Allies split over home-sales tax plan

OLYMPIA — The Washington Association of Realtors has launched a $1 million campaign aimed at squashing a proposed tax increase on real-estate sales.

"We are committed to doing whatever it takes to prevent any increase," said Steve Francks, the association's executive vice president. "I've never seen our members this mobilized."

The group has started running TV, radio and newspaper ads warning that the tax increase would cost homeowners thousands of dollars in "hard-earned equity" when they go to sell.

But in their fight, the Realtors face an unlikely foe: the typically anti-tax Building Industry Association of Washington (BIAW).

The homebuilders group, which — like the Realtors association — wields a lot of clout in Olympia, supports the increase because it would be used to replace so-called "impact fees" that local governments assess on new construction.

Until recently, the battle over real-estate taxes had been mostly behind the scenes. In a meeting earlier this month, Democratic Gov. Christine Gregoire told the Realtors group that the first she had heard of the proposal was in the TV ad.

But the tussle actually began earlier this year, when House Democrats — led by Rep. Judy Clibborn of Mercer Island — introduced legislation that would allow local governments to sharply increase their portion of the real-estate excise tax.

Though Realtors were able to keep the bill from reaching the House floor, they fear it could gain momentum when the Legislature reconvenes in January for a 60-day session. Aside from the powerful homebuilders, Clibborn's plan has a lot of support from cities, counties and school districts.

But with such stiff opposition from the Realtors — and heading into an election year — Clibborn isn't sounding very optimistic.

"I'm not sure there'll be enough time to get it through," she said.

Under current law, the state collects a 1.28 percent tax on all real-estate sales. Cities and counties also are allowed to collect real-estate excise taxes. In nearly half of the cities, the combined state and local tax is 1.78 percent, one of the highest rates in the nation.

At that rate, the tax on a home that sells for $250,000 would be $4,450.

State and local governments collected about $616 million in real-estate taxes last year — nearly 5 percent of all state taxes.

Clibborn's bill would allow cities and counties to tack on an additional 0.4 percent real-estate tax, and school districts could levy an additional 0.25 percent.

But there's a catch: Local governments that impose the new taxes would have to forgo some of the impact fees they collect under the state's Growth Management Act.

Cities and counties, especially in fast-growing areas, often charge developers impact fees on new construction to help cover the costs of new streets and public facilities, such as schools and parks.

There are no firm figures of how much the increased real-estate tax would yield overall, but the Association of Washington Cities projects that cities alone could net an additional $110 million a year by collecting the new tax in lieu of impact fees.

No love for impact fees

Homebuilders have long viewed impact fees as onerous and unfair.

Tom McCabe, the BIAW's executive vice president, said impact fees require new homeowners to pay for roads, parks and schools that everyone uses.

It makes more sense, he said, to spread that burden more widely by taxing all real-estate sales.

Bill Vogler, executive director of the Washington State Association of Counties, agrees.

"We think this is a good and a fair way to deal with the impacts of growth in our state," Vogler said.

Realtors, too, are not fond of impact fees, said Francks, but don't think real-estate taxes are a good replacement.

"This battle is not about impact fees," Francks said. "For Realtors, this campaign is about protecting unsuspecting homeowners from an unfair tax that robs them of their home equity."

Francks also warned that higher taxes could dampen the booming real-estate market, which has been the driving force in the state's economic rebound.

Gearing up

The Realtors association has been gearing up to fight the proposal in a big way. Its board recently voted to create a $2 million fund by assessing its 23,000 members $100 each. The National Association of Realtors has kicked in $750,000, Francks said.

He said the group plans to spend $1 million on "several waves" of ads before the Legislature convenes.

"This is the kind of thing that shouldn't be happening under the radar," he said.

Realtors and homebuilders typically side with each other on legislative issues and support the same candidates. McCabe said he understands the Realtors' opposition to the new tax but thinks their arguments are misguided.

"I don't think one Realtor would be hurt by this," McCabe said. "I don't think there would be one less house sold in Washington state."

Ralph Thomas: 360-943-9882 or rthomas@seattletimes.com