Where Does All the Money Go?
By Jim Palmer Jr.

When a property gets sold in the State of Washington, sellers are obligated to pay excise tax, the amount can be startling to owners, who don’t sell real estate very often.  In a typical real estate transaction, the total cost-to-sell can range from 9-10% of a sales price. Two-thirds of that is usually real estate commission and the other one-third includes excise tax, closers fees, misc. well tests, septic certification or other costs.

One surprised seller recently commented concerning the big number on the excise tax that I had provided (prior to a listing) on a cost estimate. “That is the governor’s share and you can’t get out of paying that,” I responded.  Those fees go directly into the general fund of the State’s coffers.

On January 1, 2020 a new graduated real estate excise tax (REET) went into effect that dramatically changed how excise tax gets paid in Washington State. On sale price thresholds of $500,000 or less the tax rate is 1.10%.  On sale prices of $500,000 - $1,500,000 it is 1.28%. From prices at $1,500,000 to $3,000,000 it is 2.75% and on $3,000,000 or more the tax rate jumps to a whopping 3%. There are exceptions for agriculture and timberland that will continue to have a flat State REET rate of 1.28%.

The REET rates apply according to the portion of the selling price attributed to each tiered rate. REET is calculated based on the total selling price of real property conveyed from a seller to a buyer. An example of a real property (which may include one or more parcels) for $600,000 is subject to REET as follows: $500,000 X 1.10% = $5,500 and the remaining $100,000 of that sale is taxed at 1.28% =$1,280. Total excise tax due on that $600,000 sale is $6,780.

The bottom line for people selling property in the lower tier is good news because that affects most local home sellers in a positive way, but for the higher tiered properties the rates dramatically jumped and that rate is onerous and unfair in my opinion.  I’ve always felt like taxes should/could be assessed in a biblical way that is explained in the story of the Widow’s Mite. The widow paid a tithe that was equal to a rich person’s tithe when seen as a percentage of her income. In Washington’s new version of excise tax the higher tiered property owners pay dearly!