SB 5111
In CommitteeSenate
Recording fees/escrow tax
Concerning the excise tax treatment of amounts received by title and escrow businesses from clients for remittance to a county filing office for the purpose of recording documents.
This status may be delayed. See Action History below for the latest updates.
How does a bill become law?
- Introduced: The bill is filed and assigned a number.
- Committee: A subject-matter committee holds hearings, takes public testimony, and decides whether to advance the bill.
- Floor Vote: The full chamber (House or Senate) debates and votes on the bill.
- Opposite Chamber: The bill repeats the committee and floor vote process in the other chamber.
- Governor: The Governor reviews the bill and decides whether to sign or veto it.
- Signed: The bill has been signed into law.
AI Analysis
This bill stops Washington’s Department of Revenue from taxing recording surcharges—fees title and escrow companies collect from clients to pay counties for filing real estate documents—by declaring them an excise tax (not a taxable fee) and exempting them from sales and B&O taxes. It follows a court ruling and aims to prevent large back-tax assessments on small title/escrow businesses.
- Declares that document recording surcharges—previously assessed as taxable by the Department of Revenue—are not subject to sales and use or business and occupation (B&O) taxes, because they are an excise tax (per a February 2024 Court of Appeals ruling).
- Adds a new exemption in RCW 82.04.050 stating that amounts remitted to a county filing office for document recording are exempt from taxation under state law.
- Requires that recording surcharge amounts be separately identified on settlement statements (e.g., HUD-1 or closing disclosure) to qualify for the tax exemption.
- Clarifies that only businesses primarily engaged in escrow agent services (as defined in RCW 18.44.011 and 18.44.021) are eligible for the exemption.
- Reenacts and amends existing tax law (RCW 82.04.050) to reinforce that recording surcharges are not part of the definition of 'retail sale' for tax purposes.
Who is affected
- Title and escrow companies — Title and escrow businesses—especially small, independent ones—may no longer be required to collect and remit sales and use or business and occupation (B&O) taxes on recording surcharges they collect on behalf of counties, reducing their tax liability and administrative burden.
- County auditors and filing offices — Counties may receive the same recording surcharge amounts from title/escrow businesses, but will no longer receive additional tax revenue from these businesses on those amounts.
- Real estate consumers (buyers and sellers) — Homebuyers and sellers may see more transparent settlement statements, as recording surcharges must be separately identified and are no longer subject to sales tax at closing.
- Washington Department of Revenue — The Washington Department of Revenue will no longer assess back taxes or enforce tax collection on recording surcharges collected by title/escrow agents.
Pro/Con Analysis
Stronger case for benefits
Potential Benefits (5)
Small, independent title and escrow businesses—many of which operate on thin margins—will no longer face large back-tax assessments for recording surcharges, reducing financial risk and administrative burden. This prevents business closures and job losses among locally owned firms that were caught in an unannounced enforcement shift by DOR.
Business & EmploymentPeopleRef: Sec. 1(3) and NEW SECTION. Sec. 3(1)By clarifying that recording surcharges are not taxable, the bill prevents price inflation at closing—since sales tax would otherwise be applied on top of the surcharge—making homebuying slightly more affordable, especially for first-time and low-to-moderate income buyers who are sensitive to closing cost surprises.
HousingPeopleRef: Sec. 1(5) and NEW SECTION. Sec. 3(3)The bill corrects a due process concern: DOR assessed taxes on recording surcharges without prior rulemaking or industry guidance, violating fair notice principles. Exempting these amounts retroactively prevents arbitrary financial liability for businesses that acted in good faith under prior DOR silence.
Rights & LibertiesPeopleRef: Sec. 1(4) and NEW SECTION. Sec. 3(1)Separate identification of surcharges on settlement statements improves transparency for consumers, helping them understand what portion of closing costs goes to the county versus the title/escrow agent—reducing confusion and potential fraud at closing.
Business & EmploymentLean peopleRef: Sec. 1(2) and NEW SECTION. Sec. 3(3)The bill aligns state tax policy with the Court of Appeals’ February 2024 ruling in *BIAW v. State*, ending inconsistent enforcement and providing regulatory certainty for the title/escrow industry—though this primarily benefits the industry rather than consumers directly.
Business & EmploymentRef: Sec. 1(5) and NEW SECTION. Sec. 3(1)
Potential Concerns (4)
Counties lose tax revenue previously collected on recording surcharges, reducing funds available for housing and land-use programs—particularly the Housing Trust Fund, which is partially funded by these surcharges. While the surcharge itself is still remitted to counties, the lost B&O and sales tax revenue on those amounts reduces overall public funding for affordable housing and infrastructure.
Local GovernmentPeopleRef: NEW SECTION. Sec. 3(1)The exemption is limited to entities 'primarily engaged in escrow agent services' as defined in RCW 18.44.011(7) and (8) and RCW 18.44.021(1), which excludes many title companies that offer escrow as a secondary service or operate as part of larger real estate or financial firms—potentially leaving some small businesses still liable for back taxes or ineligible for relief despite the bill’s framing.
Business & EmploymentLean peopleRef: NEW SECTION. Sec. 3(2)The requirement to separately identify surcharges on settlement statements adds administrative burden for title/escrow businesses, especially small ones without automated closing systems—though this may improve transparency for consumers, compliance costs could strain independent operators.
Business & EmploymentRef: NEW SECTION. Sec. 3(3)Reduced tax revenue from recording surcharges may indirectly affect local government capacity to fund code enforcement, housing inspections, and other public safety functions tied to property record accuracy and housing stability—particularly in counties already strained by housing affordability crises.
Public SafetyPeopleRef: Fiscal Impact section (summary) and NEW SECTION. Sec. 3(1)
Who Is Most Affected
Small, independent title and escrow agencies benefit significantly: they avoid large, retroactive tax assessments and administrative costs. Many are sole proprietorships or family-run businesses with limited capital buffers—this relief prevents closures and preserves local jobs.
Homebuyers and sellers benefit from lower closing costs (no sales tax on surcharges) and clearer settlement statements. First-time buyers and low-to-moderate income households gain the most, as they are most sensitive to unexpected closing cost increases.
Counties receive the same recording surcharge amounts but lose the associated B&O and sales tax revenue. This reduces general fund revenue—potentially affecting housing programs, though the surcharge itself still flows to the Housing Trust Fund. Larger counties with diversified revenue streams are less impacted than smaller, rural counties.
The Department of Revenue avoids costly and politically contentious back-tax assessments and litigation. While this reduces enforcement costs, it also means the state forgoes revenue it previously claimed—though the fiscal impact summary suggests this is modest in scale.
Larger title insurance and real estate conglomerates may benefit less than small firms, as they often have the legal and accounting resources to contest DOR assessments—or may not have been assessed at all. The exemption’s 'primarily engaged' test could exclude firms where escrow is a side service, limiting relief for some mid-sized players.