Washington should make property taxes fairer with a homestead exemption
What does homestead exemption mean?
The words homestead exemption refer to a proposed change to our tax code. The idea is to 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. Adoption of a homestead exemption would reduce middle and lower income families’ high tax obligations, while slightly increasing wealthy families’ low tax obligations. This proposal would provide tax fairness to homeowning taxpayers in Washington State.
What would a homestead exemption look like?
For the purposes of public discussion, the original proposal put forth years ago used $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 2005 state median property value of $162,000.
Has a bill been introduced?
In 2004, a bipartisan group of sixteen representatives led by State Representative Sharon Santos (D) and then-State Representative Toby Nixon (R) sponsored HB 3076. In 2005, Santos and Nixon, along with eleven other cosponsors, again sponsored the idea as HB 1744.
How would adoption of a homestead exemption affect state revenue?
Existing public services are already underfunded, so we support adoption of a homestead exemption that is either revenue neutral or brings in more revenue for the state — not less. The homestead exemption would shift obligations from less expensive homes to more expensive homes, as well as to non-residential property.
As proposed in 2004 and 2005, the homestead exemption was revenue neutral. For regular levies in districts that are at or near their statutory aggregate limits, the bills called for the amount of the exemption to be reduced so as to always remain revenue neutral.
Is the idea of a homestead exemption constitutional?
The issue at hand is whether a homestead exemption would violate the uniformity requirement of Article VII, Section 2. The official analysis for HB 1744 (PDF) states the following:
The state constitution requires all property taxes to be applied “uniformly.” However, the constitution also gives the Legislature the power to exempt property from taxation. There is a certain logical inconsistency between the uniformity clause and the exemption clause. This inconsistency has not been completely reconciled by court interpretations. Thus, questions remain about how far the Legislature can go under the exemption clause without violating the uniformity clause.
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 Attorney General’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 homestead exemption?
Yes. Thirty-seven other states offer a 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 provide fairness 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.
- Yes on the Homestead Exemption (Essay)
- HB 1744
- Platform on Tax Reform: Voters Want Better Choices
- Editorial – Seattle Post-Intelligencer: A fairer tax break is in the works
- Institute on Taxation and Economic Policy: Homestead Exemptions