Washington State Excise Tax Explained: What Every Property Owner Should Know

Real estate excise taxes can be a pain for homeowners in Washington. They may struggle to keep up with the complex regulations and constant updates on the filing process. If you plan on selling your property, you must know how excise taxes work.

In Washington State, the excise tax is a state-mandated fee that you must pay when selling goods and services and even when engaging in activities like gambling. The tax collected funds local government projects and generates income for essential public services.

Understanding excise taxes is crucial in real estate transactions to avoid legal consequences. In this guide, you’ll learn all about Washington state excise tax, including how to calculate it and how it affects property sellers. Let’s start!

Types of Excise Taxes in Washington State

As mentioned, excise taxes are a main source of revenue for supporting Washington state public agencies and government activities. There are different types of excise taxes that can be applied to certain products and activities.

Here are the various excise taxes applicable in Washington:

1. Sales Tax

Sales tax in Washington is applied to all tangible personal property, except groceries or prescription drugs. A 6.5% sales tax on all retail sales is imposed according to RCW 82.08.020 but cities, towns, counties, and smaller local units can set additional taxes.

2. Use Tax

Use tax is another common excise tax that complements sales tax. This fee is applied when an item purchased outside of Washington is used within the state.

Both individuals and business operators are required to pay use taxes to ensure fair competition between local and outside businesses.

3. Used Business and Occupation Tax (B&O)

B&O tax mainly applies to businesses and is based on their gross income. The tax rate differs depending on the classification your business falls into. There’s a B&O tax for retailing, wholesaling, manufacturing products, and providing services.

4. Excise Tax on Fuel, Tobacco, Liquor, and Marijuana

Washington state also collects tax on certain goods, including fuel or gasoline, tobacco products (cigarettes, cigars, and smokeless tobacco), alcoholic beverages, and recreational marijuana.

Most of the revenue from these excise taxes is used for public health and prevention programs.

5. Real Estate Excise Tax (REET)

An excise tax is also levied on the sale of real estate properties in Washington. This is typically paid by the seller of the property, but in some cases, the buyer may be required to pay a portion of the tax.

In this article, we’ll be focusing on REET and how it applies to different types of real estate transactions.

Understanding the Real Estate Excise Tax (REET)

According to Washington state’s Department of Revenue, the real estate excise tax or REET is a type of excise paid upon selling a house or any real estate. The real estate tax rate in Washington is between 1.1% and 3.0% of the property’s sales price.

The REET is an important state tax used to finance various local government services such as healthcare, education, public infrastructure, and social welfare.

In fact, from January 1, 2020, through June 30, 2023, 1.3% of the state tax collected by Washington state counties is retained to cover administrative expenses. Meanwhile, the rest are divided among the following areas:

1.7% is allocated to the public works assistance account
1.4% is given to the city-county assistance account
79.4% goes directly to the general fund
The remaining amount is transferred to the educational legacy trust account

Note: REET also applies in the case of a controlling interest transfer where a 50% or more change of ownership in an entity occurs.

Who Is Responsible for Paying Washington State Excise Tax?

The owner or seller of the real estate is typically responsible for paying REET after the sale. However, in cases where the owner fails to pay the tax in full, the buyer needs to shoulder the remaining owed amount.

This excise tax is collected by the county in which the property is located. If the seller or buyer fails to file the tax on time, it could result in a lien on the property. In addition to REET, they are also required to fulfill local taxes, such as county and city transfer taxes.

Fortunately, not all real estate purchases require REET payment. Certain exemptions and deductions apply for title transfers between family members or those providing affordable housing.

Calculating Washington State Real Estate Excise Tax

Are you planning to sell your property but worried about excise taxes? Fret not! Calculating REET is easy once you know your property’s selling price. If you haven’t finalized it yet, consider a professional home appraisal.

An appraiser can determine your home’s value based on the result of an in-person inspection. The size, location, and amenities of your house, current real estate market prices, and comparables in your area all contribute to the final appraised value.

For a fee of $300 to $450, you can get a full appraisal report. However, sellers might be put at a disadvantage if the result shows a low appraisal. That’s why some opt to hire a real estate agent instead to get a favorable but also reasonable selling price.

Once you determine your listing price, you can calculate the REET value using the applicable tax rate. The higher the sales price, the higher the tax rate.

As of January 1, 2023, the selling price thresholds and graduated REET rates in Washington are summarized below:

Selling Price	Tax Rate
Less than or equal to $525,000	1.1%
Greater than $525,000 and less than or equal to $1,525,000	1.28%
Greater than $1,525,00 and less than or equal to $3,025,000	2.75%
Greater than $3,025,000	3.0%

Note: Agricultural land and timberland are excluded from the graduated state REET rates and will be taxed with a flat state REET rate of 1.28%.

REET is calculated based on the conveyed selling price from the seller to the buyer, which may include more than one land parcel. Moreover, if a real estate property has multiple uses, it should be classified according to its predominant use.

In this rule, a real estate with a single land parcel is considered agricultural land or timberland if it’s classified by the county assessor and approved to be continuously used as so at the time it is sold. In this case, the 1.28% flat rate applies.

Meanwhile, for the sale of properties with multiple land parcels, the calculation can get a bit more tricky.

A property is predominantly used as classified land (agricultural land or timberland) if it accounts for at least 50% of the total area and value. Otherwise, predominant use is determined by the following steps:

1. Divide the square footage of classified land by the square footage of the total land area as depicted in the sale.

2. Divide the county-assessed current value of classified land by the county-assessed current use value of the total land included in the sale.

3. Add the results in step 1 and in step 2, then divide by two.

If the result is equal to or greater than 0.5, the property is predominantly agricultural land or timberland and is subject to REET at the flat 1.28% rate.
If the result is less than 0.5, the property is predominantly non-classified land and is subject to the graduated REET rates.

For sales occurring beyond January 1, 2023, you can use this state REET calculator provided by the Department of Revenue. However, note that the local REET value is calculated separately and added to the state REET value.

Exemptions and Special Circumstances in Estate Excise Tax

All sold property in Washington are subject to REET unless a specific exemption applies. The most commonly used exemptions are listed below:

Gift
Inheritance or devise
Community property, dissolution of marriage or domestic partnership, legal separation, decree of invalidity
Tenants in common and joint tenants
Governmental transfers
Condemnation Proceedings
Bankruptcy
Transfers pursuant to deed of trust, foreclosure proceedings, executions of a judgment, deeds in lieu of foreclosure, and contract forfeiture
Rescission of sale
Irrevocable trusts
Mere change in identity or form-Family corporations and partnerships
Transfers where gain is not recognized under the Internal Revenue Code
IRS “tax deferred” exchange
Nominee
Clearing or exiting title, and additions to title
Re-record
Low Income Housing
Developmentally Disabled Persons-Housing Transfers and Improvements
Self-help Housing
Affordable Housing

Any exemption claim can only be approved after a full review of the claimant’s circumstances. In some cases, an audit is required, which could take up to four years from the date of the sale or submission of the affidavit.

The country treasurer may also request additional documents during the audit. Failure to comply may result in the invalidation of the claim. Consequently, an assessment will be made for the unpaid excise tax and any applicable interest or penalties.

Washington State Excise Tax Filing and Deadlines

If you don’t qualify for an exemption claim, how do you file for REET? When is this tax due?

REET is paid to the county treasurer on the date of the property sale along with the affidavit and conveyance document (title or deed). In case of a controlling interest transfer, the payment should be mailed directly to the Department of Revenue’s address.

Please note that the date of sale is the date when the deed is delivered and received by the grantee or buyer. Technically, this would be the date when the deed is notarized.

To avoid any penalties, make sure to double-check the data provided in the affidavit, deed, and other required forms. Follow the mailing instructions carefully to ensure that the office receives the files in time.

Consequences of Non-Compliance with Washington State Excise Tax

Excise taxpayers should be aware of the consequences of non-compliance with REET policies. Naturally, there are penalties for late payment so make sure to pay within a month of the date of sale.

If REET is not paid on time, a delinquent penalty is applied. Here’s what to expect:

A penalty of 5% of the amount of the tax due for one month of late payment from the date of sale
An additional penalty of 5% of the tax due (10% total penalty) for two months of late payment from the date of sale
An additional penalty of 10% of the tax due (20% total penalty) for three months of late payment from the date of sale

Aside from penalties and interests for late tax payments, you should also take note of the following extra charges:

For every transfer, a $5.00 state technology fee is applied to the total amount due.
If an exemption is claimed for the total tax due, an additional $5.00 affidavit processing fee should be paid.
A minimum of $10.00 is due in fees(s) and/or tax.

To control interest transfers, REET payments must be postmarked within five days from the transfer date. If not sent within a month, you also need to pay incurring penalties.

The Role of Real Estate Professionals in Excise Tax Management

Let’s face it. Filing a REET in Washington can be overwhelming. This is why many sellers seek guidance from real estate professionals to manage REET after sale.

Real estate agents, lawyers, real estate investors in Seattle, and tax experts ensure the excise tax is correctly applied, helping sellers and buyers navigate this often complicated process.

These professionals assist in preparing and filing the necessary tax forms, ensuring everything is submitted accurately and on time to avoid penalties.

In more complex transactions, such as estate sales or inheritance transfers, seeking professional advice becomes even more important.

Lawyers and tax professionals can identify exemptions or special circumstances that may reduce the tax burden, ensuring compliance with Washington State regulations.

Having expert guidance not only streamlines the process but also provides peace of mind, helping avoid costly mistakes.

Key Takeaways: Navigating Washington State Excise Tax with Confidence

Understanding Washington State’s excise tax is crucial for avoiding expensive consequences. This tax plays a vital role in funding state services and infrastructure, making accurate calculations and timely filings essential.

Staying informed about changing tax laws and regulations ensures that both buyers and sellers navigate the process efficiently and avoid unexpected penalties. Being proactive in tax management is key to a successful sale.

Lastly, seeking professional advice can simplify the process, especially in complex cases. For sellers, opting for cash buyers like Kind House Buyers can offer a smoother transaction, potentially speeding up the payment of REET.

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Author: Keith Sant

Keith Sant is a real estate investor and entrepreneur who enjoys helping others by sharing useful real estate information. Keith’s goal is to educate home sellers so they can make the best decisions for their real estate problems. When Keith is not working, he enjoys cycling and traveling with his wife, Krixelle.

He has been featured on numerous new and real estate platforms, including Zillow, HomeLight, Better Homes & Gardens, Realtor.com, MSN, and Yahoo Finance.

Washington State Excise Tax