Washington House Democrats

Issue Alert:  Property Taxes

October 2007 Update

2007 Property Tax Revenues

$7.73 billion in property tax revenues are expected to be collected in Washington State in 2007.  This is a 7.1 percent increase.  According to the Department of Revenue, of the $514.5 million gain in revenues, nearly 20 percent is due to new construction.  Taxes on existing properties, excluding new construction, increased by $414.4 million, or 5.7 percent.  This increase, more than the 1 percent limit imposed by Initiative 747, was primarily due to a large number of voter-approved tax increases, especially levy lid lifts for fire districts.

Despite the levy lid lifts, overall tax rates fell 84 cents to a statewide average of $10.48 per $1,000 assessed valuation from $11.32 in 2006.

Property Tax Assessments

The assessed valuation of all properties, including new construction added to the tax rolls, increased 15.8 percent to $739.7 billion in 2006.  Values assessed in 2006 are used to calculate tax levies due in 2007.  Many of the county assessors have very good websites with county-specific information.  If you go to your county’s main webpage, you will find a link to the county assessor site.

Below are some frequently asked questions:

Question:  I thought I-747 limited increasing my property value to 1% each year?

Answer:   I-747, approved by the voters in 2001, applies to all regular levies in the State of Washington. It limits the amount a taxing district can collect from its taxpayers to 1% of the highest lawful levy since 1985.  A revenue collection limit does not apply to the amount of taxes or the amount of change in assessed value.

Question:  Why is my property value going up each year?

Answer:   By law, the Assessor’s Office is required to appraise property at 100% of its true and fair market value. This is what a willing buyer would pay a willing seller.  

Question:  What will happen to my tax rate now that my value has increased?

Answer:   Tax rates are affected by many variables, such as budget changes in taxing districts, voter approved levies and/or voter approved levy lid lifts.   Because of the many variables that affect your tax rate, it is too difficult to predict how your property taxes will be affected in the following year.

Question:  Why are some property taxes increasing?

Answer:  Although overall tax rates have fallen, some taxing districts within counties went to the voters and requested additional money in the form of maintenance and operation levies or bond levies.  If your local school district or fire district passed a bond, the total levy rate can increase.

Tax increases for individual properties can also occur when taxing district levies remain relatively unchanged.  This can occur when an area, neighborhood, or individual home is experiencing an increase in market value at a more rapid pace than other parts of the county.

In addition, additional use of property tax exemptions, such as the senior and disabled person property exemption, removes properties from the tax rolls.  Loss of these individual properties will result in a “shift” to other properties in that area. 

Question:  When I bought my home, the realtor told me my taxes would only be $2,500 per year. Now that my property value has increased by $40,000, what will happen to my taxes?

Answer:   Taxes are based on the tax rate multiplied by the assessed value (per $1,000 of assessed value). The local tax rate depends on local decisions about levy amounts.  However, since values have been rising faster than the levies, the rates have fallen.  Average tax rates were lower in 2007 for 35 of 39 counties.

Question:  I have made no improvements to my home, why did my property value increase?

Answer:   The law requires the Assessor’s Office to value property at 100% of the true and fair market value. Assessed values are affected by the local real estate market and the real estate market is directly influenced by supply and demand. This affects the cost of materials, labor and other incidentals required to build, market and sell a home.  The Assessor is required to conduct an annual statistical update of assessed values based on real estate transactions. Although you have not made any improvements to your home, your value continues to follow the market activity in your neighborhood.

The following chart shows the growth in assessed valuations in the state from 2006 to 2007:

The following chart shows the growth in property tax rates in the state from 2006 to 2007:

The following chart is an overlay of the above two charts, showing that the growth rates for assessed valuations and property tax rates vary:

Addendum:  Property Tax Basics

The Washington State Constitution requires all taxes on real estate to be uniform within a taxing district.  There are some exceptions for agricultural, timber and open space designations.  Also, the constitution grants retired property owners relief from the property tax on their principal residence.

Valuing property is the function of the county assessor.  State law requires counties to revalue property at least every 4 years, although many counties do it on an annual basis. 

Property tax rates are the annual levy rates applied to the assessed value of taxable property by the various taxing districts, including the state and various types of local jurisdictions that have levy authority under state law.  These 1,783 taxing districts include:  schools, counties, cities, fire districts, libraries, ports, etc.

Property tax levy rates are expressed in terms of dollars per one thousand of assessed value.  There are several types of tax levies:

·      Regular:  Taxing districts are authorized by state law to levy a certain rate each year without approval by the voters – these are referred to as “regular” levies. Most local regular levies cannot exceed $5.90 of assessed value.  As long as the levy amounts remain with the rate limits specified by law and do not exceed the limitations that have been imposed on levy growth, the taxing district officials make the budget decisions and determine the size of the property tax levy.

·      State:  The state levy rate (for the support of public schools) is set by statute at a maximum rate of $3.60 per $1,000 of fair market value – not assessed value.  Therefore, there is an adjustment made, referred to as the “assessment ratio” which is the relationship between a county’s total assessed value of property and the estimated market value.

·      Excess or Special:   Excess or special levies are those that impose property taxes over and above the regular property tax levies.  They are in “excess” of the many limits put on regular levies.  Excess levies require not only voter approval – they require a 60 percent “super” majority to be approved  (On next month’s ballot is EHJR 4204, a proposed amendment to the Washington State Constitution which will provide for a simple majority of voters (50% + 1) to authorize excess capital, maintenance and operation, and transportation levies for school districts).

Property Tax Limits:

Regular levies are subject to several specific legal limitations:

·      District budgets:  Taxing districts that collect regular levies must certify their budget request to the county legislative authority by November 30 of the assessment year.  They must also hold hearings to discuss their budgets and consider whether an increase is necessary in the amount to be levied over the previous year.

·      Statutory Dollar Rate Limits:   Taxing districts are restricted to various limits specified in state statute.  For example, counties’ current expense levies may not exceed $1.80 per $1,000 assessed value and cities and towns can’t exceed $3.375 per $1,000 of assessed value.

·      Constitutional Limit:  The state Constitution limits the total property tax than can be levied without a vote of the people to a maximum of 1 percent of the true and fair value of the property, or $10 per $1,000 of value.

·      Levy Limit – 1 Percent:  Before passage of Initiative 747 in 2001, annual increases in regular property tax revenues were limited to the growth rate in inflation, unless the voters had approved a higher rate of up to 6 percent.  I-747 mandates that the annual increase in regular property tax revenues will be a maximum of 1 percent (For taxing districts with a population over 10,000, the limit factor is 1 percent or the rate of inflation, if lower than 1%).  Local districts may override the 1 percent limit, if authorized by a majority of the voters in a district.

More Terminology:

·      Banked Capacity:  Banked capacity is the difference between the highest lawful levy that could have been made and the actual levy that was imposed.

·      Senior/Junior Taxing Districts:  "Senior" taxing districts (which are funded first) consist of the state, county, road, and city. "Junior" taxing districts are those not otherwise mentioned. 

·      Levy Limit Lid Lift:  Occasionally, a district will need to raise the levy limitation in order to increase funds.  A district may ask its voters to authorize it to levy an amount that exceeds the levy limitation, or “lift the levy lid.”  Lid lifts may be either permanent or temporary.  In addition, some districts may choose to exceed the levy limitation for just 1 year or for each of up to 6 consecutive years.

How are Property Taxes Computed?

Because of the many overlapping tax districts, there are more than 3,200 tax code areas in which a particular combination of levy rates may apply. The budget for each taxing district is divided by the total value of all parcels served by the district to determine its tax rate. Tax rates

for a given tax code area are then added together to achieve a combined tax rate per $1,000 of assessed value.

Appeals:  All taxpayers have the right to appeal their values.  Many issues can be resolved by talking with the Assessor’s office.  If there is still a disagreement about value, the second level of appeal is the administrative appeal process through the county board of equalization.  Decisions by the county board of equalization can be appealed to the State Board of Tax Appeals if the taxpayer is not satisfied with the county board’s decision.  After that, the decision could be appealed to superior court.

Exemptions:   The state has a number of exemptions for certain types of properties and situations. 

Seniors and Disabled Persons:  The Senior Citizens and Disabled Persons Property Tax Exemption Program helps eligible individuals with limited incomes pay property taxes. This program freezes the value of a residence, exempts all excess levies, and may exempt a portion of regular levies.  A senior citizen must be 61 years old and annual household combined income may not exceed $35,000. Disabled persons have no age limit but must be unable to work because of a physical or mental disability.

There is also a Senior Citizens and Disabled Persons Deferral Program which postpones payment of property taxes. But unlike the exemption program this program is not a reduction of your taxes.  The Department of Revenue pays the deferred property taxes. When the property changes ownership, the amount of the postponed taxes, plus interest each year, becomes a lien in favor of the State until the total amount is repaid.

Destroyed Property:   Persons may apply for a destroyed property tax adjustment if their property has been partially or totally destroyed. Also, if the Governor or County Board of Commissioners has declared a region as a disaster area and there is a value reduction of 20% or more, persons may get some relief.

Residential Remodeling:  If someone decides to make home improvements through remodeling and additions there is an exemption available. This law was passed to allow homeowners a three-year tax break in order to pay any loan application associated with the home improvement project.

Agriculture, Open Space or Timberlands:  If property is agricultural, open space or timberlands, the owner may apply to classify the land under these designations. This generally means a reduced assessed value for the duration of the classification; however, removal may result in penalties and interest charges.

Recent News Accounts

The Olympian:  http://www.theolympian.com/news/story/249228.html

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