One option the state is considering as a method to raise new revenue is to graduate the rate of taxation based on the value of the sale for the state real estate excise tax. While the increases fund different things based on the particular bill, there are two formulas the legislature is considering.
Current law is a flat 1.28% REET.
- 0.75% if the selling price is less than $250 K
- 1.28% if the price is greater than $250 K but less than $1 M.
- 2% if the price is greater than %$1 M but less than $5 M
- 2.5% if the selling price is equal to or greater than $5 M
In HB 2156, from 1/1/20 through 12/31/22, the REET is graduated as follows. After that and every 4 years thereafter, the selling price thresholds are to be adjusted to reflect the lesser of the growth in the CPI for shelter over the past 4 years or 5%.
- 0.9% if the selling price is equal to or less than $500 K
- If the selling price is greater than $500 K
- 1.28% on the portion of the selling price that is equal to or less than $1.5 M
- 2% on the portion that is greater than $1.5 M but equal to or less than $7 M
- 3% on the portion that is greater than $7 M
Counties are largely held harmless in the sense that the amounts collected that go to counties will remain unchanged. However, there is one unintended consequence WSAC is currently working to fix.
We believe an unintended consequence of these bills is their adverse impact on low property value counties. Counties are authorized to collect an administrative fee in the amount of 1.3% of the tax collected as recompense for their work in collecting the state’s real estate excise tax.
Because the administrative fee is a percentage of the tax collected, several counties could suffer losses as a result of the graduated REET. While it is true that some counties may see increases as a result of the change, the counties least able to afford it will likely suffer a loss. Many counties across the state have a significantly higher percentage of lower value properties, which would be taxed at a lower rate, and they do not have enough of the higher valued properties to make up the difference.
Our goal is simply to ensure the counties are held harmless for the changes to tax policy that the state wishes to make. One way to do so would be to amend the bill to graduate the administrative fee in a way that the state pays a higher percentage than the current 1.3% for the lower valued properties and an amount less than 1.3% for the higher valued ones to come as close to the current amounts collected as possible.
Another option would be to apply an administrative fee against the total taxable value and not on the tax collected. For example, counties currently collect 1.3% of a 1.28% tax, which is equal to .01664% of the taxable value.
Thankfully, legislators in both houses have agreed to run corrective amendments if any of the bills start to move.