Real estate excise tax

What is the real estate excise tax?

Real estate excise tax (REET) is a tax on the sale of real property. All sales of real property in the state are subject to REET unless a specific exemption is claimed. The seller of the property typically pays the real estate excise tax, although the buyer is liable for the tax if it is not paid. Unpaid tax can become a lien on the transferred property.

REET also applies to transfers of controlling interest (50% or more) in entities that own real property in the state.

Paying the tax

Program changes, effective Jan. 1, 2020

ESSB 5998 required the department to:

Create a graduated state REET rate structure for sales of real property. Update controlling interest transfers (50% or more change of ownership in an entity that owns real property).

Expand the transfer period from 12 months to 36 months.
Modify the reporting requirements during the annual corporate renewal cycle to disclose any transfers of 16% or more.

For more information, see the section below titled: What rate do I pay?

What rate do I pay?

Effective Jan. 1, 2020, ESSB 5998 made changes to the real estate excise tax program. Some of these changes include:

A graduated state REET rate structure for sales of real property.

Exception: Agricultural land/timberland is excluded from the new rate structure and will continue to have a state REET rate of 1.28%.

Updates for controlling interest transfers (50% or more change of ownership in an entity that owns real property).

Expands the transfer period from 12 months to 36 months.
Changes the reporting requirements during the annual corporate renewal cycle to disclose any transfers of 16% of more.

Attention: The local REET must be calculated and added to the graduated state rate for the total tax due.

Resources

Graduated REET Structure

Sale price thresholds	Tax rate
$500,000 or less	1.10%
$500,000.01 - $1,500,000	1.28%
$1,500,000.01 - $3,000,000	2.75%
$3,000,000.01 or more	3%

Calculating the graduated state real estate excise tax:

Example A:

If the total sale price is $600,000, then the first $500,000 is taxed at 1.10%. The remaining $100,000 is taxed at 1.28%.

$500,000 x 1.10% =	$5,500
$100,000 x 1.28% =	$1,280
Total taxes	$6,780

Example B:

If the total sale price is $4.4 million, then the first $500,000 is taxed at 1.10%. The next $1 million is taxed at 1.28%. The next $1.5 million is taxed at 2.75% and the final $1.4 million is taxed at 3%.

$500,000 x 1.10% =	$5,500
$1,000,000 x 1.28% =	$12,800
$1,500,000 x 2.75% =	$41,250
$1,400,000 x 3% =	$42,000
Total taxes	$101,550

Special consideration for agriculture or timber land and predominate use

Effective Jan. 1, 2020, sales of real property are subject to a graduated rate structure for the state portion of REET. However, sales of real property classified as "agricultural land" or "timberland" will remain subject to a flat rate of 1.28% for the state portion of REET.

Land classifications are assigned by the county assessor in which the property is located. Agricultural land must be classified as defined in RCW 84.34.020. Timberland must be classified under RCW 84.34 or designated under RCW 84.33. These classifications include the structures on such land. For REET purposes, real property is only considered for the flat state tax rate if the buyer indicates it will continue to use the land in a qualifying manner and the county assessor approves the land for such continued use. The county assessor must sign the Notice of Continuance in section 6 of the affidavit.

Predominate use

For REET purposes, sales of real property with multiple uses is classified according to the property’s predominate use. If the sale involves multiple parcels in which one or more parcel(s) is classified as above, and one or more parcels(s) is not included in these classifications, you must complete the predominate use worksheet and include the worksheet with the affidavit.

If the sale requires completion of the predominate use worksheet and also has parcels in multiple location codes, you must first complete the predominate use worksheet for all parcels involved in the entire sale. This will determine the rate for the state portion of REET for the entire sale. You will then complete the multiple locations affidavit for each county in which property is located and include both worksheets with the affidavit.

When is the tax due and when do penalties and interest apply?

On a “deeded transfer” (where a conveyance document transfers title to real property at the county treasurer’s office) REET is due on the date of sale regardless of the date of recording. Penalty and interest are due if the tax is not paid within one month of the date of sale.

A $5.00 state technology fee is applied to the total due for every transfer.
An additional $5.00 affidavit processing fee is applied if an exemption is claimed for the total tax due.
A minimum of $10.00 is due in fees(s) and/or tax.

On a controlling interest transfer, REET payment must be postmarked within five days from the date of transfer. Penalties and interest are due if the tax is not postmarked within one month of the date of sale.

Penalties & interest

Delinquent penalty is due if the tax is not paid timely as noted above.

After one month from the date of sale, a penalty of 5% of the amount of the tax due.
After two months from the date of sale, an additional penalty of 5% of the tax due (total of ten percent).
After three months from the date of sale, an additional penalty of 10% of the tax due (total of 20 percent).

If the tax is not paid within one month of the date of sale, interest will be imposed on the total amount of the unpaid tax from the date of sale to the date of full payment. Interest is calculated on a monthly basis with a full month’s interest accruing at the beginning of each month. Interest rates for REET

For additional information, see WAC 458-61A-306.

How do I pay the tax?

REET is due and payable to the county treasurer in which the property is located on the date of sale, regardless of the date of recording except in a controlling interest transfer.

Attention: If the affidavit and deed are mailed to the Department of Revenue in error, it could delay the filing at the county and penalties and interest may apply as the result of failure to follow instructions.

County assessor and treasurer websites

Controlling interest transfer returns and payment should be mailed directly to the department at the address on the top left corner of the return.

Washington State
Department of Revenue
Taxpayer Account Administration
PO Box 47464
Olympia, WA 98504-7464

For courier delivery:

Department of Revenue REET
Attn: Treasury Management
6500 Linderson Way SW, Ste 227
Tumwater, WA 98501-6561

How do I claim an exemption?

There are limited specific exemptions available for REET. To claim an exemption, list the exemption code in section 7 of the REET Affidavit. The exemption code must reference the Washington Administrative Code (WAC) including the section and subsection.

Example: WAC 458-61A-211(2)(g)

If claiming a gift exemption, a completed REET Supplemental Statement is required and must be submitted with the affidavit. The section and subsection claimed is based on the selection chosen on the supplemental statement.

For more information, see the complete list of exemptions in WAC 458-61A and valid exemption codes.

What exemptions are available?

There are limited exemptions to REET. Below is a list of the most commonly used exemptions. However, it is important you review the full text and examples prior to claiming an exemption.

REET exemptions (commonly used):

When is an affidavit required?

Affidavit - WAC 458-61A-303

In general, you must file an affidavit when ownership or title to real property transfers by conveyance, deed, grant, assignment, quitclaim, or any other document that will result in a transfer.

An affidavit is required, but not limited to, the following circumstances:

Transfer establishing or separating community property, or in fulfillment of a settlement agreement due to a dissolution of marriage, legal separation, declaration of invalidity, or in fulfillment of a community property agreement.
Transfer resulting from a court order.
Transfer to secure a debt.
Transfer of a taxable easement.
A deed in lieu of foreclosure of a mortgage.
A deed in lieu or declaration of forfeiture of a real estate contract.
Transfer to an heir in the settlement of an estate.
Transfer to or from the United States, the state of Washington, or any political subdivision or municipality of this state.
Transfer of development rights, water rights, or air rights.
Transfer of leasehold improvements.
Boundary line adjustments.
Rerecording a document to correct a minor error, such as the legal description or spelling of a name.
Transfer pursuant to a previously recorded transfer on death deed when the beneficiary(ies) perfect title by recording a certified copy of the transferor’s death certificate.

An affidavit is not required nor accepted for the following transactions including, but not limited to:

Transfer of cemetery lots or graves.
Transfer for assignment or release of security, stated on the face of the instrument.
- To secure or assign a debt.
- To provide or release collateral.
A lease of real property that does not transfer lessee owned improvements.
A mortgage or deed of trust, satisfaction of mortgage or reconveyance of a deed of trust.
A seller’s assignment of deed and contract.
A fulfillment deed pursuant to a real estate contract.
A community property agreement.
Purchase of an option.
An earnest money agreement.
The recording of a transfer on death deed.
The revocation of a transfer on death deed.
Inheritance of a community property interest or the transfer under a non-probated will in which a lack of probate affidavit is required.

Refund requests

Refunds - WAC 458-61A-301

Taxpayers may request a refund of REET paid. The request must be filed within four years of the date of sale and must include documents to support the refund claim. An overpayment can only be refunded to the party who originally submitted the payment. Proof of payment must be provided showing the identity of the original payor.

The refund request form and supporting documentation must be submitted to the county treasurer for a deeded transfer. The treasurer will then submit to the department for processing.

A refund request related to a controlling interest transfer should be submitted directly to the department for processing.

The authority to issue a refund is limited to the following circumstances:

REET was paid on the transfer back to the seller in a transaction that is completely rescinded.
REET was paid on the transfer back to the seller on a sale rescinded by court order. A copy of the court decision is required to be attached.
REET was paid on the initial transfer recorded in error by an escrow agent before the closing date, provided the property is conveyed back to the seller.
REET was paid on the transfer back to the seller in #3.
REET was paid on the initial transfer recorded before a buyer assumes an outstanding loan that represents the only consideration paid for the property if both of the following apply:
1. The buyer is not able to assume the loan.
2. The property is conveyed back to the seller. The refund is allowed because there is a failure of the consideration
REET was paid on the transfer back to the seller in #5.
Double payment of REET.
Overpayment of REET through error of computation.
REET was paid when the taxpayer was entitled to claim a valid exemption but failed to do so at the time of transfer.

Definitions

What is considered a sale?

A sale means, any conveyance, grant, assignment, quitclaim, or transfer of the ownership of or title to real property, including standing timber, or any estate or interest therein for a valuable consideration, and any contract for such a conveyance, grant, assignment, quitclaim, or transfer, and any lease with an option to purchase real property, including standing timber, or any estate or interest therein or other contract under which possession of the property is given to the purchaser, or any other person at the purchaser's direction, and title to the property is retained by the vendor as security for the payment of the purchase price. The term includes the grant, relinquishment, or assignment of a life estate in property. The term also includes the grant, assignment, quitclaim, sale, or transfer of improvements constructed upon leased land. WAC 458-61A-102(20)

What is consideration?

Consideration means money or anything of value, either tangible or intangible, paid or delivered, or contracted to be paid or delivered, including performance of services, in return for the transfer of real property. The term includes the amount of any lien, mortgage, contract indebtedness, or other encumbrance, given to secure the purchase price, or any part thereof, or remaining unpaid on the property at the time of sale. For example, Lee purchases a home for $250,000. He puts down $50,000, and finances the balance of $200,000. The full consideration paid for the house is $250,000. WAC 458-61A-102(3)

The real estate excise tax applies to transfers of real property when the grantee relieves the grantor from an underlying debt on the property or makes payments on the grantor's debt. The measure of the tax is the combined amount of the underlying debt on the property and any other consideration. WAC 458-61A-103(1)

What is a controlling interest transfer?

A controlling interest transfer occurs when there is a 50% or more change of ownership in an entity. If that entity owns real property in Washington, a controlling interest transfer return is required to be completed within 5 days of the completed transfer. Penalties and interest will apply if the return is not postmarked within 30 days of the completed transfer.

What is an entity? See WAC 458-61A-101(2)(a)

The measure of the tax is the “selling price”. In the case of a controlling interest transfer the “selling price” means the true and fair value of the real property (to include leasehold improvements) owned by the entity at the time the controlling interest is transferred.

What is true and fair value?

If property has been conveyed in an arm’s length transaction between unrelated persons, the market value is the amount of money that a willing, but unobliged, buyer would pay a willing, but unobligated, owner for real property, taking into consideration all reasonable, possible uses of the property. When the true and fair value of the property can’t be reasonably determined, the market value assessment for the property maintained in the county property tax roll at the time of sale will be used as the selling price.

The “taxable transfer period” is either 12 months or 36 months. 50% or more change of ownership interest is determined by taking into account all transactions within the “taxable transfer period”. The 36 month period is effective January 1, 2020. See ETA 3216.2019 for application of the 36 month transfer period.

For additional information see WAC 458-61A-101.

What is the difference between single location vs. multiple location transfer?

A single location transfer means a transfer in which the property is located in one local jurisdiction code. This may be a single parcel or multiple parcels as long as all parcels are in the same local jurisdiction. For sales in a single local jurisdiction, complete the Single Location Affidavit.

A multiple location transfer involves the transfer of multiple properties in different local jurisdiction codes. This includes parcels in the same county but different local jurisdictions within the county. For sales in multiple local jurisdictions, complete the Multiple Locations Affidavit and Worksheet. A separate affidavit with a copy of the worksheet must be completed and remitted to each county.