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Real Estate Excise Tax

This page provides a general overview of local real estate excise taxes (REET) in Washington State, including spending requirements and sample ordinances.


Overview

RCW 82.46.010 authorizes all cities and counties to levy a 0.25% real estate excise tax (REET), known as the "first quarter percent" or "REET 1," on all sales of real estate.

In addition, RCW 82.46.035 authorizes all cities and counties that are planning under the Growth Management Act (GMA) to levy a second 0.25% real estate excise tax, known as the "second quarter percent" or "REET 2."


REET 1: Spending the First Quarter Percent

Cities and Counties Not Planning Under GMA, or Are Planning and Have a Population of 5,000 or Less

According to RCW 82.46.010(2), these jurisdictions must use REET 1 funds "for any capital purpose identified in a capital improvements plan and local capital improvements, including those listed in RCW 35.43.040." RCW 35.43.040 additionally lists local improvements that can be funded through a local improvement district (LID), which includes projects such as streets, parks, sewers, water mains, swimming pools, and gymnasiums. Local capital improvements include the acquisition of real and personal property associated with such improvements, thus, land acquisition for parks is a permitted expenditure.

Capital projects not listed in the local improvement statute (for example, a fire station, city hall, courthouse, or library) are also permitted uses as long as they are included in the city's or county's capital improvement plan. Expenditures that are not allowed are such things as the purchase of police cars. Accountants may consider these to be "capital" for accounting purposes, but they are not "capital purposes" or "local capital improvements." See correspondence between Allen R. Hancock, Deputy Prosecuting Attorney of Island County and Philip H. Austin, Senior Deputy Attorney General.

Cities and Counties Planning Under GMA With a Population of More than 5,000

These jurisdictions must spend the first quarter percent of their real estate excise tax receipts solely on capital projects that are listed in the capital facilities plan element of their comprehensive plan. RCW 82.46.010(6) defines "capital projects" as:

those public works projects of a local government for planning, acquisition, construction, reconstruction, repair, replacement, rehabilitation, or improvement of 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 facilities, judicial facilities, river flood control projects…


REET 2: Spending the Second Quarter Percent

This part of the real estate excise tax may only be levied by cities and counties that are required to or choose to plan under GMA. All cities and counties that levy this tax face the same provisions, whether their population is greater or less than 5,000.

Note that for those entities that voluntarily choose to plan under GMA and have not yet imposed this option, it requires a vote of the people (RCW 82.46.035(2)).

For this 0.25% of the real estate excise tax, "capital project" is defined in RCW 82.46.035(5).as:

public works projects of a local government for planning, acquisition, construction, reconstruction, repair, replacement, rehabilitation, or improvement of streets, roads, 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. 

Note that acquisition of land for parks is not an outright permitted use of REET 2 receipts, although it is a permitted use for street, water, and sewer projects.

Under limited circumstances, REET 2 funds may be used for those capital projects that qualify as REET 1 projects, including acquisition of land for parks, recreational facilities; law enforcement facilities; fire protection facilities; trails; libraries; administrative facilities, judicial facilities, and river flood control projects. The dollar limit on the use of REET 2 funds for such purposes is the greater of $100,000 or 25% of available funds, not to exceed $1 million per year. The use of REET 2 funds for these purposes also requires additional reporting requirements (RCW 82.46.037, see the next section for further explanation).


Limited Uses of REET 1 and 2 Funds

Maintenance (REET 1 and 2)

The 2015 legislative session produced two new statutes that provide limited use of REET 1 and 2 funds for maintenance:

  • RCW 82.46.015(1) (REET 1), which provides in part: may use the greater of $100,000 or 25% of available funds, but not to exceed $1 million per year, from revenues collected for the maintenance of capital projects, as defined in RCW 82.46.010(6)(b).
  • RCW 82.46.037(1) (REET 2), which provides in part: may use the greater of $100,000 or 25% of available funds, but not to exceed $1 million per year, from revenues collected under RCW 82.46.035 for the maintenance of capital projects, as defined in RCW 82.46.035(5); or for REET 1 capital projects (see discussion above).

The definition of maintenance is the same for both REET 1 and 2 and is found in sub-section (5) of each statute. It reads:

Maintenance means the use of funds for labor and materials that will preserve, prevent the decline of, or extend the useful life of a capital project. "Maintenance" does not include labor or material costs for routine operations of a capital project [emphasis added].

The use of either REET 1 or REET 2 under the provisions of RCW 82.46.015 or .037 requires additional reporting requirements, which are explained in more detail below under Reporting Requirements.

Housing the Homeless (REET 2)

The 2017 legislative session expanded the use of REET 2 funds in RCW 82.46.037 for a limited period of time. From July 1, 2017 until June 30, 2019, funds may be used for the acquisition, construction, improvement, or rehabilitation of facilities to provide housing for the homeless.

This expanded use of REET 2 funds is subject to the same limitations as those provided for maintenance and/or REET 1 capital projects, which is the greater of $100,000 or 25% of available funds, but not to exceed $1 million per year.

The use of REET 2 funds during this limited window is subject to reporting requirements provided in detail below. 

Reporting Requirements

The use of either REET 1 or REET 2 for maintenance requires additional reporting requirements. These same reporting requirements are applicable to the use of REET 2 funds for homeless housing or REET 1 defined capital projects that are not included in the REET 2 definition. 

The local government must prepare a written report demonstrating that it has, or will have, adequate funding from all sources of public funding to pay for all capital projects identified in its capital facilities plan for a two-year period. This report must be adopted as part of the city’s or county’s regular budget process and must include:

  • Information necessary to demonstrate that the local government has, or will have, adequate funding from all sources to pay for all capital projects identified in its capital facilities plan.
  • How revenues collected under REET 1 and REET 2 have been used during the prior two-year period.
  • How revenues collected under REET 1 and REET 2 will be used for the succeeding two-year period.
  • What percentage of funds for capital projects is attributed to REET 1 and REET 2 revenues compared to all other source of capital project funding.

Posting of Disclosure Requirements

If the local government has imposed any requirements on landlords or sellers of real property to provide information to a buyer or tenant "pertaining to the subject property or to the surrounding area," the requirements must be posted on the MRSC website in accordance with RCW 43.110.030(2)(e).


Additional REET Options

0.5% REET 1 for Operating Expenditures - RCW 82.46.010(3)

Cities and counties that are not levying the optional second half-cent sales tax under RCW 82.14.030(2) have the option of levying an additional half-cent real estate excise tax (RCW 82.46.010(3)). These receipts are not designated for capital projects. They are a general fund revenue for operating expenditures. Only two cities, Asotin and Clarkston, have chosen to do this. From a financial standpoint, the optional 0.5% sales tax will probably bring in more revenue than this additional 0.5% real estate excise tax.

The imposition of this tax, a change in rate, or a repeal of the tax is subject to the referendum procedures given in RCW 82.46.021.

1% REET for Conservation Areas - RCW 82.46.070

A county legislative authority may submit a ballot proposition to the voters for an additional real estate excise tax on each sale of real property in the county at a rate not to exceed 1% of the selling price. The revenue from this tax is restricted to the acquisition and maintenance of conservation areas. Conservation areas are defined in RCW 36.32.570 as:

land and water that has environmental, agricultural, aesthetic, cultural, scientific, historic, scenic, or low-intensity recreational value for existing and future generations, and includes, but is not limited to, open spaces, wetlands, marshes, aquifer recharge areas, shoreline areas, naturals areas, and other lands and waters that are important to preserve flora and fauna.

The property buyer, rather than the seller, pays this tax as outlined in RCW 82.46.070. Only San Juan County has levied this tax to date.

0.5% REET for Affordable Housing - RCW 82.46.075

RCW 82.46.075 gives a county that has levied a one percent real estate excise tax for conservation areas under RCW 82.46.070 by January 1, 2003 the authority to levy a one-half percent tax for the acquisition, construction, and operation of affordable housing for people with very low, low, and moderate incomes, and those with special needs. Only San Juan County qualifies to levy this tax, and it has not done so to date.


Accounting for REET Funds

Because this revenue source has a dedicated purpose, it must be accounted for separately in a capital projects fund. Those cities and counties that are planning under GMA and levying both REET 1 and REET 2 need to keep track of each of these revenues separately because the uses to which they may be put are different (RCW 82.46.010(5)(b) and 82.46.035(5)).

The optional REET funds received under RCW 82.46.010(3) are general fund revenues and do not require separate accounting.

Although no special direction is given in the statutes as to how to account for funds collected under RCW 82.46.070 for conservation areas or RCW 82.46.075 for affordable housing, both of these statutes explicitly state that “the proceeds of the tax shall be used exclusively” for those respective purposes, so we recommend keeping these revenues in separate special revenue funds.


Examples of REET Ordinances/Documents

MRSC has prepared several sample ordinances for imposing REET 1 and REET 2:

MRSC REET 1 Sample Ordinances

MRSC REET 2 Sample Ordinances

Other REET Documents


Recommended Resources


Last Modified: October 24, 2017