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REET: The Real Estate Excise Tax made less regressive

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Amendments to the Real Estate Excise Tax (REET) were passed by the legislature on April 28. The bill, SB 5998, was focused on amendments to the REET, which is levied on sale of a home. It raises $243.5 million over two years, while creating a small tax cut for some home sellers. The bill changes the state portion of the real-estate excise tax, usually paid by people selling homes, from a flat 1.28% to a graduated rate.

Washington’s Taxes are Regressive

Washington State has the most regressive tax system of the fifty states of the U.S. Low-income taxpayers pay 17% of their income in various taxes, notably sales taxes and property taxes that are passed through as rent increases. By contrast, the very highest-income taxpayers — the top 1% — are paying a mere 3% of their income in state taxes, not at all their fair share.

Property taxes and sales taxes are essentially flat taxes because the rate does not vary by income. Whether you make $10,000 or $10 million, you will pay the same property tax if you live in the same price level of home in the same jurisdiction. Both taxes vary according to where you live, since cities and counties can add “levies” to increase the taxes, but all people living in a given jurisdiction will pay the same rate regardless of income.

The legislature has tried to alleviate some of this regressivity but is hampered by the state constitution and court cases that have declared many forms of wealth as income, which cannot be taxed in a graduated scale. Since the 1950’s the Washington state Supreme Court has found that income is property and that a graduated income tax is unconstitutional. In addition, state law prohibits a local government from imposing a tax on net income.

Washingtons Legislature Passes a REET

The latest effort by the 2019 legislature was focused on amendments to
the REET (Real Estate Excise Tax) which is levied on sale of a home. the sale of a home provides a one-time unique capital gain that would not be captured by a broader capital gains tax. (The changes to the REET are likely to be challenged in court, based on a controversial Depression era WA Supreme Court decision involving the definition of income tax.)

The REET was included in the budget that passed the legislature on April 28, 2019. Here are some of the details:

Senate Bill 5998 raises $243.5 million over two years, while creating a small tax cut for some home sellers. The bill changes the state portion of the real-estate excise tax, usually paid by people selling homes, from a flat 1.28% to a graduated rate. It lowers the state rate to 1.1% for housing sales under $500,000. The current 1.28% would remain for homes sold between $500,000 and $1.5 million. Houses selling between $1.5 million and $3 million would be subject to a 2.75% rate, and houses going for more than $3 million would have a 3% rate. Agricultural and timber lands that are sold would keep the current 1.28% rate.(Source: Seattle Times, April 29, 2019)

What will the revenue be used for?

Most of the money currently collected via the state REET goes to the State General fund, with bits and pieces going to other accounts: A little over 1 percent of the money collected goes to cover counties’ administrative costs, 2 percent goes to the public works assistance account, and a little over 4 percent goes to the education legacy account.

The changes to the REET were proposed by Governor Inslee who proposed to use some of the money to create an ongoing source of funding for the removal of fish passage barriers, or culverts — an effort mandated by federal court injunction (and affirmed by the U.S. Supreme Court).

The bill adopted by the legislature takes a slightly different route. After slightly increasing the contributions to the aforementioned accounts,  it directs 16.7 percent of the contributions to the motor vehicle fund. The motor vehicle fund backs highway-related projects like culvert removal, but isn’t currently a destination for REET revenue. The bill allows but does not require the funds to be used for culvert removal.

The law is effective July 1, 2019.

Current law
Individuals, corporations, and other entities owe real estate excise tax (REET) on their sales of real property, unless the sale qualifies for an exemption from the tax. Taxable sales include transfers of ownership in real property and in controlling interests in entities that own real property in Washington. Real property includes any interest in land or anything attached to land. The state tax rate is 1.28 percent. Local jurisdictions may add additional local rates. The combined state and local rate in most areas is 1.78 percent.a disproportionately low rate, not nearly their fair share.

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JUUstice Washington Joins with Side With Love on Climate Displacement

At the Board meeting of July 10, 2022, the JUUstice Washington Board signed onto Side with Love’s position statement on climate displacement:

UU Statement of Commitment in Response to Climate-Forced Displacement

In light of the global challenge of forced displacement caused by the climate crisis, Unitarian Universalist (UU) organizations—the UU Ministry for Earth, UUs for a Just Economic Community, Side With Love, UUA Office at the United Nations, UUs for Social Justice, and the UU Service Committee—join forces to issue the following statement of solidarity and commitment:

Recognizing the interdependence of life on Earth and the accountable pursuit of justice, equity and compassion is central to creating a thriving 21st Century.

Unitarian Universalism is a faith tradition anchored in religious pluralism, the rhythms of nature, and the inherent worth and dignity of each person. The ongoing climate crisis challenges all of our core values as a faith tradition. As organizations currently or historically affiliated with Unitarian Universalism, we feel compelled to speak and act in solidarity with front-line communities facing forced climate displacement. In keeping with these principles of repair and justice, we urge governments, world leaders, corporate actors, and congregations to respond to the global challenge of climate-forced displacement by centering the human rights of affected communities.

As the climate crisis escalates, the needs of those that are suffering the worst effects of climate change—a crisis chiefly caused by carbon emissions from wealthier industrialized nations like the United States—have gained wider acknowledgment. The climate crisis is not a matter for future generations to address; it is already upon us. In early March 2022, the world’s leading climate scientists issued their starkest warning yet about the failure of global leaders to stem carbon emissions. Humanity is on pace to exceed the 1.5 degrees of warming that scientists estimate is the limit the Earth can sustain without risking an unstoppable chain reaction of climate harms.

Due to this collective policy failure, communities around the globe and in the U.S. are already facing the effects of climate destruction. Black, Indigenous, People of Color, front-line, and other oppressed and marginalized communities — who have done the least to contribute to the climate crisis historically—are facing the worst of its effects. Many of these communities have been displaced from their homes, and millions more will follow in the decades ahead. Communities across the U.S.—as well as in other countries—are already experiencing these pressures, and the reality that parts of the U.S. will become uninhabitable is increasingly hard to ignore.

This involuntary climate exile is both a global and a domestic human rights violation on a massive scale. Not only does it deprive millions of people of their rightful home, it also forces them to seek resettlement in a global community that has done little to ensure the safe and dignified reception of people seeking asylum—particularly migrants of color. In the U.S., people are forced to abandon their traditional homes and communities or look to build infrastructure mitigation strategies that outstrip the resource and financing capacity of their households and local governments.

Even as we acknowledge that climate displacement is a present reality and not a hypothetical risk, we also reject the fatalism and defeatism that would deny the possibility of further collective action to forestall or address it. To this end, we shall share the power of our voices and influence with those who have less recourse to engage decision-makers, be they elected, appointed, or corporate actors. We pledge to coordinate our advocacy in order to persuade the international and domestic community to:

Prevent further climate displacement by mitigating the effects of climate change and ensuring a just transition to clean and renewable energy sources;

Ensure—in the event of displacement that cannot be forestalled—that communities are able to relocate safely, with dignity, and in a self-determined way that respects their integrity and identity;

Provide communities with the resources they need to adapt-in-place to the effects of climate change, and to compensate for the loss and damage they have already incurred as a result of anthropogenic warming;

Redress past failures and address root harms and causes as part of our accountable behavior to those suffering harm.

Climate displacement is already occurring around the world. Our leaders have a choice as to the pace at which it unfolds and the treatment of people who endure it. We urge them to act now, before even more people are deprived of their homes.