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SUBJECTS › FINANCE › Real Estate Excise Tax
Updated 04/02

Real Estate Excise Tax

Contents

Introduction

This page includes a discussion of the real estate excise tax. Also included are links to: (1) the state laws authorizing the real estate excise tax; (2) frequently asked questions; and (3) various documents, including sample ordinances to levy the real estate excise tax.

The State of Washington is authorized to levy a real estate excise tax on all sales of real estate, measured by the full selling price, including the amount of any liens, mortgages and other debts given to secure the purchase at a rate of 1.28 percent. RCW 82.45.060. A locally-imposed tax is also authorized. However, the rate at which it can be levied and the uses to which it may be put differs by city or county size and whether the city or county is planning under the Growth Management Act (GMA). All cities and counties may levy a quarter percent tax (described as "the first quarter percent of the real estate excise tax" or "REET 1"). RCW 82.46.010. Cities and counties that are planning under GMA have the authority to levy a second quarter percent tax (REET 2). RCW 82.46.035(2). Note that this statute specifies that if a county is required to plan under GMA, or if a city is located in such a county, the tax may be levied by a vote of the legislative body. If, however, the county chooses to plan under GMA, the tax must be approved by a majority of the voters.

How Can the First Quarter Percent -- REET 1 -- Be Spent?

Cities and counties fall into three categories: 1) those that are not planning under GMA; 2) those that are planning under GMA, but have a population under 5,000; and 3) those that are planning under GMA and have a population of 5,000 or over.

1 & 2. Cities and Counties That Are Not Planning Under GMA and Those That Are Planning But Have a Population Under 5,000.

Both groups of entities have the same restrictions on their spending of REET 1 revenues. They must use these funds "for any capital purpose identified in a capital improvements plan and local capital improvements, including those listed in RCW 35.43.040." RCW 82.46.010(2). RCW 35.43.040 lists local improvements that can be funded through a local improvement district (LID), including streets, parks, sewers, water mains, swimming pools and gymnasiums, etc. (Note that in chapter 272, Laws of 1994, the legislature clarified its original intent that "local capital improvements" was intended to include the acquisition of real and personal property associated with such local capital improvements. This means that land acquisition for parks is a permitted expenditure.)

Capital projects not listed in the LID statute (for example, a fire station, city hall, courthouse or library) are also permitted uses as long as they are included in the city's or county's capital improvement plan. Expenditures that are not allowed are such things as the purchase of police cars. Accountants may consider these to be "capital" for accounting purposes, but they are not "capital purposes" or "local capital improvements." See correspondence between Allen R. Hancock, Deputy Prosecuting Attorney of Island County and Philip H. Austin, Senior Deputy Attorney General.

3. Cities and Counties With a Population of 5,000 or More That Are Planning Under GMA.

These jurisdictions must spend the first quarter percent of their real estate excise tax receipts solely on capital projects that are listed in the capital facilities plan element of their comprehensive plan. RCW 82.46.010(2)(6). RCW 82.46.010(6) defines "capital projects" as:

those public works projects of a local government for planning, acquisition, construction, reconstruction, repair, replacement, rehabilitation, or improvement of streets; roads; highways; sidewalks; street and road lighting systems; traffic signals; bridges; domestic water systems; storm and sanitary sewer systems; parks; recreational facilities; law enforcement facilities; fire protection facilities; trails; libraries; administrative and judicial facilities...

Spending the Second Quarter Percent -- REET 2

This part of the real estate excise tax may only be levied by cities and counties that are required to or choose to plan under the Growth Management Act. All cities and counties that levy this tax face the same provisions, whether their population is greater or less than 5,000.

For this quarter percent of the real estate excise tax, "capital project" means those:

public works projects of a local government for planning, acquisition, construction, reconstruction, repair, replacement, rehabilitation, or improvement of streets, roads, highways, sidewalks, street and road lighting systems, traffic signals, bridges, domestic water systems, storm and sanitary sewer systems, and planning, construction, reconstruction, repair, rehabilitation, or improvement of parks. RCW 82.46.035(5).

Note that acquisition of land for parks is not a permitted use of REET 2 receipts, although it is a permitted use for street, water, and sewer projects.

What's the Half Cent Tax Shown in RCW 82.46.010(3)?

Cities and counties that are not levying the optional half-cent sales tax under RCW 82.14.030(2) have the option of levying an additional one-half percent real estate excise tax. These receipts are not designated for capital projects. They are a general fund revenue for city operating expenditures. Only two cities, Asotin and Clarkston, have chosen to do this. From a financial standpoint, the optional half-cent sales tax will probably bring in more revenue than this additional one-half percent real estate excise tax. For border cities and counties, however, who do not feel they are able to levy the optional sales tax, this tax is a revenue option.

The imposition of this tax, a change in rate, or repeal of the tax is subject to the referendum procedures given in RCW 82.46.021.

One Percent Real Estate Excise Tax for Conservation Areas.

A county legislative authority may submit a ballot proposition to the voters for an additional real estate excise tax on each sale of real property in the county at a rate not to exceed 1 percent of the selling price. The revenue from this tax is restricted to the acquisition and maintenance of conservation areas. Conservation areas are defined in RCW 36.32.570 as:

land and water that has environmental, agricultural, aesthetic, cultural, scientific, historic, scenic, or low-intensity recreational value for existing and future generations, and includes, but is not limited to, open spaces, wetlands, marshes, aquifer recharge areas, shoreline areas, naturals areas, and other lands and waters that are important to preserve flora and fauna.

The property buyer, rather than the seller, pays this tax. RCW 82.46.070. Only San Juan County has levied this tax to date.

Accounting for These Funds

Because this revenue source has a dedicated purpose, it must be accounted for separately in a capital projects fund. Those cities and counties that are planning under GMA and levying both REET 1 and REET 2 need to keep track of each of these revenues separately because the uses to which they may be put are different. RCW 82.46.030(2) and RCW 82.46.035(4). Although no special direction is given in the statutes as to how to account for funds collected under RCW 82.46.070 for conservation areas, these should be kept in a separate fund also.

Reference Sources

Documents

  • March 2, 1984 letter from Alan R. Hancock, Deputy Prosecuting Attorney of Island County To Kenneth O. Eikenberry, Washington State Attorney General.
  • March 6, 1984 letter from Philip H. Austin, Senior Deputy Attorney General to Alan R.Hancock, Deputy Prosecuting Attorney of Island County.
  • MRSC sample ordinance to levy the first quarter percent of the real estate excise tax for cities that are not planning under the Growth Management Act (GMA) or for cities that are planning under GMA but which have a population of 5,000 or less.
  • MRSC sample ordinance to levy the first quarter percent of the real estate excise tax for all cities that are planning under GMA and have a population of more than 5,000.
  • MRSC sample ordinance to levy the second quarter percent of the real estate excise tax rates for cities planning under GMA.
  • MRSC sample ordinance to levy the first quarter percent of the real estate excise tax for counties that are not planning under the Growth Management Act (GMA) or for counties that are planning under GMA but which have a population of 5,000 or less.
  • MRSC sample ordinance to levy the first quarter percent of the real estate excise tax for all counties that are planning under GMA and have a population of more than 5,000.
  • MRSC sample ordinance to levy the second quarter percent of the real estate excise tax rates for counties planning under GMA.
  • Real estate excise tax rates (Adobe Acrobat Document 126kb) from the Washington State Department of Revenue.
  • Washington's Real Estate Excise Tax (Adobe Acrobat Document 64kb), Washington Research Council Policy Brief, PB 05-05 March 30, 2000

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