We’ve reached the first cutoff of the 2019 Washington State Legislative Session. To date, more than 2,500 pieces of proposed legislation have been introduced and over half of those bills are still working their way through. Below are some updates on key topics and critical issues facing the commercial real estate industry. Dual Agency: We are pleased to report that as of Friday, February 22, 2019 both bills (SB 5189 and HB 1316) banning the practice of dual agency by commercial real estate firms and brokers have been defeated as neither made it out of their respective committees. In short, these bills will NOT be considered further in 2019. Again, we would like to thank all those who participated in the successful defeat of these bills. We had strong representation from the following organizations and firms in our efforts: Washington REALTORS, WSCAR, NAR, CBA, CBRE, JLL, WestComm, Foster Pepper, and Stoel Rives. Projecting forward to 2020 these issues may re-surface and we will be developing plans in the interim. We will continue to monitor the issue at both local and national levels to insure we are prepared when and if these bills are brought back to life. Tax Proposals: As you know, the legislature is considering a significant number of tax proposals adversely affecting the commercial real estate industry, including brokerages, property management, investors, and developers. More clarity on the status of these proposals will be coming in late-March after budgets start to get submitted for negotiation. As of now, here are updates on each of the categories of proposals: B&O Tax Increase: A number of proposals are calling for a 66% increase to the B&O tax rate for service businesses from 1.5% to 2.5%. As you know, this is an “off the top” tax on gross revenues that would significantly impact our practitioners and brokerage businesses. These B&O increases are still in discussion which means they are contenders for inclusion in budget proposals. Washington REALTORS® continues to push against these increases on many fronts. More to come later in March. New State Capital Gains Tax: There are multiple versions of state capital gains tax proposals still alive. Current proposals have rates ranging from 9% to 14% at the STATE level (not including federal), in addition to the commercial real estate asset class. The fact these are still alive for discussion are of major concern. However, if the capital gains tax is passed, the likelihood of them going into effect in the near term is remote as there will likely be a court challenge. As you likely know, capital gains are considered income, and income taxes are prohibited in the Washington State constitution. That said, there may be enough political interest to pass these measures and challenge them in the courts over the next 3-4 years, as proponents of the measures feel they would be making Washington’s tax policies “less regressive.” Real Estate Excise Tax Reform: Currently, there are 14 separate bills still alive in the legislature attempting to reform or make the REET taxes more “progressive.” Unfortunately, this means a couple of things. First, there is a strong interest from the legislature to change and increase REET. And second, the majority parties in both the house and senate are showing strong support for a tiered REET increase. Note: Washington ALREADY has the second highest real estate transfer tax in the nation. Among the 14 proposed REET bills the option gaining the most traction would leave rates unchanged or reduced for properties under $1.5 million. Note, this is a good story to tell constituents (i.e. vast majority of homeowners). However, for any properties over $1.5M, commercial or residential, they would see an increase in the state portion of the REET to 2.0% (a 56% increase). For properties over $7.0M, the state portion of the REET would increase to 3.0% (a 95% increase). When looking at the landscape of real estate ownership over $1.5M, these reforms are targeted squarely at wealthy individuals’ homes, large corporations, and commercial properties. Condominium Liability Reform: Good news here. Senate Bill 5334 has passed with unanimous support in the Senate on Monday, February 25. Now, the House will take up the vote to change and modify the condominium liability laws for developers. It appears that there’s good motivation among the legislature to update and reform existing laws that have been impeding the development of condos in Washington over the last 10+ years.
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