SHB 1425 - Annexation Tax

What the bill does

Substitute House Bill 1425 allows local jurisdictions (cities and counties) to impose a local state-shared sales and use tax. The consumer does not pay this tax, and the effective sales tax rate remains the same. Instead, this tax is credited against the 6.5% state sales tax.

The state contribution may be used solely to provide, maintain, and operate municipal services for the annexation area. 

How to impose the tax

To impose the tax, the city must notify the Department of Revenue (department) and adopt both of the following:

• A resolution or ordinance.
• An interlocal agreement with the county regarding the proposed annexation area.

(Please reference Revised Code of Washington (RCW) 82.14.415 for specific details that must be included within both.)

Local jurisdictions may impose this tax as early as July 1, 2024. The tax expires 10 years from the date it was imposed. Local state-shared taxes may take effect no sooner than 30 days after the department receives notice of the change and only on the first day of the month (RCW 82.14.055 (2)).

Important dates

Tax distributions and rates

Jurisdictions will receive the tax distributions monthly when other local taxes are distributed.

The maximum rate of tax any city may impose under this section is:

• .1% (.001) for each annexed area in which the population is greater than 2,000 and less than 10,000; and
• 0.2% (.002) for an annexed area in which the population is greater than 10,000.

 The tax must cease to be distributed to the city for the remainder of the fiscal year once the threshold amount has been reached. 

Additional notification requirements to the department

No later than March 1st of each year, the city must provide the department with a certification of the city's true and actual costs to provide municipal services to the annexed area, a new threshold amount for the next fiscal year, and notice of any applicable tax rate changes.