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TAXES! Updates you NEED to know about!

The House Democrats proposed a budget that funds education but does so through a host of new taxation proposals aimed at property owners and businesses.  Here is a brief rundown of the taxes that would affect our industry.

1)  State Real Estate Excise Tax (REET) – estimate $419.7 million new revenue
The state REET would be changed from a uniform rate of 1.28% on the selling price, to a rate structure based on different price levels.  Those levels are:
Selling Price                        REET
<$250,000                           .75%  (est. 67% of sales)
$250,000-$1million             1.28% (est. 30% of sales)
$1million – $5million           2.00% (est. 2.5% of sales)
>$5million                            2.5%  (est. .3% of sales)

2)  7% Capital Gains Income Tax – Est. $715 million new revenue
Capital gains income tax would be based on federally-reported capital gains income from stocks, bonds, multi-family investment property, commercial property and other capital assets.  Retirement accounts, pensions, and single-family homes, and other capital assets would be exempt.

The state capital gains income tax would still apply to capital gains for which federal capital gains ta liability is deferred under a §1031 exchange.

3)  Business and Occupation (B&O) Tax Increase from 1.5% to 1.8% – Est. $1.197 billion new revenue
The B&O tax rate on services and a number of other B&O tax classifications would be increased from 1/5% to 1/8%.  The small business B&O tax credit threshold would be increased to $250,000 – meaning that businesses with gross receipts less than $250,000 would NOT be subject to B&O tax.

Businesses with taxable revenue between $250,000 and $500,000 would receive a B&O tax credit on the first $100,000 in otherwise taxable income.

Note that the changes in the B&O small business tax credit will not benefit most real estate brokers or firms, because taxable income is based not on the income of each individuals broker, but on the gross income of the real estate firm which is generally the “taxpayer.”

Based on 2015 WDOR B&O tax payments from real estate brokerage firms, a B&O increase from 1.5% to 1.8% would mean a tax increase of about $14 million/year.

Student Essay Contest for Private Property Rights Week

WCAR is celebrating Private Property Rights Week.  We are scheduling a series of evening events designed to educated Whatcom County citizens on various property rights issues, including water, zoning, permitting, etc. and a high school student essay contest.  There will be opportunities to help sponsor these events, so please contact the office if you are interested in getting involved.

Details and rules regarding the high school essay contest as well as the essay entry form can be found below:

High School Student Essay Contest

[UPDATED 3/30] HIRST Legislation update

March 30, 2017 | UPDATE:

As we approach the end of the Legislative Session in Olympia, the battle lines are being clearly defined every day.  Here are some updates that have significant impacts on our industry and merit closer attention by all of us.

HIRST Fix:  The House of Representatives hearing on Senate Bill 5239, the Hirst Fix bill, was held on Tuesday, March 28.  Our Association provided numerous stories from landowners in Whatcom County affected by that court decision to the legislators in the House Agricultural Committee and many more landowners attended in person.  I’ve heard from our lobbyists in Olympia that everyone “left it all on the field.”

Yet, the Democrat-controlled committee was unmoved.  As of today, the bill has missed a crucial deadline and, absent an attempt to move it forward as part of the budget, is stalled in that committee. The word on the street is that it will be part of the “negotiations” for the budget – we let them have revised real estate excise taxes and Business and Occupation taxes, they let us have some exempt wells.

There is another aspect to this court case that is beginning to be revealed: property valuations.

Skagit County recently re-evaluated the various properties in Skagit county impacted by the prior Swinomish Tribe case (Skagit River basin) and adjusted taxation values based on the lack of access to legal water sources.  This “adjustment” removed over $22,000,000 of value from the County tax roles and resulted in a tax shift to the remaining land parcels in the County – tax increases for those property owners whose property was not impacted.

There is a movement to immediately provide tax relief for property owners whose parcels are affected by the Hirst ruling.  Rep. John Koster (R-Snohomish County) has teamed up with other legislators to draft a bill requiring that counties immediately conduct revaluations of properties that now lack access to exempt wells following the Skagit County model.  Whatcom County is already facing revaluation requests so it is safe to say that we would experience a similar tax shift.  We’ll keep you informed as issues progress.

March 20, 2017 | UPDATE:

We have an immediate need!!

Senate Bill 5239, the bill to address the issues raised by the Washington Supreme Court decision in Hirst v. Whatcom County, is currently awaiting hearing in the Washington House Agriculture Committee.  To remain alive, the bill must have a hearing in that committee prior to March 28.   

We have been asked to gather stories of landowners in the 39th and 40th Legislative Districts who have been negatively impacted by the Hirst decision.  Generally, this would be people living South of Bellingham to Mt. Vernon and over to the crest of the Cascades (Bow, Edison, Burlington, Anacortes, Mt. Vernon, Sedro-Woolley, Concrete, Darrington, Rockport, Marblemount).  We need to have the stories written down with sufficient detail to demonstrate the hardship encountered by the families.  Additionally, we need permission to share these stories with our legislators.

Please provide my e-mail, perrye@wcar.net, to any landowner you believe is willing to participate.  Encourage them to e-mail their story and I will follow-up with the request for permission, clarification, etc.

We continue to work with our lobbyists in Olympia monitoring the status of many many bills, of which Senate Bill 5239 is only one – but probably one of the most important ones!  Once again, this is your membership dollars at work ensuring the benefits of property ownership for All our clients.


February 28, 2017 | UPDATE:

Correction – Beginning Time for County Council Presentation – I provided the incorrect start time for the County Council meeting Tuesday, March 7, 2017.  The special presentation begins at 6:00p.m. and the Question/Answer session between the invited experts and the County Council begins at approximately 6:20p.m.

Special Presentation by Eric Hirst himself!


Hirst Legislation:  There is some important information you need to know about the Hirst case and the legislation designed to remedy the turmoil caused by that decision.

First – There is going to be a REALTOR® Call to Action issued soon – so keep an eye out for that!  The Call to Action is designed to permit you to contact our legislators and urge them to proceed with the legislation that is awaiting a vote, primarily Senate Bill 5239.  We will send an alert immediately once the Call to Action is issued.

Second – There is another website designed to provide members of the public with information about the Hirst case.  The website, www.fixhirst.com, is created and maintained by the Building Industry Association of Washington.  This is another good reference for your clients, so be sure to visit.  My favorite part is the county-by-county review of the impacts this case has had on rural homeowners.

THIS IS A NEW ORDINANCE THAT MAKES CHANGES TO THE ZONING CODE, BUILDING CODE, ETC.!  The public hearing on these changes will immediately follow the special presentation.   You can find the proposal at:  http://www.whatcomcounty.us/DocumentCenter/View/25660

WCAR: Call To Action

wcar

Whatcom County Association of REALTORS®
Government Affairs Committee

Fannie Mae and Freddie Mac are once again being eyed by Congress as a “cash cow” to fund programs unrelated to housing. For this reason, the National Association of REALTORS® has issued a Call For Action urging Congress to stop raiding our mortgage guarantors.

On Thursday, October 22, 2015, the House of Representatives Transportation and Infrastructure Committee began consideration on the surface transportation re-authorization legislation. One proposal would use Fannie Mae and Freddie Mac’s credit risk guarantee fees (g-fees) to fund transportation programs.

What is a Guarantee Fee (G-Fee)?

GSE guarantee fees are charged by Freddie Mac and Fannie Mae to lenders for bundling, selling, and guaranteeing the payment of principal and interest on their Mortgage Backed Securities. These fees are passed on to mortgage seekers by the lender and add to the cost of obtaining a mortgage.

NAR strongly believes that taking g-fees would also prevent Fannie Mae and Freddie Mac from effectively managing their risk.

WCAR’s Reputation:

There is also an “Association” element to this Call for Action. At present, Whatcom County Association is DEAD LAST in the participation rate!

We are usually near the top of the participation rate, a factor I believe demonstrates our members’ commitment to REALTOR® issues.

Please Click HERE to take action.

Although I am absent, please note that your Association leadership continues to advocate on your behalf. Here are some recent accomplishments:

-Leadership met with members of the Whatcom County Council to begin the creation of a Housing Advocacy Committee, a committee that would report directly to county council on all issues pertaining to housing in Whatcom County;
-the GA committee met with a member of U.S. Representative Susan DelBene’s office to discuss housing issues at the federal level;
-Testified before the Bellingham City Council on issues concerning annexation of land into the Bellingham City limits and the true development potential of the land being annexed (extensive wetlands, unstable slopes, hazardous liquid pipelines all within the property) and the need for the City to take a comprehensive, realistic look at this property to ensure we meet our housing needs.

We have the best association in Washington state. I miss you all and look forward to returning to you as soon as possible!

Sincerely,

Perry
Government Affairs Director
Whatcom County Association of REALTORS®

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UPDATES: Rental Registration and Rental Inspections

Rental Registration!

RENTAL REGISTRATION BEGINS TODAY!!!  The registration period for existing rentals runs between July 1, 2015 and August 1, 2015!

Here is the registration form – Registration Form

If you have questions, please consult the City of Bellingham’s Rental Registration website at http://www.cob.org/rentals

A question that was asked and keeps coming up is, “Do I have to register if a Seller rents a home after closing?”  The answer is no so long as the period of rental is less than 30 days.  In “lease-to-own” situations, it looks as though those will need to be registered, however, I will verify that information with the City tomorrow.

Rental Inspections

A group is forming in Bellingham to initiate a grass-roots challenge to the Bellingham rental inspections.  Notably, they are working with tenants to challenge the City Government’s determination that warrant-less searches are necessary for all rental housing in Bellingham City Limits.

They have met with a local law firm who is providing the legal expertise in this matter.  I too will be meeting with the City tomorrow to discuss a significant flaw in the inspection process that implicates the right of privacy for tenant and, for landlords, the exercise of contract freedoms.  This is a dynamic process that remains fluid still.  Please continue to follow our efforts and, if you feel inclined, participate with the various organizations.  If you have questions about the landlord/tenant group, contact our office and we will put you in touch with the organizers!

 

Rental Inspections – Can they stand the scrutiny?

Whatcom County Association of REALTORS®
Government Affairs Committee

There is a debate about whether Rental Registration should include some level of inspection for rental properties. This entry into the Rental Registration series will look at why the Association opposes mandatory inspections for rental properties in Bellingham. If the number of inspections and cost were not enough, consider the licensing required for rental inspections and decide for yourself whether this is a good idea.

Number of Inspections: As I discussed before, most people estimate between 13,000 and 18,000 rental properties in the City of Bellingham. For purposes of our discussion here, however, lets just use the lower number: 13,000.

With 13,000 rental units, and 261 business days in a year, inspections would be conducted at the rate of 17 units per day to ensure that all 13,000 are inspected during a three year cycle. Remember, this is ORIGINAL inspections and would not include follow-ups, writing reports, meeting with tenants to answer questions, driving to the units, etc. To suggest, as many proponents have, that a single inspector could do this work verges on the silly!

Level of Inspection: Many proponents use a figure supposedly provided by an inspector in Pasco, WA who stated that she was able to inspect a unit in less than 20 minutes. That begs the question, just what are you inspecting if you’re inside a unit for about 20 minutes?

The Council wants inspections of structure, plumbing, electrical, ventilation, etc. That level of inspection, coupled with the need for the landlord to certify that the property “does not pose any hazard,” does not result from a 20-minute look-through.

The last property inspection I had took almost two hours, and then I had to wait a while longer for the report. 20 minutes? Not happening if you want me to certify that a property is absolutely safe!

Inspection Costs: Home inspections are so cheap, according to most proponents, that the landlord should just absorb the cost. When I asked some of our affiliate members home inspectorto provide an estimate for conducting an inspection at the level requested by the City, the estimates were in the $400 range.

I’m not a great business person, but I assure you that I am not going to absorb $400 in costs. Indeed, I’m going to anticipate not only the expense of the inspection, but I’m also going to look at what might be necessary to fix and include those estimated costs in the rent increase as well.

The City has suggested that they would provide an inspector – at $100/hour. Why that cost? The budgeting for a City employee is around $150,000/year (presuming licensure in a profession – electrical, plumbing, etc.) inclusive of salary and benefits; costs of office, supplies, vehicles only add to the equation. If that person’s sole responsibility is to inspect units, then the City is looking to recoup that cost over the 2,080 hours a year the person works. If you do the math, $100/hour just about covers it.

The only question remaining is how long would it take a City inspector to drive to your unit, conduct the inspection, write the report, and do any follow-up inspections that are necessary?

Then there is the question of compliance. The advocates for inspections want home brought up to “current code.” Do any of you have an estimate of what it would cost to re-wire a circa-1940’s house in the Columbia neighborhood to current code standards? It’s not cheap! Add to that a plumbing issue requiring the plumbing be brought to current code, let’s add new windows for energy efficiency, and pretty soon we’re talking some real money!

Inspection Effectiveness: Many proponents point to the recent home fires as an example of tragedies that would have been prevented had inspections taken place. This is simply untrue.

Most recent fires in Bellingham homes occurred due to faulty/ancient wiring including an arc in a junction box in an attic, failed wiring in a kitchen wall, and an overloaded bathroom circuit (space heaters (yes, plural) plugged into the same outlet). (The other fires resulted from combustible material against a heat source and an unattended candle on a bed.)

None of these conditions would have been discovered in a 20-minute “look through.” Indeed, none of these conditions would have been discovered, most likely, in a full home inspection. Most people do not realize, and I’m certain that most elected officials are unaware, that home inspectors are not required to look behind light switch plates, let alone open a wall, to verify the correct installation of electrical wiring. Similar restrictions for plumbing and ventilation call into question whether the City’s call for cursory inspections would reveal any significant issues. All that money to “maybe” find a problem? It’s just not worth it.

Finally, I want to remind people that renters, like homeowner, are able to have a property inspected at any time. There is no law that prohibits a tenant from inviting a home inspector from being hired by a tenant to conduct a thorough review of the premises and alert the tenant to potential issues. It just costs money.

But in the final analysis, the tenant will end up paying for inspections regardless of who requires them (the City), who conducts them (City or private inspector) or who order the inspection (landlord or tenant). In the rental market we have in Bellingham, costs are easily passed through to tenants and inspections costs are no different.

Many people will attend the Rental Registration hearing next Monday, October 27, 2014, at 7:00p.m. Many of them will be advocating for inspection requirements. I would encourage all of you to attend and, at a minimum, be the voice of reason as to why inspection requirements will not work.

As always, if you have any questions, please do not hesitate to contact me.

Perry
Government Affairs Director
Whatcom County Association of REALTORS®

3317 Northwest Ave
Bellingham, Washington 98225
360-671-5477