House Democrats Budget Includes Graduated REET, B&O Tax adjustment, and Capital Gains Income Tax
On March 27 the Washington House Democrats released a budget plan aiming to satisfy the court-ordered K-12 education funding (McCleary decision) that would raise about $3 billion in new taxes.
Currently, all property sellers pay a flat 1.28 percent (state portion) REET rate. Under its budget plan, House Democrats propose a graduated REET structure based on the property sale value:
- Under $250,000, the rate is reduced to 0.75%
- Between $250k-$1 million: rate remains at 1.28%
- Between $1 million & $5 million: rate increases to 2.0%
- Above $5 million: rate increases to 2.5%
(Note – the above rates do NOT include the locally imposed REET of .5%, which does not change)
The House Democrat budget plan also includes a 7 percent capital gains income tax on the sale of corporate stocks, bonds, and other gains with exemptions to protect sale of single-family homes, retirement accounts, sale of cattle, horses, or breeding livestock; sale of agricultural lands and sale of timber. The 7 percent capital gains tax would be instituted on earnings above $25,000 for single filers and $50,000 for joint filers.
It would also raise the state’s B&O tax rates 20 percent but exempt businesses with less than $250,000 in annual gross revenue from paying the tax. Additionally, this plan creates a new small business deduction of $100,000 to businesses with taxable revenue of $250k-$500k.
(Note – it is unlikely that changes in the B&O small business tax credit will benefit most real estate brokers or firms, because taxable income is based not on the income of each individual broker, but on the gross income of the real estate firm, which is generally the taxpayer.)
Senate Republicans released their proposed budget last week and would raise an additional $1.8 billion toward education, paid for, in part, by a statewide property tax that ultimately would replace local district levies. That plan would raise property taxes in “property rich” areas like Seattle and Bellevue, and would spend most of the money to lower property taxes in “property poor” areas, including many rural school districts. Seventeen percent of the state property tax would increase, whereas 83 percent of property owners would see no change in property tax or a reduction.