Did Not Pass: Real Estate Excise Tax (REET) Increase & Real Estate Transfer Tax (RETT) Increase (HB 2276)
Legislation Commentary: To help fund affordable housing, the proposed bill would have imposed a new real estate transfer tax (RETT) of 1% on the portion of the real estate selling price above $3.025 million. The bill would have also increased the portion of the selling price subject to the state real estate excise tax (REET) rate of 1.1% from $525,000 to $750,000. Increasing the Real Estate Transfer Tax would have significantly impacted large commercial real estate properties, multifamily, and large-scale residential developments. Our position on the bill was that raising taxes on any real estate would make it less affordable. Fortunately, key legislators agreed.
Scorecard: Big Win for CRE and All Real Estate
Did Not Pass: Raising Cap Limit on Property Tax Increases (SB 5770)
Legislation Commentary: The bill would have increased the current 1% limit on annual property tax to 3% and tied allowable increases to inflation and population. Again, increasing taxes on real estate makes housing less affordable for all. This would have also been bad for businesses occupying commercial real estate (leased or owner-occupied) because it would have increased their occupancy costs.
Scorecard: Win for CRE and All Real Estate
Did Not Pass: Rent Control (HB 2114)
Legislation Commentary: In previous years, we have seen several bills introduced with varying approaches to limiting rent increases. This session, however, there was one primary rent control bill that included provisions: establishing a cap on residential rent increases, limiting how much a landlord could collect for move-in fees and security deposits, increasing notice requirements for certain rent increases, and allowing the attorney general’s office to pursue violations. The bill passed the House, but ultimately died in the Senate. This year rent control was an extremely high-profile issue—be prepared for it to come back in 2025.
Scorecard: Win for CRE, Particularly Multifamily Owners
Did Not Pass: B&O Tax on Rental Income (SB 6136)
Legislative Commentary: Originally an idea aimed at controlling rent increases, the initial bill would have established a B&O tax on all rental income, but also provided an exemption from the tax for those who limited rent increases to 5% or below. The bill applied to both residential and commercial real estate. As the session evolved, so did the bill. Ultimately, the exemption piece was removed, and the bill would have only established a new B&O tax on rental income without any available exemptions.
Importantly, the Washington State Supreme Court ruled on the issue in 1960 when it invalidated a B&O tax on rent as an unconstitutional, nonuniform property tax. The bill did not receive a hearing in the Senate Ways & Means Committee and died as a result.
Scorecard: Big win for CRE, Multifamily Owners, and All Real Estate
Passed: Sales and Use Tax Incentive Program for Commercial Conversions (SB 6175)
Legislative Commentary: This bill allows a city to establish a retail sales and use tax deferral program for the conversion of underutilized commercial property to affordable housing. In a session where housing incentive/supply bills ran into many challenges and opposition, this bill was a bright spot.
Scorecard: Win for CRE
Passed: Eliminating the requirement for leases over one year to be acknowledged (SB 5840).
Legislative Commentary: This bill eliminates the requirement for leases over one year to be acknowledged (i.e. notarized) to be enforceable. Washington State was one of the rare states with this acknowledgment requirement. This bill’s passage will ease an administrative burden on commercial leases and will bring us in line with most other jurisdictions. An acknowledgment is still required if a lease is to be recorded. Also worth noting: lease requirements under the Residential-Landlord Tenant Act remain unchanged and unaffected by this bill, so its impact is limited to commercial leases. The bill is a win for the commercial real estate industry and takes effect June 6, 2024.
Scorecard: Win for CRE
Other Legislation that passed and we put in the WIN category for CRE brokers, owners, and developers include:
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Streamlined Design & Inspection for small multi-unit residential properties (SB 5792) – As part of a continued effort to make it easier and less expensive for builders to build condominium units, this bill builds off of a 2023 bill that excluded buildings with 12 or fewer units that are not more than two stories from certain design and inspection requirements. This year’s bill made a small tweak that allowed three-story buildings to qualify as long as one of the stories is used for parking or retail. These kinds of bills are small but important ways to help encourage more condo construction in our communities.
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Changing the incentive structure for Tier 1 and Tier 2 commercial buildings for early adoption of Clean Energy Building Standards (HB 1976) – This bill permits the Department of Commerce to provide higher incentive payments under the Early Adoption Incentive Program to owners of buildings that comply with the State Energy Performance Standard.
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