Real Estate Excise Taxes (REET)

Overview

The State of Washington levies a real estate excise tax (REET) upon most sales of real property. The tax is calculated based on the full selling price, including the amount of any liens, mortgages, and other debts given to secure the purchase.

The tax is due at the time of sale and is collected by the county when the documents of sale are presented for recording (WAC 458-61A-301).

In addition to the state real estate excise tax, cities and counties may impose local real estate excise taxes. The two main REET options for cities and counties are:

• REET 1, or the "first quarter percent" – a 0.25% REET which may be imposed by any city, town, or county primarily for capital projects and limited maintenance;
• REET 2, or the "second quarter percent" – an additional 0.25% REET which may be imposed by any city, town, or county fully planning under the Growth Management Act, to be used primarily for capital projects and limited maintenance;

There are also several other, more limited REET options discussed further below.

Real estate excise taxes are typically the responsibility of the property seller, not the buyer, although the buyer is liable if the tax is not paid. However, sometimes the buyer pays some or all of the tax as part of the negotiated sale agreement, and there are a few other exceptions described below.

State Portion of REET

The State of Washington levies a real estate excise tax upon sales of real estate (chapter 82.45 RCW). While most of this revenue goes to the state general fund, a portion is deposited into certain accounts that are distributed to local governments, including the public works assistance account (RCW 43.155.050) used for loans and grants for public works projects and the city-county assistance account (RCW 43.08.290) for distribution to qualifying cities and counties.

The state uses a graduated REET tax scale, with rates ranging from 1.1% to 3.0% based on the selling price of the property (RCW 82.45.060). The price thresholds are adjusted by the state Department of Revenue (DOR) every four years; for the current state REET thresholds, see DOR's Real Estate Excise Tax webpage.

REET 1 – The First Quarter Percent

Any city, town, or county may impose a 0.25% real estate excise tax – known as "REET 1" or the "first quarter percent" (RCW 82.46.010). If a county imposes REET 1, it is applied within the unincorporated areas only.

REET 1 may be imposed by the legislative body and does not require voter approval. Almost all cities, towns, and counties in the state have imposed REET 1, with the exception of a few very small jurisdictions.

The use of REET 1 revenues is restricted to capital projects as described below.

REET 2 – The Second Quarter Percent

Any city, town, or county that is fully planning under the Growth Management Act (GMA) may impose an additional 0.25% real estate excise tax – known as "REET 2" or the "second quarter percent" (RCW 82.46.035). If a county imposes REET 2, it is applied within the unincorporated areas only.

The use of REET 2 revenues is restricted to capital projects as described below.

How Can REET 1 and REET 2 Revenues Be Used?

REET 1 and REET 2 revenues are restricted and may only be used for eligible capital projects, with limited exceptions.

The eligible capital projects used to be somewhat different for REET 1 and REET 2—including different REET 1 provisions for jurisdictions with a population of 5,000 or less—but beginning July 27, 2025, there is no difference in how REET 1 and REET 2 funds may be spent.

While the definitions of "capital projects" in RCW 82.46.010 (REET 1) and RCW 82.46.035 (REET 2) might still appear different at first glance, REET 1 and REET 2 can be used interchangeably. RCW 82.46.010(7) allows REET 1 to be used for REET 2 purposes, and RCW 82.46.035 allows REET 2 to be used for REET 1 purposes.

When taken together, REET 1 and REET 2 revenues may be used for planning, acquisition, construction, reconstruction, repair, replacement, rehabilitation, or improvement of a wide variety of capital projects including:

• Streets, roads, highways, sidewalks, street and road lighting systems, traffic signals, and bridges
• Domestic water systems and storm/sanitary sewer systems
• Parks, recreational facilities, and trails
• Law enforcement and fire protection facilities
• Administrative and judicial facilities
• Libraries
• Qualifying airports
• River flood control projects and qualifying waterway flood control projects
• Facilities for those experiencing homelessness and qualifying affordable housing projects—not to exceed $100,000 or 25% of REET funds, whichever is greater—as well as housing relocation assistance under RCW 59.18.440. To use REET 2 funding for affordable housing and homelessness, the city must document in its capital facilities plan that it has funds during the next two years for capital projects in subsection (5)(a) of the section.
• Local capital improvements that can be funded through a local improvement district under RCW 35.43.040
• Technology infrastructure that is integral to the capital project

The capital projects must be listed in the appropriate capital improvements plan or capital facilities element of a comprehensive plan.

In addition, cities and counties can use up to $100,000 or 35% of their REET 1 funds (whichever is greater) and an additional $100,000 or 35% of their REET 2 funds (whichever is greater) for the operation, maintenance, and service support of existing capital projects. Jurisdictions that use REET 1 and REET 2 for operations and maintenance are no longer required to submit written reports.

What Can REET 1 and REET 2 Revenues Not Be Used For?

REET 1 and REET 2 revenues may not be used for such things as the purchase of police cars or backhoes. Accountants may consider these to be "capital" for accounting purposes, but they are not considered "capital projects" as defined in the REET statutes. See correspondence between Allen R. Hancock, Deputy Prosecuting Attorney of Island County and Philip H. Austin, Senior Deputy Attorney General (1984).

REET 1 and REET 2 funds may not be used for developing or updating a capital facilities plan (CFP) or capital improvement plan (CIP), but they can be used for design, engineering, surveys, etc. associated with a specific qualifying project listed in a CFP or CIP.

REET in Lieu of Sales Tax

Any city, town, or county that is not levying the "optional" or "second half" sales tax under RCW 82.14.030(2) may levy an additional real estate excise tax up to 0.5%, with the revenues restricted in the same manner as REET 1. See RCW 82.46.010(3)

However, all cities and counties have levied the "second half" sales tax and are not eligible for this revenue source.

Conservation Areas REET

Any county may impose an additional real estate excise tax of up to 1.0% for conservation areas (RCW 82.46.070). Cities do not have this authority. Unlike REET 1 and REET 2, which are only imposed within the unincorporated areas, the conservation area REET is imposed upon all properties countywide, including within the incorporated cities. However, this tax does not apply to properties that the county acquires as conservation areas. Unlike other real estate excise taxes, which are typically the responsibility of the seller, the conservation area REET is the responsibility of the buyer.

This REET option requires voter approval with a simple majority and must be periodically reauthorized by voters. The ballot measure must specify the length of time and the maximum rate at which the REET will be imposed.

The revenues must be used exclusively for the acquisition and maintenance of "conservation areas." For the definition of "conservation areas," the statute references RCW 36.32.570, which states:

“[C]onservation area” means 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, natural areas, and other lands and waters that are important to preserve flora and fauna.

The county must prepare a plan for the expenditure of the proceeds, and the proceeds must be spent in conformance with this plan. Prior to the adoption of the plan, the county must consult with the elected officials of cities located within the county and hold a public hearing to obtain public input.

As of 2024, only San Juan County has successfully imposed this conservation area REET.

Affordable Housing REET

Any county that imposed a conservation area REET (see above) at the full rate of 1.0% no later than January 1, 2003, may impose an additional excise tax of 0.5% upon all real estate sales within the county for affordable housing (RCW 82.46.075). San Juan County is the only eligible county and successfully passed its first affordable housing REET measure in 2018.

As with the conservation area REET, the tax is imposed upon all real estate sales countywide, including within incorporated cities. Cities have no affordable housing REET authority. Unlike other REET options which are typically the responsibility of either the buyer or the seller, the statute states that the affordable housing REET shall be the obligation of both the buyer and the seller. The county legislative body must establish the allocation of this tax obligation between the buyer and the seller, with at least 50% being the obligation of the buyer.

This REET option requires voter approval with a simple majority and must be periodically re-authorized by voters. The ballot measure must specify the length of time and the maximum rate at which the REET will be imposed.

The revenues must be used exclusively for the development of affordable housing, including acquisition, building, rehabilitation, and maintenance and operation of housing for very low-income, low-income, and moderate-income persons and those with special needs.

The county must prepare a plan for the expenditure of the proceeds, and the proceeds must be spent in conformance with this plan. Prior to the adoption of the plan, the county must consult with the elected officials of cities located within the county and hold at least one public hearing to obtain public input.

REET Exemptions

Some real estate property transfers are exempt from REET under chapter 458-61A WAC.

For instance, gifts of real property are generally exempt from REET (WAC 458-61A-201), as are transfers of property through wills or inheritance (WAC 458-61A-202) and transfers due to divorce settlement agreements (WAC 458-61A-203).

Any property sold by a government agency is exempt from REET, but generally any real property purchased by a government agency is subject to REET unless otherwise exempted (WAC 458-61A-205).

Accounting for REET Funds

Because REET 1 and REET 2 revenues are restricted to eligible capital projects, they must be accounted for separately in a capital projects fund. Since REET 1 and REET 2 can now be used for the same purpose, cities and counties are not required to keep them in two separate funds; however, some entities might choose to track these revenues separately.

Although no special direction is given in the statutes for 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.

Recommended Resources

• WA Department of Revenue Real Estate Excise Tax – Includes examples of how the graduated state real estate excise tax is calculated, information on exemptions, and links to current and historical REET rates for all cities and counties
• WA Department of Revenue 2023 Tax Reference Manual: Real Estate Excise Tax