Retail Sales and Use Tax.
Retail sales taxes are imposed on retail sales of most articles of tangible personal property, digital products, and some services. A retail sale is a sale to the final consumer or end user of the property, digital product, or service. If retail sales taxes are not collected when the user acquires the property, digital product, or service, then use tax applies to the value of property, digital product, or service when used in this state. The state, all counties, and all cities levy retail sales and use taxes. The state sales and use tax rate is 6.5 percent; local sales and use tax rates vary, depending on the location.
Local Sales and Use Taxes.
Counties, cities, and towns were first granted the authority to impose a local sales and use tax in 1970. There is a basic 0.5 percent sales and use tax and an optional 0.5 percent sales and use tax. The revenues from these two sales and use taxes are unrestricted and may be used for any lawful government purpose.
When both the city and the county impose the basic sales and use tax, the county must credit back the full amount of the city's basic sales and use tax so that the combined rate does not exceed 0.5 percent. However, the first 15 percent of the basic sales and use tax collected within the city must be distributed to the county. This is also the case with the optional sales and use tax.
There are other optional sales and use taxes that may be imposed; however, the revenues from these sales and use taxes are restricted to specific purposes. For example, the cultural access program sales and use tax of 0.1 percent must be used to benefit or expand access to nonprofit cultural organizations. Many of the optional local sales and use taxes require voter approval.
Real Estate Excise Tax.
Real Estate Excise Tax (REET) applies to real estate transactions including the sale of property and the transfer of controlling interest in property. The rate applies to the selling price and is usually paid by the seller. The REET is due and payable to the county treasurer in which the property is located on the date of the sale, regardless of the date of recording, except in a controlling interest transfer. The REET is imposed at the following rates:
The sale of any portion of an affordable housing development by a qualified entity to an organization that meets the requirements for a property tax exemption as a nonprofit organization, housing authority, or public corporation for use for a community purpose is exempt from the REET. A community purpose includes, but is not limited to, the provision of services to affordable housing development tenants, health clinics, senior day cares, food banks, community centers, and early learning facilities.
Local governments are authorized to impose a local REET in addition to the state rate. The two main local REET options are:
Local REET 1 and 2 capital projects are local government public works projects for planning, acquisition, construction, reconstruction, repair, replacement, rehabilitation, or improvement of:
Additionally, there are several other local REET options for local governments:
Property Tax—Regular Levies.
All real and personal property is subject to a tax each year based on the highest and best use, unless a specific exemption is provided by law. The annual growth of all regular property tax levy revenue is limited as follows:
An additional amount is added on based on the increase in assessed value in a district from:
The state collects two regular property tax levies for common schools. The revenue growth limit applies to both levies. Participants in the senior citizens, individuals with disabilities, and qualifying veterans property tax exemption program receive a partial exemption from the original state levy and a full exemption from the additional state levy.
The Washington Constitution also limits regular levies to a maximum of 1 percent of the property's value, or $10 per $1,000 of assessed value. There are individual district rate maximums and aggregate rate maximums to keep the total tax rate for regular property taxes within the constitutional limit. For example:
For property tax purposes, the state, counties, and cities are collectively referred to as senior taxing districts. Junior taxing districts—a term that includes fire, hospital, flood control zone, and most other special purpose districts—each have specific rate limits as well.
Prorationing.
The tax rates for senior and junior taxing districts, excluding the state, must fit within an overall rate limit of $5.90 per $1,000 of assessed value. If the statutory $5.90 or constitutional $10 limit are exceeded, statute establishes the sequential order in which the levies must be proportionally reduced or eliminated, a process referred to as prorationing, to conform to the statutory and constitutional limits.
Some regular property tax levies—including levies for criminal justice purposes, port districts, and emergency medical services—are subject to the $10 constitutional limit but not the $5.90 aggregate rate limit.
Property Tax—Excess Levies.
Excess levies are imposed in addition to regular levies and are not subject to the constitutional $10 limit. Taxing jurisdictions with excess levy authority include local school districts, public facilities districts, and transportation benefit districts. Most excess levies require a 60-percent voter approval. Local school district levies for operation, transportation, and capital projects require simple majority voter approval.
Levy Lid Lift.
Voters may approve regular property tax increases above the revenue growth limit. This voter-approved increase is referred to as a levy lid lift. A levy lid lift may be authorized for a single year or for multiple years, not to exceed six years. With a multi-year lid lift, the levy may be increased by a certain rate in each consecutive year. A multi-year lid lift must be for a specific purpose.
Flood Control Zone Districts.
A flood control zone district can undertake, operate, and maintain flood or stormwater control projects. A district can also take action necessary to protect life and property within the district from flooding during an emergency. The formation of a district can be initiated by the county legislative authority or by vote petition. Districts are governed by the members of the county legislative authority acting as ex officio supervisors of the district, though districts with more than 2,000 people may instead elect the supervisors.
Flood control zone districts can be funded in various ways, including by counties for activities related to flood and stormwater control activities, and by a property tax levy that can be imposed at a rate of up to 50 cents per $1,000 of assessed value, though the levy cannot reduce the rate that any other taxing district can claim and cannot cause the $5.90 limit to be exceeded. Certain flood control districts can protect up to 25 cents of their levy capacity by levying it outside of the $5.90 aggregate rate limit if prorationing would otherwise occur.
Part I—Use of Local Real Estate Excise Tax Revenues.
Local REET revenues may be used for the abatement of nuisance properties.
Part II—City or County Imposed Real Estate Excise Tax for the Development of Affordable Housing.
Beginning January 1, 2028, the rate for the local affordable housing REET is changed to 0.5 percent.
The requirement that a county must have imposed a 1 percent tax for conservation areas in order to establish a local affordable housing REET is eliminated. All counties are given the ability to impose a local affordable housing REET option. Cities may also impose a local affordable housing REET, if the county in which the city is located has either adopted a resolution of intent stating that they do not intend to impose the local affordable housing REET, or if the county has not imposed the REET by January 1, 2028. If a county imposes the local affordable housing REET after a city has done so, the county must provide a credit against its tax for the full amount of the tax imposed by the city.
A county or city imposing the affordable housing REET must notify the Department of Revenue at least 75 days before imposing the tax, and the tax may only initially take effect on the first day of January, April, or July.
Part III—Local Sales and Use Tax to Fund Services for Children and Families.
Beginning January 1, 2027, the legislative authority of a county or city may by resolution or ordinance impose a local sales and use tax. The rate of the tax is 0.01 percent of the selling price or value of the article used. This tax is in addition to all other taxes. If both a county and a city within the county impose the tax, the county must provide a credit against its tax for the city tax to the extent that the combined rate would exceed 0.01 percent.
The revenues from this tax must be used solely for the purpose of providing additional services that assist children and their families. This can include: child care; perinatal support services; before-school and after-school services that address mental, social, and physical health; workforce capacity building; shelter and rental assistance; and client transportation.
Part IV—Local Sales and Use Tax for Housing and Related Services.
The use of the tax revenues is expanded to include funding the rehabilitation, operations, and maintenance of existing units of affordable housing and facilities. In addition, a portion of the revenues may be used for rental assistance.
Part V—Veterans' Assistance Property Tax Levy and the Mental Health and Developmental Disabilities Assistance Property Tax Levy.
Counties have the option to separate the developmental disabilities or mental health services (DDMHS) levy and the veterans' assistance levy from the county's regular property tax levy. In addition, the levy rates of the DDMHS levy and the veterans' assistance levy will no longer be modified based on an increase or decrease of the county's regular levy amount in the prior year.
Both the veteran's assistance levy and the DDMHS levy are excluded from the $5.90 aggregate levy rate limit. Both are included in the 1 percent constitutional levy limit.
Part VI—Exceeding Regular Property Tax Levy Limitations.
With voter approval, a levy lid lift for a single-year may be authorized for two consecutive years, and a multi-year annual levy lid lift may be authorized for up to 10 consecutive years.
Part VII—Sales Tax on Rental Cars.
The use of funds generated by a county from the imposition of a sales tax on rental cars is extended to criminal justice purposes. Criminal justice purposes means activities that substantially assist the criminal justice system, which may include circumstances where ancillary benefit to the civil justice system occurs, such as:
Part VIII—Flood Control Zone Districts Recovery Assistance.
In addition to their other authority, flood control zone districts may provide funds for county-administered flood recovery assistance to households and businesses damaged in a flood that is the subject of an emergency proclamation by the Governor.
Part IX—County Public Health Clinic Property Tax.
A public health clinic is a publicly operated site for the provision of low-barrier health and related services such as primary care, dental care, substance use disorder, family health and nutrition, behavioral health care, and reproductive health care.
A county may impose a property tax levy at a rate of up to 5 cents per $1,000 of assessed value for the operation, maintenance, and capital expenses of public health clinics. A county may impose this tax as a levy separate from its regular tax levy, and it is excluded from the $5.90 aggregate tax rate limit. This levy is included in the 1 percent constitutional levy limit.
The substitute bill:
(In support) This is an assembly of bills that have been considered in the past that are designed to help solve problems our local communities face every day. Cities and counties are on the front line in facing the crisis. The revenue tools they have were designed decades ago to address old problems. This bill modernizes some of the local revenue tools. The bill fills critical gaps, stabilizes funding and provides direct assistance to low income families. It does not create a new statewide tax and does not mandate that a local government increase taxes. This bill recognizes the varying needs of our diverse counties and allows local leaders to make choices about what revenue tool is the best. This bill does not change the existing requirements for some of these taxes to get voter approval.
By expanding the use of funds from some existing revenue sources, this bill allows local governments to fill gaps created by the loss of federal funding. It also helps support the core needs of communities, and it allows communities to choose to investment in expanding the availability of affordable housing.
Counties rely heavily on property taxes. Levy lid lifts are expensive and are not undertaken lightly. The change to allow voters to approve these levy lid lifts for a bit more time will help stabilize funding and allow for those investments in the county needs while also providing a bit more stability as we try to make progress in solving the fundamental fiscal challenges.
(Opposed) Public utility districts will be negatively impacted by a new county public utility tax (PUT). Utility services are already struggling to keep rates down and the small amount of PUT directed to ratepayer assistance will not address this. Local government services will pay the new county PUT and many of these services do not have taxing authority and the only way to recoup the new expense is to pass it on to ratepayers. We are the second highest state for taxes on cellular services. It is a regressive tax and will cost consumers more.
The increase in local REET will make homeownership less affordable. This bill is a smorgasbord of new taxes. Washington's climate change policies are already driving costs higher and the persons signing in "con" on this bill outnumber the "pros" 13 to 1. It is not a great time to impose more taxes on Washingtonians.
(Other) Utility costs are already high in Washington due to the combination of existing taxes as well as the Climate Commitment Act and the Clean Energy Transformation Act. The PUT is councilmanic and not subject to voter approval and there is no nexus between the tax and the use of funds.
(In support) Representative April Berg, prime sponsor; Paul Schissler, Madrona Community Development spc; Kerri Burnside, Bellingham Tenants Union; Jennifer Gregerson, City of Everett; Anita Gallagher, Pierce County; Paul Jewell, Washington State Association of Counties; Candice Bock, Association of Washington Cities; Commissioner Heidi Eisenhour, Jefferson County; Commissioner LaDon Linde, Yakima County; Josh Weiss, Snohomish County; and Michele Thomas, Washington Low Income Housing Alliance.
No new changes were recommended.
(In support) This bill is a lifeline for local governments in Washington. It modernizes and expands local government revenue tools for cities and counties so that they can better respond to the needs of their communities. Everything in this bill is completely optional for cities or counties; there is nothing mandated. It gives local governments the ability to protect core infrastructure needs, creating a voter approved housing funding tool. This bill will also allow them to fill in critical gaps in services for children and families and mentally disabled individuals, and ensure that, when counties adopt utility taxes, low-income people receive assistance. It will give communities the ability to fund public health clinics. There are no new taxes levied. Communities will get to choose how they are taxed, what is taxed, and what those funds are used for. Counties are instrumental in funding local health jurisdictions' ability to provide direct services, such as mobile clinics, public health nursing, and substance use prevention. This bill empowers greater flexibility to fulfill county obligations, such as funding public housing. The provision to impose a sales tax dedicated to children and families is a critical tool that counties can leverage to address a wide range of needs, including daycare, prenatal care checkups, home visiting programs, and after-school clubs. The optional property tax would support clinics that offer services, such as immunizations, sexually transmitted infection testing and treatment, school-based health centers, dental care, opioid treatment services, and more. This work is currently funded through a patchwork of funding sources. Counties are struggling right now, just like the state. They are making difficult decisions and choices on what to cut, just like this state. Many of them are facing worse prospects next year without the help of the state. This bill contains several tools for counties to use right now to address their fiscal challenges. This bill is the single best proposal you can implement right now to provide real immediate help, as well as long-term fiscal improvements for counties.
(Opposed) There is opposition for Section 201 of this bill. Section 201 would authorize local governments to institute an additional half a percent on the sale of a home. The average price of a home today in Washington is about $650,000. If this tax were to be implemented at the local level, that would be an additional $3,250 on the sale of that home, and that's in addition to the base state rate and other local rates that are already authorized in statute. That would take the total rate on the sale of an average home in the state to over, or just short of, $15,000.
(In support) Representative April Berg, prime sponsor; Jaime Bodden, WSALPHO; Paul Jewell, Washington State Association of Counties; and Mark Watson, PROTEC17 .