Housing Tax Matrix

There is little doubt that homelessness and the lack of affordable housing have reached a crisis point. It’s an issue of bipartisan concern, and there is no shortage of ideas. By a quick count, there appear to be nearly 90 bills that have been introduced this biennium, not counting ones that already passed last year and ones that deal strictly with the rental market. What’s much more limited, however, are the ideas regarding how to pay for the policy.

Multiple bills relating to various tax policies have had hearings this year. They can be grouped into four categories – sales & use tax, property tax, both, and other. There are plenty of other bills relating to land use and those that are more policy than fiscally oriented, which are not addressed here.

Many of the fiscal notes for these bills are indeterminate because it is unknown which jurisdictions would elect to use them. However, for property tax exemptions, it is important to remember that exempting one type of property shifts the tax from those property owners onto the taxpayers in the categories that are not exempted. Pass too many tax exemptions and the remaining taxpayers could see a significant increase in their property tax bills. And, once those tax bills hit their statutory cap, counties will suffer a loss accordingly. Bills we are keeping track of are: 

• Sales & Use Tax Bills
  • HB 1590 and SB 6126, which allow the local sales & use tax for affordable housing to be imposed by councilmanic authority. 
  • HB 1938, as amended, applies to a narrow subset of cities and counties that would be eligible to apply for a remittance of 4.37% of the state sales & use tax on the construction of housing under a local infrastructure investment program. 
  • HB 2797 and SB 6631, which address the process by which last year’s HB 1406 may be implemented. HB 1406 provided a credit against the state sales tax. 
  • SB 6449 would allow cities and counties to impose a 0.03% local sales & use tax, credited against the state portion of the sales tax, for operating and capital costs for emergency housing shelters.
• Property Tax Bills – Levies and Exemptions 
  • HB 2384 and SB 6232 expand the property tax exemption available to nonprofits providing rental housing or mobile home park spaces to qualifying households.
    • The fiscal note shows a revenue loss of approximately $200,000 per year to local governments and a tax shift of approximately $3.5 million per year.
  • HB 2489 and SB 6212 expand the use of the affordable housing property tax levy.
  • HB 2620 expands the multifamily property tax exemption. 
  • HB 2630 and SB 6231 address the exemption for improvements to single-family homes. The house version adds an exemption for the construction of accessory dwelling units (ADUs) and the Senate version replaces the improvement exemption with the ADU exemption. 
  • HB 2746 increases the minimum affordability requirements for the multifamily property tax exemption. 
  • SB 5366 expands the multifamily exemption to all cities and counties for eligible projects in urban centers from July 1, 2022, to July 1, 2025.

• Both Sales & Use Tax and Property Tax Bills
  • HB 2898 and SB 6618 would create housing benefit districts with taxing and bonding authority including a local sales and use tax of 0.2 to 0.5% and a property tax of up to $1 per $1,000 in assessed value.

• Other tax bills
  • HB 2452 reduces the state real estate excise tax (REET) for multiple unit housing.
    • This bill would impact not just the state general fund, but also the Public Works Assistance Account, City-County Assistance Account, and the fees counties collect for administering the state REET.
  • HB 2634 exempts the sale or transfer of real property for adorable housing from the state REET.
    • Like HB 2452, this bill would also impact local funds, albeit at a lesser level.
  • HB 2497 expands public improvement eligible for community revitalization financing, local infrastructure financing tool, and local revitalization financing to include permanently affordable housing.
    • Currently, only a couple of counties use these tools. 
  • HB 2907 and SB 6669 allow King County to impose an excise tax on businesses to be used for affordable housing, shelter, behavioral health, and related public safety.
  • HB 2919 increases the administration fee for the collection of the state REET for counties under 230,000 people and authorizes King County to use 25% of their fee on supportive housing programs. 
  • SB 6446 would authorize a city or county experiencing a vacant home rebate exceeding 30% to impose an additional lodging tax of 5% for affordable housing. 

WSAC supports some of these bills, to be sure, and counties generally support a diverse array of local taxing authority to ensure they have the necessary fiscal sustainability to provide the statutory and constitutional programs and services they are required to deliver.

At the same time, however, any proposed legislation that grants counties taxing authority, particularly sales & use tax, to fund programs and services that should be uniform statewide, such as homelessness and affordable housing, should be reviewed with caution.

Data shows that collection of sales & use taxes varies widely on a county by county basis. In fact, on an annual basis, a 1/10 of one percent sales and use tax collection varies by 400% per capita from county to county. It is not fair for Washington’s residents to have inequitable service levels for core programs because of the inequity in a jurisdiction’s ability to generate sales & use taxes.

Additionally, both the Legislature and counties have legitimate policy reasons for providing tax exemptions. However, given the fact that existing county revenue sources are both limited and inelastic, counties must maintain their current sources of revenue. These countervailing considerations are often in competition. Thus, WSAC has a general policy to advocate that tax exemptions be limited to the state’s portion of revenue without affecting the county portion of revenue. 

Counties support statewide revenue solutions to statewide issues, and that revenue appropriately is distributed equitably across the state based on program and service needs and not on the ability to raise the funds locally. Further, the state funds should be distributed in a manner that provides flexibility to allow local governments to use the funds to tailor solutions specific to the needs of their communities.