OLYMPIA — A state House panel voted Friday to raise an existing tax on sales of multimillion-dollar properties — one of a handful of tax bills that are getting consideration in the final days of the legislative session.
The vote in the House Finance Committee to raise the state’s real estate excise tax on higher-end property sales was a sign that majority Democrats are weighing tax increases to boost spending on low-income housing to address the state’s homelessness crisis.
Lawmakers are also considering a proposal to raise the decades-old 1% cap on the growth of property tax collections, which local government leaders have long criticized for constraining spending on public services. Some legislators also have advocated a wealth tax on the state’s richest residents.
It remains unclear whether any of the tax proposals will wind up in the final budget package lawmakers must adopt before the session’s scheduled adjournment April 23.
“We could do all of those, or a combination, or none of those,” said state Sen. Jamie Pedersen, D-Seattle, lead sponsor of the bill attempting to roll back the 1% property tax limit.
As of Friday, the bill to raise the real estate excise tax was the only one showing public signs of life as it advanced in the vote by the Finance Committee.
Washington has a tiered excise tax on home and other property sales, typically paid by the seller. The first $525,000 of the selling price is taxed at 1.1%. The rate goes up at three more levels, topping out at 3% for the portion of the sale price above $3,025,000.
House Bill 1628 would raise the rate on that top tier of properties to 3.5%, except for commercial properties, which wouldn’t be taxed at the higher rate until 2027. The proposal would also widen eligibility for the lowest tax rate, requiring the first $750,000 of the selling price to be taxed at 1.1%.
In addition, cities and counties would be allowed to impose an additional 0.25% local real estate excise tax.
The tax, if passed, would form a cornerstone of the Legislature’s push this year to tackle the state’s housing shortage. The legislation would raise an estimated $22 million in the upcoming two-year budget for the state and $177 million by the 2025-27 biennium.
“In this moment, we have a very serious crisis with housing,” said Rep. April Berg, D-Mill Creek, the Finance Committee chair. “And I believe this is a tool that we can use as a state to address it.”
Republicans on the House Finance Committee criticized the proposal as misguided, saying it would only raise housing costs for most people. They proposed amendments in committee to require voter approval for the local tax, and to exempt multifamily housing from the tax, but they were voted down.
“I think that if we’re going to do this type of thing, that we should be talking with the voters in each of these municipalities,” said Rep. Ed Orcutt, R-Kalama. “And before this tax is imposed locally, they should get permission from the voters in order to do it.”
Affordable multifamily housing is already exempted from the tax, Berg said.
The bill passed on an 8-5 committee vote, with Rep. Amy Walen, D-Kirkland, joining Republicans in voting “no,” saying she had “deep concerns” about the cost of housing, and pointing to upcoming property tax levy votes in Seattle and King County.
“Folks in my district find it very hard to stay in their homes as it is,” Walen said.
Many Democrats are backing a proposal to roll back the long-standing 1% limit on increases in property tax collections, a restriction first imposed by a Tim Eyman-backed initiative in 2001.
On Wednesday, Pedersen and 19 Democratic co-sponsors introduced Senate Bill 5770, which would allow annual increases of up to 3%.
The move drew fire from Senate Republican Leader John Braun of Centralia, who said in a statement that the tax “would significantly increase the affordability crisis” in Washington.
“As much as I would like to dismiss [the bill] as a late-session stunt, we must take it seriously,” he said.
King County Executive Dow Constantine has been among the local government officials pushing to raise the cap, saying without changes, the county will face serious budget cuts, potentially crimping services ranging from public health to support for victims of domestic violence.
“The state tax system is structured such that we are not able to raise the revenue to provide the services and infrastructure the people of the county need. And our county is still exporting money by the hundreds of millions or billions to support the rest of the state,” Constantine said in an interview last month on a visit to the Capitol lobbying for earlier versions of bills that would raise the tax limit.
As of Friday, though, SB 5770 had not been scheduled for a public hearing or committee vote.
Many Democrats and local government officials, especially in the Seattle area, have chafed at the 1% limit ever since it was imposed in 2001 with the passage of Initiative 747.
In 2007, the state Supreme Court struck down the law as unconstitutional, but lawmakers and then-Gov. Christine Gregoire rushed into special session to reinstate the property tax cap.
Sen. Emily Randall, D-Bremerton, introduced a bill last week that would create a tax on the compensation of high-paid hospital employees. And a proposed tax on financial assets above $250 million has received public hearings, but hasn’t moved forward.
Meanwhile, lawmakers seem, at best, lukewarm about Gov. Jay Inslee’s proposal to raise money for housing construction by issuing $4 billion in bonds.
House Speaker Laurie Jinkins, D-Tacoma, said Wednesday that the real estate excise tax — referred to in the Capitol by its acronym, REET — had overtaken the governor’s idea to borrow money through bonds “in terms of energy around that.”
“There’s a preference to fund housing, but to do it through a REET approach rather than the bonding, if we do anything,” Jinkins said. “Again, I don’t want to say we’re absolutely doing REET. I don’t want that to be the message. But I just think [the bond] comes in behind REET as a consideration now.”
Senate Majority Leader Andy Billig, of Spokane, said neither the REET nor the local property tax change were built into Senate budget proposals, and neither were “actively moving” in his chamber.
“For the moment, none of these are actively moving on the Senate side,” Billig said of the two proposals, nursing a cup of coffee in his office Friday afternoon as he prepared to head into a weekend of budget negotiations. “The issue that probably has the most interest is helping local municipalities.”
