Real estate excise tax revenues soar amidst housing demand

With all the news about unprecedented housing demand at a time when we have little to no inventory, an overlooked windfall for taxpayers is the huge gain in Real Estate Excise Tax (REET) revenues. The spike should help preclude the need to raise taxes statewide as home prices hit numbers no one could have predicted.

With 79.4 percent of REET going to the Washington Department of Revenue general fund, we should sleep well knowing taxpayers (our) reserves are in good shape. In simple numbers, the sales volume for all real estate as reported by the multiple listing service (MLS) for the last 12 months, exceeded 72 billion dollars statewide versus 49 billion dollars the year prior. In short, that produced a minimum of 400 million extra tax dollars, not counting the sales unreported to the MLS, which is estimated to be as high as 1 in 4 transactions due to buyer demand, whereby homes sell before they are even listed. So, it’s easy to expect that the real number is likely over half a billion in extra revenue statewide.

The upper-end home market saw some of the greatest gains this past year and combined with the new “graduated real estate excise tax” rates, the final numbers only climb higher. Rather than the previous flat rate we used for years, changes have been implemented that break down as follows:

• 1.1 percent excise tax collected for real estate sales to $500,000.00

• 1.28 percent for $500,000 to $1.5 million

• 2.75 percent for $1,500,000 to $3 million

• 3.0 percent for property sold above $3 million

Of course, few homes sell for less than $250,000 in today’s market and the tax dollars gleaned from large sales has jumped tremendously. The recent sale of the Horizon project, for example, at $14.3 million resulted in $448,555 in excise tax collected. These significant tax contributions not only should help contain state tax increases, but also help on the local level as cities can collect as much as .5 percent as well.

So, what are these tax dollars actually used for?

Beginning in January 1, 2020, 1.3 percent of the state REET collected by counties is retained to cover administration costs.

Of the net proceeds to the state:

• 1.7 percent goes to the public works assistance account;

• 1.4 percent goes to the city-county assistance account;

• 79.4 percent goes to the general fund;

•And remaining amount goes into the educational legacy trust fund.

The prospect for continued increases in property values over the next several years should keep growing our reserves in both education and the general fund in particular. Many taxpayers believe the temptation to spend it should be contained as the general fund should also be our rainy day account.

The biggest downpour to date was certainly Covid-19 and the strain it placed on many segments of our economy. Ironically the real estate sales boom did, and continues to, come to the rescue thanks to the REET revenues generated from rising property prices.

Another reason the state realtor association continues to push back on raising REET percentages even higher to homeowners is that the past year clearly demonstrated that taxing property owners more is not necessary. Had the real estate market collapsed as a result of Covid-19 the discussion may be different, but instead, real estate soared and in turn benefited every taxpayer.

Mike Kent is a realtor with Windermere Real Estate. Every Saturday at 10 a.m., he hosts the weekly “Radio Real Estate” program on 790 KGMI.