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Evergreen Ledger

SHB 1791

Signed

House

Local real estate excise tax

Increasing the flexibility of existing funding sources to fund public safety and other facilities by modifying the local real estate excise tax.

How does a bill become law?
  1. Introduced: The bill is filed and assigned a number.
  2. Committee: A subject-matter committee holds hearings, takes public testimony, and decides whether to advance the bill.
  3. Floor Vote: The full chamber (House or Senate) debates and votes on the bill.
  4. Opposite Chamber: The bill repeats the committee and floor vote process in the other chamber.
  5. Governor: The Governor reviews the bill and decides whether to sign or veto it.
  6. Signed: The bill has been signed into law.
Introduced: February 25, 2025
Last Action: April 24, 2025
Status: C 159 L 25
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AI Analysis

This analysis was generated by AI and may contain errors. It is not legal advice. Always refer to the official bill text for authoritative information.
People & CommunitiesPeople-leaningCorporate & Wealthy Interests

This bill expands the definition of 'sale' for real estate excise tax purposes while adding new exemptions—especially for low-income and supportive housing—and gives local governments more flexibility to use local real estate excise tax revenues for public safety, housing, and operations/maintenance of capital projects. It also extends the timeframes and conditions under which local governments can use these funds.

  • Expands the definition of 'sale' to include transfer of a controlling interest in an entity that owns real property—unless specific exemptions apply—over a 36-month period.
  • Adds new exemptions from the real estate excise tax for transfers of property to nonprofits or public agencies for low-income housing, supportive housing for people with developmental disabilities, and community facilities—subject to ongoing use requirements and certification.
  • Allows counties and cities to use local real estate excise tax revenues for a broader range of purposes, including operations, maintenance, and service support for existing capital projects (e.g., parks, public safety facilities, affordable housing), and for housing relocation assistance.
  • Increases flexibility for local governments to use tax revenues for capital projects by relaxing prior restrictions on how funds can be spent—especially for cities and counties required to plan under RCW 36.70A.040.
  • Creates a new exemption for qualified transfers of residential property to support adults with developmental disabilities, provided the property remains in use for that purpose for 50 years and meets health/safety standards.

Who is affected

  • Local governments (counties and cities) — Local governments (counties and cities) gain expanded authority to use local real estate excise tax revenues for public safety facilities, housing projects, and operations/maintenance of existing capital projects—including services for residents of affordable housing—under more flexible rules.
  • Nonprofits, housing authorities, and public agencies providing low-income or supportive housing — Nonprofit organizations, housing authorities, and public corporations that provide or develop low-income housing, supportive housing for people with disabilities, or community facilities (e.g., health clinics, food banks) benefit from new exemptions or expanded eligibility for real estate excise tax exemptions when acquiring property for these uses.
  • Families and legal representatives of adults with developmental disabilities — Legal representatives of adults with developmental disabilities can transfer residential property to qualified entities without triggering real estate excise tax, provided the property remains in use for supported living for 50 years.
  • Low-income housing developers and owners — Developers and owners of low-income housing developments may avoid real estate excise tax on qualifying transfers—unless federal tax credits are recaptured—making it easier to preserve affordable housing stock.
  • Real estate buyers and sellers — Buyers and sellers of real property may be affected by changes to what constitutes a 'sale' for tax purposes—including transfers of controlling interests in entities that own real property—and by expanded exemptions for certain types of transfers.
Effective: April 1, 2025Fiscal impact: The bill may reduce state and local real estate excise tax revenue due to new and expanded exemptions (e.g., for low-income housing, transfers to support people with disabilities, and community facilities). However, it may also increase revenue in some jurisdictions by allowing broader use of existing tax revenues for capital projects. The Washington State Housing Finance Commission is required to report on fiscal impacts of certain exemptions by 2033.Sunset: January 1, 2030 (for Section 1 of the act); January 1, 2030 (for Section 2, but it takes effect on that date)
Model: Intel/Qwen3-Coder-Next-int4-AutoRoundGenerated: Mar 20, 2026 at 3:01 AM

Pro/Con Analysis

Stronger case for benefits

Potential Benefits (5)

  • The exemption for qualified low-income housing developments (LIHTC-assisted) removes a barrier to preserving affordable housing stock by eliminating the REET on transfers of properties already subject to federal affordability restrictions. This directly supports retention of existing affordable units—especially critical in high-appreciation markets where resale would otherwise trigger a large tax liability that developers pass on to buyers or tenants.

    HousingPeopleRef: Section 1, subsection (3)(s)(i)

  • The new exemption for residential property transfers to support adults with developmental disabilities (subject to 50-year use and health/safety compliance) enables families and legal representatives to transfer homes to qualified nonprofits without triggering a large tax bill—potentially saving $20,000–$50,000+ per transfer. This directly benefits families seeking long-term supported living solutions and expands housing options for a vulnerable population.

    HousingPeopleRef: Section 1, subsection (3)(t)(i)

  • The bill allows counties and cities to use local REET revenues for operations, maintenance, and service support—including for residents of affordable housing—expanding flexibility beyond rigid capital project funding. This enables local governments to address real-time needs (e.g., staffing, repairs, case management) rather than being constrained to brick-and-mortar construction, improving service responsiveness and equity.

    Local GovernmentPeopleRef: Section 3, subsection (2); Section 5, subsection (3)

  • The exemption for transfers to qualifying grantees (nonprofits, housing authorities, public corporations) for low-income housing—provided the property receives a property tax exemption—creates a powerful tool to preserve and expand affordable housing. The 10-year covenant requirement and multi-year certification windows (1/3/5 years depending on use) ensure long-term affordability, directly benefiting low-income households and local housing trust funds.

    HousingPeopleRef: Section 1, subsection (3)(v)(i)

  • The exemption for qualified space in affordable housing developments transferred to nonprofits or public agencies for exempt community purposes (e.g., health clinics, food banks, early learning) strengthens community infrastructure in underserved neighborhoods. This improves access to critical services and supports holistic, place-based investment—particularly beneficial in neighborhoods with high poverty and low public investment.

    Public SafetyPeopleRef: Section 1, subsection (3)(w)(i)
Potential Concerns (5)

  • The bill creates multiple new real estate excise tax exemptions for low-income housing, supportive housing for people with developmental disabilities, and community facilities—potentially reducing local tax revenue by several million dollars annually across Washington. While the exemptions are targeted, the fiscal impact is regressive: local governments (especially smaller or fiscally strained jurisdictions) lose a dedicated revenue source used for capital projects, and the state does not appropriate replacement funding. The 2033 legislative review requirement confirms the magnitude of revenue loss is significant enough to warrant formal oversight.

    FinancialPeopleRef: Section 1, subsection (3)(s), (t), (u), (v), (w)

  • The sunset of the low-income housing exemption on July 1, 2035 creates uncertainty for long-term affordable housing development planning. Developers and housing authorities cannot rely on this exemption beyond 2035, which may discourage multi-decade financing structures and partnerships. This could reduce the pipeline of new affordable units, especially in high-cost areas where tax credits alone are insufficient to make projects pencil.

    FinancialRef: Section 2, subsection (3)(s)(iii)

  • The bill expands the permissible uses of local real estate excise tax revenues to include operations, maintenance, and service support for existing capital projects—including affordable housing—without requiring new voter approval or overriding existing debt covenants. While this increases flexibility, it also blurs the line between capital and operating expenses, potentially diverting funds from new infrastructure to cover ongoing costs, which may strain long-term fiscal sustainability.

    Local GovernmentRef: Section 3, subsection (2); Section 4, subsection (1); Section 5, subsection (3); Section 6, subsection (1)

  • Expanding the definition of 'sale' to include transfers of controlling interest in entities that own real property over a 36-month period increases administrative complexity for real estate developers and investors. This may deter certain types of investment structures (e.g., phased acquisitions, LLC formations) and increase compliance costs, especially for smaller developers without legal or tax teams.

    Business & EmploymentRef: Section 1, subsection (2)(a)

  • The bill requires affidavits and ongoing certification for multiple new exemptions, including for developmental disabilities housing and low-income housing. While this ensures accountability, it adds administrative burden for small nonprofits and housing authorities that lack dedicated compliance staff—potentially slowing project timelines and increasing legal/consulting costs.

    HousingRef: Section 1, subsection (3)(t)(iv); Section 1, subsection (3)(u)(iv); Section 1, subsection (3)(v)(iv)

Who Is Most Affected

Local governments (counties and cities)Positive Impact

Counties and cities gain expanded authority to use local REET revenues for operations, maintenance, and service support—including for residents of affordable housing—under more flexible rules. While this increases fiscal flexibility, smaller jurisdictions with limited staff may struggle to navigate new compliance and reporting requirements. Overall, the impact is positive for local governments seeking to address housing and public safety needs.

Nonprofits, housing authorities, and public agencies providing low-income or supportive housingPositive Impact

Nonprofits, housing authorities, and public agencies providing low-income or supportive housing benefit from multiple new REET exemptions (e.g., LIHTC-assisted transfers, developmental disabilities housing, community facilities). These exemptions reduce acquisition costs and improve project feasibility, directly supporting preservation and expansion of affordable and supportive housing. However, compliance burdens (affidavits, certifications, 50-year tracking) may strain small nonprofits.

Families and legal representatives of adults with developmental disabilitiesPositive Impact

Families and legal representatives of adults with developmental disabilities gain a targeted exemption allowing tax-free transfer of residential property to qualified entities for supported living, provided the property remains in use for 50 years. This directly reduces transfer costs and expands housing options for a vulnerable population. However, the requirement for DSHS certification and 50-year compliance creates long-term administrative obligations.

Low-income housing developers and ownersMixed Impact

Low-income housing developers and owners benefit from the LIHTC-assisted transfer exemption and other low-income housing exemptions, reducing transfer tax liability and improving project economics. However, the 2035 sunset and compliance requirements (e.g., tax credit recapture triggers) create uncertainty and administrative costs, especially for small developers.

Real estate buyers and sellersMixed Impact

Real estate buyers and sellers may be affected by the expanded definition of 'sale' (including controlling interest transfers over 36 months), which could increase tax liability on certain transactions. However, the new exemptions for low-income and supportive housing may offset this for specific transactions. Overall, the net impact is modest and varies by transaction type.