Real Estate Excise Tax Information

What Is REET 2?

What is Real Estate Excise Tax (REET)?

It is a tax on the sale of real estate. State law allows counties to impose a local real estate excise tax on each sale of real property in the unincorporated areas of the county. This rate is equal to one quarter of one percent and is referred to as REET 1. Revenues generated from this tax must be used for local capital projects. RCW Chapter 82.45

Because Kittitas County is required to plan under the State’s Growth Management Act, the law allows the Board of County Commissioners to impose an additional excise tax of one quarter of one percent on the sale of property in unincorporated areas of the county. This tax is often referred to as REET 2. RCW 82.46.035

What can REET 2 be used for?

REET 2 revenue is restricted and may only be used for financing capital projects specified in the capital facilities plan. REET 2 funds are more specifically directed to infrastructure and parks capital projects. A portion of REET 2 is also allowed to be used to maintain capital projects. RCW 82.46.010

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 county 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.

How can this be enacted without a vote?

On 12/01/1990, Kittitas County opted-in to plan under the Growth Management Act, RCW 36.70A.040 requires that due to the rate of growth the county has sustained, it is now a requirement that Kittitas County plan under the GMA. Per RCW 82.46.035(2), as a county that is required to plan under the GMA, the legislative authority, your elected Commissioners, of the county may enact the tax without going to a vote of the people.

Who will this impact?

  • REET 2 will only impact those who sell property.
    • Many property sales are made by those who live out of the area, who are selling vacation homes.
  • REET 2 will only apply to sales of property in unincorporated areas of the County. The incorporated cities within Kittitas County may implement this tax if they so choose.

How much will it cost me?

The cost depends on the sales price of your property. As an example, if your property sold for $200,000 this new tax would add an additional $500. Typically, this amount, along with other closing costs such as recording fees, etc., is deducted from the profit associated with your sale at the time of closing.

How much money would this generate?

On average, this would generate about $1.7 million in additional revenue. The amount generated per year varies depending on large real estate sales and property market values.

Do other counties collect REET 2?

Over half of all Washington counties have REET 2. The following 20 of the 39 counties have REET 2 for unincorporated transactions: Chelan, Clallam, Clark, Columbia, Franklin, Grant, Island, Jefferson, King, Kitsap, Klickitat, Lewis, Mason, Pierce, San Juan, Skagit, Snohomish, Spokane, Thurston, and Whatcom.

Why Is REET 2 Being Discussed in Kittitas County

RCW 36.70A.040(1) states “Each County that…on or after May 16, 1995, has had its population increase by more than seventeen percent in the previous ten years, and the cities located within such county, and any other county regardless of its population that has had its population increase by more than twenty percent in the previous ten years, and the cities located within such county, shall conform with all of the requirements of this chapter…” “Once a county meets either of these sets of criteria, the requirement to conform with all of the requirements of this chapter remains in effect, even if the county no longer meets one of these sets of criteria.

According to census data, Kittitas County grew 22.6% from 2000 to 2010. 33,362 people in 2000 to 40,915 people in 2010 and continues to rise to where we may see a population of over 50,000 people after the 2020 census is complete. As of July 2018, the population is estimated to be 47,364. The Kittitas County population has nearly doubled in the last 30 years. According to data provided by the Office of Financial Management, Kittitas County has seen the third highest percentage change in population of all Washington Counties over the last 10 years, with Franklin and Benton counties seeing the first and second highest change in population.

Kittitas County Population Increase

Kittitas County Population Growth

REET 2 funds are restricted and can only be used on financing capital projects specified in the capital facilities plan of the county. RCW 82.46.035(5) defines capital projects as:

  1. 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;
  2. Planning, construction, reconstruction, repair, rehabilitation, or improvement of parks; and
  3. Until January 1, 2026, planning, acquisition, construction, reconstruction, repair, replacement, rehabilitation, or improvement of facilities for those experiencing homelessness and affordable housing projects.

REET 2 may be used to fund REET 1 projects so long as certain limitations and additional reporting requirements are met. REET 2 may be used up to $100,000 or 25%, whichever is greater, but not to exceed $1 million per year for the following, per RCW 82.46.037(1):

  1. The maintenance of capital projects, as defined in RCW 82.46.035(5); and
  2. The planning, acquisition, construction, reconstruction, repair, replacement, rehabilitation, improvement, or maintenance of capital projects as defined in RCW 82.46.010(6)(b) that are not also included within the definition of capital projects in RCW 82.46.035(5).

The additional reporting requirements are defined in RCW 82.46.037

  1. Include information necessary to determine compliance with the requirements of subsection (2)(a) of this section;
  2. identify how revenues collected under RCW 82.46.035 were used by the city or county during the prior two-year period;
  3. identify how funds authorized under subsection (1) of this section will be used during the succeeding two-year period; and
  4. identify what percentage of funding for capital projects within the city or county is attributable to revenues under RCW 82.46.035 compared to all other sources of capital project funding. The city or county must prepare and adopt the report as part of its regular, public budget process.

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