Current through Register Vol. 24-06, March 15, 2024
(1)
RCW
84.36.049 explains that real property owned
by a nonprofit entity for the purpose of developing or redeveloping on the real
property one or more residences to be sold to low-income households is exempt
from state and local property taxes, subject to certain limitations.
(2)
Definitions.
(a) "Financial statements" means an audited
annual financial statement and a completed United States treasury internal
revenue service return form 990 for organizations exempt from income
tax.
(b) "Low-income household"
means a single person, family, or unrelated persons living together whose
adjusted income is less than eighty percent of the median family income,
adjusted for family size as most recently determined by the federal Department
of Housing and Urban Development for the county in which the property is
located.
(c) "Nonprofit entity"
means a nonprofit as defined in
RCW
84.36.800 that is exempt from federal income
taxation under 26 U.S.C. Sec. 501 (c)(3) of the federal Internal Revenue Code
of 1986, as amended.
(d) "Property
tax year" means the year in which property taxes are due.
(e) "Real property" has the same meaning as
contained in
RCW
84.04.090.
(f) "Residence" means a single-family
dwelling unit whether such unit is separate or part of a multiunit dwelling,
including the land on which such dwelling stands. If the residence is part of a
multiunit dwelling, such as a condominium complex, the purchaser must also
receive a fractional interest in the land for the nonprofit entity to qualify
for the exemption.
(3)
Examples. This rule includes examples that identify a number of
facts and then state a conclusion. These examples should only be used as a
general guide. The tax results of other situations must be determined after a
review of all the facts and circumstances.
(4)
Exemption application. The
exemption is effective June 9, 2016. Nonprofit entities may qualify for this
exemption for up to a maximum of ten consecutive property tax years. The
initial exemption is for a period of up to seven consecutive property tax years
and the exemption extension, as described in subsection (5) of this rule, is
for an additional period of up to three consecutive property tax years.
(a) Initial application. Initial applications
will not be accepted after December 31, 2026. To apply for this exemption, the
nonprofit entity must submit a completed application to the department:
(i) On or before July 1, 2016, for the 2017
property tax year;
(ii) On or
before March 31st of each year, thereafter, for taxes to be collected in the
following property tax year; or
(iii) Within sixty days of either acquiring
the property or converting the property to an exempt use, whichever is
later.
(b) Retroactive
applications. Retroactive applications for this exemption for previous years
are accepted, up to a maximum of three years from the date taxes were due on
the property. The applicant must provide the department with acceptable proof
that the property qualified for exemption during the pertinent assessment years
and pay the late filing penalties. Retroactive applications will not be
approved for taxes due prior to the 2017 property tax year and will not be
accepted after December 31, 2026.
(c) Renewal application. Once a nonprofit
entity is approved by the department for this exemption, no annual renewal
application is required.
(d) Late
filing. Late filing fees apply to retroactive applications, as described in (b)
of this subsection, and to late applications filed under (a) of this
subsection. Late filing fees of ten dollars per month or portion of a month
will accrue beginning the date following the application deadline and continues
through the application's actual postmark or email date.
(e) Reporting requirements. To measure the
effectiveness of this exemption:
(i) All
nonprofit entities receiving this exemption must provide, upon request by the
joint legislative and audit review committee, annual financial statements for
each year the exemption was claimed. The nonprofit entity must clearly identify
the line or lines on the financial statements that represent the percentage of
revenues dedicated to the development of affordable housing; and
(ii) The department must provide, upon
request, approved initial applications for this exemption and owner occupancy
notices reported by the nonprofit entity receiving this exemption, to the joint
legislative audit and review committee.
(5)
Extensions.
(a) If the nonprofit entity believes that
title to the real property will not be transferred by the end of the sixth
consecutive property tax year, it may file a notice of extension with the
department. The extension:
(i) Is for a period
of up to three property tax years;
(ii) Must be filed with the department on or
before March 31st of the sixth consecutive property tax year. If the sixth
consecutive property tax year occurs on or after January 1, 2027, the nonprofit
entity must file an extension application no later than December 31, 2026;
and
(iii) Requires a filing fee
equal to the greater of two hundred dollars or one-tenth of one percent of the
real market value of the property as of the most recent assessment
date.
(b)
Example
1. ABC Homes, a nonprofit entity, purchases vacant land on December 1,
2017, and begins building a single family residence that will subsequently be
sold to a low-income household. ABC Homes must submit an initial application to
the department within sixty days of acquiring the property to qualify for the
exemption beginning in the 2018 property tax year. If approved, the exemption
will continue until the residence is sold or transferred to a low-income
household or through the 2024 property tax year, whichever is earlier. If ABC
Homes believes the residence will not be sold or transferred to a low-income
household by December 31, 2023 (the sixth consecutive property tax year), it
may apply for a three-year extension no later than March 31, 2023. If the
extension is approved, the exemption will be effective for taxes payable
through the 2027 property tax year.
(c)
Example 2. DEF Development,
a nonprofit entity, purchases a residence on August 1, 2021. The residence will
be remodeled and then sold to a low-income household. DEF Development must
submit an initial application to the department within sixty days of acquiring
the property to qualify for the exemption beginning in the 2022 property tax
year. If approved, the exemption will continue until the residence is sold or
transferred to a low-income household or through the 2028 property tax year,
whichever is earlier. If DEF Development believes the residence will not be
sold or transferred to a low-income household by December 31, 2027 (the sixth
consecutive property tax year), it may apply for a three-year extension no
later than December 31, 2026 (the last day to apply for a three-year
extension). If the extension is approved, the exemption will be effective for
taxes payable through the 2031 property tax year.
(6)
Expiration. This exemption
expires on or at the earlier of:
(a) The date
on which the nonprofit entity transfers title of the real property;
(b) The end of the seventh consecutive
property tax year without an extension;
(c) The end of the tenth consecutive property
tax year with an extension; or
(d)
The date the real property and residence is no longer held for the purpose for
which the exemption was granted. The lease or rental of the property is not
considered a qualifying exempt purpose.
(7)
Disqualification and additional
tax.
(a) If the nonprofit entity has
not transferred title of the real property to a low-income household within the
applicable periods described in subsection (6)(b) or (c) of this rule, or if
the real property is no longer held for the purpose for which the exemption was
granted as described in subsection (6)(d) of this rule, then the real property
is disqualified from the exemption. When real property is disqualified,
additional tax and interest are due.
(b) Additional tax and interest. When real
property is disqualified from this exemption, the county treasurer must:
(i) Collect additional tax. The additional
tax is equal to all taxes that would have been paid on the real property had
the exemption not been granted, along with interest at the same rate and
calculated in the same manner as interest on delinquent property taxes. The
additional tax and interest are due in full thirty days from the issue date on
the treasurer's statement; and
(ii)
Distribute the additional taxes in the same manner that current property taxes
on the real property are distributed. The additional tax and interest are a
lien on the real property. If the nonprofit entity sells or transfers the
property, any unpaid additional tax and interest must be paid by the nonprofit
entity selling the property prior to conveyance of the property. The nonprofit
entity or the new owner may appeal the assessed value on which the additional
tax was calculated to the county board of equalization (see
RCW
84.40.038 ).
(c)
Example 3. Homes Unlimited,
a nonprofit entity, owns a residence that it will improve and then sell to a
low-income household. Homes Unlimited applies to the department and is approved
for the exemption. Upon completion of the improvements, Homes Unlimited leases
the residence to a low-income household until it can find a low-income
household to purchase the residence. Because the lease of the property is not a
qualifying exempt purpose, the residence is disqualified from the exemption and
is subject to additional tax and interest.
(d)
Example 4. Dream Home, Inc.,
a nonprofit entity, is building a duplex on land it owns and intends on selling
each unit, along with the land, to low-income households. Dream Home, Inc.,
applies to the department and is approved for the exemption. Upon completion of
the duplex, Dream Home, Inc., sells one of the two units to a low-income
household. The second unit goes unsold so Dream Home, Inc., applies to the
department for a three-year extension and is approved.
Upon expiration of the three-year extension, the second unit
has still not been sold to a low-income household. The second unit of the
duplex is disqualified from the exemption and is subject to additional tax and
interest.
(8)
Sale or transfer of real property to a low-income household. A
nonprofit entity must immediately notify the department when the exempt real
property is sold or transferred to a low-income household. This notice must
include:
(a) Certification by the nonprofit
entity that the occupants are a low-income household. Low-income verification
forms can be found on the department's web site at dor.wa.gov; and
(b) The date when the title to the real
property was transferred.
(9)Cessation of exemption. Upon
expiration or disqualification of the exemption, the value of new construction
and improvements to the property, if not previously considered as new
construction, must be considered as new construction for the purposes of
calculating levies under chapter 84.55 RCW. If the value of new construction
and improvements to property were previously considered as new construction
when calculating levies under chapter 84.55 RCW, then it may not be considered
as new construction upon expiration or disqualification of the
exemption.