All property, real and personal, in Washington is subject to annual property taxation based on its highest and best use unless specifically exempted. Property tax is an ad valorem tax, meaning that the property is taxed according to its value. Property taxes can be imposed by the state or, when authorized by the Legislature, by local governments. The state Constitution requires that all classes of property must be taxed at a uniform rate, and that all real estate constitutes a class of property. The Constitution, however, also grants the Legislature a general power to exempt property from taxation, and the specific power to grant property tax relief to retired persons.
There have been numerous exemptions granted by the Legislature. Churches, libraries, various nonprofit organizations, and schools may all qualify for a property tax exemption. Residential properties owned by retirees that are 61 or older, or veterans with a service-related disability, can also qualify for an exemption. Multiple-family properties in urban centers can also qualify for a property tax exemption under certain conditions, with a longer exemption available for properties that rent or sell a certain percentage of the units to low-income households. Improvements to single-family dwellings, including the construction of an attached or detached accessory dwelling unit on the property are also exempt from property taxation for three years after completion, to the extent that the improvement represents 30 percent or less of the value of the original structure. This exemption can only be claimed once every five years.
Generally, an accessory dwelling unit (ADU) is a residential living unit that provides complete independent living facilities for one or more persons and that includes permanent provisions for living, sleeping, eating, cooking, and sanitation.
Affordable Housing Exemption Programs.
A county or city (local governments) may establish an Affordable Housing Incentive Program. This program can offer ad valorem property tax exemptions to attached, detached, or built-in ADUs used for very low-income rental housing. The local government must adopt standards consistent with local housing needs for determining which properties qualify, including rent and tenant income limitations. The local government must also adopt health and quality standards that must be met by a property in order to qualify, including standards for density, parking, and amenities. The health and quality standards must, at a minimum, be comparable to United State Housing and Urban Development standards applicable to public housing. A household is very low income if those within the household make, when adjusted for the size of the household, below 50 percent of the area median income for the county in which the household is located.
A local government may limit eligibility for a tax exemption to particular areas that are at risk of displacement or that present affordable housing opportunities near community infrastructure. A local government may also limit the program to only apply to ADUs that are detached from a single-family dwelling.
General Requirements for Qualification.
In order for a property to qualify for the exemption, certain conditions must be met:
To have the property qualified, the property owner must:
Application Approval.
If these conditions are met, the local government may approve the application and issue a certificate of tax exemption to the property owner. The exemption can only apply to the ADU and to that portion of the underlying land dedicated solely to the ADU. The local government must submit a copy of the certificate of tax exemption to the county assessor by August 1 of the year prior to the exemption going into effect. Beginning January 1 of the year after the certificate of exemption is filed with the county assessor, the property is exempt from property taxation for six years. The exemption may be renewed for subsequent six-year periods for as long as the property remains qualified.
A local government that issues tax exemptions must submit an annual report to the Department of Commerce with the total number of exemption certificates granted, the total monthly rent of each ADU, and the dollar amount issued for each exemption.
Application Denial.
If the application is denied, the local government must provide the reasons for the denial in writing to the applicant within 10 days of the denial. The applicant may appeal the decision within 30 days to the local government or its designated agent, with burden on the applicant to show that the local government's decision was not supported by substantial evidence.
Continuing Eligibility Requirements and Cancelation of an Exemption.
In order to remain qualified for the property tax exemption during the six-year exemption period, the property owner must file an annual report and maintain compliance with the program's requirement.
Each year, the property owner must file a report with the local government with an annual certification of family size and annual income obtained from each tenant, a statement that the property remains in compliance with the local government standards, and any other information required by the local government to determine compliance. Annual household income requalification, however, is not required after a household initially qualifies, unless the adults living in the ADU change.
The property must also remain in compliance with all of the tax exemption requirements. The county assessor must continue to annually value the exempt portions of the property. If a property owner intends to discontinue compliance, then the owner must notify tenants and the local government at least 60 days prior to discontinuing compliance. The exemption is then canceled. An exemption must also be canceled if the local government finds that a portion of the property is no longer in compliance.
If cancelation occurs because of noncompliance, then an additional property tax must be imposed on the property, along with interest on the additional property tax and a penalty. The additional property tax must be the amount of the difference between the tax paid on the property with the exemption in place and the tax that would have been paid if there had been no exemption. Additional interest is due on this amount at the rate that interest is imposed on delinquent property taxes and calculated from the dates that the additional tax amount would have been payable without the exemption. Finally, a penalty equal to 20 percent of the additional tax amount must be imposed. The additional tax, interest, and penalty are a lien on the property and attach at the time that the tax exemption is canceled. The lien has priority over other obligations except for those related to deferred property taxes, and may be foreclosed on if unpaid. The additional tax is due at the time of the next property tax payment on the property.
If a tax exemption is going to be canceled, the local government must notify the taxpayer and the assessor of the cancelation. The property owner may appeal the determination within 30 days, and must specify the factual and legal basis for the appeal. The local government may hear the appeal, during which all parties may be heard and competent evidence received. The burden is on the taxpayer to show that the local government's decision was not supported by substantial evidence. After the hearing, the local government's decision must be affirmed, denied, or modified by the decisionmaker. This decision can be appealed to superior court.