January 22nd, 2004

Homestead Exemption to be introduced in Washington State Legislature

Taxpayers for Washington Future has launched it's Homestead Exemption Now! campaign to pass a Washington State Property Tax Homestead Exemption

Contact: Steve Zemke

206-999-6095

stevezemke (at) msn (dot) com

Frequently Asked Questions

Seattle, WA—What is the Property Tax Homestead Exemption?

The Property Tax Homestead Exemption is legislation that would shield from all state and local property tax a portion of a household's primary residence, equal to 20% of the local county's median property value.

For the purposes of public discussion, the Property Tax Homestead Exemption was originally proposed using $30,000 as the exempt value, an amount typical for similar exemptions in other states. However, to assure that the benefits of the exemption would be uniform across a state with median valuations that vary widely by county, and that the impact would not diminish as values rise over time, a static dollar exemption has been replaced with the formula described above.

The suggested 20% figure equals $32,400 on the state median property value of $162,000; the actual percentage could change as the final language of the statute evolves. It may be necessary to use a uniform value for the state levy.

Has a bill been introduced and a number assigned?

House staff is currently drafting the final language, and we will post it here as soon as it is ready.

Is the Property Tax Homestead Exemption revenue neutral?

Yes. Exemptions are not tax cuts, but rather result in a shifting of tax burden. The Homestead Exemption shifts burden from less expensive homes to more expensive homes, as well as to non-residential property.

The only exception to this rule would be for regular levies in districts that are at or near the statutory aggregate limits. The Department Revenue estimates that a $30,000 exemption would result in a loss of $37 million in revenues across all local taxing districts. However, our measure includes language to eliminate these losses, by either limiting the exemption in districts near the aggregate limits, or redefining the value on which aggregate limits are calculated.

Is the Property Tax Homestead Exemption constitutional?

Tim Eyman, of all people, has attacked our proposal as being unconstitutional. The issue at hand is whether a Homestead Exemption would violate the uniformity requirement of Article VII, Section 2.

In Belas v. Kiga, the AG defended “value averaging” by claiming it was an exemption, and arguing that exemptions are independent of the uniformity requirement. The court ruled that “value averaging” was not an exemption, and specifically left the broader issue unanswered.

There is strong precedence supporting the AG’s arguments, but it would be foolish to speculate as to how the court might rule if the statute were challenged.

Do other states offer a Property Tax Homestead Exemption?

Yes. Thirty-seven other states offer a Property Tax Homestead Exemption, or some other tax credit or circuit-breaker to help offset the tax impact of rising property values on middle and low income homeowners.

Washington has the most regressive tax structure in the nation, and a generous Homestead Exemption would target tax relief to those families who need it most.

What would be the impact of the exemption on homeowners?

The vast majority of homeowners would pay lower taxes, with only a modest 4% increase on homes over $500,000. Since as much as 82% of wealthy homeowners itemize their federal tax returns, their net tax increase could be as much as 40% lower, as a portion of the state’s tax bill is exported to the federal government.

How does this compare to the impact of Tim Eyman’s I-864?

Initiative 864 would cut 25% from regular local levies, eliminating $550 million of local revenues in CY 2005, whereas the Homestead Exemption is revenue neutral.

Homes at or below the state median property value would save more under the Homestead Exemption than under I-864… substantially more at lower values. A $1 million home could save as much as $1475.00 under I-864, and valuable commercial properties would save millions.

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