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Regular Value for City of Yakima per Yakima County Assessor:
Property Value % Change Total Annual Levy % Change* Rate/$1,000
2006 4,169,739,611 14,399,087 3.45323
2007 4,586,923,853 10.0% 14,588,962 1.3% 3.18055
2008 5,104,315,771 11.3% 15,376,850 5.4% 3.01252
2009 5,368,959,341 5.2% 15,776,982 2.6% 2.93855
2010 5,389,218,769 0.4% 16,113,566 2.1% 2.98996
2011 5,599,278,437 3.9% 16,634,342 3.2% 2.97080
2012 5,454,218,436 -2.6% 16,960,323 2.0% 3.10958
2013 5,494,497,093 0.7% 17,268,232 1.8% 3.14282
2014 5,515,264,870 0.4% 17,308,161 0.2% 3.13823
2015 5,658,387,596 2.6% 17,692,881 2.2% 3.12684
2016 5,831,302,790 3.1% 18,006,396 1.8% 3.08789
2017 5,957,828,341 2.2% 18,367,991 2.0% 3.08300
2018 6,241,111,833 4.8% 18,686,841 1.7% 2.99415
2019 (Est.) 6,888,407,709 10.4% 19,181,909 2.6% 2.78467
Levy rates are inversely related to total assessed value:
If total assessed value goes up more than 1%, levy rates go down.
If total assessed value goes down, levy rates go up.
* Levy rate increases capped at 101% of prior year, plus new construction, changes in value
of state assessed property, and annexations. This is why the % change is typically more than 1%.
Levy Lid Lift Calculation Example
Statutory limit on property tax per thousand of assessed value:
City of Yakima limit (per thousand AV) $ 3.60
Less Library District levy (0.50)
Remaining Levy rate per thousand $ 3.10.
Assessed Value Rate/Thousand Potential Lift Amount
2016 5,831,302,790 3.08789 $ 70,643
2017 5,957,828,341 3.08300 $ 101,277
2018 6,241,111,833 2.99415 $ 660,606
2019 Estimated rate 6,888,407,709 2.78467 $ 2,172,155
* Because assessed values in the City of Yakima rose by over 10% in 2018, it drove the rate per thousand
of assessed value down by over $.20/thousand from 2018 to the 2019 estimate.
Based on 2019 rates, the typical increase on a home in Yakima with an assessed value of $200,000
would be approximately $63/year ($3.10 - $2.78467 = $.31533 x 200).
There are two types of Levy Lid Lifts:
SINGLE YEAR LIFTS:
Temporary Single Year - Allows a lift of more than 1% in the first year, which is then used to calculate all
subsequent years until expiration. Can be used for any purpose and last for any number of years, unless used for
debt service, then it cannot exceed nine years. When it expires, the levy lid reverts to what it would have been if
the levy lid lift never existed.
Permanent Single Year - Allows a lift of more than 1% in the 1st year, then that amount is used to calculate all
future 101% levy limitations. The measure never expires and the levy lid never reverts back. However, future
annual increases may not exceed 1% without going to the voters for another lid lift.
MULTI-YEAR LIFTS:
Temporary Multi-Year - Levy lid bumps up more than 1% each year (subject to a limit factor) for up to six years.
When the lift expires, the levy reverts to what it would have been if the levy lid lift never existed. May be used for
any purpose, but the ballot must state the limited purposes for which the inveased levy will be used.
Permanent Multi-Year - Levy lid bumps up more than 1% per year for up to six years. However, the lid lift does
not revert back and the maximum levy is then used as the base to calculate all future 1% levy limitations.
* Either type of levy lid lift requires a simple majority of voters to approve.
Additional information from MRSC regarding levy lid lifts:
New legislation: HB 2597 (effective June',7, 2018) allows cities and counties to exempt
senior citizens,disabled veterans.and other people with disabilities (as defined in RC I:.
84.36.381) from the tax lino-ease resulting horn a levy lid lift if desired.This exemption is
optional, and if your jurisdiction is planning a levy lid lift and you want to exempt these
individuals, you must state the exempticn in the ballot measure placed before the
voters.
We have co-ifirmed with the Depar n-mer t of Revenue that this legislation only applies to
cities and counties and does not apply to special purpose;districts
Election Dates:
Single-year lifts may be submitted to voters at any special, primary or general election.
Multi-Year lifts are limited to the primary or general election.
Ballot measures must be submitted by:
Special election (February or April) - 60 days before the election
Primary election (August) - The Friday before the first day of regular candidate filing.
General election (November) - The date of the primary election
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Last Updated: '
September 2018 '
P MRSC
Revision History
September 2018
• Retail Sales and Use Tax section -clarified DOR notification process for sales tax rate changes.
August 2018
• EMS Levy,2018 c 136§1
April 2018
• Affordable Housing Sales Tax, 2015 3rd sp.s. c 24§701
• Retail Sales and Use Tax section-clarified local sales tax options and timing.
August 2017
• Emergency Medical Services, 2012 c 115§1
January 2017
• Liquor Receipts- Profits and Taxes, RCW 70.96A.087[2016 sp.s.c 29 §517;1989 c 270§13.]
Recodified as RCW 71.24.555 pursuant to 2016 sp.s.c 29§701,effective April 1, 2016 [signed by
the governor April 18, 2016]
September 2016
• Real Estate Excise Tax, 2016 c 138§3,4; 2015 2nd sp.s.c 10§1,3; 2015 c 53 §98 2014 c 44§1;
2011c354 §1
• Hotel-Motel(Lodging)Tax, 2013 c 196§1
A Revenue Guide for Washington Cities and Towns
Copyright @ 2018 by MRSC.All rights reserved. Except as permitted under the Copyright Act of 1976,
no part of this publication may be reproduced or distributed in any form or by any means or stored in
a database or retrieval system without the prior written permission of the publisher; however,gov-
ernmental entities in the state of Washington are granted permission to reproduce and distribute this
publication for official use.
MRSC
2601 4th Avenue,Suite 800
Seattle,WA 98121-1280
(206)625-1300
(800)933-6772
www.MRSC.org
Preface
A Revenue Guide for Washington Cities and Towns contains information on the major revenue
sources(and many of the minor ones)available to cities and towns for general government
purposes. MRSC first published this document in 1992, and this version was published in 2009
with periodic updates afterwards.
Public Finance Consultant Judy Cox was the primary author of this report. Legal Consultant
Bob Meinig reviewed and edited the entire text and Desktop Publishing Specialist Holly Stewart
prepared the document for publication.
Periodic updates have been provided by Finance Consultant Toni Nelson, Senior Communications
Coordinator Steve Hawley, and Graphic Designer Marissa Roesijadi. As of April 2018,we are just
beginning a comprehensive review and re-write of this publication,with completion anticipated
this winter.
Contents
Taxes
Property Taxes
The Regular Property Tax Levy Rate 1
Property Tax Levy Increase-A Little History of the"Lid" 2
How Does the Tax Lid Work? 3
You Don't Lose It If You Don't Use It- "Banking" Levy Capacity 4
Property Taxes and Budgets 5
Excess Levies for General Government Purposes-
If You Don't Have Banked Capacity, Maybe You Can Do a Levy Lid Lift _ 10
Affordable Housing Levy for Very Low-Income Housing 13
Excess Levies for General Government Purposes- One Year Levy 13
Receipt of Funds 13
Retail Sales and Use Tax 14
Additional Local Sales and Use Tax Options 15
What Items Are Taxed? 18
Who Has to Pay a Use Tax? 18
Sales Tax Streamlining 19
Timing of Receipts and Sales Tax Rate Changes 20
General Business and Occupation Taxes and Business Licenses 21
General Business and Occupation Taxes 21
Regulatory License Fees 23
Revenue-Generating Regulatory Licenses 23
Utility Business and Occupation Taxes 25
What Are the Limits on the Tax Rate? 25
What Do We Need to Do to Change a Rate? 26
Real Estate Excise Tax 26
How Can the First Quarter Percent- REET 1 - Be Spent? - 27
REET 2: Spending the Second Quarter Percent 27
Limited Use of REET 1 and 2 Funds for Maintenance 28
Prior to December 31, 2016 28
After December 31, 2016 28
What's This Other One-Half Cent Tax Shown in RCW 82.46.010(3)(REET 3)? 29
Accounting for REET Funds 29
Hotel-Motel(Lodging)Tax 29
What Are the Tax Rates? 29
City or County Tax? 31
How Can the Revenues Be Used? 31
Applications for Lodging Tax Funds 32
The Lodging Tax Advisory Committee(LTAC) 33
Emergency Medical Services 34
Gambling Tax 35
How Can We Spend the Proceeds? - _ 36
Leasehold Excise Tax 36
Use Tax on Brokered Natural Gas 37
Admission Tax 38
State-Shared Revenues 39
Liquor Receipts- Profits and Taxes 39
Motor Vehicle Fuel Excise Tax- "Gas Tax" 40
Capron Refunds 41
Fire Insurance Premium Tax 41
City-County Assistance 42
-------____-
Criminal Justice Revenues 44
Funds Distributed under RCW 82.14.320 - "High Crime" 44
Funds Distributed under RCW 82.14.330 -
Population,Violent Crime,and Special Programs 45
Optional Sales Taxes 46
0.1 Percent Sales Tax Under RCW 82.14.340 _ 46
0.3 Percent Sales Tax Under RCW 82.14.450 47
Transportation Revenues — 48
Local Option Motor Vehicle Fuel Excise Tax 48
Local Option Commercial Parking Tax ^.._ 49
Expenditure of Local Option Transportation Taxes 49
Transportation Benefit Districts 50
Other Revenue Sources 52
Franchise Fees 52
Tourism Promotion Area Fees 52
Transfer of Funds from Municipally-Owned Utilities 53
Transfer of Funds from the LID Guaranty Fund _._ 53
Interest on Investments 54
Traffic and Parking Fines 54
Parking Meters --._--_- 55
Other Fees and Charges
Taxes
Property Taxes
One longtime legislative analyst from Olympia says that the Washington property tax is the most
complicated in the nation.We plan to limit this discussion to what officials and staff in cities' really
need to know. Even that is pretty complicated. Cities face two primary restrictions on their property
taxes -a maximum regular property tax levy rate and a limit on the amount of additional property
taxes they can levy in a year.
The Regular Property Tax Levy Rate
The maximum regular property tax levy rate for most cities is$3.375 per thousand dollars assessed
valuation (AV)2. Some cities have a Firemen's Pension Fund. (If you do not know whether you have
one,you probably do not.)Those cities can levy an additional$0.225 per thousand dollars assessed
valuation, resulting in a maximum levy of$3.60 per thousand dollars AV. For cities that belong to
a fire district and/or a library district, the rules are a little more 3 complicated. Nominally they have
a maximum rate of$3.60 per thousand dollars AV.3 But,they can never collect that much because
the levy of the special districts must be subtracted from that amount.4 The library district levy
has a maximum rate of$.50 per thousand dollars AV5 and the fire district levy can be as high as
$1.50.6 Therefore, if a city belongs to both a fire district and a library 6 district, and if these districts
are currently levying their maximum amount,then the local levy rate can be no higher than $1.60
($3.60 - 1.50 - 0.50 = $1.60). (Note that the Department of Revenue has determined that if a city
has a Firemen's Pension Fund and is also in a library and/or fire district, its maximum levy rate is
$3.825 minus the levy rates of the districts.')
If,for some reason,one(or both)of the special districts is not currently levying the maximum
amount, the city's current levy could be higher. Assume that the fire district is only levying$1.00
per thousand dollars AV.The maximum city levy rate would be$3.60 - 1.00 - .50 = $2.10. But, if
the fire district raises its levy rate in the future, then the city must reduce its levy rate by the same
amount so that the total is never above$3.60. Such a forced reduction can cause fiscal problems
if it is not anticipated. If no one in your city hall knows what rate the special districts are currently
levying,your county assessor can help you.
1 Throughout this publication,the words"city"or"cities'is used rather than the phrases"city and town"or 1
"cities and towns:'Unless otherwise noted,everything said about cities also applies to towns.
2 RCW 84.52.043(1)(d).
3 RCW 41.16.060.
4 RCW 27.12.390 and RCW 52.04.081.
5 RCW 27.12.050.5
6 RCW 52.16.130,RCW 52.16.140.and RCW 52.16.160 each provide for a levy of$.50 per thousand dollars AV.
7 "First Levy Audit Completed:'by Fletcher Barkdull,Property Tax Review,(Department of Revenue:Olympia)7
October 2002.http://dor.wa.gov/Docs/Pubs/Prop_Tax/PTNews_02_03.pdf.
A Revenue Guide for Washington Cities and Towns 1
Property Tax Levy Increase - A Little History of the "Lid"
If discussion of any tax law makes most people's eyes glaze over, discussion of the 106 or 101
percent lid and other features of Washington property tax law puts people to sleep. In 1973,the
legislature responded to people's concerns that property taxes were rising too fast by passing a
law that established the 106 percent lid. What the 106 percent lid rule said was that your tax levy
next year could be no more than 106 percent of your highest levy, beginning with the 1985 levy
for 1986 taxes.8 An alternative way of stating it is to say that your levy could not increase by more
than six percent.9
Referendum 47
In November 1997,the voters approved Referendum 47, which put some new constraints on
the allowable levy increase for some cities.10 Cities with a population of 10,000 or more could
only increase their levy by the rate of"inflation"or six percent, whichever was less." "Inflation" is
defined as the increase in the implicit price deflator(IPD)for personal consumption expenditures
for the 12-month period ending in July as published in the September issue of the Survey of
Current Business, a publication of the Bureau of Economic Analysis of the federal Department of
Commerce.12 An exception was made if the city legislative body made a finding of"substantial
need" in an ordinance or resolution passed by a majority plus one of the council or two out of
three commissioners.13
Cities with a population of less than 10,000 were not subject to this constraint.They could
increase their levy by six percent(assuming this did not put them above their maximum tax rate)
with a simple majority vote."
Taxes on new construction,changes in value of state-assessed utility property,and newly annexed
property(hereafter referred to as"add-ons"15)were exempted from the lid/limit factor for cities of
any size and may be added to the tax levy that is requested under the lid/limit factor.
Then, Along Came Initiative 747
In November 2001,the voters passed Initiative 747. Every mention of six percent was changed to
one percent.All the provisions introduced by Referendum 47 are still there. Cities with a population
8 RCW 84.55.010 and WAC 458-19-020.
9 When we talk about a percent increase in a levy,we are referring to an increase in the total dollar amount of the levy,
not to an increase in the levy rate.The levy rate may increase as a result of a levy increase,but it may also
decrease,despite the levy increase,because of an increase in the assessed value of property in the city.See examples
on pages 3-4.
10 The legislature passed ch.3,Laws of 1997,and sent Referendum 47 to the voters.Note that this referendum applies
to all taxing jurisdictions,not only to cities.
11 RCW 84.55.005(2)(c)(1997 version).
12 RCW 84.55.005(1).
13 RCW 84.55.0101.Note that the term"substantial need"is not defined in the statutes.
14 RCW 84.55.005(2)(a)(1997 version).
15 RCW 84.55.010.The definition of"add-ons"was broadened in 2006 and now includes increases in assessed value
due to construction of wind turbines in addition to increases in the value of state-assessed utility property,new
construction,and improvements to property.Note also that the statute does not mention the value of property that is
annexed,but it too is exempt from this provision as are refund levies.WAC 458-19-035 and WAC 458-19-085(2)(d)(i).
A Revenue Guide for Washington Cities and Towns 2
of less than 10,000 can now increase their levies only by one percent. Cities with a population of
10,000 or more can increase their levies by the lesser of one percent or the percentage increase
in the implicit price deflator. However, since that percentage increase has been more than one
percent since the initiative was passed (and will probably be so in most years), the effective limit
has been one percent.16
If, at some time in the future, the percentage increase in the implicit price deflator is less than one
percent,then cities can use the substantial need provision to levy the entire one percent. However,
this provision does not give these cities the same opportunity for increased revenue that it did
when the maximum rate was six percent.
How Does the Tax Lid Work?
The easiest way to see what the lid means in practice is to think of how a property tax levy is
determined. The example below will use the 101 percent lid."If your city plans on limiting its
levy increase to the growth in the implicit price deflator or some amount other than one percent,
substitute that number for one percent in the example.Just remember that the algebraic sum
of the percentage changes in assessed valuation and the tax rate must add up to the percentage
change you have chosen for your levy increase on the right-hand side of the equation.
Your tax levy is a function of the following formula:
Assessed valuation/1,000 times tax rate equals tax levy
(We have to divide the assessed valuation by 1,000 before multiplying it by the tax rate because
that rate is not applied to each dollar of assessed valuation, but to each one thousand dollars.)
To see how the 101 percent lid works, let's look at five cases. (In each case, we assume that your
current year's levy is the highest since your city's 1986 levy.)
1.Assume that for next year your assessed valuation increases by exactly one percent.That
means that at your current rate,your tax levy next year will be one percent higher. That is the
maximum increase allowed and the county assessor will keep your rate constant.
1% t 0% 1% t
AV/1,000 x tax rate = taxt levy
16 In June 2006,a King County Superior Court judge found Initiative 747 to be unconstitutional.That initiative,as
written,told voters that the amount that taxing jurisdictions could increase their property tax levy without a vote of
the people would fall from two percent to one percent,if passed.However,the two percent limit from the passage of
Initiative 722(which reduced the increase in the levy limit from six to two percent)had been declared unconstitutional
before Initiative 747 went to the voters.The court ruled that that the voters in November 2001 were misled.This
decision was upheld by the Washington State Supreme Court in November 2007.The legislature met in a special
session and reinstated the one percent limit.Ch.1,Laws of 2007,sp.sess.
17 These examples were more dramatic when the maximum rate increase was six percent.
A Revenue Guide for Washington Cities and Towns 3
2.Assume that your assessed valuation does not increase at all.To get the allowable one.
percent increase in your levy, the county assessor will increase your tax rate by one percent
if that does not put your rate over your statutory limit. If it does,the assessor will raise your
rate to your statutory limit, but the increase will be less than one percent.
0% ? 1% 1% ?
AV/1,000 X tax rate = taxt levy
3.Assume your assessed valuation goes up by 0.6 percent.Then the county assessor will
increase your rate by 0.4 percent(again,as long as that does not put you over the maximum
levy rate) and the combination of the 0.6 percent and 0.4 percent increases will give you a one
percent increase in your levy.
0.6% ? 0.4% 1% ?
AV/1,000 X tax rate = taxt levy
4.Assume that your assessed valuation increases by more than one percent, say, eight percent.
Then the county assessor will lower your rate by seven percent so that the combination of the
increase and decrease yield a one percent increase in your levy.
8% ? 7% 1% ?
AV/1,000 X tax rate = taxt levy
5. For the last case,assume that your AV has fallen by two percent. In this case the assessor will
increase your rate by three percent(assuming that does not put you over the statutory limit)
to provide the one percent increase in your levy.
-2% ? 3% 1% ?
AV/1,000 X tax rate = taxt levy
So how does this work with cities that are already at their statutory limit?Since the tax rate cannot be
increased,their tax levies will increase only by the amount of the increase in their assessed valuation.
You Don't Lose It If You Don't Use It - "Banking" Levy Capacity
Prior to 1986, cities had an incentive to raise their tax levies by the maximum amount allowed,
even if they did not need the revenue that year. If they did not levy the maximum amount,they
would suffer adverse consequences by not having that levy capacity in the future. Now cities can
levy less than the maximum (although it is less likely that they will do so now that the maximum is
one percent rather than six percent)and then make it up in a future year.'8 Here are two examples.
18 RCW 84.55.092.
A Revenue Guide for Washington Cities and Towns 4
Assume that for this year you had the assessor set a tax rate that resulted in the same levy as last
year plus"add-ons:'(You did not take your allowable one percent increase.)When you are doing
your budget for next year, however,you realize that you need more revenue from the property tax
because your sales tax receipts have fallen off.You can ask the assessor to set a tax rate for next year
(assuming that it does not put you over your statutory limit)that raises your levy by one percent and
then one percent again -1.01 x 1.01 = 1.0201 -for a compounded increase of over two percent.
Now, a more complicated case where a city actually lowers its tax rate. Assume that during the
current year(2009), your city has experienced a revenue windfall and has more money than it
needs to fund the 2010 budget. (This situation is pretty unlikely in the 2009 economic climate, but
pretend it did happen.)You could put the excess funds in a contingency fund or a"rainy day"fund,
but the city council decides to give the taxpayers a break by lowering the property tax for 2010.
During 2010 you receive no revenue windfall and you need more property tax revenue for the year
2011 budget.The 1986 act allows you to levy the maximum amount that you could have levied
in 2010, plus an additional one percent unless that puts you over the maximum statutory rate. In
2010 you didn't use your maximum taxing capacity, but you didn't lose it because you can "bank"
the extra capacity.
"But doesn't our council need to pass a special ordinance or resolution in order to bank capacity?"
Read on through the next section. Banking capacity follows from other procedures you need to
follow for the property tax in the budget process.
Property Taxes and Budgets
Referendum 47, passed in November 1997, introduced some new requirements for the levying of
property taxes.Taxing districts must undertake a number of actions regarding property taxes at
budget time.
1. Hold a public hearing on revenue sources for the current expense(general fund) budget and
discuss any increases in the property tax revenues that are being considered.
This requirement, part of Referendum 47, is codified in RCW 84.55.120.The statutes do not
prescribe any specific notice requirements, so the city should follow its own procedures for
giving notice of this hearing.
The hearing is to be held prior to the time the city votes on its property tax levy.This hearing
and the vote on the property tax ordinance may be done at the same meeting. From a public
policy standpoint, however, it is preferable that the legislative body leave time to consider the
testimony from the hearing before voting on the amount of the levy.
2. Pass a separate ordinance or resolution stating the property tax increases in dollar and
percentage terms to fulfill the requirements of RCW 84.55.120. That statute states, in part:
No increase in property tax revenue, other than that resulting from the addition
of new construction, increases in assessed value due to construction of electric
generation wind turbine facilities classified as personal property,and improvements
to property and any increase in the value of state-assessed property may be
A Revenue Guide for Washington Cities and Towns 5
authorized by a taxing district, other than the state, except by adoption of a separate
ordinance or resolution, pursuant to notice, specifically authorizing the increase in
terms of both dollars and percentage.
(Emphasis added.) Of course, if you do a resolution rather an ordinance,you do not have
to bear the costs of publication.We recommend that you use the form provided by the
Department of Revenue.19 You can check page 8 to see what the form looks like.20
If you have more than one regular property tax levy(for example,some cities have an EMS
levy), you must adopt an ordinance or resolution for each levy.
Even if you are not increasing your property taxes,you should pass this ordinance or resolution,
saying you are increasing your levy by"SO"which is a"0 percent"increase, because it is
necessary that you do so to bank the unused capacity. See the discussion of banked capacity in
item 5 below.
3. Pass a property tax ordinance/levy certification.You must adopt a levy ordinance that states
how much regular property tax you are requesting for the coming year and what your levy or
levies will be for any bonds.The deadline is November 30.21
In addition,the Department of Revenue prefers that you fill out their levy certification form
and send it to your assessor. (It is not required, however.)We have reprinted a copy of this form
on page 8.22 You can download it at https://dor.wa.gov/legacy/Docs/forms/PropTx/Forms/
LevyCertf.doc.23 DOR likes cities to use this form because it is cuts down on errors.The county
assessors can easily see how much property tax each taxing district is asking for, rather than
having to plow through an ordinance trying to find the relevant number(s). So, if you staple this
form on the front of your property tax levy ordinance,you will make DOR and your county
assessor happy. Be sure the amounts match those in your levy ordinance.
4. Do we need to pass a"substantial need"resolution/ordinance? It all depends on the July
implicit price deflator for personal consumption expenditure(IPD). Read on.
19 You may write your own resolution or ordinance to comply with this statute.However,it must be"separate"
from the property tax levy ordinance.We know many city attorneys want to combine these into one document.
Because this resolution/ordinance is used by assessors to"bank"unused capacity,it is a good idea to follow the
direction of RCW 84.55.120 and make it"separate:'
20 You can download a copy of the form at http://dor.wa.gov/docs/forms/PropTx/Forms/OrdinanceResolution.doc.
Or,go to the Department of Revenue home page,www.dor.wa.gov,and type in 64 0101 in the Search window in the
upper right corner.Note that there is a space between the"4"and the"O."
21 RCW 84.52.020 and RCW 84.52.070.
22 Note this form was written on the assumption that the taxing districts adopt their budgets before November 30.
Many cities do not pass their budgets until after the date(November 30)this form is due.So,you might want to
write in(or type in)a change to the last sentence.Rather than saying"which was adopted following a public hearing
held on :'you might says"which will be adopted following a public hearing scheduled to be held on
23 You can also go to the Department of Revenue home page,www.dor.wa.gov,type 64 0100 in the Search window
in the upper right corner.Note that there is a space between the"4"and the"0:'
A Revenue Guide for Washington Cities and Towns 6
Under Referendum 47,approved in 199724, cities with a population of 10,000 or more could
only increase their levy by the rate of"inflation"or six percent,whichever was less. "Inflation" is
defined as the increase in the implicit price deflator(IPD)for personal consumption expenditures
for the 12-month period ending in July as published in the September issue of the Survey of
Current Business,a publication of the Bureau of Economic Analysis of the federal Department of
Commerce.2S An exception was made if the city legislative body made a finding of"substantial
need"in an ordinance or resolution passed by a majority plus one of the council.26
Cities with a population of less than 10,000 were not subject to this constraint. They could
increase their levy by six percent(assuming this did not put them above their maximum tax
rate)with a simple majority vote.
Taxes on new construction, changes in value of state-assessed utility property,and newly
annexed property(hereafter referred to as"add-ons"27)were exempted from the lid/limit factor
for cities of any size and could be added to the tax levy requested under the lid/limit factor.
In November 2001, voters passed Initiative 747,which lowered the"limit factor"in RCW
84.55.001(2)from six percent to one percent.
The bottom line: If the July IPD is less than one percent, cities with a population of 10,000
or over may only increase their levy by more than the IPD, up to a maximum of one percent,
by passing a resolution or ordinance making a finding of"substantial need:'28 Cities with a
population of less than 10,000 may increase their levy by one percent without passing such
resolution or ordinance.
rxRule 1iLlf the axing jurisdiction has a population of les`s'than 10,000 filling out 4'{y
t the4Ordrnance/Resolution"form that we discussed m item 2 above and levying a
4007,; a
percentage increase eess,i.than oneipercent will automatically- bankp capac►ty$ 44,N
.4e_tt .::� ,s":4_'_.R.✓a.,..u._.,_.� �.at _,.,._......:+C._.f�., ,�. ..$,_r^x ,�,...a._LS.., ... `f.,_�Ac._'?-.�:k_ . ..' , .».,�^.e w-.:
Everyone's favorite question: how do we bank capacity? Here are the "rules"and they are not
as explicitly stated by the Department of Revenue as we would like.29 We double-checked them
with the Property Tax Division that produced the "Resolution/Ordinance Procedures for Increasing
Property Tax Revenue"publication.
24 The legislature passed ch.3,Laws of 1997,and sent Referendum 47 to the voters.Note that this referendum applies
to all taxing jurisdictions,not only to cities.
25 RCW 84.55.005(1).
26 RCW 84.55.0101.Note that the term"substantial need"is not defined in the statutes.
27 See footnote 15.The definition of"add-ons"has become broader.
28 On April 22,2009,the Washington State Department of Revenue issued a Special Notice titled"Determining the
Factor of Increase in Property Tax Levies:'It addressed the issue of the limit factor if deflation("negative inflation")
occurs.For jurisdictions with a population of 10,000 or more,the levy for the coming year would decrease(excluding
new construction,etc.)unless the legislative body made a finding of substantial need for a higher levy amount.
29 The publication to which we refer was written to help jurisdictions comply with the requirements of
RCW 84.55.120.It was not written to explain procedures for banking excess capacity.
A Revenue Guide for Washington Cities and Towns 7
CDepartment of Department of
eDevenue Levy Certification Cevenue Ordinance/Resolution No.
„State RCW 84.55.120
WasfungrSubmit this document to the county legislative authority on or before November 30 of the year preceding WHEREAS,the of .. has met and considered
the year in which the levy amounts are to be collected and forward a copy to the assessor. (Governing body of the Coxing district) (Name of the taxing district)
its budget for the calendar year ;and,
In accordance with RCW 84.52.020,I,
(Name)
WHEREAS,the districts actual levy amount from the previous year was$ ;and,
,for ,do hereby certify to (Previous year's levy amount)
(Title) (District Name)
the County legislative authority that the
(Name of County) (Commissioners,Council.Hoard,etc.) WHEREAS,the population of this district is ❑more than of ❑less than I0,000;and now,therefore,
(Check one)
of said district requests that the following levy amounts be collected in as provided in the district's
(Year of Collection)
budget,which was adopted following a public hearing held on BE 1'f RESOLVED by the governing body of the taxing district that an increase in the regular property tax levy
(Dam of Public Hearing) is hereby authorized for the levy to be collected in the tax year.
(Year of collection)
The dollar amount of the increase over the actual levy atnount from the previous year shall be$
Regular Levy:
(State the total dollar amount to be levied) which is a percentage increase of %from the previous year.This increase is exclusive of
(Percentage increase)
additional revenue resulting front new construction,improvements to property,newly constructed wind turbines,
Excess Levy: any increase in the value of state assessed property,any annexations that have occurred and refunds made.
(State the total dollar amount to be levied)
<ID
Adopted this day of
fD
Signature: Date:
tD
C
ID
rD
wIf additional signatures are necessary,please attach additional page.
This form or its equivalent must be submitted to your county assessor prior to their calculation of the property tax •
levies. A certified budget/levy request,separate front this form is to be filed with the County Legislative
Authority no later than November 30th. As required by RCW 84.52.020,that filing certifies the total amount to be
O levied by the regular property tax levy. The Department of Revenue provides the"Levy Certification"form(REV
7 64 0100)for this purpose. The form can be found at:litta://dor,wa•t ov/docs/forms/YronTx/Forms/LevyCertf doe
Ut
N
O For tax assistance,visit btm://dor.wasov/contenUtaxes/prooertv/default.asox or call(360)570-5900.To inquire about the
For tax assistance,visit harp://dor.wa.eov/content/tates/orostertv/default.aspx or call(360)570.5900.To inquire about the
availability of this document in an alternate format for the visually impaired,please call(360)705-6715.Teletype(TTY) availability of this document in an alternate format for the visually unpaved,please call(360)7US-6715.Teletype(TTY)
O users may call 1-800-451-7985. users may call I-80045i-7985.
REV 64 5t00e(w)(7/17106) REV 64 OIOl a(w)(I 1/I S/07)
ell
03
If instead of 1%the resolution states 0%(or anywhere between 0 and 1%),the district will be
allowed to bank the excess levying capacity.Without the resolution, the district cannot bank excess
levying capacity.
How do we know this?One has to look at the DOR publication called "Resolution/Ordinance
Procedures for Increasing Property Tax Revenue"dated 9/05. It can be found at http://dor.wa.gov/
docs/Pubs/Prop_Tax/PT_Ordinance.pdf 30
What the publication does not make clear as it could is that not only are the jurisdictions"allowed"
to bank excess capacity,the passage of the resolution accomplishes the banking without any
further action being required of the jurisdiction.
dry, • < y �k .rzY ._, P
r; Rule,2 If the,taxingEdistrict has apopulation of.10 00,0 or more and if the IPD
is less:than one P ercent then iri addition to fillip outth`e formtwe-discussed�
'
in item 2 above the Iunsdiction must pass an ordmanee�or�resolution making a {
finding of future substantial need"in corder to bank capacity s ..,
How do we know this? Look at the same publication,"Resolution/Ordinance Procedures for Increasing
Property Tax Revenue"dated 9/05.Go to the discussion in the first bullet on page 1.It says,in part:
In the case that the IPD is less than one percent,to raise the levy to one percent or to bank
excess capacity,a second resolution/ordinance must be adopted.
The "second" resolution is one that makes a finding of"substantial need:'So, if the IPD is less
than one percent,the substantial need resolution is necessary to bank capacity.
And from that statement follows Rule 3.
Rule 3 If the taxing district has?a populationMof 10,000 ormore sas long"as the
IPD.as greater than onepercent filling out,the form we discussed in item 2,ab�ove
�`TMandAlevying a percentage ncrease less than once percent will automatically�bank
apacity just`as it does for!urisdictions withra, P
o ulation less than'l0 000 A,=e, ;1
t ^.logs k t�P .,iP .�. 'y y.,�+�e� 5"�' �„l� m i r•o� � �,'�g�'t
#�second resolution/ordinance is not required to bank excess Levy�capacity {
How Do We Use Capacity We Have Banked in the Past?You have to find out what your maximum
allowable levy is from the assessor. Let's assume that it was$110,000 for the levy you made in
2008 for 2009 and your city only levied $100,000 for 2009. When you go to make your levy for
2010,the assessor will raise your maximum allowable levy by one percent to$111,100 ($110,000
30 Note that the resolution DOR uses in this example is slightly different than the one DOR is presenting on the
form that we have reproduced on page 8,but the content is the same.DOR amended the form on 11/15/07,but did
not revise the publication.
A Revenue Guide for Washington Cities and Towns 9
x 1.01)exclusive of"add-ons:'which include additional revenue from new construction, improve-
ments to property, newly constructed wind turbines,any increase in the value of state-assessed
property,annexations that have occurred,and refunds made. If you just increase your current
levy by one percent, it will be$101,000 ($100,000 x 1.01) plus"addons;'so you have$10,100 of
banked capacity.
Let's say you want to use$7,000 of that amount.When you write you resolution/ordinance to
satisfy the requirement for RCW 84.55.120,you put$7,000 in the blank that gives the dollar-
amount of the increase over the actual levy from the previous year- 2009 (excluding"addons")
- and that is a percentage increase of 7 percent($7,000/100,000). When you write your levy
ordinance, you put in $107,000 plus the dollar amount of"add-ons;'etc.as the amount you are
requesting and you put that same number in the blank for regular property tax levy in the levy
certification form.
Excess Levies for General Government Purposes - If You Don't Have Banked
Capacity, Maybe You Can Do a Levy Lid Lift
As discussed above,the passage of Initiative 747 in 2001 limited taxing jurisdictions with a
population of less than 10,000 to an increase of one percent in their levy, plus taxes on new
construction and increases in state-assessed utility valuation. Levy increases for municipalities with
a population of 10,000 or more are limited to the lesser of one percent or the increase in the July
implicit price deflator for personal consumption expenditures as published in the September issue
of the Survey of Current Business.
One exception to the one percent rule is the levy lid lift.Taxing jurisdictions with a tax rate that is
less than their statutory maximum rate may ask the voters to"lift"the levy lid by increasing the tax
rate to some amount equal to or less than their statutory maximum rate.31 (If you do not know your
statutory maximum rate,ask your county assessor.)A simple majority vote is required.
There are two different approaches to,or options for,a levy lid lift,with each having different
provisions and advantages.
Option 1: "Original flavor" lid lift (or "single-year" lift or "one-year" lift or "basic" lift)
- RCW 84.55.050(1)
In 2003, when the legislation32 establishing the multi-year lid lift was passed, MRSC nicknamed
the"old"version the"original flavor"lid lift. Others used the term"basic"lift. Recently,we have
seen the terms"single-year"and "one-year"lift used. We have discovered, however,that some
people think this means that the lift ends or goes away after one year.As we discuss below,the lift
generally lasts for a number of years, perhaps permanently.A better way to describe it may be to
call it the"one-bump" lid lift compared to the multi-year lift,which "bumps up"each for a period of
up to six years. In our discussion,we will continue to refer to it as the"original flavor"lift.
31 RCW 84.55.050.
32 Ch.24,Laws of 2003,1st spec.sess.,amending RCW 84.55.050.
A Revenue Guide for Washington Cities and Towns 10
1. Purpose. It may be done for any purpose,and the purpose may be included in the ballot title,
but it need not be.You could say it would be for hiring more firefighters or for additional money
for general government purposes, or you could say nothing at all. In the latter case, by default,
it would be for general government purposes. Stating a particular purpose may improve your
chances of getting the voters to approve it.
2. Length of time of lid lift. It can be for any amount of time, unless the proceeds will be used
for debt service on bonds, in which case the maximum time period is nine years. Setting a
specific time period may make the ballot measure more attractive to the voters. But, making it
permanent means you can use the funds for ongoing operating expenditures without having
to be concerned that you will have to go back to the voters for another lid lift.To make the lift
permanent requires language in the ballot title expressly stating that future levies will increase
as allowed by chapter 84.55 RCW.
If the lift is not made permanent, the base for future levies will,at the end of the time period
specified in the ballot title, revert to what the dollar amount of the levy would have been if no
lift had ever been done. Note that the assessor will assume that the governing body would have
increased its levy by the maximum amount allowed each year if there had been no lid lift.
3. Subsequent levies.After the initial"lift" in the first year,the jurisdiction's levy in future years
is subject to the 101 percent lid in chapter 84.55.RCW.This is the maximum amount it can
increase without returning to the voters for another lid lift.
4. Election date.The election may take place on any election date listed in RCW 29A.04.321.33
Option 2: Multiple/multi-year lid lift - RCW 84.55.050(2)
1. Purpose. It may be done for any limited purpose,34 but the purpose(s) must be stated in the
title of the ballot measure, and the new funds raised may not supplant existing funds used for
that purpose for any levy approved by the voters before July 27, 2009. "Existing funds" mean
the actual operating expenditures for the calendar year in which the ballot measure is approved
by voters. Actual operating expenditures excludes lost federal funds, lost or expired state grants
or loans, extraordinary events not likely to reoccur, changes in contract provisions beyond the
control of the taxing district receiving the services, and major nonrecurring capital expenditures.
For all counties, other than King County, 2009 legislation removed the supplanting restrictions
33 There are a number of considerations in choosing the election date.Your election date will determine(assuming the
ballot measure is passed)when you will get your first tax receipts.Taxes levied in November are first due on April 30 of the
following year.Therefore,to receive taxes next year from a levy you are discussing during the current year,your election
can be no later than November.If a council first begins thinking of a levy lid lift in September or October,during budget
discussions for the coming year,it will be too late to get any measure on the November ballot.Your county auditor must
receive your ordinance or resolution 52 days before a special election and 84 days before the primary or general election.
(RCW 29A.04.330.)It pays to plan ahead.
Also,councils should ask around to find out what other elections wilt be coming up during the year.You may not want
to go head-to-head with a school levy election or a voted bond issue.
34 "General government purposes"is not a"limited purpose"because the entire general fund is spent for general
government purposes.
A Revenue Guide for Washington Cities and Towns 11
for all levies passed after July 26, 2009. Levies passed in King County are also no longer subject
to the prohibition against supplanting after July 26, 2009. However,the restrictions will be
reimposed on January 1, 2012.35
2. Length of time of lid lift.The lid may be'bumped up"each year for up to six years.At the end
of the specified period,the levy in the final period may be designated as the base amount for
the calculation of all future levy increases(made permanent) if expressly stated in the ballot
title.The levy in future years will then be subject to the 101 percent lid in chapter 84.55 RCW.
If the lift is not made permanent,at the end of the time period specified in the ballot title,the
base for future levies will revert to what the dollar amount of the levy would have been if no lift
had ever been done. Note that the assessor will assume that the governing body would have
increased its levy by the maximum amount allowed each year if there had been no lid lift.
3. Subsequent levies.The lift for the first year must state the new tax rate for that year. For the
ensuing years,the lift may be a dollar amount,a percentage increase amount tied to an index
such as the CP1,36 or a percentage amount set by some other method.The amounts do not
need to be the same for each year. However the ballot title may only have 75 words,so one
does not have much space to get too fancy or creative.
(Note that one cannot specify that the lift be to a specific tax rate for each year.A tax rate must be
specified for the first year, like"increase the rate to$3.10:' For ensuing years, however,the ballot
measure cannot say something like"and raise the rate to$3.10 in each of the next five years:')
If the amount of the increase for a particular year would require a tax rate that is above the
maximum tax rate,the assessor will levy only the maximum amount allowed by law.
4. Election date.The election date must be the August primary or the November general election.
So, which is the better option?
As usual,of course, it depends.The requirement that a purpose must be stated in the ballot title
for a multi-year lid lift makes it appear to be less flexible than the"original flavor"or single-year
version.This may be true more in theory than practice, however, because we know of only one city
that has successfully passed a ballot measure where they did not specify the use of the funds.
The requirement that there be no supplanting in expenditures in the multi-year lift is more
restrictive. It certainly is attractive to have the opportunity to do a levy lid lift for a popular program,
such as public safety, and then use part of the money that would have been spent on that program
for, say,a new computer system. One presumes, however,that citizens believe there will be no
supplanting even when the statutes do not prohibit it,and that they will require some accounting
from government officials.
35 RCW 84.55.050(2)(b)(ii)and(iii)as amended by ch.551,Laws of 2009.
36 See Budget Suggestions for 2009,MRSC Information Bulletin No.531(August 2008),at 44,for a discussion
concerning using the correct index.
A Revenue Guide for Washington Cities and Towns 12
Affordable Housing Levy for Very Low-Income Housing
Counties and cities may impose additional regular property tax levies up to$0.50 per thousand
dollars assessed valuation each year for up to ten years to finance affordable housing for very
low-income households when specifically authorized to do so by a majority of voters of the taxing
district(RCW 84.52.105). If both the city and county impose a levy,the levy of the last jurisdiction
to receive voter approval is reduced so that the combined rate does not exceed $0.50 per
thousand dollars AV in any taxing district.
This tax may not be imposed until the legislative authority declares the existence of an emergency
with respect to the availability of housing that is affordable to very low-income households, and
the legislative authority adopts an affordable housing finance plan in conformity with state and
federal laws regarding affordable housing.Very low-income is defined as being at or below 50
percent of the median income for the taxing district.
Excess Levies for General Government Purposes - One Year Levy
Even cities that are currently levying their statutory maximum rate can ask the voters, at any
special election date, to raise their rate for one year.37 Many cities refer to this levy as an 0 and M
(operations and maintenance) levy.There are two different scenarios for voter approval. If at least
60 percent of the voters vote"yes"with a voter turnout of more than 40 percent of the number
of people voting in the last general election, the measure is passed. However, if the voter turnout
is 40 percent or less of the number voting in the last general election,all is not lost. In that case, as
long as the number of"yes"votes is equal to at least 60 percent times 40 percent of the number
of people voting in the last general election, the measure will pass. If,for example, 1,000 people
voted in the last general election, as long as at least 240 (1,000 x.4 = 400; 400 x .6 = 240) people
vote"yes"on the 0 and M levy, it will pass even if the number voting is less than 400 (40 percent
of those voting in the last general election).38
As with the levy lid lift,the purpose for which the money will be used does not need to be specified.
However, it is not fiscally prudent to build an annual budget that assumes that the voters will renew
the levy authority each year.A good use of these funds would be for a one-time expenditure.
Receipt of Funds
Property taxes are due on April 30 and October 31.39 This means that cities receive the bulk of
their property tax revenue in May and June and in November and December. In some counties,
the assessor transfers the city share of the revenue received on a daily basis. In other counties, the
assessor makes the transfer on the 10th day of the month, paying interest on the balances it has
held until that time.4°
37 RCW 84.52.052.
38 RCW 84.52.052 and art.7,§2(a)of the state constitution.Note that an easy way to express this alternative for voter
approval is to say that when voter turnout is less than 40 percent of the voter turnout at the last general election,the
"yes'votes must be at least 24 percent(240/1000)of the voter turnout at the last general election in order for the
measure to pass.
39 RCW 84.56.020
40 See RCW 84.56.230;RCW 36.29.110;Seattle v.King County.52 Wn.App.628(1988),rev.denied,112 Wn.2d 1002
(1989)(Cities entitled to interest accumulated on tax collection prior to distribution).
A Revenue Guide for Washington Cities and Towns 13
Retail Sales and Use Tax
Cities and towns have a number of sales tax options available to generate revenue. For the
purposes of this section, "sates tax"means a"sales and use tax" unless otherwise noted.
Sales tax rates vary from city to city depending on exactly which taxes have been imposed - and
at what rates- by the city, county,and other taxing districts with sales tax authority such as transit
districts. Most, but not all,of these sales taxes require approval by a simple majority of voters,and
some must be renewed periodically.
The Department of Revenue collects and distributes the revenues, retaining 1%as an
administrative fee for most sales taxes.41
"Basic" 0.5% Sales Tax - First Half-Cent
Any city or town may impose, by resolution or ordinance, a non-voted sales and use tax at the
rate of 0.5%on any taxable event,as authorized by RCW 82.14.030(1).These revenues are not
restricted and may be used for any purpose.The Department of Revenue calls this tax the"basic"
0.5% in its reports, but it is also commonly referred to as the"first half-cent"to differentiate it from
the"second half-cent"described in the next section.
Counties have the same authority,and as of 2018 every city,town, and county in Washington has
imposed the first half-cent. However,the combined city/county rate may not exceed 0.5 percent.
If both the city and county are levying the first half-which all cities and counties are- 15%of the
first half-cent collected within the city must be distributed to the county. In effect,this drops the
city's first half authority to 0.425%(85%of 0.5%),with the remaining 0.075%(15%of 0.5%)going
to the county.
"Optional" 0.5% Sales Tax - Second Half-Cent
Any city or town may also impose an additional sales tax up to 0.5 percent, in increments of 0.1
percent, as authorized by RCW 82.14.030(2).These revenues are also unrestricted and may be
used for any purpose.This"optional"sales tax- often referred to as the"second half-cent" - has
been imposed by almost every city and town. Implementation required a majority vote of the
legislative body, but it is worth noting that changes to the tax rate are subject to referendum even if
your city has not otherwise adopted powers of initiative and referendum.42
Counties have the same authority.As of 2018,almost every county has imposed the full 0.5%
optional sales tax,with just a few exceptions.43 As with the first half-cent,the total combined city/
county rate may not exceed 0.5%.
If the county imposes its second half-cent at a rate greater than the city,the excess will still be levied
41 RCW 82.14.050
42 RCW 82.14.036 (as of 2018,every city or town has imposed the full 0.5%second half-cent except for Asotin and
Clarkston,which have both imposed 0.3%).
43 As of 2018,every county has imposed the full 0.5%second half-cent except for Asotin County,which has imposed
0.3%,and I<lickitat County,which is not using any of its second half-cent authority.
A Revenue Guide for Washington Cities and Towns 14
against the taxpayer and the county will receive the difference over and above the city rate. If the
county imposes its second-half at a rate equal to the city-which almost all counties have-then 15%
of the city's second half-cent must be distributed to the county. If the county imposes a rate less than
the city,the county must receive an amount of the city's tax equal to 15%of the county's rate.44
For almost all cities,this means the city's rate effectively drops to 0.425%(85%of 0.5%),with the
remaining 0.075%(15% of 0.5%)going to the county.
The exceptions,as of 2018,are:
• Asotin and Clarkston: Since both the city and county impose a rate of 0.3%, the city's rate
effective drops to 0.255%(85%of 0.3%),with the remaining 0.045%(15%of 0.3(%)going to
the county. (Note that if either of these cities opts to increase the optional sales tax above 0.3%
in the future, such increase will be subject to possible referendum under RCW 82.14.036.)
• Bingen, Goldendale,and White Salmon: Since I<lickitat County has not imposed any of its
second half-cent authority, the cities retain all of the revenues collected under the second
half-cent,with none of the revenue going to the county. If the county ever imposes an optional
sales tax, some of the city revenues will then be shared with the county.
Additional Local Sales and Use Tax Options
In addition to the"basic"and "optional"sales taxes, cities and towns also have a number of other
sales tax options that are available. However,these tax options are less flexible and must generally
be used for certain designated purposes. Generally speaking, most of these additional sales taxes
require voter approval, although unlike most property tax ballot measures, sales taxes only require
a simple majority and do not have validation (voter turnout) requirements.
This section discusses only those options available to cities and towns. It does not discuss other
sales taxes that are only available to counties or other non-city taxing districts.
0.9% Transit Sales Tax
A city or town, with voter approval, may levy a sales tax between 0.1 and 0.9%for public
transportation purposes as authorized by RCW 82.14.045.The tax requires a simple majority vote.
However, it is worth noting that few cities provide transit service directly,so more commonly this
sales tax authority is used by public transportation benefit areas(PTBAs) or other transit providers.
0.2% Transportation Benefit District Sales Tax
Any city or town may form a transportation benefit district(TBD) under chapter 36.73 RCW to raise
revenue for specific transportation projects.A TBD can be a separate, quasi-municipal corporation,
or the city that formed the district may assume all the rights, powers,functions,and obligations of
the TBD including the authority to place this sales tax option before the voters.45
TBDs may generate revenue through a variety of means, but one that has gained in popularity is
44 RCW 82.14.040(2).Also see AGO 2006 No.18 for a comprehensive explanation of how the county and city rates
interrelate under different scenarios.
45 For more on TBD assumption,see the MRSC website or chapter 36.74 RCW.
A Revenue Guide for Washington Cities and Towns 15
a voted sales tax up to 0.2% under RCW 82.14.0455 and RCW 36.73.040(3)(a).The tax requires a
simple majority vote to pass.
Unlike many of the sales tax options, the TBD sales tax is limited in duration. A successful ballot
measure is only imposed for 10 years,with the ability to place this same sales tax option back
before the voters for one additional 10-year period.The only exception to this time limitation is for
the repayment of debt; if the TBD sales tax is to be used to repay debt,the ballot measure must
state so and provide the length of the tax obligation.
0.1% Public Safety Sales Tax
Any city or town,with voter approval and subject to the restrictions below, may impose a sales tax
of up to 0.1%for public safety as authorized by RCW 82.14.450.The ballot measure must clearly
state the purposes for which the tax is to be used and requires approval by a simple majority of
voters. The statute requires that at least one-third of the revenue be used solely for criminal justice
purposes,fire protection purposes,or both as defined in RCW 82.14.340(4)-(5).
Similar to the shared revenue requirements under RCW 82.14.340 (criminal justice),the city must
share the tax with the county. 85%of this sales tax revenue is distributed to the city and 15%to the
county.This local sales tax option also features a differential in the tax base from the state sales tax
base,with sales of motor vehicles and the lease of motor vehicles for up to the first 36 months of
the lease exempted.
Counties may also place a ballot measure before the voters for a public safety sales tax under the
same statute.The county's sales tax option may range from 0.1%to 0.3%. If the tax is approved,
the county must share the revenue with the cities,with 60%distributed to the county and the
remaining 40%distributed on a per capita basis to the cities within the county.
The combined city/county rate may not exceed 0.3 percent:
• If the county is already levying the full 0.3%, no city within the county may impose a new
public safety sales tax.
• If the city enacted a 0.1% public safety sales tax before the county,and the county imposes a
0.3%sales tax countywide,the county must credit back 0.1%to the city.
• If the county has imposed a public safety sales tax less than 0.3%,the city may still impose
its own public safety sales tax up to 0.1%, as long as the combined city/county rate does not
exceed 0.3%.
0.1% Affordable Housing Sales Tax
Any city or town,with voter approval and subject to the restrictions below, may levy a sales tax
up to 0.1%for affordable housing as authorized by RCW 82.14.530,as long as the county has not
done so first.This is a relatively new option, enacted by the state legislature in 2015,which requires
a ballot measure presented to the voters and approved by a simple majority.
At least 60%of the revenue must be used for constructing affordable housing, constructing
mental and behavioral health-related facilities, or funding the operations and maintenance costs
of new units of affordable housing and facilities where housing-related programs are provided.The
A Revenue Guide for Washington Cities and Towns 16
affordable housing and facilities may only be provided to people within specified population groups
whose income is 60%or less of the county median income.46
The remaining funds must be used for the operation,delivery, or evaluation of mental and
behavioral health treatment programs and services or housing-related services. No more than 10%
of the revenue may be used to supplant existing local funds.
For cities and towns in any county except King County: If the county has not imposed the sales tax
by October 9, 2017, any city or town within the county may submit such a sales tax to the voters.
No county imposed this sales tax before the deadline, so now any city or town outside of King
County may submit such a proposition to voters.
For cities and towns in King County: If Icing County has not imposed an affordable housing sales tax
by October 9, 2018,any city or town within the county may submit such a proposition to voters.
0.1%Arts, Science & Culture Sales Tax
Any city, town, or county may, with voter approval, impose a sales tax up to 0.1%for up to seven
years to benefit or expand access to nonprofit cultural organizations as authorized by RCW
82.14.525.The tax must be approved by a simple majority of voters,and it may be re-imposed for
one or more additional 7-year periods with voter approval.
A"cultural organization;'as defined in RCW 36.160.020, must be a 501(c)(3) nonprofit corporation
with its principal location(s) in Washington State and conducting a majority of its activities within
the state.The primary purpose of the organization must be the advancement and preservation
of science or technology,the visual or performing arts, zoology(national accreditation required),
botany, anthropology, heritage, or natural history.
State-related cultural organizations are eligible, but the funding may not be used for local
or state government agencies,fundraising organizations that redistribute money to multiple
cultural organizations, radio/TV broadcasters, cable communications systems, internet-based
communications services, newspapers, or magazines.
The revenues must be used in accordance with RCW 36.160.110,which is very detailed and has
separate criteria for cities in King County(sub-section 2)and all other counties(sub-section 1).The
funds may be used for a number of purposes related to cultural access programs, including start-up
funding,administrative and program costs, capital expenditures or acquisitions, technology,and
public school programs to increase cultural program access for students who live in the city.
Unlike most local sales tax options that have an administrative fee withheld by the Department
of Revenue, this local option sales tax must be collected and distributed to the city or town on a
monthly basis at no cost.
46 For specific eligibility language.see RCW 82.14.530(2)(b).
A Revenue Guide for Washington Cities and Towns 17
0.1% Mental Health and Drug Dependency Sales Tax
Mental health and drug dependency sales taxes under RCW 82.14.460 are almost entirely imposed
by and distributed to counties. However,the statute authorizes any city with a population over
30,000, located within Pierce County,to impose a sales tax up to 0.1%for mental health purposes
if the county has not already done so.47 This tax may be imposed by local legislative action
(ordinance)and does not require a vote.As of 2018, Pierce County has not imposed a mental
health sales tax,and Tacoma is the only city currently imposing this tax.
1.0% High-Capacity Transit Sales Tax
Cities that operate transit systems- as well as public transportation benefit areas and other transit
authorities- may,with voter approval, impose a sales tax up to 1.0%under RCW 81.104.170 for
the purpose of providing high-capacity transit service.This authority is reduced to 0.9% if the
jurisdiction is located in a county that has imposed a 0.1%criminal justice sates tax under RCW
82.14.340, which almost all counties have.As of 2018, no city has imposed this tax; however,
Sound Transit has imposed a 1.4%sales tax within the Puget Sound region under this statute.
What Items Are Taxed?
Sales taxes apply to most retail sales of personal property to state residents, as defined in RCW
82.04.050. However,there are a large number of specific exemptions listed in chapter 82.08
RCW.These exemptions change with some frequency as new exemptions are written and older
ones expire or are repealed.Additionally, there is the specific exemption for retail sales tax on
motor vehicle sales and leases that we outlined under the Public Safety Tax(RCW 82.14.450).
Perhaps the most visible exemptions for consumers are prescription drugs(RCW 82.08.0281)
and groceries(RCW 82.08.0293),although alcohol, restaurant meals,and prepared foods sold in
grocery stores are taxable.
Sales tax exemptions that may be of particular interest to cities are those for copies made in
response to public records requests(RCW 82.08.02525)and labor and services on transportation
projects(RCW 82.04.050(8)and WAC 458-20-171).
Services to individuals and businesses-things like haircuts, medical bills, consultants'fees,etc. -
are not"personal property:'and most services are not subject to sales tax. However, some services
are subject to sales tax,as listed in RCW 82.04.050.
Who Has to Pay a Use Tax?
If purchases are made out-of-state by a Washington resident and the sales tax paid is less than
the rate being levied in the resident's city, state law requires that a use tax be calculated and paid
47 Technically,this statute applies to any city with a population over 30,000 in a county with a population over
800,000 that has not imposed a county-level mental health tax.As of June 30,2017,King County and Pierce County
are the only counties over 800,000,and Snohomish County is very close to that threshold.However,King County and
Snohomish County have both imposed a mental health sales tax,so in effect this statute only applies to cities in Pierce
County.
A Revenue Guide for Washington Cities and Towns 18
to make up the difference.48 For example, if you buy some clothes in Idaho,where the sales tax
rate is six percent,and the tax rate in your city is 7.8 percent,you owe a use tax of 1.8 percent on
the purchase price. If you buy furniture in Oregon, where there is no sales tax,and the rate in your
city is 8.2 percent,you owe a use tax at the rate of 8.2 percent on the purchase price. If you make
a retail purchase from a mail order catalog and are not charged sales tax,you owe a use tax at the
rate of the sales tax in your city. Any retail purchase on the Internet that does not include a charge
for sales tax requires the payment of a use tax.49
So, how many people are paying the use tax? Practically no one does, unless the purchase is
of a car or truck where a use tax must be paid before they can be licensed. Otherwise,there is
no enforcement mechanism. (City finance people should be aware, however,that there is an
enforcement mechanism for purchases by their jurisdictions.The Department of Revenue does
audits to ensure compliance with the use tax statutes.)
Sales Tax Streamlining
In 1992,the U.S. Supreme Court ruled in Quill Corp.v. North Dakota that Congress could pass
legislation allowing states and local governments to tax mail order sales.50 However, Congress chose
not to do so.Although this same decision allows Congress to pass legislation to permit state and
local governments to tax remote sales,whether made by mail order or on the Internet, Congress
does not appear ready to do so anytime in the near future.One issue raised by businesses is that
such taxation would be too complicated and expensive for smaller retailers. States exempt different
items from the sales tax and there are many different tax rates. In addition,there is the issue of
where the tax will be collected and by whom.Who gets the tax if someone in Seattle buys a gift on
the Internet from a remote seller in Minnesota who then sends the gift to a friend in Arizona?
To meet this criticism,over 41 states and the District of Columbia have joined together in the
Streamlined Sales and Use Tax Agreement(SSUTA)to make their sales tax systems more uniform.
States that are fully in compliance with the agreement(as of June 1, 2009,there were 19) receive
sales tax revenues from the approximately 1000 retailers that are voluntarily collecting the tax.
In exchange,the retailers will be protected from potential past tax liability and receive monetary
allowances for the costs of collecting the sales taxes using certified software or vendors.
Legislation passed in 2003 put our state in compliance with most aspects of the SSUTA. However,
during the next few years, legislation that required that the sales be credited to the point of
delivery(a requirement of SSUTA) ran into obstacles. In our state, they were credited at the point
of the origin of the sale. Making this change would result in some taxing districts being net gainers
and some being net losers,and it was a source of great contention among cities. Representatives
of the losing and gaining cities finally worked out a mitigation agreement that fully compensates
48 See WAC 458-20-178(12).
49 Mail order catalog and Internet sellers that have physical locations in the state do charge sales tax on their remote
sales.If you make a purchase on the Internet from Eddie Bauer or REI,for example.you will be levied a sales tax.A
purchase from LL Bean or buy.com will not be taxed.Some remote sellers that were not collecting sales tax started to do
so voluntarily when Washington became fully compliant with the Streamlined Sales and Use Tax Agreement on July 1,
2008.
50 Quill Corp.v.North Dakota,504 U.S.298(1992).
A Revenue Guide for Washington Cities and Towns 19
losing taxing districts with transfers from the state.These transfers will be offset by any new
revenues that the losing cities receive from the remote sellers that have volunteered to collect
and remit sales taxes to those states in full compliance with the SSUTA.51 Washington State finally
passed legislation in 200752 that meets the point-of-delivery requirement. It went into effect on
July 1, 2008.
More recent legislation, passed in 2009, imposed the sales tax on "digital products"such as digital
goods,digital automated services,and remote access software so that the tax treatment is the
same no matter how the customer receives them.This legislation was necessary to be in full
conformity with SSUTA and to prevent revenue losses from erosion of the sates tax base.53
Timing of Receipts and Sales Tax Rate Changes
Most retailers remit their sales taxes to the Department of Revenue(DOR) by the 25th of each
month for sales made during the prior month.54 The DRS distributes those collections to cities and
towns on the last day of the following month after subtracting a small service charge.55 There is
anywhere between a one-day to 60-day time lag between collection and remittance by the state
to local government. Interest earned on the funds collected are paid to local government under the
provisions of RCW 82.14.050.
Increases in sales tax rates requires some timing considerations. RCW 82.14.055 states:
• A local sales tax change may take effect no sooner than 75 days after DOR receives notice of
the change and then it will only take effect on January 1,April 1, or July 1; or
• If the local sales tax change is a credit against the state sales tax, it may take effect no sooner
than 30 days after DOR receives notice of the change and then only on the first day of the
month following.
Note that sales tax changes are no longer allowed to occur in the last quarter of the year(October 1).
Therefore any voted local sales tax option taxes authorized by the voters at an election after April 1
would most likely not be imposed until January 1 of the following year.
To notify DOR,cities should submit copies of the sales tax ordinance to Ashley Boss, DOR Tax
Administration,at ashleybedor.wa.gov.You may also call(360)705-6072.The ordinance should
be submitted to DOR as soon as it is passed or,for voted sales taxes,as soon as possible following
certification of the election results. Notifying DOR promptly is a key step to ensure your city
receives its sales tax revenues on time.
51 See"Mitigation Plan:'Washington State Department of Revenue,December 2006.http://www.awcnet.org/
documents/mitigationconcept.pdf
52 RCW 82.32.730.
53 "SHB 2075-Digital Goods Legislation Description;'Washington State Department of Revenue,March 2009.
54 RCW 82.32.045 and WAC 458-20-22801.The Department of Revenue can waive tax remittance for persons with
gross sales less than$28,000 per year or make the administrative decision to put smaller taxpayers on an annual or
quarterly payment schedule.
55 RCW 82.14.050-.060
A Revenue Guide for Washington Cities and Towns 20
General Business and Occupation Taxes and Business Licenses56
Business taxes and licenses come in three forms:
1. Excise(percentage)taxes levied on different classes of business to raise revenue.These are
commonly called general business and occupation taxes.
2. Licenses for the purposes of regulation only.
3. Licenses to regulate and raise revenue.
General Business and Occupation Taxes
These taxes are levied at a percentage rate on the gross receipts of the business, less some
deductions. Businesses are put in different classes such as manufacturing,wholesaling, retailing,
and services.Within each class, the rate must be the same, but it may differ among classes.
Effective April 20, 1982, the legislature set the maximum tax rate that can be imposed by a city's
legislative body at 0.2 percent(0.002), but grandfathered in any higher rates that existed on
January 1, 1982.57 All ordinances that impose this tax for the first time or raise rates must provide for
a referendum procedure.S8 Any city may levy a rate higher than 0.2 percent, if it is approved by a
majority of the voters.59 Thirty-eight of Washington's 281 cities levy this tax.
56 RCW 35.22.280(32)authorizes any city of the first class:"To grant licenses for any lawful purpose,to fix by
ordinance the amount to be paid therefor,and to provide for revoking the same.....This language has been construed
by the Washington Supreme Court as authorizing licenses for revenue purposes as well as regulation.The court has in
at least three decisions upheld a business and occupation tax under the above language:Fleetwood v.Read,21 Wash.
547,552-553(1899);Seattle v.King,74 Wash.277,279(1913);and Pacific Telephone and Telegraph v.Seattle,172 Wash.
649.653(1933).
For second class cities,the authority is found in RCW 35.23.440(8):"License generally:To fix and collect a license
tax for the purposes of revenue and regulation,upon all occupations and trades,and all and every kind of business
authorized by law.....RCW 35.27.370(9)provides the authority for towns:"To license,for the purposes of regulation
and revenue,all and every kind of business,authorized by law and transacted and carried on in such town..:'Under
RCW 35A.82.020,a code city may"exercise the authority authorized by general law for any class of city to license and
revoke the same for cause,to regulate,make inspections and to impose excises for regulation or revenue in regard to all
places and kinds of business,production,commerce,entertainment,exhibition,and upon all occupations.trades and
professions and any other lawful activity..:'
57 RCW 35.21.710.This statute also has a provision that allows cities that had rate higher than 0.2 percent on January
1,1982 to increase the rate without a vote of the people.The increase is limited to a total of 10 percent of the January 1,
1982 rate,with the annual incremental increase limited to two percent of the current rate.
58 RCW 35.21.706.This referendum procedure must specify that a petition may be filed within seven days of the
passage of the ordinance with the filing officer(e.g.,city clerk).Within 10 days,the filing officer must confer with the
petitioner as to form and style of the petition and write a ballot title.Then the petitioner has 30 days to gather the
signatures of at least 15 percent of the registered voters.If sufficient valid signatures are submitted,the referendum
is voted on at the next special election(see RCW 29A 04.330 for special election dates)as long as that election is
at least 45 days after the certificate of sufficiency is received by the city.If a general election is to be held within 90
days,then the referendum must be voted on at the general election.However,the election statutes now require that
a resolution calling for a special election must be given to the county auditor at least 52 days prior to the election,and
a resolution calling a special election that would occur on the primary or general election date must be given to the
auditor at least 84 days before the election.RCW 29A.04.330.
59 RCW 35.21.711.
A Revenue Guide for Washington Cities and Towns 21
Model Ordinance
In 2003,the legislature passed a bill that required the Association of Washington Cities(AWC)to
convene a committee to develop a model ordinance that must be adopted by all cities imposing
a B&O tax no later than December 31, 2004.6°The legislature was concerned about the lack of
uniformity of the cities' B&O tax ordinances and about allegations that some business income
was subject to multiple taxation.As noted in the Final Bill Report, the legislation required that the
model ordinance have certain mandatory provisions:
a system of credits that prevent multiple taxation of the same income,a gross
receipts threshold for small businesses;61 tax reporting frequency requirements;
provisions for penalties and interest, claim and refund provisions,and certain terms
with definitions from the state B&O statutes or based on comparable definitions
within the state B&O statutes.62
Beginning January 1, 2008, cities that levy the B&O tax must allow for allocation and
apportionment,63 as set out in RCW 35.102.130.A study done by the Department of Revenue
estimated that this will reduce the taxable base and B&O taxes collected in all but four cities.64
The total estimated losses for 2004 were$23.2 million,with Seattle being by far the biggest loser.
AWC has posted on its web site a revised model ordinance that incorporates the allocation and
apportionment provisions and the various legislative changes made since 2003.65
Business and occupation taxes are unpopular with business people and are termed inequitable
by some tax experts because they tax gross receipts rather than profits. Other people argue that
the entire state and local tax structure is inequitable because Washington has no income tax.The
business and occupation tax is,along with the property tax,the sales tax, and utility taxes, one of
the four major revenue options given to the cities by the legislature. The basic argument in favor of
the tax is that businesses benefit from general government expenditures, especially police and fire
services,that are supported by the tax.
Cities thinking of levying a gross receipts tax should consider whether they have the staff time and
expertise necessary to administer this tax. In particular,the staff must routinely audit the tax accounts
to ensure compliance.Any cities that have revenue-generating fees(described below)should also
determine that firms are paying the correct amount, but this is probably easier to do for these fees.
60 Ch.79,Laws of 2003 and ch.35.102 RCW.RCW 35.102.020 states that the new chapter is of limited scope and
does not apply to taxes on any service that traditionally or historically has been taxed as a utility business for municipal
services,such as light and power,natural gas distribution,telephone,cable television,sewer,water,drainage,solid
waste,and steam.
61 Only gross receipts over$20,000 a year may be taxed.
62 Washington State Legislature,2003 Final Legislative Report(Olympia,2003),156.
63 Apportionment refers to an approach under tax law under which a multi-jurisdiction business is allowed to
apportion,or divide,its taxable income among the jurisdictions in which it does business.
64 Washington State Department of Revenue.Municipal Business and Occupation Tax-Study of Potential Impacts
(Allocation and Apportionment Study)(Olympia.November 2005),36.
65 See also MRSC's web page on"Business and Occupation Taxes"at http://www.mrsc.org/Subjects/Finance/B-89
Otax.aspx
A Revenue Guide for Washington Cities and Towns 22
Regulatory License Fees66
Regulatory license fees fall into two categories. First,there are business license fees. One purpose
of such fees is to register all businesses to provide the city with a record of the owners, in the
event a citizen or a city department has a problem with a business.Another basic purpose would
be to help ensure compliance with city ordinances(for example, zoning). Cities that levy a gross
receipts business and occupation tax also need to register businesses to be able to check for their
compliance in the payment of taxes.These fees are set at a flat rate per license in an amount
designed to recover the administrative costs of registering the businesses and issuing the licenses,
maintaining the files,etc.The fees charged should be fair and bear a reasonable relation to costs.67
A reasonable charge might provide for recovery of the full costs of issuing the average license,
including the direct salary and benefits of the staff, the indirect costs of management, and possibly
even a share of computer acquisition costs.
Second, there are professional and occupational licenses.These are levied on such businesses as
pawnbrokers, used goods stores,taxis and taxi drivers,and massage parlors.The license fee may
include, in addition to the costs listed above,the costs of investigating the background of the
person requesting the license.The license fees for professional and occupational licenses will vary
by the kind of activity involved.
Many smaller cities levy the second kind of fee, but not the basic business license fee.
Implementing a business license program is considered to be a sound management practice to
protect the corporate city and its citizens.
Revenue-Generating Regulatory Licenses
Rather than charge a single flat fee to license all businesses, cities that license to generate revenue
use one or more criteria to set the fees.Criteria that we have seen used include: establishing ranges
of employees or square footage of the business and then charging different fees depending upon
the range in which the firm falls; charging different fees depending on the type of business;and
using a flat rate per employee or square foot.
Twenty-seven of the 246 cities responding to this question in the 2008 Association of Washington
Cities Tax and User Fee Survey have a range of fees, based on the number of people they employ.
Eleven cities charge a fee per employee, per hour, or full-time equivalent employee. Three cities
use the square footage of the establishment as the basis for their license fees. Some cities use
a combination of two or three measures. Mountlake Terrace,for example, has a license that is
based on number of employees and square footage. Bothell has a three-part fee that combines
the number of employees, type of business,and square footage.68 Kirkland has a base fee and a
surcharge that uses ranges of number of employees and ranges of gross receipts.69
66 Many people refer to these fees as"taxes:'Care needs to be taken to determine whether the person using the term
"business tax"is referring to a gross receipts tax or a revenue-generating fee of the type discussed here.
67 See McQuillin,Municipal Corporations§26.46(December 2008);see,generally,Patton v.Bellingham,179 Wash.
566(1934),and Homes Unlimited v.Seattle,90 Wn.2d 154(1978).
68 Bothell Resolution No.1227(2008).
69 Kirkland Municipal Code§7.02.160(b).
A Revenue Guide for Washington Cities and Towns 23
The law allows for a good deal of creativity in designing these license fees. However, classes
of businesses must be clearly defined, with each business within each class being charged the
same fee.70
70 See McQuillin,Municipal Corporations§26.76(December 2008).
A Revenue Guide for Washington Cities and Towns 24
Utility Business and Occupation Taxes"
Utility taxes may be levied on the gross operating revenues earned by private utilities from
operations within the boundaries of a city and by a city's own municipal utilities.72 Utilities on which
taxes may be levied include electric, water, sewer,stormwater,gas, telephone, cable TV,and steam.
Note that utilities will often break out the amount of the tax on the bill,the tax is legally levied on
the utility, not the customer and must be paid from utility revenues.
What Are the Limits on the Tax Rate?
Legislation passed in 1982 limits the tax rate that a legislative body may impose on electric, gas,
steam,and telephone utility services to six percent.73 Cellular telephone and pager services may be
taxed at the same rate as other telephone services.74 A city may ask the voters to approve a rate of
higher than six percent on these utilities.We know of at least six cities where such an increase has
been approved. In four of those cities,the funds are used for public safety purposes.75
There are no restrictions on the tax rates for water, sewer, and stormwater utilities. The rate on
cable TV is governed by the Cable Communications Policy Act of 1984.76 It requires that the rate
not be "unduly discriminatory against cable operators and subscribers:' If a city has set all its tax
rates at six percent,the rate on cable TV should probably be no higher than that. However, if
rates on utilities other than electric,gas,or telephone are higher than six percent, an argument
can be made that the tax on cable TV can be higher than six percent also without being"unduly
discriminatory;'because all the rates over which the jurisdiction's legislative body has control are
higher than six percent. Direct broadcast satellite television services are preempted from all local
government taxation except for the sales of equipment, such as satellite reception dishes.'?
71 The statutory authority for utility taxes is found in the same places as that for business licenses and the general
business and occupation taxes.See footnote 56.
72 Note that a city may levy taxes on any revenues earned from its operations outside the city limits.Burba v.
Vancouver,113 Wn.2d 800(1989).However,a city may not tax any income earned by another city's utility or a by a
special district that operates within its boundaries,unless there is express statutory authority or the other taxing district
gives its permission.King County v.Algona,101 Wn.2d 789(1984).
73 RCW 35.21.870(1).Note that a utility tax may not be levied on interstate long distance service(RCW 35.21.714 and
RCW 35A.82.060),but a service business and occupation tax may be levied(RCW 35.21.715 and RCW 35A.82.065).
74 In Western Telepage.Inc.v.City of Tacoma,140 Wn.2d 599(2000),the Washington State Supreme Court found
that one-way paging services fall within the statutory definition of"telephone business:'
To tax cellular telephones and/or pager services,a city must take care with the definitions in its utility tax ordinance.For
examples,see Bellevue Municipal Code§4.10.020:Seattle Municipal Code Ch.5.30.
75 RCW 35.21.870(1).In Pasco,voters approved an increase of 2.5 percent for anti-crime purposes.Pasco Municipal Code
§5.32.040(8).The revenue from the voted 2.5 percent tax increase in Richland is used for fire department operations.
Richland Municipal Code§55.20.040,.050,.100.Kennewick has had a voted tax increase of 2.5 percent on electricity,
natural gas,and telephone services since 1991.Kennewick Municipal Code§3.70.020(2),(3).The revenue is used for
police and fire department capital and operating needs.Toppenish increased rates by 2.5 percent for police department
purposes.Toppenish Municipal Code§3.37.030(E).(F).Pullman raised its rates to eight percent,with the additional two
percent allocated to the street fund.Pullman Municipal Code§6.15.055(4).Grandview voters approved an additional
1.5 percent to be used for animal control,graffiti removal,youth crime prevention programs,parks and recreation,and
museum and library services.Grandview Municipal Code§3.60.050(G).In November 2006,voters in Federal Way
approved an increase to 7.75 percent for 18 additional police officers and other police and community safety staff.
76 Cable Communications Policy Act of 1984,§622(g)(2)(A)(47 U.S.C.§542(g)(2)(A)).
77 Telecommunications Act of 1996,§602(a)((47 U.S.C.§522(a)).
A Revenue Guide for Washington Cities and Towns 25
Effective July 1, 2008, cities may no longer tax Internet access due to the passage of the
federal Internet Tax Freedom Act Amendments Act of 2007, Public Law 110-108, the federal
moratorium against the imposition of state and local taxes on Internet access. Prior to this time, a
grandfathering provision allowed cities to levy their service B&O tax on Internet access charges and
their telephone utility tax on telecommunications service purchased, used, or sold by a provider of
Internet access.
What Do We Need to Do to Change a Rate?
A city that imposes a utility tax for the first time or that increases a tax rate may be required to
include a referendum clause in the ordinance. From its placement in the text, it is unclear whether
RCW 35.21.706,which very definitely requires a referendum clause for a gross receipts business
and occupation tax,applies to utility taxes.78 In response to inquiries, MRSC has suggested adoption
of a cautious approach, recommending that referendum language be included in any increase to a
utility tax. Nevertheless,we note that a number of cities have not included a referendum clause.A
court decision or legislative amendment would clarify this matter.
Any tax changes for electric, telephone, and gas utilities cannot take effect until the end of 60
days after enactment of the ordinance.79 If the utilities are private utilities, they need this time to
apply to the Washington Utilities and Transportation Commission for a rate adjustment to reflect
the tax change.
Real Estate Excise Tax
The real estate excise tax is levied on all sales of real estate, measured by the full selling price,
including the amount of any liens, mortgages,and other debts given to secure the purchase(RCW
82.46.010(5)and RCW 82.45.030).The state levies this tax at the rate of 1.28 percent(RCW
82.45.060).A locally-imposed tax is also authorized. However, the rate at which it can be levied
and the uses to which it may be put differs by city population and whether the city is planning
under the Growth Management Act(GMA). All cities may levy a quarter percent tax(referred to as
"the first quarter percent of the real estate excise tax"or"REET 1").
Cities that are fully planning under GMA are given the authority to levy a second quarter percent
tax("REET 2") by RCW 82.46.035(2). Note that this statute specifies that if the city is located in a
county that is required to fully plan under GMA, REET 2 may be levied by a vote of the legislative
body. If, however,the county opts to fully plan under GMA, REET 2 must be approved by a majority
of the voters.
78 RCW 35.21.706,requiring the referendum procedure,immediately precedes RCW 35.21.710,providing for a limit on
the general business and occupation gross receipts tax.The limitation placed on utility taxes in RCW 35.21.870 appears
considerably later in the chapter.You can find the requirements for a referendum clause in RCW 82.14.036.
79 RCW 35.21.865.
A Revenue Guide for Washington Cities and Towns 26
How Can the First Quarter Percent - REET 1 - Be Spent?
Cities Not Planning Under GMA or Are Planning and Have a Population of 5,000 or Less
According to RCW 82.46.010(2),these jurisdictions must use REET 1 funds"for any capital
purpose identified in a capital improvements plan and local capital improvements, including those
listed in RCW 35.43.040:' RCW 35.43.040 additionally lists local improvements that can be
funded through a local improvement district(LID),which includes projects such as streets, parks,
sewers,water mains, swimming pools,and gymnasiums. Local capital improvements include the
acquisition of real and personal property associated with such improvements, thus, land acquisition
for parks is a permitted expenditure.
Capital projects not listed in the local improvement statute(for example, a fire station, city hall,
courthouse,or library)are also permitted uses as long as they are included in the city's capital
improvement plan. Expenditures that are not allowed are such things as the purchase of police cars.
Accountants may consider these to be"capital"for accounting purposes, but they are not"capital
purposes"or"local capital improvements:'See correspondence between Allen R. Hancock, Deputy
Prosecuting Attorney of Island County and Philip H. Austin, Senior Deputy Attorney General.
Cities Planning Under GMA With a Population of More than 5,000
These jurisdictions must spend the first quarter percent of their real estate excise tax receipts solely
on capital projects that are listed in the capital facilities plan element of their comprehensive plan.
RCW 82.46.010(6)defines"capital projects"as:
those public works projects of a local government for planning, acquisition,
construction, reconstruction, repair, replacement, rehabilitation, or improvement
of streets; roads; highways; sidewalks; street and road lighting systems; traffic
signals; bridges; domestic water systems; storm and sanitary sewer systems; parks;
recreational facilities; law enforcement facilities;fire protection facilities;trails;
libraries; administrative facilities,judicial facilities, river flood control projects...
REET 2: Spending the Second Quarter Percent
This part of the real estate excise tax may only be levied by cities or towns that are required to or
choose to plan under GMA.All cities and towns that levy this tax face the same provisions,whether
their population is greater or less than 5,000.
For this 0.25%of the real estate excise tax, "capital project" is defined in RCW 82.46.035(5)as:
public works projects of a local government for planning,acquisition, construction,
reconstruction, repair, replacement, rehabilitation, or improvement of streets, roads,
highways, sidewalks,street and road lighting systems,traffic signals, bridges, domestic
water systems, storm and sanitary sewer systems, and planning, construction,
reconstruction, repair, rehabilitation, or improvement of parks.
Note that acquisition of land for parks is not an outright permitted use of REET 2 funds,although it
is a permitted use for street, water,and sewer projects.
A Revenue Guide for Washington Cities and Towns 27
As of September 2015, under limited circumstances, REET 2 funds may be used for those capital
projects that qualify as REET 1 projects, including acquisition of land for parks, recreational facilities;
law enforcement facilities;fire protection facilities; trails; libraries;administrative facilities,judicial
facilities, and river flood control projects.The dollar limit on the use of REET 2 funds for such
purposes is the greater of$100,000 or 25%of available funds, not to exceed $1 million per year.
The use of REET 2 funds for these purposes also requires additional reporting requirements.
Limited Use of REET 1 and 2 Funds for Maintenance
¢¢ Note,During the 2015 legi ive slat '`session the state legislature placed significant r g.
4 .tt `�'.',4a e•. fi s'. ti ti
AA additionalttresrj't�rictiions,onthe useoyfwREET funds formaintenance However.` 4
w y ,� 'G 14+y '!$ t(,.w'a6 ."Mt {'�"' .� P k i -
localgovernments can continue to useiREET funds forrmaintenance under the,. .v
pc' u � 'J'� S,1tN 6� d i•�'� dV.x"`r
reexisting rules that will sunset=on December 31;,p2016 MRSCrecommends iz��, -,.0t
k-thatrlocal governments continue to`use REET fundsrfor.maintenanceyunder{,the
' preexisting rules and prepare to transition to the new rules by December 31 2016 .
r..�5C u�.tfo�eL'_..mu"�'"..+�.' -'-„ n,�..:. �<�n�`�T'"„b+..�`..•J. ,.,�.,.�t.�"�"�a.. S _ ., +�,.�q. N�,r:Y.*y�., a ..r ,t� 4" ,.�+
Prior to December 31, 2016
RCW 82.46.010(7)and 82.46.035(7)allow cities and towns to use REET 1 revenues for operations
and maintenance(O&M)of existing REET 1 eligible capital projects and REET 2 revenues for O&M
of existing REET 2 eligible capital projects.There is a limit, however, on how much can be spent
on O&M.The maximum amount of each REET fund that may be spent on O&M is the greater of
$100,000 or 35 %of the available funds, not to exceed $1 million per year.This legislation sunsets
on December 31, 2016.
After December 31, 2016
After the sunset date of December 31, 2016,there are additional limitations on the use of REET
funding for maintenance.These new limitations include:
Definition of Maintenance- The definition of maintenance is limited. RCW 82.46.015 (5)defines
maintenance as:
the use of funds for labor and materials that will preserve, prevent the decline of,
or extend the useful life of a capital project. Maintenance does not include labor or
material costs for routine operations of a capital project(emphasis added).
Dollar Limit-The maximum amount of either REET 1 or REET 2 that may be spent on maintenance
is the greater of$100,000 or 25%of the available funds, not to exceed $1 million per year.
Reporting Requirements-The local government must prepare a written report demonstrating that
it has, or will have,adequate funding from all sources of public funding to pay for all capital projects
identified in its capital facilities plan for a two-year period.This report must be adopted as part of
the city's regular budget process and must include:
A Revenue Guide for Washington Cities and Towns 28
• Information necessary to demonstrate that the local government has, or will have,adequate
funding from all sources to pay for all capital projects identified in its capital facilities plan.
How revenues collected under REET 1 and REET 2 have been used during the prior two-year period.
• How revenues collected under REET 1 and REET 2 will be used for the succeeding two-year period.
• What percentage of funds for capital projects is attributed to REET 1 and REET 2 revenues
compared to all other source of capital project funding.
Posting of Disclosure Requirements - If the local government has imposed any requirements
on landlords or sellers of real property to provide information to a buyer or tenant"pertaining to
the subject property or to the surrounding area:the requirements must be posted on the MRSC
website in accordance with RCW 43.110.030(2)(e).
What's This Other One-Half Cent Tax Shown in RCW 82.46.010(3) (REET 3)?
Cities that are not levying the optional half-cent sales tax under RCW 82.14.030(2)have the option of
levying an additional 0.5%real estate excise tax.These receipts are not designated for capital projects.
They are a general fund revenue for city operating expenditures.Only two cities,Asotin and Clarkston,
have chosen to do this. From a financial standpoint,the optional half-cent sales tax will probably
bring in more revenue than this additional 0.5%real estate excise tax. For border cities and counties,
however,who do not feel they are able to levy the optional sales tax,this tax is a revenue option.
The imposition of this tax, a change in rate, or a repeal of the tax is subject to the referendum
procedures given in RCW 82.46.021.
Accounting for REET Funds
Because this revenue source is restricted to a specific purpose, it must be accounted for separately
in a capital projects fund.Those cities that are planning under GMA and levying both REET 1 and
REET 2 need to keep track of each of these revenues separately because the uses to which they
may be put are different(RCW 82.46.030(2)and 82.46.035(4)).
Hotel-Motel (Lodging) Tax80
Most cities have had the authority to levy a"hotel-motel"or lodging tax of two percent since
1973.81 Over the years, some cities got special interest legislation passed that increased the rate of
their permitted levy and/or provided for certain uses of the tax revenue that were unique to them.
In 1997, the legislature repealed much of chapter 67.28 RCW and gave most cities the same levy
rate and permitted uses.
What Are the Tax Rates?
Most cities may impose a"basic"two percent tax under RCW 67.28.180 on all charges for
furnishing lodging at hotels, motels,and similar establishments (including bed and breakfasts and
80 Tourist promotion area fees are discussed on pages 52-53.
81 Ch.34,Laws of 1973,2nd ex.sess.
A Revenue Guide for Washington Cities and Towns 29
RV parks)for a continuous period of less than one month.This tax is taken as a credit against the
6.5 percent state sales tax, so that the total tax that a patron pays in retail sales tax and the hotel-
motel tax combined is equal to the retail sales tax in the jurisdiction.82 In addition, most cities may
levy an additional tax of up to two percent,for a total rate of four percent, under RCW 67.28.181(1).
This"special"tax is not credited against the state sales tax.Therefore, if a city levies this additional
tax,the total tax on the lodging bill will increase by two percent.
There are some exceptions:
• RCW 67.28.181(1)stipulates that this additional two percent tax may be levied as long as the
total tax rate under chapter 36.100 RCW(the public facilities district tax), chapter 82.08 RCW
(the state sales tax), chapter 82.14 RCW(the city,county,and transit district sales taxes),chapter
67.28 RCW(the hotel-motel tax chapter),and chapter 67.40 RCW(the convention and trade
center tax) does not exceed 12 percent. (Note that the sales tax rate for the Regional Transit
Authority(Sound Transit) in portions of King, Pierce,and Snohomish counties is not included
in making these calculations.)The limit for the total rate in Seattle is 15.2 percent, because the
convention center tax is higher than in the rest of the county.83 This means that most cities in
King County may only levy a one percent tax and Seattle cannot levy any tax.84
• Cities that had authority to levy a"special"tax before July 27, 1997 that allowed a total rate
higher than four percent, had that rate grandfathered in by the 1997 legislation.85 All the cities
in Grays Harbor and Pierce counties are in this category, plus Chelan, Leavenworth, Long Beach,
Bellevue,Yakima, and Winthrop.
• Cities located in counties that had the authority to levy a total four percent tax county-wide
before January 1, 1997,are limited to the"basic"two percent rate.86 This affects cities in
Snohomish and Cowlitz counties.
• Due to some unique circumstances,87there was a period of time at the end of 1997 and
beginning of 1998 when the outstanding taxing authority was six percent, rather than the four
percent the legislature intended. During this time, Wenatchee and East Wenatchee raised their
total tax to six percent.These rates were grandfathered in by the 1998 legislature.88
82 RCW 67.28.1801.Ch.35,Laws of 1998.§2.
83 RCW 67.40.090(2)(d).The statutes provide that the maximum rate in Seattle is 15.2 percent.
RCW 67.28.181(2)(c).
84 At the time this statute was written,the sales tax in King County,excluding Seattle,was 8.2 percent.The convention
center tax was 2.8 percent and the hotel-motel tax for the I<ingdome/new football stadium was two percent,making
the total rate 13 percent.Subtracting the two percent credit against the state sales tax brought the total rate down to 11
percent.That meant that cities in King County,other than Seattle,could levy a one percent hotel-motel tax.
However,in 2000,King County voters approved an increase in the transit tax by 0.2 percent.This would have raised
the total rate that provides the limit for the hotel-motel tax to 12.2 percent,and would thus lower the rate the cities
could levy by 0.2 percent to 0.8 percent.Legislation was then passed that required an entity that passed a sales tax
increase,which pushed the total over the 12 percent limit,to exempt sales of lodging from the increase.Ch.79,Laws of
2001,and RCW 82.14.410.
85 RCW 67.28.181(2)(a).
86 RCW 67.28.181(2)(b).
87 See Budget Suggestions for 1998,Municipal Research and Services Center:Seattle,August 1997,pp.26-32,for a
discussion of the unintended consequences of the partial veto of ch.452,Laws of 1997.
88 RCW 67.28.181(2)(d).
A Revenue Guide for Washington Cities and Towns 30
City or County Tax?
Counties also have the right to levy this tax but, in most cases,the county must allow a credit
for any tax levied by a city.89 One exception is King County.The law provides that if any county
pledged these tax revenues before June 26, 1975 to pay debt service on the construction of a
"public stadium,convention center, performing arts center,or visual arts facilities:'then it could
collect the tax on a county-wide basis from all lodging facilities.90 In practical terms this means
that cities in King County are not able to levy the hotel-motel tax at rate higher than one percent,
and Seattle can levy no tax at all, until the bonds issued for the new football stadium are retired on
January 1, 2021.91
However,the taw also has a provision for any cities that, before June 26,1975, had pledged
hotelmotel tax revenue to pay debt service for the construction of one of the facilities listed above.
Those cities are able to continue to collect their hotel-motel tax until the debt is retired.92 One such
city is Bellevue,where the 6.5 percent state retail sales tax on the sale of lodging is reduced by both
the two percent county hotel-motel tax and the two percent city tax.The city of Yakima and Yakima
County also pledged hotel-motel tax revenues for a convention center before June 26, 1975,and the
state sales tax there is subject to the same"double-dipping"credit against the state sales tax.93
How Can the Revenues Be Used?
The guiding principle for the use of lodging taxes is that they must be used for activities, operations
and expenditures designed to increase tourism. Specifically, lodging taxes can be used for:
• Tourism marketing as defined by RCW 67.28.080 . It includes activities such as:
• Advertising, publicizing, or otherwise distributing information for the purpose of attracting
and welcoming tourists;
• Developing strategies to expand tourism;
• Operating tourism promotion agencies; and
• Marketing and operations of special events and festivals designed to attract tourists;
• Operations and capital expenditures of tourism-related facilities owned or operated by a
municipality or a public facilities district; or
• Operations of tourism-related facilities owned or operated by nonprofit organizations(RCW
67.28.1816).
You may additionally use lodging tax revenues to pay for staff support of the Lodging Tax Advisory
Committee. (See MRSC's blog post on Using Lodging Taxes for Staff Support of LTAC.)
89 RCW 67.28.180(2)(a)and RCW 67.28.181(3).If a city is levying the entire four percent tax(or more,if a higher rate
has been grandfathered in),the county may not levy its tax in that city.
90 RCW 67.28.180(2)(b).
91 RCW 67.28.180(2)(c)(ii).
92 RCW 67.28.180(2)(c)(iii).
93 Ch.189,Laws of 2007,and RCW 67.28.180(2)(b)allows the"double-dipping"to continue until 2021 to pay debt
service on bonds for county facilities for agricultural promotion.
A Revenue Guide for Washington Cities and Towns 31
What's a Tourism-related facility?
A tourism-related facility is a real or tangible personal property with a usable life
of three or more years, or constructed with volunteer labor that is(a)owned by a
public entity, nonprofit organization (including a non-profit business organization,
destination marketing organization, main street organization, lodging association,
or chamber of commerce)and (b) used to support tourism, performing arts, or to
accommodate tourist activities(RCW 67.28.080).
Note:As of July 1, 2013, capital expenditures for tourism-related facilities owned by nonprofit
organizations are no longer permitted expenditures of lodging tax funds.
Applications for Lodging Tax Funds
In cities with at least 5,000 population,applications must be submitted directly to the lodging tax
advisory committee(LTAC). In cities or towns of less than 5,000, applications are submitted to the
city or the municipality may opt to form an LTAC for the application process.
The law is silent on the frequency of distribution or the timeline associated with the award process.
Some jurisdictions choose to make awards as part of their annual budget cycle.Others also make
mid-year awards to account for unexpected increases or decreases in projected revenue.
Who Must Apply?
All applicants for awards of lodging tax must apply to either the LTAC or the municipality.The
applicants may consist of convention and visitors bureaus, destination marketing organizations,
nonprofits, including main street organizations, lodging associations,or chambers of commerce,
and additionally the cities or towns themselves.
The State Auditor's Office(SAO) is interpreting the law to mean that all users of funds, including
municipalities,are considered applicants and must follow relevant application procedures.So,cities
and towns with LTAC's must submit applications for their own projects.
What is Included in the Application?
All applications must include estimates of how funding the activity will result in:
• Increases to people staying overnight,
• Travelling 50 miles or more, or
• Coming from another state or country.
To ensure this data is collected,jurisdictions should require this information on their lodging tax
application forms.
There is no requirement that priority for funding be given to applicants expected to generate the
most travelers, and lodging tax revenue may still be awarded to recipients who generate few of
these types of travelers.
Examples of Funding Applications and Guidelines can be found on the MRSC website for Lodging Tax.
A Revenue Guide for Washington Cities and Towns 32
Review and Selection of Applications
In a municipality of at least 5,000 population, the LTAC receives all applications for lodging tax
revenue and recommends a list of candidates and funding levels to the municipality's legislative
body for final determination. If a municipality under 5,000 chooses to establish a LTAC, they may,
but do not have to follow these requirements.
What Does the Municipality Do with the LTAC's Recommendations?
The legislative body may choose only recipients from the list of candidates and recommended
amounts provided by the local lodging tax advisory committee"(RCW 67.28.1816(2)(b)(ii),
emphasis added).An August 2016 informal opinion from the Attorney General's Office interpreted
this language to mean that the legislative body may award amounts different from the LTAC's
recommended amounts, but only after satisfying the procedural requirement in RCW 67.28.1817(2).
(For more details, see our blog post on Informal AG Opinion Clarifies Lodging Tax Awards.)That
requirement is that the municipality must submit its proposed change(s)to the LTAC for review and
comment at least 45 days before final action is taken.
Note:A city need not fund the full list of recipients as recommended by the LTAC and may choose
to make awards to only some or to none of the recommended recipients on this list.
Contracts with Recipients of Lodging Tax Funds
Because of the state constitutional gift of public funds prohibition,a city or county should enter into a
contract with any private organization providing marketing services,operating special events or festivals,
or any other tourist promotion activity.The contract should spell out the tourism-related services to be
provided in exchange for city or county funding and what reports will be required.Also,any organization
doing promotion on behalf of the city or county may only spend lodging tax funds on items that the city
or county itself could fund.This prohibits,for example,any expenditures on promotional hosting.
The Lodging Tax Advisory Committee (LTAC)
This committee must have at least five members, appointed by the governing body and the
committee membership be composed of the following:
• At least two representatives of businesses that are required to collect the lodging tax, and
• At least two people who are involved in activities that are authorized to be funded by this tax,and
• One elected city official who serves as chairperson of the committee.
The statute also provides that a person who is eligible under the first category is not eligible for
appointment under the second category,and vice versa. Organizations representing hotels and
motels and organizations involved in activities that can be funded by this tax may recommend
people for membership. The number of committee members from organizations representing the
hotels and motels and the number from organizations involved in activities that can be funded
must be equal.A city's committee may include a non-voting elected county official and vice-versa.
The governing body must review the membership of the committee annually.
In addition to reviewing applications for the use of the lodging tax the committee must also review
any proposal by the municipality to impose a new lodging tax, raise the rate of an existing tax, repeal
A Revenue Guide for Washington Cities and Towns 33
an exemption from the lodging tax, or change the use of the tax proceeds.The submission must
occur at least 45 days before final action will be taken on the governing body's proposal. Even if the
committee finishes its work before the 45 days are up,the governing body still must wait 45 days.
The committee's comments must include an analysis of the extent to which the proposal will
accommodate activities for tourists or increase tourism, and of the extent to which it will affect
the long-run stability of the fund to which the hotel-motel taxes are credited. If the advisory
committee does not submit comments before the time that final action is to be taken on the
proposal,the governing body may go ahead and take final action.
Lodging Tax Reporting Requirements
All entities receiving lodging tax distributions must provide information to their respective local
government on their use of these funds as required by RCW 67.28.1816. This includes local
governments that directly use lodging tax funds for municipal purposes, such as municipal facilities
or community events. Local governments will then, in turn, report this information annually to
JLARC using their on-line reporting system.
Local governments should,as part of their contract with recipients, require that the report be
provided immediately after the event or activity. The deadline for local governments to submit the
annual data to JLARC is March 15 for the year ending the previous December 31.
JLARC does not provide advice on how to estimate tourism impacts. Good faith estimates of
actuals can be reported provided applicants and users of funds indicate how those estimates will
be developed.All information (including descriptions of how actual impacts were estimated)will
be available for public review. (JLARC can be contacted for technical issues associated with the
reporting portal by emailing jlarcpleg.wa.gov.)
Emergency Medical Services
All cities are allowed to ask the voters for authority to levy an additional property tax of up to 50
cents per thousand dollars of assessed valuation to support emergency medical services.The levy
presented to the voters can be imposed for six years,ten years, or permanently.94
A permanent levy or the initial imposition of a six or ten year levy requires a voter approval of at
least 60 percent and a voter turnout of at least 40 percent of the number of people that voted
in the last general election. However, if the voter turnout falls below 40 percent of the number
of voters from the last general election,all is not lost. In that case, as long as the number of"yes"
votes is equal to at least 60 percent of the 40 percent of the last general election,then the
measure will pass. Here is an example of how that would work:
1,000 people voted in the last general election
40 %equals 400 voters
60 %of 400 = 240 yes votes needed to pass ballot measure
94 RCW 84.52.069(2).
A Revenue Guide for Washington Cities and Towns 34
For the subsequent renewal of a six-or ten-year EMS levy,a simple majority vote is all that is required.
(Previously,this was only allowed for an"uninterrupted continuation:but that language changed in 2018
with SHB 2627.)95
If a city imposes a permanent levy, it must account separately for the expenditure of the
revenues.96 In addition, a permanent levy is subject to a referendum at any time.97 This provision
means the "permanent" levy may not necessarily be permanent.
An EMS levy is a"regular property tax levy:'98 As such, it is governed by RCW 84.55.010. After
the initial levy is approved by the voters,cities with a population under 10,000 may increase the
amount of the levy by a maximum of one percent a year plus an additional amount("add-ons")for
new construction, improvements to property, newly constructed wind turbines, increases in the
value of state-assessed property, annexations, and refunds. Cities with a population of 10,000
and over are limited each year to a levy increase that is no greater than one percent or the implicit
price deflator(IPD)whichever is less(see page 2 - Referendum 47) plus add-ons, unless the council
makes a finding of"substantial need"with a majority plus one vote of the city council.99
This levy is not subject to the limitation in RCW 84.52.043(2),which provides that the aggregate
levies of special districts and the city and county may not exceed $5.90 per thousand dollars
assessed valuation.10O It is, however,subject to the constitutional provision that the aggregate of all
regular property tax levies(except levies by ports) may not exceed one percent of assessed value
($10 per thousand dollars assessed valuation).101
Gambling Tax'°2
Cities that choose to allow gambling activities within their borders may tax the gambling revenues.
Currently,the maximum tax rates are as follows:
95 Id.Note that an easy way to express this alternative for voter approval is to say that when voter turnout is
less than 40 percent of the voter turnout at the last general election,the"yes"votes must be at least 24 percent
(240/1000)of the voter turnout at the last general election in for the measure to pass.
96 RCW 84.52.069(3).
97 RCW 84.52.069(4).The standard referendum procedure requires that a petition must be filed within seven days
of the passage of the ordinance.Within ten days,the officer with whom the petition is filed must confer with the
petitioner concerning the form and style of the petition and provide a ballot title.The petitioner has 30 days to gather
valid signatures from at least 15 percent of the registered voters as of the last general election.If enough valid signatures
are gathered,the referendum must be placed on the ballot at the next general election,if one is to be held within 180
days of the filing of the petition,or at a special election called for that purpose.
98 AGO 1993 No.7.
99 Pages 2-5 contain an expanded discussion of levy limits under RCW 84.55.010 and Referendum 47.
100 RCW 84.52.069(5)and RCW 84.52.043(2)(d).RCW 84.52.010 sets out the order in which the special district
levies get cut in the event that the aggregate rate exceeds$5.90.
101 RCW 84.52.050 and art.7,§2,of the Washington State Constitution.Note that excess levies for operations
and maintenance(discussed on pages 13)are not subject to this one percent limit.nor are port district levies.RCW
84.52.052 and RCW 84.52.050.
102 RCW 9.46.110.
A Revenue Guide for Washington Cities and Towns 35
• Amusement games: 2 percent of gross receipts less prizes(net receipts);
• Amusement games by charitable or nonprofit organizations that have no paid operating or
management personnel: no tax on first$5,000 of net receipts(including that from any bingo
games),then 2 percent of net receipts;
• Bingo and raffles: 5 percent of net receipts;
• Raffles by charitable or nonprofit organizations: no tax on first$10,000 of net receipts,then 5
percent of net receipts;
Bingo by charitable or nonprofit organizations that have no paid operating or management
personnel: no tax on first$5,000 of net receipts(including that from any amusement games),
then 5 percent of net receipts;
• Punch boards and pull-tabs by charitable or nonprofit organizations, 10 percent of net receipts;
• Punch boards and pull-tabs by commercial stimulant operators, 5 percent of gross receipts or
10 percent of net receipts; and
• Social card games: 20 percent of gross receipts.
How Can We Spend the Proceeds?
RCW 9.46.113 states that cities that levy gambling taxes"shall use the revenue from such tax
primarily for the purpose of enforcement of the provisions of this chapter:'(Emphasis added.) In
1991,the Washington State Supreme Court handed down a decision (American Legion Post No. 32 v.
City of Walla Walla)103 that clarified the definition of"primarily: In that decision, the court said that
gambling tax revenues must"first be used"for gambling law enforcement purposes to the extent
necessary for that city.The remaining funds may be used for any general government purpose.
The court also recognized that enforcement does not necessarily encompass only police activity
directly related to gambling activities. A general police presence can help prevent illegal gambling
activities. From a practical standpoint,and as an easy way to keep a trail for the auditor,funds
should be spent first on direct gambling enforcement,then on other police functions and, if that
does not exhaust the tax monies,then on non-police expenditures.
Leasehold Excise Tax
Most leases of publicly-owned real and personal property in the state are subject to a leasehold
excise tax in lieu of a property tax.104 The 1976 legislature established a 12 percent tax'°5 to be
levied either on the contract rent(when the lease is established by competitive bidding)or, in other
instances, by the imputed economic rent as determined by the Department of Revenue.106 The
1982 legislature added a seven percent surcharge making the total rate 12.84 percent.107
103 116 Wn.2d 1(1991).
104 See RCW 82.29A.130 for a List of leasehold interests exempt from the tax.
105 RCW 82.29A.030(1)
106 RCW 82.29A.020(2)(b).
107 RCW 82.29A.030(2).
A Revenue Guide for Washington Cities and Towns 36
Cities and counties may collectively levy up to six percent of this 12.84 percent.108 The maximum
county rate is six percent and the maximum city rate is four percent. The county must give a credit
for any city tax.Therefore, if a city is levying its maximum four percent,the county may collect
only two percent in the city.These taxes are collected by the city and remitted to the Department
of Revenue.After deducting an administrative fee,109 the department distributes the taxes to local
governments on a bimonthly basis.110
Use Tax on Brokered Natural Gas
In 1986,the federal government deregulated the natural gas industry. Deregulation allowed large
customers to bypass the gas utilities and bargain directly with independent marketers. Some
of these sales were,therefore, no longer a taxable event for utility business and occupation tax
purposes. Some cities lost considerable revenue and, as a result, the legislature passed a law,
effective July 1, 1990,allowing cities to levy a use tax on the purchases of brokered natural gas by
consumers."'The tax rate is equal to the city's utility tax on natural gas,which must be six percent
or less, unless the voters approve a higher rate. (There is a similar provision for the state,which
also lost utility tax revenues.)112 Cities contract with the state to collect these taxes and they are
distributed to local governments on a monthly basis.
However, in 2008, the state court of appeals held that, under the statutory definition, a person
"uses" natural gas at such place where the person first takes"dominion and control"over the gas
in the state, i.e.,where it is purchased or at the state border, not the place of consumption.13 So,
when a person purchases natural gas from an independent marketer in one city in Washington
and then consumes the gas in another city, the person "uses"the gas in the first city and may not
be taxed for the use by the second city. Legislation had been proposed in the 2009 session that
would have clarified that the"use"of natural gas for purposes of this statute is the place where it is
consumed, but it did not pass before the legislature adjourned. Also, the court of appeals decision
was appealed to the state supreme court,which accepted review. So, unless a city repeals this tax,
the Department of Revenue will continue to collect it, but cities affected by this court decision and
receiving revenues under this tax should consider these factors before spending or budgeting for
this revenue until a legislative fix has been enacted or the state supreme court acts to reverse the
court of appeals decision.
Due to the greater awareness of this use tax as a result of the court decision, some cities have
received refund requests from entities paying the utility tax on natural gas. Cities should review
their natural gas utility tax ordinances carefully to determine what entities and activities are subject
to the tax.
108 See RCW 82.29A.040.
109 RCW 82.29A.080.
110 RCW 82.29A.090.
111 RCW 82.14.230.
112 RCW 82.12.022.
113 G-P Gypsum Corp.v.Dep't of Revenue,144 Wn.App.664(2008),review granted,165 Wn.2d 1023(2009).
A Revenue Guide for Washington Cities and Towns 37
Admission Tax
All cities may levy an admission tax in an amount no greater than five percent of the admission
charge,as is authorized by RCW 35.21.280.This tax can be levied on admission charges(including
season tickets)to places such as theaters, dance halls, circuses, clubs that have cover charges,
observation towers, stadiums, and any other activity where an admission charge is made to enter
the facility.14
The statute provides exceptions for admission to elementary or secondary school activities and any
public facility of a city or county public facility district for which the district has levied an admission
tax under RCW 35.57.100 or 36.100.210.A city may, however, impose its own tax on admission to
activities at a public facility district, in addition to the tax the district levies, if the revenue is used
for the construction,operation, maintenance, repair, replacement,or enhancement of that public
facility or to develop, support, operate,or enhance programs in that public facility.15
The admission tax must be collected, administered,and audited by the city. Some cities exempt
certain events sponsored by nonprofits from the tax.This is not a requirement, however.
114 In Ski Acres v.I<ittitas County,118 Wn.2d 852(1992),the Washington State Supreme Court ruled that the county
could not levy its admission tax on ski lift tickets and/or rental equipment under RCW 36.38.010(2),which states,in
part,that the term"admission charge"includes:
a charge made for rental or use of equipment or facilities for purpose of recreation or amusement,and where the rental
of the equipment or facilities is necessary to the enjoyment of the privilege for which a general admission is charged,
the combined charges shall be considered as the admission charge.
The court agreed with the plaintiff that,because one could enter the ski area without a charge,the county could not
charge an admission tax on the ski lift price(or equipment rental).This same argument could apply to facilities such as
bowling alleys and skating rinks.
Because the language in the city statute is similar,a court might find that cities also cannot levy an admission tax in
cases where people can enter a place without paying even though they have to pay to participate in the activity in that
place.The statute authorizing the admission tax for cities and towns,however,is different from the statute authorizing
the county tax,and the area of difference is found in the language used by the supreme court to invalidate I<ittitas
County's application of the tax to ski lifts.Without additional guidance by the courts,it is difficult to conclude whether
cities possess greater taxing authority.An argument to that effect certainly could be made.
115 RCW 35.21.280(1).
A Revenue Guide for Washington Cities and Towns 38
State-Shared Revenues
State-collected revenues that are shared with all cities are derived from liquor receipts(profits and
excise taxes) and motor vehicle fuel excise taxes. Cities as a group receive a fixed percentage of
each of these sources, and the funds are then allocated to individual jurisdictions on a per capita
basis.The fire insurance premium tax provides a modest contribution to the firemen's pension fund
in some cities, and four cities receive Capron refund payments.16
Population figures, determined annually as of April 1 by the state demographer in the Office of
Financial Management,are used as the basis for the per capita distribution of these funds.The
population in an area annexed by a city is added to the city's population on the effective date of the
annexation. In newly incorporated areas,the population figure shown in the records of incorporation
filed with the Secretary of State is used until the next annual determination is made."'
Long gone are the receipts from the motor vehicle excise tax(MVET), part of which were distributed
on the basis of population and part as sales tax equalization to sales tax poor cities. Although
Initiative 695, which repealed this tax in 1999,was found unconstitutional, the 2000 legislature
decided that the people had spoken and repealed this tax, replacing it with a$30 license fee."8
To provide "backfill"for this lost revenue, the legislature appropriated funds that were distributed
from 2000 to 2005 to the cities with the greatest losses from the repeal of the MVET. During the
2005 legislative session, a permanent funding source was designated.19
Liquor Receipts - Profits and Taxes
Since cities are responsible for the policing of liquor establishments located within their limits, but
are precluded from taxing them because of the state liquor monopoly,120 state law provides that a
share of the state-collected profits and taxes be returned to cities to help defray policing costs.
Liquor board profits consist of the difference between revenue generated by the Washington State
Liquor Control Board and the board's expenditures,specific revenues collected for a dedicated
purpose, and administrative fees attributable to specific licensees that serve hard alcohol. Revenues
are generated from sales at state liquor stores, taxes collected on wine and beer manufacture and
distribution, licensee fees,alcohol related permit fees, penalties,and forfeitures. Liquor profits are
divided among the state, counties,and cities. Cities get a 40 percent share,121 with an additional
116 See page 41 for discussion of Capron refunds.
117 RCW 43.62.030.
118 Ch.2,Laws of 2000,1st spec.sess.
119 Ch.450,Laws of 2005,RCW 43.08.290 and RCW 82.45.060.
120 Locally Shared Liquor Profits and Taxes:(source unknown)July 27,1962,mimeographed copy in MRSC files.
121 RCW 66.08.190(1)(b).
A Revenue Guide for Washington Cities and Towns 39
amount distributed to border area cities.122 These funds are distributed on the last days of March,
June, September, and December.
Cities also receive 28 percent of the liquor excise tax receipts.123 These funds are distributed on the
last days of January,April,July, and October.
To be eligible to receive liquor taxes and profits, a city must devote at least two percent of its
distribution to support an approved alcoholism or drug addiction program.124
Motor Vehicle Fuel Excise Tax - "Gas Tax"
As of 2009,the state levied a tax of 37.5 cents per gallon on motor vehicle fuel under RCW
82.36.025(1)through(6)and on special fuel(diesel)under RCW 82.38.030(1)through(6).125 Cities
receive 10.6961 percent126 of the 23 cents per gallon tax levied under RCW 82.36.025(1)and RCW
82.38.030(1),from which some small deductions are made.127
Cities also are given a 8.3333 percent share of the three cent taxes levied under RCW 82.36.025(3)
and (4)and RCW 82.38.030(3)and (4).128
These funds are distributed monthly on a per capita basis and are to be placed in a city street
fund129 to be spent for:
salaries and wages, material,supplies, equipment, purchase or condemnation of right-
of-way, engineering or any other proper highway or street purpose in connection with
the construction,alteration, repair, improvement or maintenance of any city street or
bridge, or viaduct or underpassage along, upon or across such streets.
Note there is no longer a requirement that cities with a population of 15,000 or more put
31.86 percent of their tax receipts in an arterial street fund for capital purposes, although a
122 RCW 66.08.190(1)(a)and RCW 66.08.195.
123 RCW 82.08.160 specifies that 35 percent of the total tax collected under RCW 82.08.150 must be deposited in the"liquor
excise tax fund:'Per RCW 82.08.160,80 percent of the monies in the liquor excise tax fund is distributed to cities..35x.8=.28.
124 RCW 71.24.555.
125 We will use the term"gas tax"to refer to both the tax on gasoline under RCW 82.36.025 and the tax on special
fuel(primarily diesel)under RCW 82.38.030.
In three cities,the gas tax is 38.5 cents per gallon.Cities that are located no more than ten miles from an international
border may levy an additional one cent per gallon gas tax with voter approval to mitigate the effects of tourism on their
streets.RCW 82.47.020.According to the Washington State Legislative Transportation Committee's Washington State
Transportation Resource Manual(January 2007),Blaine,Nooksack,and Sumas are currently levying this tax.
126 RCW 46.68.090(2)(g)
127 RCW 46.68.110(1)-(3).
128 RCW 46.68.090(4)(a),(5)(a).In 2005,the legislature passed ESSB 6103 in 2005,which added three cents to
the gas tax in both 2005 and 2006.two cents in 2007,and 1.5 cents in 2008.The legislation withstood an initiative
challenge in November 2005.
129 RCW 47.24.040 and ch.35.76 RCW.See also RCW 35A.37.010(9)for code cities.
A Revenue Guide for Washington Cities and Towns 40
city may continue to do so.130 Cities are still required to spend 0.42 percent of their gas tax
receipts on 154 paths and trails, unless that amount is $500 or less.131
Capron Refunds
Cities located in counties composed entirely of islands receive a share of monies called Capron
refunds.132 The gas tax collected under RCW 82.36.025(1)and RCW 82.38.030(1)and motor vehicle
license fees collected under RCW 46.16.0621 and .070 in a county with neither a state highway nor
a fixed connection with the mainland are returned to the county and shared with cities in that county
(in practice,one county- San Juan -and its only city- Friday Harbor)on the basis of their relative
assessed valuations.133 In an island county with a state highway or a fixed connection with land,one-
half of the gas tax and motor vehicle license fees designated above are returned and shared in same
manner. Oak Harbor,Coupeville,and Langley receive a portion of Island County's funds.
These refunds are to compensate these cities and counties for their lack of state highways(and
state highway investment).
Fire Insurance Premium Tax
The state collects a two percent tax on the premiums of all insurance policies written.134 Twenty-five
percent of the tax collected on fire policies and the fire component of homeowner's and commercial
multi-peril policies are distributed to cities and fire districts that have firemen's pension funds.135 Premiums
that are attributed to losses from such things as burglaries,tornadoes,floods,etc.are not shared with
cities. For the homeowner's and commercial multi- peril policies,actual data is collected on the loss
experience due to fire as a percent of total losses.These percentages are then applied to the total
premium taxes collected from these policies to calculate the taxes attributable to the fire component.
For example, if the amount paid out on homeowner's policies for fire losses was 20 percent of total
value of claims paid, and if the premium tax collected on homeowner's policies was $20,000,000,
the calculation would be as follows:
A similar calculation is made for premiums from commercial multi-peril policies.A particular city's
share of these taxes is a function of the number of paid firefighters in the city as a percent of total
paid firefighters in all the cities and fire districts that qualify to receive this tax.
$20,000,000 x.2 = $5,000,000 of the homeowner's premiums are attributable to fire
$5,000,000 x .25 = $1,250,000 is available to be distributed
130 This requirement was repealed by SSB 5969,ch.89,Laws of 2005.
131 RCW 47.30.030 and.050.
132 RCW 46.68.080.The 1930s legislation establishing these refunds was sponsored by Victor I.Capron of San Juan
County.The two relevant counties are Island and San Juan.
133 Ch.337,Laws of 2006,amended RCW 46.68.080 to exclude certain gas tax revenues from the monies that are shared.
134 RCW 48.14.020(1).
135 RCW 41.16.050(2).
A Revenue Guide for Washington Cities and Towns 41
City-County Assistance
After it repealed the motor vehicle excise tax(MVET) in 2000 in response to Initiative 695,136 the
legislature provided "backfill"funds for six years to a number of cities, most of which had lost sales
tax equalization funding. In 2005,a permanent funding source was found,Ch.450, Laws of 2005
provided that 1.6 percent of the state real estate excise tax levied under ch. 82.45 RCW be deposited
in the newly-created city-county assistance account.137 These funds are diverted from the Public
Works Trust Fund,whose share of the state real estate excise tax fell from 7.7 percent to 6.1 percent.
The formula used to allocate city funding is based on a sales tax and property tax equalization
formula, and the 2005 MVET backfill levels.The sales tax and property tax equalization
components of the formula are similar to the former sales tax equalization program that was
funded with MVET.
Cities with a population of 5,000 or less qualify to receive distributions equal to the greater of:
1) 55 percent sales tax equalization on the sum of the first 0.5 percent local sales tax and sales tax
mitigation funds for the previous fiscal year; 2) 55 percent property tax equalization based on per
capita assessed values per$1,000 assessed value;or 3)their 2005 MVET backfill allocation.138
However, cities with twice the statewide per capita assessed value are not eligible for funding.
Cities with populations over 5,000 qualify to receive distributions equal to the greater of: 1)50
percent sales tax equalization on the sum of the first 0.5 percent local sales tax and sales tax
mitigation funds for the previous fiscal year or 2) 55 percent property tax equalization based on
per capita assessed values per$1,000 assessed value.139 These cities do not qualify for
funding if their assessed value per capita is above the statewide average(compared to twice the
statewide average for smaller cities).
Distributions for all cities are capped at$100,000,to be increased each year by the increase in
the July implicit price deflator for personal consumption expenditures.140 And, new cities that
incorporate after August 1, 2005 are not eligible for funding.
If there are not enough revenues to fund the distributions above,then they will each be reduced
proportionately. If there are more revenues than necessary to fund the above distributions, they are
to be distributed proportionately on the basis of population among those cities that have received
funds under this statute and impose the second half cent of the sales and use tax under RCW
82.14.030(2) in the full amount.141
136 Ch.2,Laws of 2000,1st Spec.Sess.Initiative 695 was approved by the voters but was declared unconstitutional
by the state supreme court.Amalgamated Transit Union Local 587 v.State,142 Wn.2d 183(2000).
137 RCW 43.08.290(1).
138 RCW 43.08.290(4)(a)as amended by ch.127,Laws of 2009.
139 RCW 43.08.290(4)(b)as amended by ch.127,Laws of 2009.
140 RCW 43.08.290(5).
141 RCW 43.08.290(d)and(e).
A Revenue Guide for Washington Cities and Towns 42
When the bill was passed in 2005, the amount of funding that would be available to cities and
counties for the first calendar year was estimated to be$5 million each. (Think of this $5 million
as the "supply"of funds from the real estate excise tax(REET).)And, the legislature estimated that
$5 million would be enough to fund the certification levels of the cities and counties. (Think of the
certifications as the"demand"for funds.) In fact, in 2006 the supply of funds and distributions
made totaled $7.95 million because real estate excise tax receipts were so much higher than
anticipated.And, it was fortunate they were as high as they were because the total amount for
which cities were certified (the"demand") in 2006 was$6.65 million and $5 million would not have
been enough to give every city its certification amount.
In 2007,the supply of funds totaled$7.61 million and cities were certified for$7.75 million,so cities got
just a bit less than their certification amounts. In 2008,when the housing market collapsed, real estate
excise tax receipts and distributions fell to$5.06 million. Cities received approximately two-thirds the
amount for which they had been certified because the demand was so much greater than the supply.
Recognizing that real estate excise tax receipts will be relatively low for the forseeable future,
the 2009 legislature appropriated an additional$2.5 million to be distributed to both cities and
counties on July 1, 2009 and on July 1, 2010.142
Certification and distribution dates:
Beginning with October 2009,the Department of Revenue (DOR) must certify the final amounts,
based on the factors described above, to be distributed in the coming year, by October 1.
And, beginning in 2010, DOR must provide a preliminary certification by September 1.
Funds are distributed quarterly on January 1,April 1,July 1,and October 1.In order for the funds to be
distributed on those dates,the transfers must be made in the previous month.The payments,therefore,
come in December of the year in which the certification is made,then March,June,and September of the
coming year.This means that for budgeting purposes,cities are dealing with two different certification years.
When they pass their budgets in November or December for the coming year,they know the
amounts for which they are certified for the coming year, but the first payment will arrive in
December of the current year. The amounts they budget will be their estimates of how much they
will receive during the first three quarters of the coming year based on their October 1 certifications
plus their guessimate of what they will receive in December of next year,which will depend on
their certification on October 1 next year.143
142 Chapter 567,Laws of 2009,§805.
143 RCW 43.08.290(6)(c)and(d)as amended by ch.127,Laws of 2009.Before the statutes were amended,the
certification was done no later than March 1 for distribution in the same year.
A Revenue Guide for Washington Cities and Towns 43
Criminal Justice Revenues
In 1990,the legislature passed a bill providing funds for criminal justice purposes for local
government.t44 This legislation, scheduled to sunset on January 1, 1994,was reenacted,with some
amendments, by the 1994 legislature.745 Referendum 49, passed by the voters in November 1998,
included provisions that increased funding for local government criminal justice expenditures by 22
percent.146 However,funding was decreased by 55 percent when the motor vehicle excise tax,the
main funding source,was repealed in 2000.147
Currently cities get two allocations of criminal justice revenue that are distributed under the terms
of RCW 82.14.320 and RCW 82.14.330.The money comes from the state general fund. Beginning
with fiscal year 2000, each cash transfer was$4.6 million,and it grows each year by the same
fiscal growth factor that governs the increase in the expenditure limit under Initiative 601.748 In
2008, each transfer was$5.9 million.These funds are distributed on the last days of January,April,
July, and October.
Counties have the authority to levy sales taxes for criminal justice purposes and the receipts of two
of these options are shared with cities.
Funds Distributed under RCW 82.14.320 - "High Crime"
To qualify to receive these funds a city must:
1. Have a crime rate in excess of 125 percent of the state-wide average as calculated in the most
recent annual report on crime in Washington State as published by the Washington Association
of Sheriffs and Police Chiefs.
2. Be levying,at the maximum rate,the second half cent of the sales tax or the half cent real
estate excise tax.149
3. Have a per capita yield from the first half cent of the sales tax of less than 150 percent of the
state-wide average per capita yield for all cities.
144 Local Criminal justice Fiscal Assistance;'Ch.1,Laws of 1990,2nd sp.sess.
145 Ch.21,Laws of 1993,1st sp.sess.
146 Ch.321,Laws of 1998.The deposits into the municipal criminal justice assistance account under subsections 5(j)
and(k),and sections 12 and 13,taken all together,resulted in increased funding.
147 Ch.2,1st sp.sess,Laws of 2000.
148 The"fiscal growth factor"is the average growth in state personal income for the prior ten fiscal years.
RCW 43.135.025(7).
149 RCW 8214.030(2)and RCW 82.46.010(3).
A Revenue Guide for Washington Cities and Towns 44
Thirty percent of the funds are distributed on the basis of population to cities that have a crime rate
more than 175 percent of the state-wide average.The remainder is distributed to all qualifying cities
solely on the basis of population. Cities have to requalify for the distribution each year based on the
above criteria.
The determination of who qualifies and for what amount is made in July of each year for
distribution in the four quarters of the state fiscal year. Therefore, when a city develops its budget
for the coming calendar year, it knows how much funding, if any, it will receive at the end of
January and April of the coming year, but it will not have information about distributions in the last
two quarters of the calendar year(July and October) until the following July. In some years, there
are cities that"fall off"the list completely although they may be back on it the following year.
Obviously,forecasting this revenue source is difficult.
The language of the statute states that the funds distributed have to be used "exclusively for
criminal justice purposes"and cannot be used "to replace or supplant existing funding:150 Since the
year that establishes the base for any measure of supplanting is calendar year 1989, it is unlikely
that any city needs to be concerned about supplanting now.
The legislature has defined "criminal justice purposes"to be:
activities that substantially assist the criminal justice system,which may include
circumstances where ancillary benefit to the civil justice system occurs,and which
includes domestic violence services such as those provided by domestic violence
programs,community advocates,and legal advocates as defined in RCW 70.123.020,
and publications and public educational efforts dealing with runaway or at-risk youth.151
Funds Distributed under RCW 82.14.330 - Population,
Violent Crime, and Special Programs
Sixteen percent of these funds is distributed on the basis of population,with each city getting a
minimum of$1,000 a year.152 Twenty percent is distributed,again on the basis of population,
to those cities that have had an average violent crime rate in the last three years that is 150
percent of the statewide average for those three years.153 These funds are subject to the same
spending restrictions as those under RCW 82.14.320,with the exception that they may not be
spent on publications and public educational efforts dealing with runaway or at-risk youth.154(See
the discussion in the previous section.)
150 RCW 82.14.320(6).
151 Id.
152 RCW 82.14.330(1)(b).
153 RCW 82.14.330(1)(a).
154 RCW 82.14.330(1).
A Revenue Guide for Washington Cities and Towns 45
Fifty-four percent goes to cities on a per capita basis to be spent on innovative law enforcement
strategies, such as: alternative sentencing and crime prevention programs like community policing;
domestic violence reduction programs; and/or programs for at-risk children or child abuse victim
response programs.155
The final 10 percent of the funds is distributed on a per capita basis to cities that contract with
another governmental agency for the majority of their law enforcement services.A city must notify
the Department of Community,Trade and Economic Development of its contract by November 30
for the upcoming calendar year.'s&
Optional Sales Taxes157
0.1 Percent Sales Tax Under RCW 82.14.340
County commissioners or councils may vote to levy a county-wide 0.1 percent sales tax for criminal
justice purposes.158 The tax is subject to the same referendum provisions as the second half percent
sales tax.Ten percent of the funds collected are distributed to the county,with the remainder
allocated to the cities and the county on the basis of population.159
For example, assume that the collections from this tax are$1 million. The county gets ten percent
($100,000)off the top, leaving$900,000 to be shared among the county and cities. If your
city has a population of 10,000 and the total population (incorporated and unincorporated) in
the county is 80,000,your city's share will be 10,000/80,000 = 12.5 percent of$900,000,or
$112,500.The statute states that the funds distributed have to be used "exclusively for criminal
justice purposes"and cannot be"used to replace or supplant existing funding:'Since the year that
establishes the base for any measure of supplanting is calendar year 1989, it is unlikely that any city
needs to be concerned about supplanting now.
The legislature has defined "criminal justice purposes"in this statute to be:
activities that substantially assist the criminal justice system,which may include
circumstances where ancillary benefit to the civil justice system occurs,and which
includes domestic violence services such as those provided by domestic violence
programs, community advocates,and legal advocates.
155 RCW 82.14.330(2)(b).
156 RCW 82.14.330(2)(a).
157 Sales tax rate changes must be made at least 75 days before beginning of a quarter.See discussion on page 20.
158 As of 2018,35 counties are levying this tax.
159 Note that there is an additional 0.1 percent sales tax that all counties,other than King County,may levy for juvenile
detention facilities and jails.RCW 82.14.350.This tax must be voted on and passed by a simple majority.Permitted
expenditures include design,construction,and maintenance of these facilities.This tax is not shared with cities.
A Revenue Guide for Washington Cities and Towns 46
0.3 Percent Sales Tax Under RCW 82.14.450
A county legislative body may submit a ballot proposal to a county-wide vote for a sales tax
increase of up to 0.3 percent. Sales of motor vehicles or the lease of motor vehicles for up to the
first 36 months are exempt from the tax.The proposal must be approved by a majority of the
voters at a primary or general election.
The text of the ballot measure must state the purposes for which the funds will be used.At least
one-third of the money must be spent for"criminal justice purposes,fire protection purposes, or
both"with no restrictions on type of use for the remaining two-thirds.160"Criminal justice purposes"
is defined as:
activities that substantially assist the criminal justice system,which may include
circumstances where ancillary benefit to the civil justice system occurs,and which
includes domestic violence services such as those provided by domestic violence
programs, community advocates,and legal advocates.
Funds from this tax may not supplant existing funds used for these purposes except as follows:
1) up to 100 percent may be used to supplant existing funding in calendar year 2010; 2) up to 80
percent may be used to supplant existing funding in 2011; 3) up to 60 percent in 2012;4) up to 40
percent in 2013; and 5) up to 20 percent may be used to supplant existing funding in 2014.161
Sixty percent of the funds are distributed to the county,with the cities in the county getting the
remaining 40 percent on a per capita basis.The cities must spend the portions they receive in
accordance with the uses stated in the ballot measure.
160 RCW 82.14.450(4)as amended by ch.551,Laws of 2009.
161 Ch.551.Laws of 2009.An informal opinion from Deputy Solicitor General James K.Pharris to Ron Zirkle,Yakima
County Prosecutor,dated December 2,2005,states that the base for determining whether existing funds have been
supplanted is the 2004 level of spending for a tax first imposed January 1,2005.One can use this"rule'for taxes
imposed on other dates.
A Revenue Guide for Washington Cities and Towns 47
Transportation Revenues
Recognizing that the state-shared revenue from the gas tax was insufficient for the transportation
needs of local jurisdictions,the 1990 legislature provided them with a number of local option
revenue sources.Two of these options are no longer available.The street utility was found to be
unconstitutional in 1995.162 The local option vehicle license fee was repealed by the passage of
Initiative 776 in 2002.This fee was levied by King, Pierce, Snohomish,and Douglas counties and
shared with the cities.The legislature also established high occupancy vehicle funding and high
capacity transportation system funding options for certain jurisdictions, such as the sales tax
mentioned on page 18.
In 2007,the legislature passed amendments to chapter 36.73 RCW that greatly increased the
financing options for transportation benefit districts.
Local Option Motor Vehicle Fuel Excise Tax
Upon a vote of the people, a local option gas tax can be levied countywide at a rate equal to
10 percent of the state rate.163 As of 2009,the state rate was 37.5 cents per gallon, so 10 percent
currently would be 3.75 cents per gallon.164 The tax may be implemented only on the first day of
January, April,July, or October.'65
The tax is to be collected by the state treasurer and distributed on a monthly basis to the
county and its cities.The county must sign a contract with the Department of Revenue for the
administration and collection of the tax.A fee of up to one percent of the proceeds is charged.166
For purposes of this distribution,the population in the unincorporated areas is multiplied by 1.5
and added to the population of the cities.This new total is used as the denominator in the revenue
sharing formula.167 For example, if the population in the unincorporated areas of a county is
40,000 and that in the incorporated areas is 90,000, the following calculations would be made.
40,000 x 1.5 = 60,000
60,000 + 90,000 = 150,000
60,000/150,000 = 0.40
162 Covell v.Seattle,127 Wn.2d 874(1995).
163 RCW 82.80.010(2).
164 See page 40.
165 RCW 82.80.010(2).
166 RCW 82.80.010(6).
167 RCW 82.80.080.
A Revenue Guide for Washington Cities and Towns 48
This county would get 40 percent of the revenue being distributed. Similar calculations are made
for each city, using its population in the numerator. The only counties that have attempted to levy
this tax are Spokane County and Snohomish County. The ballot measures failed and,at this time,
no county is levying this tax.
Local Option Commercial Parking Tax
This tax may be levied by a city within its boundaries and by a county in the unincorporated
areas.168 There is no limit on the tax rate and many ways of assessing the tax are allowed. If the city
chooses to levy it on parking businesses, it can tax gross proceeds or charge a fixed fee per stall.169
If the tax is assessed on the driver of a car,the tax rate can be a flat fee or a percentage amount.170
Rates can vary by any reasonable factor, including location of the facility,time of entry and exit,
duration of parking,and type or use of vehicle."' The parking business operator is responsible for
collecting the tax and remitting it to the city,which must administer it. This tax is subject to a voter
referendum.172 At the present time, Bainbridge Island, Bremerton, Mukilteo, SeaTac, and Tukwila are
the only cities that we know are levying this tax.
Expenditure of Local Option Transportation Taxes
Under RCW 82.80.070(1), local option transportation taxes must be used for"transportation
purposes;'which are defined as:
including but not limited to the following:The operation and preservation of roads,
streets, and other transportation improvements; new construction, reconstruction, and
expansion of city streets, county roads, and state highways and other transportation
improvements; development and implementation of public transportation and high
capacity transit improvements and programs; and planning,design,and acquisition of
right-of-way and sites for such transportation purposes.
However, this section of the statute goes on to say:
The proceeds collected from excise taxes on the sale, distribution, or use of motor vehicle fuel and
special fuel under RCW 82.80.010 shall be used exclusively for"highway purposes"as that term is
construed in Article II, section 40 of the state Constitution. (Emphasis added.)
"Highway purposes" is defined in Article II, section 40 in the state constitution, in part,as:
(a) The necessary operating,engineering and legal expenses connected with the administration of
public highways, county roads and city streets;
168 RCW 82.80.030(1).
169 RCW 82.80.030(4).
170 RCW 82.80.030(2)(a)and(d).
171 RCW 82.80.030(2)(e).
172 RCW 82.80.090.
A Revenue Guide for Washington Cities and Towns 49
(b) The construction, reconstruction, maintenance, repair, and betterment of public highways,
county roads, bridges and city streets: including the cost and expense of(1)acquisition of
rights-of-way, (2) installing, maintaining and operating traffic signs and signal lights, (3) policing
by the state of public highways, (4)operation of movable span bridges, (5)operation of ferries
which are a part of any public highway, county road, or city street...
And these"highway purposes"are narrower than the"transportation purposes" identified in the
beginning of the statute. Until this inconsistency is eliminated by the legislature or is clarified by an
attorney general opinion or court decision,a conservative use of these fuel tax funds would be the
narrower use.
All local option transportation funds are to be spent in a manner consistent with the city's
transportation and land use plans. The legislation also includes some provisions for transportation
planning that apply to jurisdictions with a population over 8,000 and that establish criteria that
are to be used in expending the money.73 The revenues may also be used to pay debt service on
general obligation or revenue bonds if the city issued them to raise funds for street projects.
Transportation Benefit Districts
Cities, along with counties, may form transportation benefit districts to acquire, construct,
improve, provide,and fund transportation improvements in the district that is consistent with any
existing state, regional,and local transportation plans and necessitated by existing or reasonably
foreseeable congestion levels.14 The area may include other cities and counties, as well as port and
transit districts through interlocal agreements.15
Any city passing on ordinance to form a transportation benefit district must also identify revenue
options for financing improvements in the district.A district that has coterminous boundaries
with a city may levy a$20 per vehicle license fee16 or impose transportation impact fees on
commercial or industrial buildings, both without voter approval.'"A credit must be provided for any
transportation impact fee on commercial or industrial buildings that the city has already imposed.
Similarly, any district that imposes a fee that, in combination with another district's fee,totals more
than $20, must provide a credit for the previously levied fee.18
YD"+ h. •',AJ t 1 F h f'° t M k 5 61 f fy:^ y.
k K s ,..E'' � :� sr *r r ". �. k N $.'c.}Y hpYt t�j r "��',
� Note New legislation in recent years allows cities to gradually increase their
..nonvoted Aieh id&license.fees to a;maximum of°$50 subject to conditionsras well
'as to3voluntarily assume t_he powers of,the district so that the:transportations k =
benefit district is nolonger,a separate legal agency Forthe latest information on :
transportation benefit districts seethe•MRSC website ; !t ,. y; ti
},'.-:4.: ,. ..'' ... ,. bi •s. a u .'.'� � .. .�... ...{A:uti.< ,'..3W,.v`,' : r,.`fit Kf d';.rc,o1 1,:,:, ..:
173 RCW 82.80.070(3).
174 RCW 36.73.020(1).
175 RCW 36.73.020(2).
176 RCW 82.80.140(2)(a)and RCW 36.73.065(4)(a)(i).
177 RCW 36.73.065(4)(a)(ii)and RCW 36.73.120.
178 RCW 82.80.140(2).
A Revenue Guide for Washington Cities and Towns 50
Voter-approved revenue options include a license fee of up to$100 per vehicle19 and a 0.2
percent sales tax.180 Like many other special districts,transportation benefit districts may levy a
one-year O&M levy under RCW 84.52.052181 and do an excess levy for capital purposes under
RCW 85.52.056.'82
The funds must be spent on transportation improvements as set forth in the district's plan.
"Transportation improvement" is defined as:
a project contained in the transportation plan of the state or a regional transportation
planning organization. A project may include investment in new or existing highways
of statewide significance, principal arterials of regional significance, high capacity
transportation, public transportation,and other transportation projects and programs
of regional or statewide significance including transportation demand management.
Projects may also include the operation, preservation,and maintenance of these
facilities or programs.183
179 RCW 36.73.065(4)(a)(i)and RCW 82.80.140(1).
180 RCW 36.73.040(3)(a)and RCW 82.14.0455.
181 RCW 36.73.060(1).
182 RCW 36.73.060(2).
183 RCW 36.73.015(3).
A Revenue Guide for Washington Cities and Towns 51
Other Revenue Sources
Franchise Fees
Franchise fees are charges levied on private utilities to recoup city costs of administering the
franchise and for the right to use city streets,alleys,and other public properties.The franchise
fees on light, natural gas,and telephone utilities are limited by statute to the actual administrative
expenses incurred by the city directly related to: receiving and approving a permit, license,
or franchise; reviewing plans and monitoring construction; and preparing a detailed SEPA
document.184 They are not revenue generators as they are in some states.
Cable TV franchise fees are governed by federal rather than state law and are negotiated with the
cable company.They may be levied at a rate of up to five percent of gross revenues, regardless of
the costs of managing the franchise process.185
Tourism Promotion Area Feest86
The legislative body of a county with a population of more than 40,000,and any city within a
county of that size, may form a"tourism promotion area"under chapter 35.101 RCW. However, in a
county with a population of one million or more, the legislative body shall be comprised of two or
more jurisdictions acting under an interlocal agreement.
A county can form a tourism promotion area only in an unincorporated area, and a city can do so
only within its boundaries, unless a county and city sign an interlocal agreement to do otherwise.
Within a tourism promotion area, the city or county legislative body may impose a charge of up
to$2 per night,which applies at lodging businesses with 40 or more units. Up to six different
classifications are allowed,with different charges for each one.
Formation of a tourism promotion area is initiated by a petition to the legislative body of the city
or county, as the case may be,which petition must contain the signatures of people who operate
lodging businesses in the area that would be paying at least 60 percent of the charges in the
area. The legislative body must hold a public hearing on establishment of the proposed tourism
promotion area.
The revenue must be used for"tourism promotion;'which is defined as"activities and expenditures
designed to increase tourism and convention business, including but not limited to advertising,
184 RCW 35.21.860.
185 Cable Communications Policy Act of 1984,§622(a),(b)(47 U.S.C.§542(a),(b)).
186 Ch.35.101 RCW as amended by ch.442,Laws of 2009.
A Revenue Guide for Washington Cities and Towns 52
publicizing,or otherwise distributing information for the purpose of attracting and welcoming
tourists and operating tourism destination marketing organizations.' However,the legislative body,
which may appoint an advisory board, has the sole discretion as to how the funds are used to
promote tourism.
Transfer of Funds from Municipally-Owned Utilities
Municipal utilities should really not have funds in excess of the amount they need to provide
their services. Rates are supposed to be set only at the level necessary to cover costs.187 However,
sometimes a utility does find itself with surplus funds.188 When that happens, a city may be able to
transfer this surplus from the utility fund to the general fund.
RCW 35.37.020 provides that every city and town having a population of less than 20,000
shall transfer any utility fund surplus to the general fund, except for any funds the council
finds necessary for: (1)extending or repairing the infrastructure; (2) paying debt service;and (3)
establishing a sinking fund. Note that this same statute contains symmetric language:any deficit
in a utility fund shall be covered by a transfer from the general fund. Under RCW 35A.37.010(7),
these requirements apply also to code cities.
Towns also have their own statute, RCW 35.27.510,that authorizes transfer of a utility surplus
under certain conditions. If the utility is free of debt, if a depreciation fund satisfactory to the state
auditor has been created, if rates are the lowest possible level, and if the fixing of rates is governed
by contract with the utility service supplier, then the mayor and council may transfer surplus funds
with a unanimous vote. Since most towns do not contract for their utility services,this statute is not
very useful.
Transfer of Funds from the LID Guaranty Fund
A city may be able to transfer assets from a local improvement district(LID) guaranty fund to the
general fund.189 The treasurer must certify that, after the transfer, the fund will have sufficient
assets to cover all outstanding obligations and any other obligations that might reasonably be
expected to occur.After such a transfer is made,the cash remaining in the guaranty fund can be no
less 10 percent of the outstanding obligations.
187 Uhler v.Olympia,87 Wash.1(1915);Carstens v.Public Utility District No.1,8 Wn.2d 136(1941).
188 Here is how the State Auditor's Office is defining"surplus":
The amount by which operating revenues exceeds operating expenses.When determining the available surplus in a
proprietary fund,the following must first be deducted from the proprietary fund balance:capital asset replacement
cost,future capital expansions and improvements and any legally restricted resources.The cash basis entities should
also deduct any outstanding bonds and other indebtedness.-See BARS Manual,Vol.1,Pt.3,Ch.6,P.8.
189 RCW 35.54.095(1).
A Revenue Guide for Washington Cities and Towns 53
Interest on Investments
RCW 35.39.034 and RCW 35A.40.050 allow cities to commingle funds for investment purposes
and to apportion investment earnings to the participating funds or to the general fund if the council
passes on ordinance or resolution to that effect.There are, however,some restrictions.
RCW 35.39.034 has a proviso regarding interest on bonds:
PROVIDED,That funds derived from the sale of general obligation bonds or revenue
bonds or similar instruments of indebtedness shall be invested,or used in such manner
as the initiating ordinances, resolutions,or bond covenants may lawfully prescribe.
Although there is no such language in RCW 35A.40.050,bond covenants and provisions still
determine the allocation of interest from bonds. If you have questions,check with your bond counsel.
In other cases, the State Auditor's Office has determined that interest from some city revenue
sources must be allocated to the funds that hold the restricted revenues.The BARS Manual(Vol. 1,
Pt. 3, Ch. 12, P. 43-44) provides a matrix of revenue sources and states whether interest on those
sources may be allocated to the general fund.
Traffic and Parking Fines
Although the state supreme court establishes the schedule of fines for traffic infractions,190 cities
share in the revenue from infractions committed within their boundaries.After the fines are
collected by the municipal or district court, 32 percent of the noninterest money is sent to the
state.The remainder may be deposited in any city fund. Most jurisdictions put this money in the
general or current expense fund.The interest is split evenly between the state public safety and
education account,the state judicial information system, the city general fund, and the city general
fund to be dedicated to fund local courts.t91
A city has complete control over setting the fines for violation of its parking ordinances.192 It may
also charge a penalty of up to$25 for failure to pay the parking ticket fine in the time prescribed by
law.193 These revenues are deposited in the general fund.
190 RCW 46.63.110(3).
191 RCW 3.50.100(5),RCW 35.20.220(5),and RCW 3.62.040(6).
192 Infraction Rules for Courts of Limited Jurisdiction(IRLJ)Rule 6.2(c)states:
This schedule does not apply to penalties for parking,standing,stopping,or pedestrian infractions established by
municipal or county statute.Penalties for those infractions are established by statute or local court rule...
193 See RCW 46.63.110(4).
A Revenue Guide for Washington Cities and Towns 54
Parking Meters
In 1941,the state supreme court upheld as a valid exercise of the city's police power a Spokane
ordinance providing for the installation and maintenance of parking meters for regulating traffic on
the city's streets.794 Parking meters promote parking turnover, ration space where demand exceeds
supply, provide short-term parking spaces for shopping or personal errands, improve traffic
circulation, and provide revenue for the city.The revenue generated is to be used to cover the costs
of installing and maintaining the meters, collection of the fees, and enforcement by city officials.
Revenue in excess of this amount may be used for parking studies and acquisition and operation of
off-street parking facilities.'"
Other Fees and Charges
Sprinkled throughout the RCWs is authority for cities to levy fees and charges to cover the cost
of providing services or programs and regulatory activities. For example, fees may be charged
for animal licensing,196 inspection of restaurants,'97 parks and recreation programs,198 and the
processing of development and building permit applications.199 Fees may be levied for street use
permits,200 copy charges,201 and fireworks stands permits.202 The general guiding principle for
these fees and charges is that they may be set at a level that recovers all the direct and indirect
costs associated with the activity, including administrative overhead.203 However, if fees more
than recover costs, they then become more like taxes, and cities need specific statutory authority
to levy taxes.
Cities that are planning under the Growth Management Act can assess impact fees for: fire
protection facilities; schools; parks, open space, and recreation facilities;and for street purposes.2°4
194 Kimmel v.City of Spokane,7 Wn.2d 372(1941).
195 See WAC 308-330-650.In Kimmel v.City of Spokane,supra,the court did not concern itself directly with the
revenue producing character of parking meters.The court said that it would not look behind the regulatory purpose
declared in the ordinance,in the absence of evidence tending to show that the declaration is false and that the
ordinance is actually a revenue measure.
196 RCW 35.23.440(11)and RCW 35.27.370(7).
197 RCW 70.05.060(7)and RCW 70.90.150(2).
198 RCW 35.21.020 and RCW 35A.67.010.
199 RCW 19.27.100:RCW 82.02.020.
200 RCW 35.22.280(7).RCW 35.23.440(33),RCW 35.27.370(4),and RCW 35A.11.020.
201 RCW 82.08.02525.
202 RCW 70.77.260.
203 However,in Home Builders v.City of Bainbridge Island,137 Wn.App.338,349(2007),the state court of appeals
rejected the inclusion of costs the city attributed to its building and planning department in determining the fees to
be charged developers.The court stated:"We reject the City's and the trial court's expansion of RCW 82.02.020's
exception beyond the costs of processing applications,inspecting and reviewing plans,or preparing SEPA statements
to include a portion of all costs allowed by accounting and cost allocation guidelines for government agencies:'
204 RCW 82.02.050-.090.For more information on impact fees,see MRSC's web page on impact fees at http://
www.mrsc.org/Subjects/Planning/impactpg.aspx.
A Revenue Guide for Washington Cities and Towns 55
These fees are to be used to pay for system improvements(public facilities in the above categories
that are included in the capital facilities plan)that are reasonably related to the new development
and that will reasonably benefit the new development.205
205 RCW 82.02.050(3).
A Revenue Guide for Washington Cities and Towns 56