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Thursday, January 10, 2008

Citizen's Guide to Property Taxes in Washington State


January 2008

A Citizen’s Guide to

Property Taxes

In this Citizen’s Guide, the Washington Research Council examines the characteristics of Washington State’s property tax system. We trace the history of the tax, re-
view principles of equity and uniformity, and consider the level and distribution of the tax burden. Finally, we review the various limitations and exemptions associated
with the property tax.

The review is timely. On November 8, the Washington State Supreme Court invali-
dated Initiative 747, which would have kept property tax revenues from increasing
by more than 1 percent per year. In response to public outcry, the governor called the
legislature into special session to address the court ruling. Meeting on November 29,
the legislature reinstated I-747’s one-percent levy cap and established a property tax
deferral for low and moderate-income property owners. The legislature is expected
to take a more comprehensive look at the state’s property tax system during the regu-
lar 2008 session.

This Guide is designed both to place today’s debate in historical perspective and to inform the discussion with current facts and tax policy principles.

Over time, reliance on the property tax has diminished. Before the Great Depression, the property tax provided more than 90 percent of the funding for state and local
government in Washington; today, it yields less than 20 percent. Even as its relative importance declined, the tax remained controversial, often the target of taxpayer revolt. A succession of reforms has added complexity to the tax system. We now have regular levies and excess levies, the one-percent limit and the 101 percent limit, ex
emptions and deferrals, and more.

Generally the reforms have remained consistent with fundamental tax principles enshrined in the state’s governing documents: Property “shall be taxed in proportion to its value”—“all taxes shall be uniform on the same class of property”—“all real estate shall constitute one class.” To ensure the equity of the tax system, reformers
have also acted at various times to improve assessment practices, ultimately adopting
100 percent valuation as the standard.

In the following pages, we consider the effects of these reforms on today’s property tax policies. As well, we attempt to build a framework for thoughtful evaluation of alternative proposals as they emerge for public consideration.

For additional information, or to arrange for a presentation on tax policy, please call the Washington Research Council at (206) 467-7088.

16300 Christensen Road, Suite 207, Tukwila Washington 98188 —————



Washington’s state and local governments levied $7.73 billion in property taxes for payment in 2007, an increase of 7.1 percent over the $7.21 billion levied for 2006. The 2007 taxes represented $1,191 per state resident and just under 3 percent of state personal income.

In the first years following statehood, the property tax was the principal state tax. The state constitution originally included the paragraph:

Annual State Tax- All property in the state, not exempt under the
laws of the United States, or under this Constitution, shall be taxed
in proportion to its value, to be ascertained as provided by law.
The legislature shall provide by law for an annual tax sufficient,
with other sources of revenue to defray the estimated ordinary ex-
penses of the state for each fiscal year. And for the purpose of
paying the state debt, if there be any, the Legislature shall provide
for levying a tax annually, sufficient to pay the annual interest and
principal of such debt within twenty years from the final passage
of the law creating the debt.

Until the 1930s most state and local revenue came from taxes of property.
In 1927, for example, property taxes accounted for more than 90 percent
of state and local revenue in Washington. Like many other states, Wash-
ington adopted major new taxes during the Great Depression in order to
reduce reliance on the property tax. In 2005 property taxes accounted for

19.5 percent of state and local revenues.

In 1929, $78 million in taxes were collected from property owners. This

amounted to 6.8 percent of the $1.14 billion personal income for state residents. By 1932 the amount collected had been reduced slightly to $73 mil-
lion. State personal income, how-

Figure 1: Property Taxes Collected per $1,000 of Washington State Personal Income








ever, had fallen by a much greater

percentage to $625 million, and the burden of the levy had increased to 11.7 percent of personal income. Property tax delinquencies soared during the Great Depression,

reaching 30 percent of the current tax roll in 1932 and 1933, while falling property values further

strained the system. In 1932 the
voters approved an initiative to
limit property taxes to 40 mills,

that is four cents for each dollar of
assessed valuation. (At that time
property was typically assessed at
only a fraction of its true value.) In
1933 the Legislature imposed a

temporary tax on business gross receipts. After voters in 1934 rejected a graduated income tax, the 1935 Legislature enacted the Revenue Act,
which imposed a number of taxes including a permanent Business and Oc
cupation (B&O) tax and a 2 percent sales tax. In addition, the Revenue Act granted further property tax relief by exempting all household goods and personal effects from the property tax.

Page 2


Figure 1 shows the property taxes due, from 1929 through 2006, in rela-
tion to state personal income. From the 1932 peak of $117 per $1000 of
personal income, collections fell to a low of $13 per $1000 in 1944, the
year that the 40 mill limit was placed in the state constitution. This same
constitutional amendment mandated that property be assessed at 50 per-

cent of true and fair value. From the 1944 low,

taxes began a slow but steady climb. After 1966 the rate of increase accelerated, in part because of spe-
cial school levies tied to the baby boom. The post-
war peak of $42 per $1000 of personal income was reached in 1971.

The early seventies saw the state’s second wave of property tax reform. In 1971 the 106 percent limit, capping the annual increase in regular property

taxes at 6 percent, was introduced. In 1972 the state constitution was amended to limit regular property taxes to one-percent of true value.

The tax burden declined to $23 per $1,000 of per-
sonal income in 1980. From that low it increased

Figure 2: Distribution of Real Property in 2006

Single Family






& Utility


Current Use &



steadily, reaching $31 in 1995. It has decreased

slightly since then, and in 2006 was equal to $29.31

per $1,000.


The state constitution defines property broadly to “mean and include eve-
rything, whether tangible or intangible, subject to ownership.” The 14
Amendment, which added this definition to the constitution in 1930, also
enabled the Legislature to define separate classes of property. Within each
class tax rates must be equal. Different classes however, can be taxed at
different rates.

Property is divided into two broad types. Real property, in general, con-
sists of land and everything that is permanently affixed to land. All else is
personal property. The constitution requires that real property be a single class. By statute, business and household personal properties are separate classes, and household personal property is exempt from taxation.

In 2006, 4.8 percent of the assessed value subject to the property tax was personal property while the remaining 95.2 percent was real. Almost all of the taxable personal property belonged to businesses, mostly machinery and equipment. Figure 2 shows the breakdown of real property. Single-
family homes represented almost 72 percent of the assessed value of real property. Multi-family homes represented more than 6 percent; commer-
cial and manufacturing uses, 16.3 percent; all else, 5.5 percent.


The Washington landscape is overlaid by more than 1,700 separate dis-
tricts that, in addition to the state itself, have the power to levy property taxes. These include 39 counties, 270 cities and towns, 296 school dis-
tricts, 413 fire districts, 16 library districts, 76 ports and 128 emergency
medical services (EMS) districts.

Figure 3 breaks down the $7.7 billion in property taxes due in 2007 by the
type of taxing district. The state receives the largest single share of prop-

All Other



Page 3


erty tax levies, 22 percent, although in aggregate the 32 percent share of school districts is larger. Seventeen percent went to counties. Cities and
towns took 14 percent, and all other

Figure 3: Levies Due in 2007 by Type of District

Other 23

EM S 180

Hospital 86

Library 221

Fire 422

Port 147

Parks 32

Cities 1,074

County 1,321

School Districts


(dollars in millions)

districts, 14 percent.

Washington state government does not

compile comprehensive statistics on

local government taxation and spend-

ing. The Bureau of the Census’s an-

nual survey of government finances,

however, provides a picture of state

and local government finances. The

Bureau reports that state and local

government general revenue totaled

$42.3 billion in Washington for fiscal

year 2005. Of that money, $8.3 billion

2,514 came from the federal government.

1,706 The state itself collected $19.6 billion

in taxes and fees, while local govern-

ments collected $14.4 billion. Addi-

tionally, the state transferred $7.8 billion (net) to local governments. Much of this money went to school districts.

Figure 4 summarizes the sources of revenues for Washington govern-
ments. Property taxes provided the second largest share of the taxes and fees collected by the combined governments, after general sales taxes. The Census Bureau includes the state’s business and occupation tax in the general sales tax category. If the B&O tax was not included, general sales tax would still provide the largest share of revenue.

For the state alone, the property tax represents a smaller fraction of collections, 8 percent; general sales taxes generate a much larger share of the state’s revenue. For local governments, the property tax is the largest
source, 35 percent. Second, at 34 percent, comes the category of current charges, which includes user fees for such services as hospital care, sew
age, garbage collection, seaports and airports.

Figure 5 compares Washington’s property taxes to those of the other 49 states and the District of Columbia for the 2005 fiscal year. In taxes per $1000 of personal income, Washington ranked 27th. In taxes per capita, Washington ranked 25th. While in taxes as a share of own-source general revenue, the state ranked 29th.


In 1972 Washington state voters amended the state constitution to estab-
lish the one-percent limit on levies: “the aggregate of all tax levies upon
real and personal property by the state and all taxing districts now existing
or hereafter created shall not in any year exceed one percent of the true
and fair value of that property in money.” This was a modification of the
40 mill limit that had been established during the Great Depression. The
one-percent limit is subject to five exceptions. First, it does not apply to
the levies of ports and public utility districts. Second, the limit may be ex-
ceeded if a three-fifths majority of the district’s voters approve. Generally
voter approval for levies in excess of the limit must be renewed each year.
Third, voters may approve levies to fund school operations with a simple
majority. School operations levies may span four years and levies for

Page 4


Figure 4: Breakdown of Washington State and Local General Revenue, Fiscal Year 2005

State and Local

Current charges

Other taxes

6% Miscellaneous

general revenue

Selective sales



General sales 20%



Current charges Miscellaneous

16% general revenue


Other taxes


Selective sales

General sales


Current charges

Other taxes 34%


Selective sales


general revenue

General sales 9%



Page 5


Figure 5: Property Tax Rankings of States, Fiscal Year 2005

Share of State

and Local Taxes

State Per $1,000 PI Rank Per Capita Rank and Fees Rank

New Hampshire 52.68 1 2,028.07 3 43.5% 1

Maine 52.11 2 1,632.48 9 29.9% 6

Vermont 50.87 3 1,697.26 7 30.1% 5

New Jersey 50.31 4 2,205.71 1 34.4% 2

Wyoming 47.55 5 1,750.62 6 20.9% 21

Rhode Island 46.76 6 1,694.72 8 30.1% 4

New York 43.79 7 1,767.99 5 23.6% 13

Connecticut 42.63 8 2,044.06 2 30.9% 3

Wisconsin 41.95 9 1,410.37 12 26.3% 9

Texas 40.80 10 1,320.44 14 29.3% 7

Illinois 40.54 11 1,464.12 11 28.6% 8

Indiana 38.94 12 1,219.11 16 23.9% 12

Michigan 38.54 13 1,278.99 15 24.5% 11

Alaska 37.76 14 1,345.35 13 12.3% 43

District of Columbia 37.51 15 1,950.91 4 21.5% 20

Massachusetts 36.49 16 1,607.42 10 25.9% 10

Montana 36.28 17 1,067.09 23 23.3% 14

Nebraska 35.55 18 1,195.47 17 21.9% 19

Florida 34.50 19 1,147.51 18 22.4% 17

Iowa 34.45 20 1,113.55 20 22.0% 18

Kansas 34.29 21 1,124.53 19 22.9% 16

Ohio 32.16 22 1,043.88 26 20.0% 27

North Dakota 31.01 23 976.85 30 18.9% 30

South Carolina 30.99 24 880.36 35 18.2% 32

Pennsylvania 30.87 25 1,079.42 22 20.7% 23

Oregon 30.48 26 979.14 29 19.7% 28

Washington 29.81 27 1,054.90 25 19.6% 29

South Dakota 29.76 28 942.24 32 23.2% 15

Georgia 29.09 29 899.48 34 20.7% 22

Virginia 28.88 30 1,109.16 21 20.7% 24

Idaho 28.67 31 807.24 38 18.0% 33

Arizona 28.52 32 861.09 36 20.1% 25

Colorado 27.91 33 1,059.42 24 20.0% 26

Minnesota 27.37 34 1,024.21 27 17.5% 36

Nevada 26.78 35 962.06 31 17.7% 34

Mississippi 26.60 36 676.45 41 16.7% 37

Utah 25.87 37 719.76 40 15.2% 41

California 25.45 38 942.03 33 15.8% 40

Missouri 25.38 39 809.89 37 18.5% 31

North Carolina 24.31 40 743.69 39 16.2% 38

Maryland 23.92 41 1,000.85 28 17.6% 35

Louisiana 21.64 42 538.99 46 11.0% 46

Tennessee 21.00 43 653.89 42 15.8% 39

West Virginia 20.39 44 555.88 45 11.5% 44

Kentucky 18.88 45 538.48 47 12.7% 42

Hawaii 18.58 46 642.62 43 10.8% 47

Oklahoma 16.52 47 485.02 48 11.3% 45

New Mexico 16.19 48 448.12 49 8.9% 51

Arkansas 15.70 49 422.33 50 10.0% 48

Delaware 15.54 50 577.19 44 8.9% 49

Alabama 13.50 51 394.06 51 8.9% 50

United States 32.74 1,132.11 21.2%

Page 6


school construction may be for up to six years. Fourth, when voters of a district, by three-fifths majority, approve the issue of general obligation bonds to fund capital investments, levies to pay interest and principal are not subject to the limit. Fifth, a court of last resort can order levies over the limit to prevent impairment of contractual obligations.

With few exceptions, taxes levied within the one-percent levy limit are

termed regular levies, while those outside of the one-percent limit are excess or special levies.

The constitutional one-percent limit is implemented through a complex web of state statutes. Property must be assessed at 100 percent of true
value, and tax rates must be stated in terms of dollars per $1000 of value. The one-percent limit thus limits regular property taxes to $10 per $1000. Statutes cap the rate of regular property tax for each type of district. Of the $10 limit, $3.60 is reserved for the state and an additional $ 0.50 is available for three special purposes: open space preservation, emergency medi
cal services, and affordable housing. The remaining

$5.90 is available to local districts.

Counties, road districts and cities are termed senior
districts and get first call on the $5.90: Counties are
allocated $1.80; cities receive $3.60 (if, however,

library or fire protection services are provided by
separate districts rather than by the city itself, the city
will receive less than $3.60); county road districts,
which build and maintain roads outside of city limits,
get $2.25.

The remainder of the districts, or junior districts, also
have statutory limits on their tax rates. The maximum
tax rates for all of the districts within which a specific
property lies may well sum to more than $5.90. In the
event that the districts in aggregate levy more than
$5.90, the money is distributed according to a priority
list set by law.

Figure 6: Levies due in 2007







Although they are exempt from the one-percent constitutional limit, the
levies of ports and public utility districts are limited by statute, and levies
within these limits are classified as regular levies by the Department of

Figure 6 shows the breakdown of 2007 levies. The Department of Revenue classifies $5 billion, or 65 percent, as regular levies and $2.7 billion, or 35 percent, as special levies. The statewide average tax rate of $10.48 per
$1000 of assessed valuation divides into $6.81 for regular levies and $3.67
for special levies.

The statutes require that voters approve the regular emergency medical
service and parks levies; these represented about $180 million in 2007.


Uniformity of taxation has long been recognized as an important principle
of equity in property taxation. Uniformity embodies the fundamental no-
tion of fairness that taxpayers in essentially the same circumstances should
pay essentially the same taxes. It also provides protection against the ma-
jority attempting to pass the cost of government onto a minority. As Alex-
ander Hamilton warned, “Whenever a discretionary power is lodged in any

Page 7


set of men over the property of their neighbors, they will abuse it.”

When the 1853 Organic Act established the government of Washington
Territory, the U.S. Congress was particularly worried that the Territory’s
residents would try to shift the burden of taxation onto nonresidents. “Nor
shall the lands and other property of nonresidents be taxed higher than the
lands or other property of residents . . . And all taxes shall be equal and
uniform; and no distinctions shall be made in the assessments between
different kinds of property, but the assessments shall be according to the
value thereof.”

The original state constitution adopted in 1889 required strict uniformity in
taxation, and it remains an important constitutional principle today: “All
taxes shall be uniform on the same class of property within the territorial
limits of the authority levying the tax . . . All real estate shall constitute
one class . . .”


The constitution stipulates that the tax is to be levied against “the true and
fair value” of property. Assessment is the process by which this value is
specified. For most property in the state a county assessor makes the as-
sessments. The remaining property, public utilities that operate between
counties, privately owned railroad cars and commercial boats, is assessed
by the state.

The tax on a particular property is calculated by multiplying its assessed
value by a tax rate. The 1889 state constitution recognized that to be effec-
tive, uniformity must apply to both assessments and tax rates. “The Legis-
lature shall provide by law a uniform and equal rate of assessment and
taxation on all property in the state, according to its value in money, and
shall prescribe such regulations by general law as person and corporation
shall pay a tax in proportion to his, her, or its property.” Through every
subsequent amendment, uniform assessment has remained a constitutional

Uniform assessments are necessary for an equitable system of property
taxes. In 1944 the state constitution was amended to require that property
be assessed at 50 percent of its true value. Local assessors ignored this
constitutional requirement, however. Assessment at 25 percent seems to
have been common, and for many properties, the assessed value was an
even smaller percentage of true value. With the 40 mill rate cap, taxes
were effectively limited to one percent of true and fair value.

In the early 1950s, following the imposition of the real estate excise tax,
the state began to receive accurate data on the sale prices of real property.
These data revealed serious inequities among taxpayers in the ratios of
assessed value to market value. The 1955 Revaluation Act began with this
legislative declaration: “[G]ross inequality and non-uniformity in valua-
tion of real property for tax purposes [are found] throughout the state . . .
Such non-uniformity . . . is of such flagrant and widespread occurrence as
to constitute a grave emergency adversely affecting … the welfare of all
the people.” Frequent reassessments help assure that property owners are
treated uniformly. To improve fairness, the 1955 Act required that no
property should go more than four years without its value being reas-

The inequities in assessments, however, persisted. Many counties failed to

Page 8


comply with the 1955 act, and, in at least one case, the county assessor was not applying the same assessment ratio to all property. In 1969, to force uniformity, the state Department of Revenue ordered county assessors to adopt the constitutional 50 percent standard, beginning with the 1970 assessment year.

The 55th amendment, which also limited regular taxes to one percent of

true and fair value, removed the 50 percent standard from the state constitution. The next year (1973), the Legislature mandated that property be assessed at 100 percent beginning with the 1975 assessments. Reformers, under the banner of “truth in taxation,” had long advocated 100 percent valuation as the easiest way for taxpayers to understand the relationship between property value and property taxes.

Today, 19 of the 39 counties in the state revalue on a four-year cycle.

Eighteen counties including King County, which represents 40 percent of assessed value within the state, revalue annually. One county, San Juan,
revalues every two years, while another (Douglas County) revalues every
three years.

By May 31, each assessor is expected to list on the county tax roll his assessment of the January 1 value of all property other than new construc-
tion. The listing deadline for new construction is August 31. Taxpayers
must file any assessment appeals with the county board of equalization by July 1 or by the thirtieth day following the mailing of a notice of revalua
tion, whichever is later.

The county treasurer mails tax bills after February 15. The first half of the tax is due by April 30; the second half by October 31.

The taxes due in any particular year are based upon the preceding year’s assessment; this can be a source of confusion. To clarify, the taxes due in 2007 are the taxes levied on 2006 assessed values, while those levied on 2007 values are due in 2008. Throughout this Guide, taxes are identified with the year in which they are due.

Each year the state Department of Revenue estimates county by county the
average relationship between the assessed value and the true and fair value
of the property. These estimates are used to assure that differences in
county assessment practices do not lead to inequities in the distribution of

Figure 7: Assessed Value as a Percentage of True Value





Page 9


the burden of the state portion of the property tax. For the 2006 assess-
ment, the ratio of assessed to true values ran from a low of 0.603 in Pend
Oreille County to 0.945 in Island County. For King County the ratio was

0.868, while the average for the state was 0.871.

Figure 7 shows how the overall

Figure 8: Percentage Increase in Assessed Value



14 Revaluation New Construction CPI








Year Levy Due

Figure 9: Property Tax Base per $1,000 Personal Income








Year Levy Due

ratio for the state has varied over

the years since the assessment
ratio was raised from 50 percent
to 100 percent. Two troughs are
clearly evident. In the late 1970s
assessed values lagged behind as
inflation in the general level of
prices pushed up the true value
of property; as a result the ratio
fell. With the abatement of gen-
eral inflation in the 1980s, as-
sessments moved much closer to
true values, and the ratio rose,
reaching 97 percent for the as-
sessment year 1988. Subse-
quently a number of areas in the
state, most notably King County,
experienced real estate booms.
Assessed values lagged behind
true and fair values.

The assessed value for taxes due
in 2006, $702 billion, was more
than twice the $314 billion for
1996. Virtually all of this change
can be accounted for by construc-
tion of new property and revalua-
tion of existing property. Figure 8
shows by year the percentage in
statewide assessed value. During
the second half of the 1980s, new
construction represented the lar-
ger share of the increase in the
general level of consumer prices

as measured by the Consumer Price Index (CPI). In the 1990s revaluations exceeded both new construction and CPI inflation.

The 16 percent increase in assessed value due to revaluation for taxes due in 1991 (reassessments conducted in 1990) is primarily the effect of the King County real estate boom. The county’s 1990 reassessment increased the value of existing real property by more than 38 percent!

In Figure 9 the ratios of true to assessed values have been used to calculate the property tax base relative to state personal income from 1984 to 2006. The base rose sharply from 1990 to 1995, dipped in 1999-2001 and then rose again during the recent house-price boom.


In 1968 voters approved Amendment 53 to the state constitution creating
an exception to the general requirement that all real property be treated as

Page 10


a single class. Under this amendment it became possible for the Legislature to allow agricultural lands, timberlands, and other open spaces to be assessed according to their values in their current uses. In 1970 the Legislature established a program for current use assessment, and then in 1973 the program was extensively expanded.

The Legislature has found that certain uses of lands bring special public
benefits and that owners should not be forced to withdraw property from
these uses simply to pay the property taxes: “To assure the use and enjoy-
ment of natural resources and scenic beauty for the economic and social
well-being of the state and its citizens…assessment practices must be so
designed as to permit the continued availability of open lands for these

In 2006, 11.5 million acres of land, with an assessed value of $3.9 billion, were enrolled in the program.

When property is removed from current use assessment, the owner must pay a tax equal to the current use tax reduction enjoyed over the proceeding ten years, plus interest.


Spending decisions generally determine the property tax levy of local gov-
ernments. The 1971 Legislature, however, imposed an annual limit on the
increases in local governments’ revenues from property taxes. Under this
law, regular property tax revenues for any taxing district could only in-
crease by 6 percent from the pervious year plus the previous year’s tax rate
applied to the value of new construction. The 1979 Legislature extended
this limit, commonly called the 106 percent limit, to the state levy.

Referendum 47, which voters passed in 1997, tightened the 106 percent
limit. R-47 limited the rate of a district’s tax revenue growth to the lesser
of inflation or 6 percent revenues plus an increment for new construction,
with a few exceptions. Local taxing districts with less than ten thousand
people were allowed up to 6 percent increases irrespective of the rate of
inflation, while larger districts could increase tax collections up to 6 per-
cent if elected officials found a “substantial need” to exceed the inflation
limit. This would require a supermajority vote of the county or city coun-
cil. Increases in excess of 6 percent were allowed in the event that voters
approved a lid lift.

In 2000, voters passed Initiative 722, which replaced the 106 percent limit with the 102 percent limit. This limited revenue growth to the lesser of 2 percent or inflation with the same exceptions.

In November of 2000 the constitutionality of I-722 was challenged in

court. In response, I-722’s supporters filed Initiative 747, presumably as a safety net should I-722 be invalidated. I-747 further reduced the growth
limit factor to the lesser of inflation or 101 percent of the previous year’s

In September 2001, the Washington State Supreme Court ruled I-722 unconstitutional. In November 2001 voters passed I-747.

On November 8, six years after its passage, the Washington State Supreme
Court found I-747 unconstitutional, violating the constitutional provision
requiring an initiative to clearly set forth the statute(s) it would amend.
The text of I-747 stated it would reduce the growth limit factor from 102

Page 11


percent (as per I-722) to 101 percent. However, before the election, I-722 had been declared unconstitutional. Therefore, I-747 actually reduced the growth limit factor from 106 percent to 101 percent.

The governor then called a special session of the legislature to reinstate the
101 percent limit. The legislature met on November 29 and passed HB
2416, which limits the levy for a taxing district to the lesser of inflation or
101 percent of the previous year’s revenues plus an increment for new


The 101 percent revenue limit restricts the total property tax revenue that
any taxing district can raise. It does not restrict the taxes levied against a
particular property and it applies only to
regular, but not special levies.

The cap on a district’s total revenue in any year is equal to 101 percent of the highest amount levied in the preceding three years plus the previous year’s tax rate applied to the value of new construction and improvements. Property tax collections shall not exceed the cap; local governments are not required to levy to the maximum and they can ‘bank’ any unused taxing capacity to be collected at a later date.

With the cap, individual taxpayers may

Figure 10A: Total Revenue








1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25


Figure 10B: Taxes by Lot




$8 Lots A & B

$7 Lot C





1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25


be affected quite differently. The tax

rate may increase or decrease to gener-
ate the revenue allowed under the limit, subject to other limitations, and the ef-
fect on individual properties will vary depending on changes in assessed

valuation in the taxing jurisdiction as
the following illustration demonstrates.

Consider a simple district, which has a
maximum tax rate of $5 per $1000 of
assessed value and encompasses just
three vacant lots, each worth $1000.
The total annual tax revenue for the dis-
trict would be $15; each owner would
pay $5. Imagine that one year, call it
year 1, the market value of one of the
lots—lot A—doubles, while the values
of the other two lots—B and C—are
unchanged. The owner of lot B, how-
ever, constructs a house worth $1000 on
his lot. For year 2, the district’s assessor
will revalue both A and B from $1000
to $2000. But since in any year the taxes
paid on a property depend upon the pre-
vious year’s assessment, taxes paid in
year 2 will still be just $5 for each prop-
erty. In year 3 the increased assessments
would first affect taxes. Without the 101
percent limit, the annual taxes on both
A and B would jump directly to $10 and
the district’s total revenue would be
$25. With the 1 percent limit the in-

Page 12


crease is spread out over a number of years, as shown in Figure 10.

Year 3 taxes are limited to 101 percent of year 2 taxes, or $15.15, plus the tax of $5 per $1000 applied to the value of the new construction, an additional $5. Thus the 101

limit means that the dis-

trict can only collect

$20.15 in total revenue in
year 3. To achieve that
revenue with a tax base of
$5000 requires a tax rate
of $4.03 per $1000. Own-
ers A and B each pays

$8.06, while C pays $4.03.

The important thing to

recognize is that the 101
percent limit applies to the
total tax received by the
district, not the tax paid by
any one property owner. In
this example, the taxes
paid by A and B rose by

Figure 11: The State Property Tax Rate











Year Due

61.2 percent, while the tax paid by C fell by 19.4 percent.

The next year the taxes for each owner would be 1 percent higher, $8.14 for A and B, and $4.07 for C. Not until year 25 would taxes reach $5 per $1000 of assessed value. In the real world, though, property values are likely to change again before the full adjustment is reached.

Figure 11 shows the state property tax rate over the period of 1979-2007. From 1979 to 1982 and again from 1989-1992 property values increased by more than 6 percent a year. As a result the state tax rate fell. In both
cases, growth in property values slowed. Tax rates rose back towards the statutory rate of $3.60 per $1,000 in 1984. The tax rate has been steadily
decreasing since 1997.

The legislature has broadened the provision that allows voters to approve tax increases above the 101 percent limit. A single lid lift vote may now authorize super-limit annual increases for up to 6 years.


A number of exemptions to the property tax have been established either constitutionally or through statute. Every exemption, by reducing the tax base, increases the tax rate other property owners must pay if a district is to raise a fixed sum of money.

Although the Organic Act required that all property be taxed equally
within Washington Territory, it did explicitly exempt federal property
from the tax. The first Legislative Assembly chose to exempt churches,
cemeteries, and non-profit libraries. These exemptions continue today and
are estimated to reduce revenue from the property tax by $66.4 million

The initial state constitution exempted the property of the federal, state and
local governments. The constitution also gave the Legislature the power to
exempt other property. In 1988 the state constitution was amended to al-
low the taxation of federal property. Federal law, however, currently pro-

Page 13


hibits such taxation.

The Department of Revenue lists over one hundred separate exemptions
from the property tax; according to DOR, annual savings to property owners from these exemptions are projected to average $24.4 billion over the 2007-09 biennium. Figure 12 summarizes these exemptions in broad categories of exemption.

In the private property category, the largest is the exemption for retired
senior and disabled homeowners with low incomes. This exemption was
allowed by Amendment 47 to the state constitution, approved in 1966. The
Department of Revenue estimates the value of this exemption to be $100.5
million annually.The largest personal property exemption is that for
intangible financial assets such as cash, bank deposits, loans and
securities. This exemption became possible with the approval in 1930 of
Amendment 14 to the state constitution and was implemented in 1931.

There are several justifications to exempting

Figure 12: Annual Fiscal Impacts of Property Tax Exemptions

State Local

Public Property $401.4 million $1.7 billion

Non Profit Organizations $53.1 million $213.3 million

Private Property $21.2 million $100.0 million

Personal Property $4.0 billion $15.6 billion

Property Tax Deferral/

intangibles. In many cases these financial assets

are paper claims to physical assets that are already
subject to the property tax; thus the exemption
simply avoids double taxation. Furthermore,
financial assets are difficult for assessors to find if
the owners do not voluntarily reveal their
existence or if they move them out of the state.
For this reason, a tax on intangibles is likely to be

Valuation Freeze

Current Use Assessment

$18.9 million $63.8 million

$26.7 million $104.8 million

inequitably applied. The estimated annual value of

this exemption is $18.1 billion.

Household personal property has been exempt

from the property tax since 1871. The annual value of this exemption for 2007 is $352 million.

In 1984, as a competitive response to the elimination of inventory taxes in adjacent states, business inventories were exempted from the property tax. This exemption was phased in over ten years. The estimated annual value of the exemption is $831 million.


There are several mechanisms through which low and moderate-income homeowners can gain property tax relief: an exemption, an assessed value freeze, and a deferral of tax due. Property tax exemptions and assessed value freezes are restricted to low income seniors or persons who are retired as result of a disability.

Homeowners who are over the age of 60 or who are disabled and retired
are exempt from excess levies if their household income falls below
$35,000, and they are exempt from the regular levy on a portion of the as-
sessed value of their home if household income is less than $30,000. For
retirees with incomes below $25,000, the exemption is the greater of
$60,000 or 60 percent of assessed value. For households with incomes be-
tween $25,000 and $30,000, the exemption is the greater of $50,000 or 35
percent of assessed value to a maximum of $70,000.

Nearly 115,000 applicants were approved for the exemptions from taxes
due in 2007 under this program. The average relief per applicant totaled
$1,466, reducing state and local tax collections by $168 million.

Page 14


During the 2007 special session lawmakers passed a property tax relief bill
that allows all households earning less than the state median income
(currently approximately $57,000) to defer up to 50 percent of their prop-
erty taxes not to exceed 80 percent of the equity of the home. These de-
ferred taxes are due when the home is eventually sold, or when the prop-
erty ceases to be the permanent residence of the homeowner or a surviving
spouse. Interest must be paid on the deferred taxes. The interest rate is the
federal rate plus 2 percent (currently equal to 7 percent). The state will
reimburse local governments holding them harmless. The state will be re-
imbursed with interest when the property changes hands.


By law, the state must provide sufficient aid to local school districts to

fund basic education. As a result, public school spending accounts for over 40 percent of general fund-state spending.

Prior to 1975, though, property owners paid a local regular school levy. The state funded more than half of school operating budgets from general revenues, and the aid to local schools was “equalized” to offset differences in per student tax base between school districts.

In 1975 the regular local school levy was replaced by the regular state

levy, and aid to school districts from the state general fund was increased
to offset tax revenue loss. To ensure that taxpayers of different counties
are treated equitably, the Department of Revenue estimates by county the
ratio of assessed to true value; DOR then varies the rate to be applied by
the county. The state tax is levied at the rate of $3.60 per $1000 of true and
fair value—it’s the only component of the regular levy that is levied

against true value rather than assessed value. The state property tax is of-
ten called the state school levy. The revenues however, are paid directly
into the general fund, not into an account dedicated to school funding.

Local school districts are allowed to raise additional moneys for uses that
enrich their programs beyond the basic level. These excess levies for
maintenance and operations require voter approval, and the dollar amount
that any district can obtain is capped. These restrictions are intended to
limit a school district’s special levy to 24 percent of the district’s state and
federal revenues. Certain districts are allowed to raise a higher percentage,
however, through a grandfather clause. In 2007 voters narrowly approved
a constitutional amendment allowing these excess levies to pass with a
simple majority (50 percent) rather than the supermajority that had been
previously required.


In 1978 California voters approved Proposition 13, which wrote property
tax relief into that state’s constitution. The tax rate was capped at 1 per-
cent. Assessed values were rolled back to the 1975-76 levels and increases
were limited to 2 percent annually, but with the provision that property
would be reassessed at true value whenever it changed hands.

In 1990 Massachusetts voters passed Proposition 2 ½. This both limited that tax rate to 2 ½ percent and limited the annual increase in a jurisdictions levy to 2 ½ percent.

While Propositions 13 and 2 ½ were the most visible property relief meas-
ures since the Great Depression, they were, in reality, fairly late events in a

Page 15


wave of property tax reforms that swept the na-


A competitive economy and strong communities rely on
effective government: quality services, fair taxes, reason-
able regulations. Effective government, in turn, relies on

new ideas and solid analysis of the issues that governments face. That is where the Washington Research Council
comes in.

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niques to assess the impact of current and proposed poli-
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Through accurate, relevant and timely work, the Research Council maintains its longstanding position as an integral part of the policy development process.

The Research Council is supported by organizations and individuals who share its values and rely on its work. A
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tion in the 1970s. Washington participated

prominently in these reforms.

Every state adopted either a homeowner exemp-
tion or a circuit breaker. Circuit breakers are
state operated property tax relief programs that
provide property tax rebates or income tax re-
funds to low-income homeowners and renters.
Homeowner exemptions, on the other hand, ex-
empt a portion of a home’s assessed value from
the tax and are not means tested. Some states
target homestead exemptions specifically at the
elderly and disabled; other states make exemp-
tions available to all homeowners.
Washington’s system of senior and disabled
relief has been described as a mixture of a cir-
cuit breaker and homestead exemption.
A number of states also adopted tax rate caps
and limits on the growth in property tax collec-
tions before California and Massachusetts did.
Washington’s one-percent limit on tax rates and
106 percent limit on the growth of revenue are
prominent examples.

More recently the trend has moved away from
focusing on property taxes in isolation and to-
wards controlling overall taxing and spending.
In 1979 voters approved Initiative 62, which
limited the growth in state tax revenues to the
rate of growth in personal income. This did not,
however, prove to be an effective constraint. In
1993 voters approved a tougher measure, Initia-
tive 601, which uses a fiscal growth factor to
limit the growth in state spending. Originally,
the fiscal growth factor was the sum of inflation
and population growth, but was changed begin-
ning in 2007 to be the average increase in state
personal income for the previous ten years.
Initiative 601 does not constrain local spending,
and it is this spending that the property tax pri-
marily funds.

Page 16

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