This article explains how real estate excise tax applies to water rights when the rights are transferred separate from the land. In general, the tax applies when an existing water right is transferred for valuable consideration.
Under state law, the waters of Washington collectively belong to the public and cannot be owned by any one individual or group. Instead, the state grants individuals or groups the right to use water. A “water right” is a legal authorization to use a certain amount of public water for a designated purpose. The water must be put to “beneficial use,” which refers to a reasonable quantity of water applied to a non-wasteful use, for example, irrigation, domestic water supply, and industry and power generation.
Water rights are transferable. An application for change/transfer of water right is made when changes are proposed for existing water rights. The Department of Ecology and Water Conservancy Boards process these applications.
Real estate excise tax
Real estate excise tax (REET) is an excise tax on the transfer or sale of real property. Water rights fall within the definition of real property and are subject to REET when transferred for valuable consideration (WAC 458-61A-111). Valuable consideration means money or anything of value given in return for the transfer.
The tax is subject to a graduated REET rate. For more information on graduated REET rates, please visit Real estate excise tax. The seller must complete a real estate excise tax affidavit and pay the tax to the county treasurer or recorder’s office in the county where the water right exists. Tax is due at the time of sale.
Examples of taxable transactions include:
- Water rights used on one person’s land are transferred for use on another person’s land for valuable consideration.
- Consolidation of water rights when ownership of the rights transfers for valuable consideration.
- Development or changes to a privately-owned water supply system when ownership of the rights transfer for valuable consideration.
The seller is liable for the tax, by law. However, a buyer may become co-liable if the tax remains unpaid, and the buyer or seller did not report the sale to the local county within 30 days of the sale or transfer.
Direct specific tax questions to the Department of Revenue Audit Division through email at DORRealEstateExciseTax@dor.wa.gov or by calling 360-704-5905. For more information about real estate excise tax, please refer to Chapter 82.45 of the Revised Code of Washington and 458-61A Washington Administrative Code.
For additional information about water rights, please visit the Department of Ecology’s web site at ecology.wa.gov/Water-Shorelines/Water-supply/Water-rights.