(The Center Square) – A Washington State Economic and Revenue Forecast Council report found that the state’s commercial real estate excise tax revenue has fallen to pre-2020 levels before the Legislature altered the REET rate.
Through 2019, the state’s REET imposed a flat rate of 1.28 % of the value of the transactions, though local governments could impose their own REET on top of that. During the 2019 legislative session, the Legislature enacted a bill that changed it to a graduated rate based on the value of the transaction with a 1.1% rate for properties below $500,000 and the highest rate at 3% for transactions of $3 million or more.
The new rates took effect in 2020, but prior to its implementation there was a spike in commercial REET activity that brought in record levels of revenue, then decreased significantly in 2020. Commercial REET revenue then spiked in late 2021 and early 2022, when revenue levels reached another record high.
While combined residential and commercial REET revenue as of the fiscal year 2023 remains above pre-2020 levels, according to ERFC’s August economic and revenue update, commercial REET revenue is now down to where it was before the implementation of the graduated REET rate.
Washington Policy Center’s Small Business Director and former state legislator Mark Harmsworth wrote in an email to The Center Square that “tax collections from the sale or transfer of commercial properties (REET) are down slightly this month, caused by a softening of commercial property sales. This is an indicator that businesses, under the new increased business taxes (B&O, Sales Tax, plus other fees) the legislature passed this year, are potentially taking a more cautious approach to business expansion.”
He added that “for the state’s overall REET collections, an increase in residential sales offsets the loss of REET revenue from the commercial sector, driven by homeowners starting to move to new homes based on falling prices in the Seattle area, though the market remains volatile given higher interest rates.”
In 2021, a 30-year fixed mortgage rates was 3.15%. By 2023, it had more than doubled to 7.00%. The current rates is now 6.85%.
When The Center Square reached out to Washington REALTORS for comment, President John Blom wrote in an email that “REET collections are directly tied to market conditions. During the last two years, we’ve seen challenging market conditions with high interest rates, low inventory, and affordability challenges impacting potential buyers. Though recently, we’ve seen a slight increase in sales activity with more inventory on the market and buyers adapting to higher interest rates.”
However, Blom added that “we’re optimistic that as more listings hit the market, and the fed looks at possible rate adjustments, we will continue to see an increase in sales—resulting in REET revenue increases. Currently, Washington state ranks 38th in the country in homeownership rate. Increasing this number will both benefit families and state REET collections.”
