In May of 2019, Governor Jay Inslee signed Senate Bill 5998, which will result in a graduated tiered scale for real estate excise taxes (“REET”) that will replace the previous flat state REET tax of 1.28%.
The following tiered structure takes effect on January 1, 2020:
1.10% – Portion of selling price less than or equal to $500,000
1.28% – Portion of selling price greater than $500,000 and equal to or less than $1.5 million
2.75% – Portion of selling price greater than $1.5 million and equal to or less than $3 million
3.00% – Portion of selling price greater than $3 million
Sales of timberland or agricultural land will remain subject to REET at a 1.28% state tax rate and may be subject to a local REET in addition to the state REET.
Also included in this legislation is the following:
Beginning in 2022 and every fourth year thereafter, the REET thresholds may be adjusted to reflect the lesser of the growth of the consumer price index for shelter or 5%. If the growth is equal to or less than 0%, the current selling price threshold will continue to apply.
Another significant result from the legislation relates to the determination of a transfer of a controlling interest. In Washington, REET applies to the direct transfer of real property, as well as the transfer of a “controlling interest” in an entity that holds real property. For REET purposes, a transfer of a controlling interest is the combined transfer of 50% or more of the interests in an entity that owns real property. This legislation changes the time period for determining whether a controlling interest has been transferred (triggering REET on the transfer of certain business interests) from 12 months to 36 months. The legislation also requires the Washington Secretary of State to adopt rules requiring any entity that is required to file an annual report for the transfer of at least one-third of a controlling interest in an entity.
The result of these changes will be an increased number of transactions subject to REET, even though the overall 50% or more threshold to constitute a transfer of a controlling interest is not changing.