Washington builders sue to stop real estate document filing tax

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The Building Industry Association of Washington (BIAW) has filed a lawsuit to stop collection of a new surcharge it says adds nearly $200 to the cost of common real estate filings.

The suit, filed in Thurston County Superior Court, asks the court to prevent county auditors from collecting what BIAW characterizes as an unconstitutional surcharge.

House Bill 1277 (HB 1277), passed by the House and Senate in May and signed by Gov. Jay Inslee in May, authorizes the $100 fee on top of existing fees charged by county auditors to file legal recording documents, including the transfer or sale of real property.

“We don’t oppose what the fund is going for,” said Jackson Maynard, BIAW’s general counsel, explaining that recording fees should be limited to paying for the cost of processing and archiving documents, not paying for subsidized housing and the like through surcharges tacked onto document filing fees.

“We want it funded constitutionally,” he said.

That means, according to Maynard, either funding these programs through existing sources within the state’s operating budget or new taxes.

“The fact that document fees are a reliable source of income and resources are limited does not create a justification to ignore the constitutional limitations on fees,” the lawsuit, filed Tuesday, states. “As a side note, budget writers during the 2021-22 budget cycle enjoyed increased revenues of approximately $4.6 billion from prior projections.”

The measure violates two other provisions of the Washington State Constitution related to transparency, according to the BIAW.

The organization contends the bill violates the single subject requirement – Article II, Section 19 – because the title too narrowly focuses on increasing some revenue, but some portions of the bill do not increase revenue.

“The title of the act states directly that the primary purpose of the surcharge is to raise additional revenue source for eviction prevention and housing stability services,” the suit says.  “This is revenue for general governmental purposes and not for the purpose of regulating and funding the processing of recorded documents.”

The suit goes on to note, “Sections 7-11 of the bill add two types of documents, water sewer district liens and wage liens, to the list of those exempted from the existing current law surcharges in RCW 36.22.178, 36.22.179, 36.22.1791 and 36.22.240. 64. Sections 7-11 of the bill therefore reduce the revenue for eviction prevention and housing stability services which is the opposite of the title of the bill.”

Furthermore, the suit alleges the legislature failed to increase all provisions of the law that were changed as required by Article II, Section 37 of the state constitution, which states, “No act shall ever be revised or amended by mere reference to its title, but the act revised or the section amended shall be set forth at full length.”

Aside from the questionable constitutionality of the HB 1277, Maynard characterizes it as bad policy.

“It does add up,” he said of the various fees that are part of doing business in terms of multiple real estate filings.

Costs added the construction of homes, of course, gets passed on to homebuyers.

“You can’t make housing more affordable by making it more expensive,” Maynard said.

According to Redfin, a Seattle-based full-service real estate brokerage, home prices statewide were up 17% year-over-year in October. During the same period, the number of homes sold fell 14.9% and the number of homes for sale fell 42.3%.

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