The Washington Real Estate Excise Tax

September 10th, 2014 - Timothy C. Potts

A “tax” is a pecuniary burden exacted by government authority and is laid upon persons or property to support government.

The Washington Real Estate Excise Tax (“REET”) is imposed on the transfer of an interest in real property (fee, easement, extraction rights, etc.) for value or “consideration”. The incidence of the tax is the transfer, usually by deed, of real property. If the County Treasurer believes the tax is due, the deed may not be recorded without paying the tax. The tax rate in Whatcom County has been 1.78% for many years. If a transfer is below or above market value (e.g., part gift) the tax is to be based on the consideration given, not the property value. It is legal to “avoid tax”, but illegal to “evade tax”. There are many ways to avoid or reduce the REET amount with proper planning and documentation, which can include the following:

Measure of Tax

The tax is determined from the tax rate multiplied by the value of the property. In market rate sales, a rebuttable presumption is that the value is equal to the amount paid. There is a sometimes unfair statute that taxes the entire value of real property in an entity if 50% or more of that entity is transferred in a 12 month period (subject of later blog). If the taxable amount is ambiguous and cannot fairly be ascertained (e.g., final price is contingent on unknown events), then the statutory fallback position is the assessed value. In the case of an ambiguous price, use of the assessed value may or may not be beneficial. If the assessed value is too high there are ways to deal with that, which include working with the county Assessor’s office, seeking State REET Department of Revenue (“DOR”) help in advance, or paying the tax under protest and appealing.

Exemptions From the Tax

There are many transactions exempt or partially exempt from the REET. Exemptions include gifts (no consideration), inheritance or devise, converting between joint tenancy and tenancy in common, creating community property out of separate property and the reverse, condemnation, divorce, foreclosure or “in lieu” transfers, bankruptcy, rescission of sale (sale closed but later fully undone retroactively), certain trust transfers, a variety of transfers between related parties or entities, and deeds to clear record title issues if no consideration. Also, the transfer of mere legal title to and from a “nominee” to hold for some time period avoids the tax on the nominee transfers. An exchange facilitator in a “like-kind exchange” is a nominee. There are also some nice nominee opportunities for contactors to hold title to land as nominee while construction occurs. Meeting an exemption can be tricky. It may be necessary to alter the transaction somewhat to clearly fit within an exemption rule. Sometimes more than one exemption may apply.


The statute of limitations on the REET is four years from the sale date unless proof of fraud or material misrepresentation is shown, or the sale was never reported. The REET is the personal liability of the seller. But the Buyer may also become personally liable under certain conditions. If the tax is not paid the DOR can lien the property, foreclose, and have it sold. The DOR can also elect to sue liable parties personally. Stiff penalties and interest apply to failure to report, or late payment. The penalty for tax evasion (fraud) is 50% of the tax plus interest and other charges. Tax fraud is paying less tax than you know you legally owe. The buyer must make sure the tax is paid because the buyer, at a minimum, takes the risk of tax collection if the seller is judgment proof.

Ruling Requests/Requests for Interpretation

Where the dollars are enough and exemption ambiguity exists, or where the parties are open to creativity, it may be advisable to get written confirmation regarding whether your transaction will be taxed. More formal requests can be made as “Requests for Interpretation”, “Ruling Requests” or Attorney General Opinions. These take time and legal knowledge.

Again, there are many ways to avoid or reduce the REET amount and I hope this blog entry will start to get you thinking about this issue when you are involved with a transfer of real property in the future.

Disclaimer: This article and blog are intended to inform the reader of general legal principles applicable to the subject area. They are not intended to provide legal advice regarding specific problems or circumstances. Readers should consult with competent counsel with regard to specific situations.

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