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Advocacy 2019: Most Significantly Harmful Legislation That Passed

Tuesday, April 30, 2019   (0 Comments)
Posted by: Christine Miclat
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Most Significantly Harmful Legislation That Passed and Will Negatively Impact Commercial Real Estate Ownership and Transactions:

 

REET: The legislature passed a measure to increase the state portion of the Real Estate Excise Tax (REET) from the current 1.28% to a graduated REET that begins at 1.1% and reaches 3% for all real estate transactions greater than $3 million. This will more than double the transfer tax when owners sell commercial real estate. Example: For the sale of a $400 million office building today the seller would pay $5.120 million in excise tax. Beginning January 1, 2020 that sale would be taxed at $11.91 million. 

  • 1.1% if the selling price is equal to or less than $500,000; 
  • 1.28% on the portion of the selling price that is greater than $500,000 but equal to or less than $1,500,000; 
  • 2.75% on the portion of the selling price that is greater than $1,500,000 but equal to or less than $3,000,000; and 
  • 3% on the portion of the selling price that is greater than $3,000,000.

Example:

Before Jan. 1, 2020:   $400,000,000 at 1.28% sale: Current real estate excise tax = $5,120,000

After Jan. 1, 2020:      $400,000,000 sale would increase to $11,910,000

 

Effective Jan. 1, 2020 the same sale:

First $500,000 x 1.10%     =     $ 5,500

Next $1,000,000 x 1.28% =     $ 12,800

Next 1,500,000 x 2.75%   =      $ 41,250

Above $3,000,000 x 3.0% =     $11,910,000

 

 

Arguments BOMA made opposed to the REET Tax Increase:

 

BOMA met and contacted lawmakers many times. BOMA sent a call to action to all members to reach out to their lawmakers and ask them to oppose this huge increase.

  • The proposed real estate transfer tax is a 134% increase.
  • Washington State’s commercial real estate industry competes for investment on a national level. Washington is already only one of a handful of states that charge in excess of 1% on real estate transactions. If this proposal passes, only one other state will have a higher rate than Washington (Delaware), putting us at a significant competitive disadvantage to other West Coast markets like Los Angeles, the Bay Area, Portland, Denver and Salt Lake City.
  • The magnitude of the tax on multi-family, commercial and industrial properties is likely to delay and suppress the number of transactions and reduce the volume of revenue the state and local governments expect to collect from the tax. The new tax will extend hold periods by ownership of properties and thus reduce revenue from existing collections.
  • Economic analysis indicates that the graduated real estate excise tax (REET), under consideration by the Washington State Legislature, will have serious unintended consequences.  An estimated 68-80% of all new REET revenue will be generated by multi-family, commercial or industrial transactions – effectively taxing rental housing and jobs.
  • In addition to the disproportionate impact on multi-family residential, a graduated REET hits hardest those counties struggling the most with affordability now – King, Pierce and Snohomish. These three counties account for nearly 70% of all REET collections and a graduated REET will accentuate the geographic burden of the tax further.
  • REET is a volatile revenue source and does not contribute to a stable tax system. Sound tax policy would avoid sources with large fluctuations each year. The more stable a mechanism, the more it can provide reliable revenue necessary to maintain public services not­withstanding variations in economic activity over the business cycle.

  

EcoNorthwest and NAIOP REET 2019

REET by State

REET Coalition Letter March 2019

 


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