two years, the tax imposed 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, constructing, repairing, decorating, renovating, expanding, or improving of new or existing buildings, structures, facilities, or any other improvement under, upon, or above real property of or for new residential construction within the specified county. This exemption from sales tax is limited to the state share of the sales tax and does not apply to any local sales tax.
     (b) The year-long period measured by the Washington center for real estate research under (a) of this subsection shall begin and end in the third quarter of the calendar year. The time period for which the exemption from the state sales tax under this chapter is in place under (a) of this subsection shall begin January 1st of the year following the determination by the Washington center for real estate research.