SENATE BILL REPORT

SB 5776

As Reported by Senate Committee On:

Ways & Means, February 28, 2013

Title: An act relating to interest rate and penalty provisions in the current use program.

Brief Description: Concerning interest rate and penalty provisions in the current use program.

Sponsors: Senator Parlette.

Brief History:

Committee Activity: Ways & Means: 2/19/13, 2/28/13 [DPS, DNP, w/oRec].

Majority Report: That Substitute Senate Bill No. 5776 be substituted therefor, and the substitute bill do pass.

Signed by Senators Hill, Chair; Baumgartner, Vice Chair; Honeyford, Capital Budget Chair; Hargrove, Ranking Member; Bailey, Becker, Braun, Conway, Dammeier, Hatfield, Hewitt, Padden, Parlette, Rivers, Schoesler and Tom.

Minority Report: Do not pass.

Signed by Senator Fraser.

Minority Report: That it be referred without recommendation.

Signed by Senators Nelson, Assistant Ranking Member; Keiser, Kohl-Welles, Murray and Ranker.

Staff: Dean Carlson (786-7305)

Background: Most property is valued or assessed at its true and fair, or highest and best, value for purposes of imposing property taxes. However, Article 7, section 11 of the Washington State Constitution allows the Legislature to enact legislation assessing certain types of real property at its present or current use for purposes of imposing property taxes. Two programs of current use valuation have been established, one program for forest lands and a second current use program that includes open space lands, farm and agricultural lands, and timber lands. Properties in current use categories may be valued for tax purposes according to the current use, not the highest and best use value.

Land classified under the current use programs must remain under the program for at least ten years following initial classification. If the use of the property changes, the owner requests withdrawal, or a sale of the property is made and the new owner does not sign a notice of intent to continue within the current use program, then the land is withdrawn or removed from the program and additional tax, interest, and penalties apply.

Additional tax is calculated for the prior seven-year period, based on the difference between the current use valuation during the seven-year period and the market value. Interest is calculated at 12 percent per year, the same as for delinquent property taxes. The penalty is 20 percent of the additional tax and interest. An owner may appeal the removal of classification to the county board of equalization. Unless reversed upon appeal, the land is revalued to market value as of January 1 of the year of removal. If the owner wishes to withdraw the land from current use after the initial ten years, that person must notify the assessor two years prior to having the land withdrawn. The withdrawal then triggers the requirement to pay additional tax and interest as described above, but no penalty is imposed. An exception to the requirement to pay additional tax, interest, and penalties is provided for a number of circumstances. These include the following:

• an exchange of land with a government;

• a taking through the exercise of eminent domain;

• when use is changed by a natural disaster;

• a land use restriction which prevents the current use;

• transfer of land to a church if the land qualifies for the property tax exemption for churches;

• acquisition of property for the purposes of the conservation futures program;

• removal of a farm residence or farm worker housing from current use;

• the removal of land from classification after enactment of a property tax exemption would apply;

• the creation, sale, or transfer of riparian easements, fee interest, or conservation easement for the riparian open space program; and

• the sale or transfer of land within two years after the death of the owner of at least 50 percent interest if the property has been in current use since 1993.

Interest on delinquent property taxes and on the additional tax for properties in the current use is different than the rate for delinquent excise taxes, which is the federal short-term rate, plus two percentage points.

Summary of Bill (Recommended Substitute): After the initial ten years, property owners may withdraw their properties from classification and no longer must provide two years' advance notice of withdrawal.

The interest rate on the additional tax is reduced from 12 percent to the federal short-term rate plus two percent.

Further, the interest will not compound over the seven years of the additional tax; rather, it will be applied to the total amount of additional tax.

EFFECT OF CHANGES MADE BY WAYS & MEANS COMMITTEE (Recommended Substitute): The new interest rate charged on the removal of property from the current use program is changed from the coupon issue yield of the average bill rate for 26-week treasury bills, to the federal short-term rate plus two percent.

Appropriation: None.

Fiscal Note: Available.

Committee/Commission/Task Force Created: No.

Effective Date: Ninety days after adjournment of session in which bill is passed.

Staff Summary of Public Testimony on Original Bill: PRO: This was brought by the assessors. This has to do with land in open space when an owner wants or needs to sell the land. In some cases with growth management there is no reason to keep an open space, but the interest rates are so punitive the landowner cannot sell.

Persons Testifying: PRO: Senator Parlette, prime sponsor.