PERMANENT RULES
Date of Adoption: August 26, 2002.
Purpose: WAC 458-29A-400 provides information about exemptions from the leasehold excise tax and currently implements RCW 82.29A.130 and 82.29A.132. The rule has been revised to incorporate recent legislative changes. This revised rule now contains information from the following statutes:
| • | RCW 82.29A.134 (chapter 4, Laws of 2000 2nd sp.s.), which provides a leasehold excise tax exemption for all leasehold interests in property of a regional transit authority or public corporation created under RCW 81.112.320 under an agreement under RCW 81.112.300; and |
| • | RCW 82.29A.136 (chapter 26, Laws of 2001), which provides a leasehold excise tax exemption for leasehold interests consisting of three thousand or more residential and recreational lots that are or may be subleased for residential and recreational purposes. |
Citation of Existing Rules Affected by this Order: Amending WAC 458-29A-400 Leasehold excise tax--Exemptions.
Statutory Authority for Adoption: RCW 82.29A.140.
Adopted under notice filed as WSR 02-13-106 on June 18, 2002.
Changes Other than Editing from Proposed to Adopted Version: In subsection (8), "Yakima tribe" was changed to "Yakama Nation."
Number of Sections Adopted in Order to Comply with Federal Statute: New 0, Amended 0, Repealed 0; Federal Rules or Standards: New 0, Amended 0, Repealed 0; or Recently Enacted State Statutes: New 0, Amended 1, Repealed 0.
Number of Sections Adopted at Request of a Nongovernmental Entity: New 0, Amended 0, Repealed 0.
Number of Sections Adopted on the Agency's Own Initiative: New 0, Amended 1, Repealed 0.
Number of Sections Adopted in Order to Clarify, Streamline, or Reform Agency Procedures: New 0, Amended 1, Repealed 0.
Number of Sections Adopted Using Negotiated Rule Making:
New 0,
Amended 0,
Repealed 0;
Pilot Rule Making:
New 0,
Amended 0,
Repealed 0;
or Other Alternative Rule Making:
New 0,
Amended 1,
Repealed 0.
Effective Date of Rule:
Thirty-one days after filing.
August 26, 2002
Russell W. Brubaker
Assistant Director
Legislation and Policy Division
OTS-5716.2
AMENDATORY SECTION(Amending WSR 99-20-053, filed 10/1/99,
effective 11/1/99)
WAC 458-29A-400
Leasehold excise tax--Exemptions.
(1)
Introduction. This rule explains the exemptions from
leasehold excise tax provided by RCW 82.29A.130 ((establishes
a number of exemptions from the leasehold excise tax)),
82.29A.132, 82.29A.134, and 82.29A.136. To be exempt from the
leasehold excise tax, the property subject to the leasehold
interest must be used exclusively for the purposes for which
the exemption is granted.
(2) Operating properties of a public utility. All leasehold interests that are part of the operating properties of a public utility are exempt from leasehold excise tax if the leasehold interest is assessed and taxed as part of the operating property of a public utility under chapter 84.12 RCW.
For example, tracks leased to a railroad company at the Port of Seaside are exempt from leasehold excise tax because the railroad is a public utility assessed and taxed under chapter 84.12 RCW and the tracks are part of the railroad's operating properties.
(3) Student housing at public and nonprofit schools and
colleges. All leasehold interests in facilities owned or used
by a ((public)) school, college, or university ((to)) which
leasehold provides housing to students are exempt from
leasehold excise tax if the student housing is exempt from
property tax under RCW 84.36.010 and 84.36.050.
For example, the leasehold interest associated with a building used as a dormitory for Public University students is exempt from the leasehold excise tax.
(4) Subsidized housing. All leasehold interests of
subsidized housing are exempt from leasehold excise tax if the
property is owned in fee simple by the United States, the
state of Washington((,)) or any of its political subdivisions,
((owns the property in fee simple)) and residents of the
housing are subject to specific income qualification
requirements.
For example, a leasehold interest in an apartment house
that is subsidized by the ((Federal)) United States Department
of Housing and Urban Development is exempt from leasehold
excise tax if the property is owned by the state of Washington
and residents are subject to income qualification
requirements.
(5) Nonprofit fair associations. All leasehold interests
used for fair purposes of a nonprofit fair association are
exempt from leasehold excise tax if the fair association
sponsors or conducts a fair or fairs supported by revenues
collected under RCW 67.16.100 and allocated by the director of
the department of agriculture. The property must be owned in
fee simple by the United States, the state of Washington((,))
or any ((public)) of its political subdivisions. However, if
a nonprofit association subleases exempt property to a third
party, the sublease is a taxable leasehold interest.
For example, a leasehold interest held by the Local Nonprofit Fair Association is considered exempt from leasehold excise tax. However, if buildings on the fairgrounds are rented to private parties for storage during the winter, these rentals may be subject to the leasehold excise tax.
(6) Public employee housing. All leasehold interests in
public property used as a residence by an employee of the
public owner are exempt from leasehold excise tax if the
employee is required to live on the public property as a
condition of his or her employment. ((For example, a cabin
used as a residence by a forest ranger in the Northwest
National Forest is exempt from leasehold excise tax if the
cabin is owned by the United States, the ranger is employed by
the U.S. Forest Service (an agency of the United States
government), and the ranger is required to live in the
Northwest National Forest as a condition of his/her
employment.)) The "condition of employment" requirement is met
only when the employee is required to accept the lodging in
order to enable the employee to properly perform the duties of
his or her employment. However, the "condition of employment"
requirement can be met even if the employer does not compel an
employee to reside in a publicly owned residence.
The following examples identify a number of facts and then state a conclusion. These examples should be used only as a general guide. The status of each situation must be determined after a review of all of the facts and circumstances.
(a) A park ranger employed by the National Park Service, an agency of the United States government, resides in a house furnished by the agency at a national park. The ranger is required to be on call twenty-four hours a day to respond to requests for assistance from park visitors staying at an adjacent overnight campground. The use of the house is exempt from leasehold excise tax because the lodging enables the ranger to properly perform her duties.
(b) An employee of the Washington department of fish and wildlife resides in a house furnished by the agency at a fish hatchery although, under the terms of a collective bargaining agreement, the agency may not compel the employee to live in the residence as a condition of employment. In exchange for receiving use of the housing provided by the agency, the employee is required to perform additional duties, including regularly monitoring certain equipment at the hatchery during nights and on weekends and escorting public visitors on tours of the hatchery on weekends. The use of the house is exempt from leasehold excise tax because the lodging enables the employee to properly perform the duties of his employment. The use is exempt even though the employee would continue to be employed by the agency if the additional duties were not performed and even though state employees of an equal job classification are not required to perform the additional duties.
(c) A professor employed by State University is given the choice of residing in university-owned campus housing free of charge or of residing elsewhere and receiving a cash allowance in addition to her regular salary. If she elects to reside in the campus housing free of charge, the value of the lodging furnished to the professor would be subject to leasehold excise tax because her residence on campus is not required for her to perform properly the duties of her employment.
(7) Interests held by enrolled Indians. Leasehold interests held by enrolled Indians are exempt from leasehold excise tax if the lands are owned or held by any Indian or Indian tribe, and the fee ownership of the land is vested in or held in trust by the United States, unless the leasehold interests are subleased to a lessee which would not qualify under chapter 82.29A RCW, RCW 84.36.451 and 84.40.175 and the tax on the lessee is not preempted due to the balancing test (see WAC 458-20-192).
Any leasehold interest held by an enrolled Indian or a
tribe, where the leasehold is located within the boundaries of
an Indian reservation, on trust land, on Indian country, or is
associated with the treaty fishery or some other treaty right,
is not subject to leasehold excise tax. For example, if an
enrolled member of the Puyallup Tribe leases port land at
which the member keeps his or her boat, and the boat is used
in a treaty fishery, the leasehold interest is exempt from the
leasehold tax. For more information on excise tax issues
related to enrolled Indians, see WAC 458-20-192
(Indians--Indian ((reservations)) country).
(8) Leases on Indian lands to non-Indians. Leasehold
interests held by non-Indians (not otherwise exempt from tax
due to the application of the balancing test described in WAC 458-20-192) in any real property of any Indian or Indian
tribe, band, or community that is held in trust by the United
States or subject to a restriction against alienation imposed
by the United States ((that are held by a non-Indian not
otherwise exempt from tax due to the application of the
balancing test under WAC 458-20-192)) are exempt from
leasehold excise tax if the amount of contract rent paid is
greater than or equal to ninety percent of fair market rental
value. In determining whether the contract rent of such lands
meets the required level of ninety percent of market value,
the department will use the same criteria used to establish
taxable rent under RCW 82.29A.020 (2)(b) ((()) and WAC 458-29A-200(())).
For example, Harry leases land held in trust by the
United States for the ((Yakima tribe)) Yakama Nation for the
sum of $900 per month. The fair market value for similar
lands used for similar purposes is $975 per month. The lease
is exempt from the leasehold excise tax because Harry pays at
least ninety percent of the fair market value for the
qualified lands. For more information on the preemption
analysis and other tax issues related to Indians, see WAC 458-20-192.
(9) Annual taxable rent is less than two hundred fifty dollars. Leasehold interests for which the taxable rent is less than $250 per year are exempt from leasehold excise tax. For the purposes of this exemption, if the same lessee has a leasehold interest in two or more contiguous parcels of property owned by the same public lessor, the taxable rent for each contiguous parcel will be combined and the combined taxable rent will determine whether the threshold established by this exemption has been met. To be considered contiguous, the parcels must be in closer proximity than merely within the boundaries of one piece of property. When determining the annual leasehold rent, the department will rely upon the actual substantive agreement between the parties. Rent payable pursuant to successive leases between the same parties for the same property within a twelve-month period will be combined to determine annual rent; however, a single lease for a period of less than one year will not be projected on an annual basis.
The following examples identify a number of facts and then state a conclusion. These examples should be used only as a general guide. The status of each situation must be determined after a review of all of the facts and circumstances.
(a) The yacht club rents property from the Port of Bay City for its clubhouse and moorage. It also rents a parking stall for its commodore. The parking stall is separated from the clubhouse only by a common walkway. The parking stall lease is a part of the clubhouse lease because it is contiguous to the clubhouse, separated only by a necessary walkway.
(b) Ace Flying Club rents hangars, tie downs, and ramps from the Port of Desert City. It has separate leases for several parcels. The hangars are separated from the tie down space by a row of other hangars, each of which is leased to a different party. Common ramps and roadways also separate the club's hangars from its tie-downs. The hangars, because they are adjacent to one another, create a single leasehold interest. The tie downs are a separate taxable leasehold interest because they are not contiguous with the hangars used by Ace Flying Club.
(c) Grace leases a lot from the City of Flora, from which she sells crafts at different times throughout the year. She pays $50 per month for the lot, and has a separate lease for each season during which she sells. She has one lease from May through September, and a separate lease for the time between Thanksgiving and Christmas, which might run thirty to forty days, depending on the year. The leases will be combined for the purposes of determining the leasehold excise tax. They relate to the same piece of property, for the same activity by the same lessee, and occur within the same year.
(d) Elizabeth owns a Christmas tree farm. Every year she rents a small lot from the Port of Capital City, adjacent to its airport, to sell Christmas trees. She pays $125 to the port to rent the lot for 6 weeks. It is the only time during the year that she rents the lot. Her lease is exempt from the leasehold excise tax, because it does not exceed $250 per year in taxable rent.
(10) Leases for a continuous period of less than thirty days. Leasehold interests that provide use and possession of public property for a continuous period of less than thirty days are exempt from leasehold excise tax. In determining the duration of the lease, the department will rely upon the actual agreement and/or practice between the parties. If a single lessee is given successive leases or lease renewals of the same property, the arrangement is considered a continuous use and possession of the property by the same lessee. A leasehold interest does not give use and possession for a period of less than thirty days based solely on the fact that the public lessor has reserved the right to use the property or to allow third parties to use the property on an occasional, temporary basis.
(11) Month-to-month leases in residential units to be
demolished or removed. Leasehold interests in properties
rented for residential purposes on a month-to-month basis
pending destruction or removal for construction of a public
highway or public building are exempt from the leasehold
excise tax. ((For example)) Thus, if the state or other
public entity has acquired private ((properties)) property for
purposes of building or expanding a highway ((expansion)), or
for the construction of public buildings at an airport
((expansion)), ((or)) the capitol campus ((expansion)), or
some other public facility, and the public entity rents
((those residential units)) the property for residential
purposes on a month-to-month basis pending ((their))
destruction or removal for construction, these leases do not
create taxable leasehold interests. This exemption does not
require evidence of imminent removal of the residential units;
the term "pending" merely means "while awaiting." The
exemption is based upon the purpose for which the public
entity holds the units.
For example, State University has obtained capital development funding for the construction of new campus buildings, and has purchased a block of residential property adjacent to campus for the sole purpose of expansion. Jim leases these houses from State University pursuant to a month-to-month rental agreement and rents them to students. Construction of the new buildings is not scheduled to begin for two years. Jim is not subject to the leasehold excise tax, because State University is holding the residential properties for the sole purpose of expanding its facilities, and Jim is leasing them pending their certain, if not imminent, destruction.
(12) Public works contracts. Leasehold interests in publicly owned real or personal property held by a contractor solely for the purpose of a public improvements contract or work to be executed under the public works statutes of Washington state or the United States are exempt from leasehold excise tax. To receive this exemption, the contracting parties must be the public owner of the property and the contractor that performs the work under the public works statutes.
For example, during construction of a second deck on the Nisqually Bridge pursuant to a public works contract between the state of Washington and Tinker Construction, any leasehold interest in real or personal property created for Tinker solely for the purpose of performing the work necessary under the terms of the contract is exempt from leasehold excise tax.
(13) Correctional industries in state adult correctional facilities. Leasehold interests for the use and possession of state adult correctional facilities for the operation of correctional industries under RCW 72.09.100 are exempt from leasehold excise tax.
For example, a profit or nonprofit organization operating and managing a business within a state prison under an agreement between it and the department of corrections is exempt from leasehold excise tax for its use and possession of state property.
(14) Camp facilities for disabled persons. Leasehold interests in a camp facility are exempt from leasehold excise tax if the property is used to provide organized and supervised recreational activities for disabled persons of all ages, and for public recreational purposes, by a nonprofit organization, association, or corporation which would be exempt from property tax under RCW 84.36.030(1) if it owned the property.
For example, a county park with camping facilities leased to a nonprofit charitable organization is exempt from leasehold excise tax if the nonprofit allows the property to be used by the general public for recreational activities throughout the year, and to be used as a camp for disabled persons for two weeks during the summer.
(15) Public or entertainment areas of certain baseball stadiums. Leasehold interests in public or entertainment areas of a baseball stadium with natural turf and a retractable roof or canopy, located in a county with a population of over one million people, with a seating capacity of over forty thousand, and constructed on or after January 1, 1995, are exempt from leasehold excise tax.
"Public or entertainment areas" for the purposes of this exemption include ticket sales areas, ramps and stairs, lobbies and concourses, parking areas, concession areas, restaurants, hospitality and stadium club areas, kitchens or other work areas primarily servicing other public areas, public rest rooms, press and media areas, control booths, broadcast and production areas, retail sales areas, museum and exhibit areas, scoreboards or other public displays, storage areas, loading, staging, and servicing areas, seating areas and suites, the playing field, and any other areas to which the public has access or that are used for the production of the entertainment event or other public usage, and any other personal property used for such purposes. "Public or entertainment areas" does not include locker rooms or private offices used exclusively by the lessee.
(16) Public or entertainment areas of certain football stadiums and exhibition centers. Leasehold interests in the public or entertainment areas of an open-air stadium suitable for national football league football and for Olympic and world cup soccer, with adjacent exhibition facilities, parking facilities, and other ancillary facilities constructed on or after January 1, 1998, are exempt from leasehold excise tax. For the purpose of this exemption, the term "public and entertainment areas" has the same meaning as set forth in subsection (15) above.
(17) Public facilities districts. All leasehold interests in public facilities districts, as provided in chapter 36.100 or 35.57 RCW are exempt from leasehold excise tax.
(18) State route 16 corridor transportation systems. All leasehold interests in the state route number 16 corridor transportation systems and facilities constructed and operated under chapter 47.46 RCW are exempt from leasehold excise tax. RCW 82.29A.132.
(19) Sales/leasebacks by regional transit authorities. All leasehold interests in property of a regional transit authority or public corporation created under RCW 81.112.320 under an agreement under RCW 81.112.300 are exempt from leasehold excise tax. This exemption is effective July 28, 2000. RCW 82.29A.134.
(20) Interests consisting of three thousand or more residential and recreational lots. All leasehold interests consisting of three thousand or more residential and recreational lots that are or may be subleased for residential and recreational purposes are exempt from leasehold excise tax. Any combination of residential and recreational lots totaling at least three thousand satisfies the requirement of this exemption. This exemption is effective January 1, 2002. RCW 82.29A.136.
[Statutory Authority: RCW 82.29A.140. 99-20-053, § 458-29A-400, filed 10/1/99, effective 11/1/99.]