NOTE CONCERNING IMPACT ESTIMATES OF PROPERTY TAX EXEMPTIONS:

The estimates listed in this section reflect savings to property owners as a result of exemptions. Because the state is projected to be at the maximum levy allowed under the levy limit during the forecast period, there would be no additional revenue accruing to the state general fund resulting from the broader tax base if property tax exemptions were eliminated. However, the amount of tax paid by other property owners would be reduced as a result of lower levy rates.

Similarly, many local taxing districts are at their maximum levy, and thus repeal of exemptions would yield no additional revenue to these local governments. For those districts whose regular levies are not at their statutory maximums, there would be some additional revenue accruing with the elimination of exemptions, but this amount is not indicated in the report since it focuses on tax savings to taxpayers. In addition, special levy rates could be lowered with the addition to the tax base.

 

PROPERTY TAX EXEMPTIONS: PERSONAL PROPERTY

84.36.070 INTANGIBLE PROPERTY

Description: Exempts from property tax the value of assets such as cash, deposits, loans, and securities.

Purpose: The apparent purposes of the exemption were to avoid double taxation of tangible assets underlying intangible assets, as well as to encourage economic development. The exemption recognizes the administrative difficulty of locating and valuing intangible assets, and collecting such a tax due to their mobility.

Category/Year Enacted: Intangibles; 1931. In 1997 the definition was revised providing additional examples of exempt intangibles (trademarks, brand names, copyrights, franchises, etc.).

Primary Beneficiaries: Holders of intangible assets.

Conflict With Other Programs: None evident.

Tax Savings ($000):* CY 2000 CY 2001 CY 2002 CY 2003
State levy 1,594,079 1,555,816 1,532,412 1,507,521
Local Levies 5,311,494 5,236,706 5,192,180 5,143,169

*Based on the full value of assets and taxation under the property tax at existing levy rates. Assumes that real estate mortgages and government securities would not be subject to tax.

If the exemption were repealed, would the estimated revenue be realized? Very unlikely; because of their mobility intangibles could be easily concealed or moved to other states to avoid the tax. The few other states that attempt to tax intangibles do so either: (1) under the property tax at a very low millage rate, or (2) under an income tax based on the gains accruing from the assets.

 

84.36.079 SHIPS AND VESSELS UNDER CONSTRUCTION

Description: Property tax exemption is provided for vessels under construction that are 1,000 tons or more burden upon completion, and the materials and parts held at the site for incorporation into such vessels.

Purpose: The purpose was apparently to improve the competitive position of shipyards in Washington relative to those in Oregon and California.

Category/Year Enacted: Economic development; 1959.

Primary Beneficiaries: Owners of vessels under construction and the shipyards where the activity occurs. However, there is typically very little construction of vessels of this magnitude in Washington.

Conflict With Other Programs: None evident.

Tax Savings ($000): CY 2000 CY 2001 CY 2002 CY 2003
State levy 7 7 7 8
Local Levies 21 22 22 23

If the exemption were repealed, would the revenue be realized? No; shifts of tax burden would occur.

 

84.36.080(1) COMMERCIAL VESSELS

Description: Vessels used for commercial fishing or for transportation of persons or property are subject to the state property tax levy only and are exempt from all local levies. An apportionment system (RCW 84.40.036) was adopted in 1986 which allocates a portion of the vessel's value to this state based on the length of time spent in Washington waters. Vessels in Washington for less than 120 days per year are entirely exempt (a day is defined as at least 16 hours).

Purpose: The apparent purpose is to lessen the tax burden on these vessels and thus promote ocean-going commerce and commercial fishing in Washington.

Category/Year Enacted: Economic development; 1931.

Primary Beneficiaries: Approximately 3,500 commercial fishing vessels and documented commercial carriers.

Conflict With Other Programs: None evident.

Tax Savings ($000): CY 2000 CY 2001 CY 2002 CY 2003
State levy* 3,336 3,477 3,645 3,815
Local Levies 12,045 12,471 12,969 13,488

*The difference between actual and assessed values reflects the time spent outside of Washington waters.

If the exemption were repealed, would the estimated revenue be realized? Yes; assuming that vessels entering the state during the year could be taxed, not just those located in the state on the January 1 assessment date. However no actual increased revenue would result, only shifts of tax burdens.

 

84.36.080(2) HISTORIC VESSELS

Description: Vessels listed on the state or federal register of historic places are exempt from property tax.

Purpose: To encourage retention and restoration of historic ships and vessels.

Category/Year Enacted: Individuals; 1986.

Primary beneficiaries: Owners of approximately 20 vessels.

Conflict With Other Programs: None evident.

Tax Savings ($000): CY 2000 CY 2001 CY 2002 CY 2003
State levy 12 12 13 14
Local Levies 37 38 40 42

If the exemption were repealed, would the revenue be realized? No; shifts of tax burden would occur.

 

84.36.090 OTHER SHIPS AND VESSELS

Description: This statute exempts all ships and vessels from property tax, other than ships under construction, commercial vessels that are partially exempt and historic vessels which are exempted by RCWs 84.36.079-.080.

Purpose: Unknown. Presumably, this statute protects pleasure boats and others from paying both personal property tax and the 0.5 percent state excise tax. However, this statute was in existence long before the excise tax was enacted in 1983, although the exemption did not apply to the state levy and 20% of local levies.

Category/Year Enacted: Individuals; 1931 (the exemption applied only to 80% of local levies until 1984).

Primary Beneficiaries: Owners of pleasure boats.

Conflict With Other Programs: None evident.

Tax Savings ($000): CY 2000 CY 2001 CY 2002 CY 2003
State levy* (4,543) (4,937) (5,360) (5,886)
Local Levies 18,524 19,660 20,698 21,676

*Assumes the state 0.5 percent excise tax on pleasure and other boats is in lieu of personal property tax; the 0.5 percent state excise tax has been subtracted here to indicate the net impact of both taxes.

If the exemption were repealed, would the revenue be realized? No; shifts of tax burden would occur. Further, the estimates do not reflect the difficulties of locating and valuing pleasure boats.

 

84.36.105 CARGO CONTAINERS

Description: Cargo containers used in ocean commerce are exempt from taxation.

Purpose: The purpose is to help make Washington ports competitive with other West Coast ports for ocean commerce.

Category/Year Enacted: Economic development; 1975.

Primary Beneficiaries: Owners of cargo containers.

Conflict With Other Programs: None evident.

Tax Savings ($000): CY 2000 CY 2001 CY 2002 CY 2003
State levy 713 743 779 816
Local Levies 2,238 2,317 2,410 2,506

If the exemption were repealed, would the revenue be realized? No; shifts of tax burden would occur.

 

84.36.110(1) HOUSEHOLD GOODS AND PERSONAL EFFECTS

Description: Household goods and furnishings in actual use are exempt from property taxation. Originally, the exemption limited property owners to $300 of household effects, but in 1935 it was broadened to include all household items in a residence that were not used for commercial purposes or for sale.

Purpose: This exemption recognizes the administrative difficulties of listing and valuing household items.

Category/Year Enacted: Individuals; 1871.

Primary Beneficiaries: Approximately 2.5 million residential households in the state.

Conflict With Other Programs: None evident.

Tax Savings ($000): CY 2000 CY 2001 CY 2002 CY 2003
State levy 54,559   55,910 57,853 59,799
Local Levies 181,792 188,187 196,022 204,015

If the exemption were repealed, would the estimated revenue be realized? No; shifts of tax burden would occur. Further, the cost of administration and difficulties of enforcing property tax on household goods would be significant.

 

84.36.110(2) $3,000 OF PERSONAL PROPERTY

Description: In addition to the complete exemption of household goods, the first $3,000 of taxable personal property for heads of households is exempt. Since households are effectively exempt from any personal property tax liability, this exemption has the effect of reducing the personal property tax liability of noncorporate businesses, which are subject to personal property tax on business equipment and supplies.

Purpose: This exemption was originally intended to exclude household goods and furnishings up to a value of $300. When the statute was expanded to completely exempt these items, the $300 exemption effectively applied only to heads of households who have taxable personal property used in a business activity (essentially sole proprietors).

Category/Year Enacted: Individuals; 1890 (increased from $300 to $3,000 by the voters in 1988).

Primary Beneficiaries: Approximately 16,200 sole proprietors who operate a business from their residence.

Conflict With Other Programs: None evident.

Tax Savings ($000): CY 2000 CY 2001 CY 2002 CY 2003
State levy 143 149 155 162
Local Levies 477 501 527 553

If the exemption were repealed, would the estimated revenue be realized? No; shifts of tax burden would occur. Further, enforcement could be difficult.

 

84.36.176 PLYWOOD AND PARTICLE BOARD

Description: Plywood, hardboard, and particle board in transit through Washington may be processed in this state and held for up to 30 days before it becomes subject to property tax. This exemption is similar to the general exemption for goods in transit, RCW 84.36.300.

Purpose: The exemption was enacted to assist a specific business in reducing its cost of operations. Now, with the exemption of all business inventories, this statute can be considered as superfluous, since all personal property held for ultimate sale is exempt.

Category/Year Enacted: Economic development; 1967.

Primary Beneficiaries: It is presumed that a very small number of plywood manufacturers would meet the requirements of this statute.

Conflict With Other Programs: Not apparent.

Tax Savings ($000): Minimal; exempt as inventory.

 

84.36.181 METALS IN TRANSIT

Description: Ores and metals shipped into Washington for reduction or refinement are exempt from taxation for up to 30 days after completion of processing.

Purpose: Purpose is to foster trade and economic growth. Now, with the exemption of all business inventories this exemption can be considered as superfluous, since all personal property held for ultimate sale is exempt.

Category/Year Enacted: Economic development; 1961.

Primary Beneficiaries: Approximately 8 firms that manufacture aluminum.

Conflict With Other Programs: None evident.

Tax Savings ($000): Minimal; exempt as inventory.

 

84.36.190 METAL IN CATHODE OR BAR FORM

Description: This exemption was granted to aluminum products in cathode or bar form held for sale and stored under negotiable warehouse receipt.

Purpose: The purpose was to aid the then infant aluminum industry. While the industry grew, the need for this type of warehousing never materialized. All storage of manufactured aluminum was, and is now, handled internally. Now, with the exemption of all business inventories, this exemption can be considered as superfluous, since all personal property held for ultimate sale is exempt.

Category/Year enacted: Economic development; 1949.

Primary Beneficiaries: There appears to be no beneficiary of this exemption.

Conflict With Other Programs: None evident.

Tax Savings ($000): None.

 

84.36.240 SOIL AND WATER CONSERVATION DISTRICTS

Description: The personal property of soil and water conservation districts is exempt from property tax.

Purpose: To assist what is essentially a quasi-governmental activity.

Category/Year Enacted: Government; 1963.

Primary Beneficiaries: There are approximately 49 soil and water conservation districts.

Conflict With Other Programs: None evident.

Tax Savings ($000): CY 2000 CY 2001 CY 2002 CY 2003
State levy 8 8 8 9
Local Levies 24 25 26 27

If the exemption were repealed, would the revenue be realized? No; shifts of tax burden would occur.

 

84.36.300 GOODS IN TRANSIT (FREEPORT EXEMPTION)

Description: Goods are exempt from property tax if they are manufactured outside Washington by the current owner and shipped into the state or acquired by the current owner from another instate manufacturer, and subsequently exported in substantially the same form they were brought into the state (although repackaging, relabeling, etc. may take place here). Items exempted include aircraft parts and accessories, but not engines or major structural components, installed in Washington.

Purpose: Purpose is to encourage trade and promote economic growth.

Category/Year Enacted: Economic development; 1961.

Primary Beneficiaries: Merchandise wholesalers and manufacturers of aircraft.

Conflict With Other Programs: None evident.

Tax Savings ($000): Minimal; exempt as inventory.

 

84.36.470 AGRICULTURAL PRODUCTS

84.36.140 AGRICULTURAL PRODUCTS IN STORAGE OR IN TRANSIT

Description: All agricultural and horticultural products produced for sale by a person on lands owned or leased by the producer are exempt from property tax. The comprehensive exemption in RCW 84.36.470 now supersedes an earlier exemption for certain agricultural products and unprocessed timber being held in storage or in transit on January 1, if shipped out of state by April 30.

Purpose: Originally, the exemptions were intended to assist a depressed agricultural economy and encourage the storage of commodities in this state. With the exemption of business inventories, the exemption of agricultural products following harvest is superfluous because these items are held for sale.

Category/Year Enacted: Agriculture; 1984, following reduced assessment from 1975 through 1983 and earlier limited exemptions in 1933 and 1939.

Primary Beneficiaries: Agricultural producers, processors and shippers.

Conflict With Other Programs: None evident.

Tax Savings ($000): CY 2000 CY 2001 CY 2002 CY 2003
State levy 6,672 6,955 7,291 7,632
Local Levies 20,942 21,683 22,550 23,452

If the exemption were repealed, would the estimated revenue be realized? No; shifts of tax burden would occur. Further, such items could be considered as inventories exempt under RCW 84.36.477.

 

84.36.477 BUSINESS INVENTORIES

84.36.510 MOBILE HOME INVENTORIES

Description: Business inventories, including livestock and personal property acquired or produced solely for the purpose of sale, are exempt from tax.

Purpose: This program was enacted to provide a stimulant to the economy and make Washington competitive with neighboring states which were eliminating inventory taxes. (It should be noted that state B&O tax applies to the sale of inventories each time they are sold at the wholesale and retail level.)

Category/Year Enacted: Economic development; 1974, effective in 1984 after a ten year credit of personal property tax on inventories against the state B&O tax.

Primary Beneficiaries: Manufacturers, wholesalers, and retailers.

Conflict With Other Programs: None evident.

Tax Savings ($000): CY 2000 CY 2001 CY 2002 CY 2003
State levy 98,827 103,028 108,003 113,045
Local Levies 310,210 321,176 334,024 347,385

If the exemption were repealed, would the revenue be realized? No; shifts of tax burden would occur.

 

84.36.600 CUSTOM COMPUTER SOFTWARE

Description: Custom computer software, defined as software that is designed for a specific need for a single person or group of persons, is exempt from property tax. Included in the definition is modification of canned computer software.

Purpose: To recognize the administrative difficulties in valuing such software and to achieve uniform treatment in all counties.

Category/Year Enacted: Economic development; 1991.

Primary Beneficiaries: Businesses that own custom computer software.

Conflict With Other Programs: None evident.

Tax Savings ($000): CY 2000 CY 2001 CY 2002 CY 2003
State levy 1,751 1,825 1,913 2,002
Local Levies 5,495 5,689 5,917 6,154

If the exemption were repealed, would the estimated revenue be realized? No; shifts of tax burden would occur. Further, there would be difficulties in valuing custom software.

 

84.40.030(3) GROWING CROPS

Description: Crops that are growing in the ground as of the January 1 assessment date are excluded from the value of the agricultural land.

Purpose: Most crops are harvested at the end of the growing season and therefore are not subject to property taxation. This exemption provides equal treatment with the few crops which may be growing in the ground on the January 1 assessment date, principally winter wheat and fall barley.

Category/Year Enacted: Agriculture; 1890.

Primary Beneficiaries: Farmers who have crops growing in the ground on the January 1 assessment date.

Conflict With Other Programs: None evident.

Tax Savings ($000): CY 2000 CY 2001 CY 2002 CY 2003
State levy 1,143 1,192 1,250 1,308
Local Levies 3,589 3,716 3,864 4,019

If the exemption were repealed, would the estimated revenue be realized? Unlikely.

 

84.40.037 CANNED COMPUTER SOFTWARE

Description: This statute provides that "canned" computer software is taxable at 100 percent of the acquisition cost in the first year following purchase and at 50 percent in the second year. Thereafter, it will be exempt from property tax. Canned software includes programs that are purchased "off the shelf" for direct use without modification for the specific needs of the user.

Purpose: To recognize the rapid obsolescence of canned software and the difficulty of establishing accurate depreciation schedules, as well as to provide uniform treatment throughout the state.

Category/Year Enacted: Economic development; 1991.

Primary Beneficiaries: Businesses that own canned software.

Conflict With Other Programs: None evident.

Tax Savings ($000): CY 2000 CY 2001 CY 2002 CY 2003
State levy 1,315 1,371 1,437 1,504
Local Levies 4,127 4,273 4,444 4,622

If the exemption were repealed, would the revenue be realized? No; shifts of tax burden would occur.

 

84.40.220 NURSERY STOCK

Description: Nursery stock grown in pots or bags is exempt from property tax. This exemption was enacted when the industry changed its method of growing such products by switching to pots and bags rather than in the ground. Since this stock is not grown in the ground, it is not included in the growing crops exemption under RCW 84.40.030(3).

Purpose: To treat nursery stock the same as growing crops.

Category/Year Enacted: Agriculture; 1971.

Primary Beneficiaries: About 1,090 producers of nursery stock.

Conflict With Other Programs: None evident.

Tax Savings ($000): CY 2000 CY 2001 CY 2002 CY 2003
State levy 83 87 91 95
Local Levies 262 271 282 293

If the exemption were repealed, would the estimated revenue be realized?  No; nursery stock would likely be considered as exempt inventory.