United States

Washington closes out 2019 session with significant tax law changes

TAX ALERT  | 

On May 21, 2019, Washington Governor Jay Inslee signed a number of tax bills as this year’s legislative session comes to a close. Highlights from some of those bills are below.

Real estate excise tax

Effective Jan. 1, 2020, Senate Bill 5998 modifies Washington’s Real Estate Excise Tax (REET). Currently, the state imposes REET on the seller of real property in Washington at a flat 1.28% rate. For planning purposes, these rates do not take into account REETs imposed by local jurisdictions, making the combined state and local REET rates higher than the state-only REET rates listed above. Local rates range from 0% to 2% with most localities imposing 0.25% or 0.5%.

Senate Bill 5998 amends the current flat REET to a new graduated REET, whereby real property sales equal to or less than $500,000 are taxed at 1.1%, real property sales greater than $500,000 to $1.5 million are taxed at 1.28%, real property sales greater than $1.5 million to $3 million are taxed at 2.75% and real property sales greater than $3 million are taxed at 3%.

Financial institutions

Effective Jan. 1, 2020, House Bill 2167 increases the Business and Occupation (B&O) tax by 1.2% on certain consolidated financial institution groups with more than $1 billion of net annual income on their consolidated financial statement.

International investment management

Effective July 1, 2019, Senate Bill 6016 narrows the definition of qualifying international investment management companies that may claim an advantageous B&O tax rate. The bill adds additional qualifying factors that must be met in order to claim the current 0.275% rate. Some of these factors include more than 25% of the international investment management company’s employees be located in Washington, the company (or its affiliated group) has 10 or more offices located in at least eight foreign countries, the company (or its affiliated group) has at least 500 full-time employees worldwide, and the company (or its affiliated group) has at least $200 billion in average assets under management.

An international investment management company that does not meet these qualifiers is subject to the “service and other activities” B&O tax rate currently at 1.5%.

Nonresident sales tax

Effective July 1, 2019, Senate Bill 5997 changes the manner in which non-Washington residents living in jurisdictions that do not impose sales tax can avoid paying Washington sales tax. Currently, a non-Washington resident living in a jurisdiction that does not impose sales tax, such as Oregon, need only show a valid non-resident identification to a retailer to avoid payment of sales tax on goods to be used outside the state of Washington.

Senate Bill 5997 changes this process, requiring non-Washington residents to pay sales tax at the time of purchase, and then apply for a remittance using a form provided by the Washington Department of Revenue. Only one remittance is allowed per calendar year for all purchases made in the previous year, and at least $25 in Washington sales tax must be paid in order for the remittance to be approved by the department. Only the 6.5% state portion of the sales tax will be refunded, the local portion of the sales tax paid at time of purchase will not be included in the remittance.

Travel agents and tour operators

Effective July 1, 2019, Senate Bill 6004 raises the B&O tax rate paid by certain travel agents and tour operators. Currently, all travel agents and tour operators are subject to a B&O tax rate of 0.275%. Senate Bill 6004 increases the B&O tax rate to 0.9% for all travel agents and tour operators whose annual taxable income is greater than $250,000. The 0.275% rate remains unchanged for travel agents and tour operators with income $250,000 or less.

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