All real and personal property is subject to a tax each year based on its highest and best use, unless a specific exemption is provided by law.  Examples of property tax exemptions include exemptions for churches, nonprofit hospitals, affordable housing, and certain improvements to single-family residences.  If a single-family residence is improved by remodeling, adding new rooms, decks, patios, or other improvements, the owner may apply for a three-year exemption from property taxes on the value of the physical improvement.  To qualify for the exemption, the value of the improvements must be 30 percent or less of the value of the original structure.  The exemption may not be claimed more than once in a five-year period.  New construction of an accessory dwelling unit (ADU) qualifies as a physical improvement for this three-year exemption.
 
Legislation that establishes or expands a tax preference must include a tax preference performance statement (TPPS) 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.

A county may choose to exempt an ADU from property tax if the ADU is maintained as a rental property for low-income households.  A low income household means a household whose adjusted income is at or below 60 percent of median household income for the county.  Rent charged to a tenant may not exceed more than 30 percent of the tenant's monthly income.  The taxpayer must file notice of intention to participate in the program and the exemption can continue for as long as the ADU is leased to a low-income household.

If a county has opted to exempt low-income rental ADUs, they may collect a fee from the taxpayer, and may designate agents to verify the income standards for the exemption.

A TPPS identifies the exemption as one intended to encourage homeowners to rent ADUs to low-income households.  The exemption applies to taxes levied for collection in 2023 and thereafter, and expires January 1, 2033.

PRO:  The bill provides an exemption from property tax for ADUs if the unit is rented to a family at or below 60 percent of median household income and the rent does not exceed 30 percent of the household's monthly income.  The exemption qualifies if the ADU is attached or detached.  A nonprofit or housing authority would perform rent verification for the county, and a county is allowed to seek cost-recovery fees for the costs of the program.  With the increasing costs of land, this provides another tool to provide affordable housing.

PRO:  This bill gives counties the option to provide a property tax exemption for attached or detached ADUs that are rented to low income tenants.  Unlike similar legislation introduced this session, this bill does not remove the existing remodel property tax exemption and also includes a tax preference performance statement.  The goal is to provide housing for everyone.  Homes have become so expensive and there is a particular need for low income housing.