Washington State Property Tax Proposals: Impact on Commercial Real Estate

Washington State legislators are currently debating proposals to increase property tax revenue growth limits. The key proposals include Senate Bill 5798, which aims to adjust property tax revenue growth based on inflation and population changes, and a House proposal to cap revenue growth at 3%. These changes are intended to address budget shortfalls and fund essential services like schools and public safety. The bill argues that the current 1% limitation on the growth of property tax collections should be modified, tied to the annual percentage increase in the CPI for all urban consumers in the western region and relevant population increases specific to the taxing district (population growth plus inflation). There is a slew of current ways that taxing jurisdictions can override the 1% annual budget increase restriction. However, this legislation would make increases much easier to approve and process, and it doesn’t eliminate those other tools (excess levies, voter approved levies, etc.).

Impact on Commercial Real Estate Property Owners

Commercial real estate property owners in Washington State could face significant changes if these proposals are enacted. The removal of the 1% revenue growth limit means that property taxes could increase more rapidly, potentially leading to higher operating costs for commercial properties. This could affect profitability and investment decisions, as owners may need to allocate more funds to cover rising property tax bills.

Key Takeaways

Increased Tax Burden: The proposed changes could lead to higher property taxes for commercial real estate owners, impacting their bottom lines.

Budget Allocation: The additional revenue is intended to support critical public services, including education and public safety.

Exemptions: Senate Bill 5798 includes exemptions for seniors and people with disabilities, while the House proposal does not.

Economic Considerations: Higher property taxes may influence commercial real estate market dynamics, potentially affecting rental rates and property values.

Commercial real estate property owners should stay informed about these legislative developments and consider their potential impact on future financial planning and investment strategies.

In addition, it is important to note that the last major change to the collections limit was in 2001, which created the current 1% limit. A similar proposal was introduced in 2017 to increase the cap to 5% and failed. Last year, a similar bill was introduced to increase the cap to 3% and failed.

The available evidence suggests that the bills will likely have strong support and strong opposition. The regular session of legislature closed on April 27, and we are continuing to monitor these bills over the next month.