Washington State lawmakers passed a budget that includes record-high spending levels for the next two years and more than a billion dollars in new and increased taxes.
Under the budget, school districts can raise the property tax levy cap with voter approval. Also, a new graduated excise tax will go into effect that will dramatically raise taxes for large real estate purchases.
18% Spending Increase
Washington’s final 2019-21 state operating budget (HB 1109) was agreed upon behind closed doors by a conference committee of House and Senate budget writers. It was then passed by both chambers on party-line votes without amendments or debate.
The $52.4 billion plan is the first in the state’s history to exceed $50 billion and represents an 18% increase over current spending.
School Property Taxes
House and Senate Democrats passed SB 5313, which allows school districts to raise local property taxes.
The current levy cap is $1.50 per $1,000 of property value or $1,500 per student, whichever is less. The new limit is now $2.50 per $1,000 of value or $ 2,500 per student in school districts with fewer than 40,000 students. For districts with more than 40,000 students, which only applies to Seattle, the per-student limit will now be $3,000. Districts must get voter approval for higher property tax levies.
Notably, the bill excludes children at charter schools, which are public schools, from benefitting from funding assistance available to other public schools.
Graduated Real Estate Excise Tax
SB 5998 establishes a graduated real estate excise tax (REET) to replace the state’s current flat tax rate of 1.28%.
Beginning January 1, 2020, the real estate excise tax will be imposed at the following rates:
The tax is estimated to raise $243.5 million over the next two years, with most of the revenue allocated to the state’s general fund
Beginning on January 1, 2022, and every fourth year thereafter, the selling price thresholds will be adjusted to reflect the lesser of the growth in the Consumer Price Index for Shelter over the past four years or 5%. The Department of Revenue must publish updated selling price thresholds by September 1, 2022, and September 1 of every fourth year thereafter. If the growth in Consumer Price Index for Shelter is less than 0%, the current selling price thresholds will continue to apply.
With the new graduated real estate excise tax, anyone considering acquisitions or REET- generating transactions should consider finalizing them by the end of the year before the new rates go into effect.