Taxes in Washington state
Taxation is how local governments raise funds to operate.
Property Taxes
The main way the government raises funds is through property taxes. Property taxes are ad valorem taxes, which means they are taxed according to value. That value is determined by an assessment which is the valuation of property used for tax purposes.
Property tax is administered by local governments. The County Assessor values the property (according to fair market value), assesses the tax, and it is the responsibility of the County Treasurer to collect that tax. A number of governmental agencies levy taxes such as counties, cities, water districts or school districts. They are levied against properties within a taxing district. Each district applies a specific rate, and the rates are added together to determine how much is owed on the taxable value of a property. The annual property tax statement received in the mail every February usually provides a breakdown of these levies by district.
There is a Board of Equalization in each county to hear the appeals of taxpayers who feel that their property assessments are incorrect. Property owners who believe the new assessed value of their property exceeds its’ fair market value have the opportunity to 66 appeal each year following receipt of the Assessor’s revaluation notice by timely filing a petition.
General property taxes become a lien on January 1 of the year that they are levied. Bills for taxes are mailed to the property owner in February of each year. The first half payment of the tax is due on April 30th and the second half is due on October 31st.
The government can foreclose on a property if the taxes are delinquent for at least three years. A property owner can redeem the property up until the time of sale by paying the delinquent taxes, interest, fines and fees.
Since property taxes affect all private real property except for a small percentage of exemptions, this is the largest source of revenue for local government. Schools, fire departments, and city governments all utilize revenue from property taxation. Other examples of the use of property taxes are road and bridge maintenance, public libraries and ongoing government services such as police departments.
A common term used in tax assessments is mill. Mill is equivalent to 1/1000th of a dollar, a 10th of a cent, or 0.1%. In dollars it would look like this $0.001. It may also be referred to as the “millage rate”. The mill is most commonly used when referring to property tax rates. It is an old vocabulary term, but important to remember. You may see it in reference to annual property taxes.
Example: A property taxed at a rate of 19 mills, and with a value of $470,000 would owe annual taxes of:
$470,000 x 0.019 = $8,930 annual property tax or
$470 x 19 = $8,930 annual property tax
The second calculation is shorthand because it removed the thousands in both numbers, the thousandths of a dollar and the thousands in the value. You may see the problem as $19 for every thousand dollars. Which is the same as 19 mills for every dollar.
Exemptions for Property Taxes
General taxes are not levied against public property, nonprofit hospitals, schools or churches. Individual property owners may be entitled to exemptions from property tax. The following examples are exemptions in Washington: senior citizens, citizens who are 67 years of age and retired because of physical disabilities or low-income homeowners who may receive a partial exemption or deferral. These exemptions usually are dependent upon the income of the taxpayer.
Other exemptions include land that is designated open space, current use forest land, destroyed property and historic property. These exemptions do not necessarily mean they are entirely exempt from paying tax, but are eligible to pay a lower rate, not reflective of the market value.
Special Assessment Taxes
Taxation is also levied against specific properties through the use of special assessment taxes. Property taxes are general taxes and special assessment taxes are specific to properties benefiting from an improvement. Remember, property taxes and special assessment taxes can create liens if unpaid.
Excise Tax
Excise tax is a tax levied when property or rights to property are transferred for any monetary value. The amount of tax is a percentage of the total amount of the property’s sales price. Washington State receives 1.28% of the selling price of a property. An additional amount may be added on by the local government. The fee is collected before the buyer’s deed is recorded (document transferring ownership). This fee becomes important to real estate brokers when calculating the closing costs for the sellers.
In Washington State, the regulations regarding excise tax are written in the Washington Administrative Code. There are limited exemptions or exclusions from real estate excise tax as provided by the state. They include:
Gifts when there was no consideration given.
Transfers through inheritance or devise when there is no consideration (payment) given. This also applies to community property or right of survivorship, joint tenants, life estates and remainder interests.
Community property, dissolution of marriage or domestic partnership and legal separation.
Tenants in common and joint tenants, including partitions (court ordered sale).
Government transfers of real property from a government entity are not subject to real estate excise tax. Transfers of real property to a government agency are subject to excise tax.
Most condemnation proceedings.
Bankruptcy.
Foreclosure, deeds in lieu of foreclosure and sales pursuant to court order.
Rescission of a sale as long as all consideration (money or items of value) is returned to the purchaser.
Irrevocable trusts when distributing real property to the beneficiaries.
Change in identity or form of a corporation. Some changes may be exempt.
Transfers where a gain is not recognized under the Internal Revenue Code – Some transfers which fall under this category may be exempt.
IRS tax deferred exchange.
Clearing or exiting title and additions to title.
Mortgage insurers. The transfer of real property from a mortgage lender to Veterans Affairs or Federal Housing Administration is exempt.
Re-recording. The re-recording of documents to correct a legal description, change the terms of a contract or correct the spelling of the name of a party to the transaction are not subject to the real estate excise tax.
Remember, as mentioned above, the Washington State excise tax rate is 1.28%, and local government can add to that rate. Therefore, anything assessed above 1.28% is the local excise tax.
For example, City of Seattle has real estate excise tax (REET) of 1.78%, which means that 1.28% goes to the state and .5% goes to the city of Seattle.
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