One of the significant new tax policies coming out of this recent legislative session involves the real estate excise tax or REET. This is a tax paid by the seller of all real property. The rate has historically been flat. Which is to say, one rate applied to all sales regardless of the sale value. The Legislature has changed that with ESSB 5998. Starting in 2020, the percentage of the REET will be determined by the sales price of the property. Generally speaking, lower value sales will have a lower tax rate and higher value sales will have a higher tax rate.
This is true for all land classes but one: working lands. This land classification will maintain the existing flat rate. These lands, be they timber or agriculture, are critical for the state’s natural resources, environmental sustainability, and rural economies. They also are under constant development pressure as Washington’s population surges towards 7.5 million people and beyond. Increasing the cost of routine working land transactions through the REET would have only nudged these lands closer to development and conversion out of working status. The Legislature recognized these potential unintended consequences and showed wisdom by exempting working lands from the REET increases.
John Ehrenreich, Director of Forest Tax and Economics for the Washington Forest Protection Association, agrees with the need for the exemption.
“The buying and selling of timberland to ensure even age class distributions across the landscape is a fundamental forest practice that allows a landowner to maintain sustainable operations. This is the sort of sustainability required not only by law, but by the ethos of forest landowners. It was great to see the Legislature acknowledge this and adopt a tax policy that encourages responsible land management and doesn’t inadvertently result in a loss of working lands in Washington.”
Credit is due to the two legislative chairs that oversee new tax policies. Those are Rep. Gael Tarleton (D-Seattle) and Sen. Christine Rolfes (D-Bainbridge Island). Their leadership in recognizing the value of conserving working lands to the state’s economy and the environment will only become more apparent as the state’s population continues to boom and push new people out into areas of the state historically dominated by agriculture and timber.
Managing the state’s population growth in a way that will not erode its working land base will be an ongoing challenge in the coming years and decades for forestry, agriculture, and future lawmakers. The recognition given to working lands in this year’s changes to the REET avoids immediate disincentives for working lands and lays a strong foundation for future incentive-based conservation measures.
Ehrenreich added, “The policy decision to exempt working lands from any REET rate increase is undoubtedly good news for both the economy and environment of Washington”.