REET 101: The basics of the law, the effect on real estate, and talking points

Cities and counties were given the option to levy the tax locally in 1982 at a rate of 0.25 percent in order to pay for capital projects associated with a capital facilities plan. In addition cities and counties were allowed to levy up to .50 percent in lieu of their second 0.5 percent local-option sales tax. In 1990 two additional local options were authorized: Cities and counties were allowed to levy an additional .25 percent to fund capital projects associated with growth management and counties were given the option to levy an additional 1 percent to purchase and maintain conservation areas. With these options, the total local REET allowed has grown to 2 percent, bringing the maximum combined state and local real estate excise tax rate in Washington to 3.28 percent. Most jurisdictions impose a combined rate of either 1.53 percent or 1.78 percent, according to the state Department of Revenue.

The real estate and development community sought legislation to require local governments to focus use of REET funds to support high priority, growth-mitigating capital projects. They wanted to assure that the money not be spent on lower priority projects, i.e., those of lesser concern to the community at large, like courthouse improvements, puppet theaters and administrative-related equipment. A jurisdiction that does this, they noted, may then seek voter-approval for more easily defended projects, increasing the tax burden.

In response, the Legislature in 1992 tightened up its local REET language to restrict more specifically the projects for which REET funds could be appropriated. Lawmakers first revised the types of general capital projects fundable under the first .25 percent tax used by cities and counties with populations exceeding 5,000. Revenues from this source may now fund only those capital projects listed in a jurisdiction's comprehensive plan including, "streets; roads; highways; sidewalks; street and road lighting systems; traffic signals; bridges; domestic water systems; storm and sanitary sewer systems; parks; recreational facilities; law enforcement facilities; fire protection facilities; trails; libraries; administrative and/or judicial facilities; river and/or waterway flood control projects."

Lawmakers also provided additional restrictions on the eligible uses of the second 0.25 percent local REET option. Not only is use of the funds collected under this option restricted to capital projects listed in the capital facilities element of a jurisdiction's comprehensive plan, but cities and counties may only use this tax "for planning, acquisition, construction, reconstruction, repair, replacement, rehabilitation, or improvement of streets, road, highways, sidewalks, street and road lighting systems, traffic signals, bridges, domestic water systems, storm and sanitary sewer systems, and planning, construction, reconstruction, repair,rehabilitation, or improvement of parks."

REET Key Statutory Provisions

For more information about the REET, please see the following Washington
Research Council policy briefs:

Washington's Real Estate Excise Tax: High Rate, Volatile Stream (11/20/2000)

Local Option REET Magnifies Volatility(11/22/2000)

Local Use of the Real Estate Excise Tax (11/30/2000)

Washington's Real Estate Excise Tax (03/30/05)

Additional talking points about the detrimental impacts of the REET:

Real Estate Excise Tax (REET) is the WRONG Solution:

• Washington's real estate excise tax is one of the highest in the nation. It should NOT go any higher.
• Real estate taxes target too few residents to provide a public benefit. Only 5% of Washington households are involved in home sales annually (2000 figures).
• The real estate excise tax is just another form of property tax, but rather than a more broad-based approach, the REET penalizes people for buying and selling homes.
• Real estate taxes are not fair to home buyers and sellers, and often provide no direct benefit, service or product yet they put a heavy burden on those paying the tax.