Budget Stalemate in Olympia: Possible tax increases that impact the commercial real estate industry

The 2017 session of the Washington State Legislature is now in its second 30-day special session in order to find agreement on the level and sources of funding for the McCleary decision to fully fund K-12 education. The legislature is expected to reach agreement by the end of the special session on June 21, or by June 30, the final day of the current biennium.

The Washington Supreme Court ruled in McCleary that school districts’ reliance on local levies, and the ability of local communities to pay for those levies, varied dramatically around the state and resulted in inequitable funding of K-12 education. The legislature’s challenge has been to equitably fund education statewide.

Two funding proposals
The Senate approach requires no increase in general taxes. It relies on a “levy swap” via a statewide property tax rate for school funding of $1.55 per $1,000 of property value. High value, low property tax rate areas (Seattle, for example) would see an increased rate, while rates in most other areas would decrease. Taxes collected by the state would be distributed to school districts on a per-student formula. Under this plan, the local levy limit would be reduced to 10% of district budgets as opposed to the current limit of 28%.

The House proposal relies on $3 billion in additional taxes, then distributes funding using the current “prototypical schools” formula. Several of the tax proposals in the House plan have an impact to the commercial real estate industry, including:

  • Capital Gains Tax: A 7% capital gains tax is proposed for gains in excess of $25,000 for individual and $50,000 for joint filers. Residential property, residential property of fewer than four units, and floating homes are exempt, as well as retirement accounts and agricultural assets.
  • Graduated Real Estate Excise Tax (REET): The current state real estate excise tax is 1.28%. The new graduated taxes would be as follows:
Real property sales value Proposed REET
<$250,000 0.075%
$250,000 - $1,000,000 1.28% (Current Rate)
$1,000,000 - $5,000,000 2%
>$5,000,000 2.5%


  • B&O Tax: The proposal includes a 20% increase in most B&O tax rates, including the service category rate (legal, consulting, professional services, etc.).

Next Steps
Budget negotiators remain in Olympia working out details of a final package. It’s too early to tell what final details will emerge. As soon as there is a proposed plan, NAIOP will provide details.

This article was written by NAIOP Washington State lobbyist Greg Hanon, Communico. Click here to learn more about NAIOP Washington State's legislative work. 

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