Real Estate Excise Tax
This page provides a general overview of real estate excise taxes (REET) for local governments in Washington State, including the state real estate excise tax, REET 1, REET 2, and other local REET options, as well as exemptions and sample documents.
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 available to certain cities and counties as discussed below.
Real estate excise taxes are typically the responsibility of the seller of the property, 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.
The State of Washington levies a real estate excise tax (REET) 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 rate used to be a flat 1.28% of the purchase price. However, effective January 1, 2020 the state implemented a graduated REET tax scale based on the selling price of the property (RCW 82.45.060):
- 1.1% on the portion of the selling price that is $500,000 and less;
- 1.28% on the portion of the selling price that is greater than $500,000 and less than or equal to $1.5 million;
- 2.75% on the portion of the selling price that is greater than $1.5 million and less than or equal to $3 million; and
- 3.0% on the portion of the selling price that is greater than $3 million.
These sale price thresholds will be adjusted by the state Department of Revenue effective January 1, 2023 and every four years thereafter. The lowest threshold ($500,000) will be adjusted based on the growth of the Consumer Price Index for All Urban Consumers (CPI-U) for shelter or 5%, whichever is less, and rounded to the nearest $1,000. If the CPI growth is negative, the threshold will remain unchanged. The remaining sale price thresholds will be increased by the same dollar amount as the lowest threshold.
The sale of real property classified as timberland or agricultural land is not subject to the graduated tax scale and is taxed at a flat 1.28% rate regardless of the sale price.
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 this tax, it is applied within the unincorporated areas only. This tax 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.
REET 1 revenues are restricted and may only be used for certain purposes. However, the exact purposes depend on the jurisdiction’s population and whether or not it is fully planning under the Growth Management Act (GMA).
Population > 5,000 and Fully Planning Under GMA
Cities and counties that are fully planning under GMA and have a population of more than 5,000 must spend their REET 1 revenues on “capital projects” that are listed in the capital facilities plan (CFP) element of their comprehensive plan. RCW 82.46.010(6)(b) defines “capital projects” as:
[T]hose 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 […] and technology infrastructure that is integral to the capital project.
Sub-section (2)(b) also states that REET 1 funds may be spent on housing relocation assistance as defined within RCW 59.18.440 and 59.18.450, which in summary provide assistance to low-income tenants under specific circumstances defined by statute and local ordinance.
In addition, a portion of the REET 1 proceeds may be used for the maintenance of capital facilities as described below, with additional reporting requirements.
Note that REET 1 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.
Population ≤ 5,000 or Not Fully Planning Under GMA
Cities and counties that are not fully planning under GMA, or that are fully planning but have a population of 5,000 or less, must spend their REET 1 revenues “for any capital purpose identified in a capital improvements plan and local capital improvements, including those listed in RCW 35.43.040” (see RCW 82.46.010(2)(a)).
RCW 35.43.040 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 – so for instance, 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 capital improvement plan (CIP).
Expenditures that are not allowed are 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 purposes” or “local capital improvements” as defined in the REET statute. See correspondence between Allen R. Hancock, Deputy Prosecuting Attorney of Island County and Philip H. Austin, Senior Deputy Attorney General (1984).
In addition, a portion of the REET 1 proceeds may be used for the maintenance of capital facilities as described below, with additional reporting requirements.
Note that REET 1 funds may not be used for developing or updating a capital improvement plan, but they can be used for design, engineering, surveys, etc. associated with a specific qualifying project listed in a CIP.
In addition to REET 1, any city or town 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 this tax, it is applied within the unincorporated areas only. Unlike REET 1, there are no differences based on population size.
For jurisdictions that are required to fully plan under GMA, REET 2 may be imposed by the legislative body and does not require voter approval. However, any jurisdiction that is voluntarily choosing to plan under GMA must submit the REET 2 proposition to voters.
REET 2 revenues are restricted and may only be used for financing “capital projects” specified in the capital facilities plan element of the city’s comprehensive land use plan. RCW 82.46.035(5) defines “capital project” as:
(a) 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;
(b) Planning, construction, reconstruction, repair, rehabilitation, or improvement of parks; and
(c) Until January 1, 2026, planning, acquisition, construction, reconstruction, repair, replacement, rehabilitation, or improvement of facilities for those experiencing homelessness and affordable housing projects.
However, the use of funds for affordable housing and homelessness in subsection (5)(c) is subject to certain limitations described below.
Note that the definition of “capital project” for REET 2 is more restrictive than it is in the REET 1 statute. REET 2 funds are more specifically directed to infrastructure and parks capital projects. (However, note that park lands “acquisition” is not an allowed use for REET 2.) REET 2 omits public facilities such as law enforcement, fire protection, libraries, administration, and courts that were listed within the REET 1 statute.
However, REET 2 funds may be used for REET 1 projects, as well as REET 2 maintenance, subject to certain limitations described below.
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.
Cities, towns, and counties may use a portion of their REET 1 and REET 2 funds for capital project maintenance, subject to limitations and reporting requirements as described below. Some REET 2 funds may also be used to fund REET 1 projects, subject to the same conditions and reporting.
For purposes of this section, “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].
Using REET 1 for Maintenance
Any city, town, or county, regardless of its population or whether it fully plans under GMA, may use up to $100,000 or 25% of its available REET 1 funds – whichever is greater, but not to exceed $1 million per year – for the maintenance of REET 1 capital projects (RCW 82.46.015). The definition of capital projects is the same as in RCW 82.46.010(6)(b).
Using REET 2 for Maintenance and REET 1 Projects
Similarly, any city, town, or county that is fully planning under GMA may use up to $100,000 or 25% of its available REET 2 funds – whichever is greater, but not to exceed $1 million per year – for the following purposes (RCW 82.46.037):
- The maintenance of REET 2 capital projects, as defined in RCW 82.46.035(5).
- Planning, acquisition, construction, reconstruction, repair, replacement, rehabilitation, improvement, or maintenance of REET 1 capital projects that are not also included within the REET 2 definition of capital projects.
To use REET 1 and/or REET 2 funds for maintenance, the city or county must fulfill additional reporting requirements defined within RCW 82.46.015 (REET 1) and RCW 82.46.037 (REET 2), including preparing and adopting a written report that includes:
- Information necessary to demonstrate that the city 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/or REET 2 have been used during the prior two-year period;
- How revenues collected under REET 1 and/or REET 2 will be used for the succeeding two-year period; and
- What percentage of funds for capital projects is attributed to REET 1 and/or REET 2 revenues compared to all other sources of capital project funding.
This report must be adopted as part of the public budget process. Additionally, the local government must declare that it has not enacted any requirement on the listing or sale of real property; or any requirement on landlords, at the time of executing a lease, to perform or provide physical improvements or modifications to real property or fixtures, except if necessary to address an immediate threat to health or safety; unless the requirement is specifically authorized by other state and federal laws.
New legislation in 2019 expanded the use of revenues for homeless housing to also include affordable housing (RCW 82.46.035(6)). Until January 1, 2026 any city may now use up to $100,000 or 25% of its available REET 2 funds – whichever is greater, but not to exceed $1 million – for affordable housing projects and the planning, acquisition, construction, reconstruction, repair, replacement, rehabilitation, or improvement of facilities for those experiencing homelessness, as long as such projects are listed in the capital facilities plan. (These dollar limits do not apply to any city that used REET 2 revenue for homeless housing prior to June 30, 2019.)
To use REET 2 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 – which is to say, all REET 2-eligible capital projects except park projects (which are listed in subsection (5)(b)). Note that these documentation requirements are much less stringent than the reporting requirements necessary to use REET 2 for maintenance/REET 1 projects.
Any city, town, or county that is not levying the optional 0.5% “second half” sales tax (RCW 82.14.030(2)) may levy an additional real estate excise tax up to 0.5% (RCW 82.46.010(3)). However, almost all cities and counties have levied the “second half” sales tax and are not eligible for this revenue source. Based on Department of Revenue data, it appears that the City of Asotin is the only jurisdiction levying this real estate excise tax as of 2019.
The revenues are unrestricted and may be used for any lawful governmental purpose, unlike REET 1 and REET 2, which are limited to capital projects and related maintenance. From a financial standpoint, the 0.5% second half sales tax will probably bring in more revenue than the 0.5% real estate excise tax.
This additional REET authority does not require voter approval. However, the imposition of this tax, a change in rate, or a repeal of the tax may be subject to referendum (RCW 82.46.021).
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 2019, only San Juan County has successfully imposed this conservation area 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.
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).
Because REET 1 and REET 2 revenues are restricted to eligible capital projects, they 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 allowable uses are different (RCW 82.46.010(5)(b) and 82.46.035(5)).
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.
The optional REET funds received under RCW 82.46.010(3) in lieu of sales taxes are general fund revenues and do not require separate accounting.
Below are several sample documents related to local real estate excise taxes, including several sample ordinances that MRSC has prepared for imposing REET 1 and REET 2.
MRSC REET 1 Sample Ordinances
- Cities and towns planning under GMA and population over 5,000 (2012)
- Cities and towns not planning under GMA or with a population of 5,000 or less (2012)
- Counties planning under GMA and population over 5,000 (2012)
- Counties not planning under GMA or with a population of 5,000 or less (2012)
MRSC REET 2 Sample Ordinances
Affordable Housing REET
- San Juan County Ordinance No. 11-2018 (2018) – Establishing requirements for collection and disbursement of affordable housing REET revenues; also includes supporting resolution establishing election date
Other REET Documents
- Kirkland REET 1 and REET 2 Maintenance Expenses Report (2018) – See final page for explanation of why city chose this format for the report
- Oak Harbor REET 1 and REET 2 Maintenance Expenses Report (2018) – Identifies one maintenance project and three REET 1 projects funded by REET 2 revenues
- Pacific County Resolution No. 2017-029 (2017) – Submitting REET 2 to voters, as required by RCW 82.46.035(2) for jurisdictions voluntarily planning under GMA. Also includes two-page FAQ.
- 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 2019 Tax Reference Manual: Real Estate Excise Taxes