County Council enacts 2nd 1/4 percent tax on real estate sales

The San Juan County Council will tap the real estate well one more time to bolster the account that pays for the repair, replacement or improvement of -- or investment in -- so-called "capital projects". 

In a 5-1 decision, the County Council agreed March 1 to double-down on the amount of revenue the county collects on property transactions in enacting a second one-quarter of 1 percent tax on local real estate sales. Also known as REET 2, the second one-quarter of 1 percent tax will be paid by the seller; it equals $1,000 on the sale of a $400,000 home. 

Councilman Rich Peterson, North San Juan, who cast the lone dissenting vote, argued that the council should pass on determining the fate of REET 2 and place it before the voters instead. REET 2 can be imposed by the council without a vote of the people because REET 1 was enacted by the county many years ago.   

"Clearly, I understand the need," Peterson said. "The peoples' investments are not being taken care of. I just don't think this is the right vehicle to do it." 

Similar to REET 1, which generated $302,410 in revenue last year, REET 2 is exclusively earmarked to pay for the repair, replacement or improvement of capital projects, such as roads, parks, bridges and stormwater systems, or for bond payments on property purchases. It cannot be used to offset operating expenses, however, such as salaries and wages. 

Auditor Milene Henley, REET 2's chief advocate, said it should have been enacted years ago. 

"The list gets longer and the need gets more dire as time passes," she said, noting that state law places even greater restrictions on REET 2 than on REET 1. 

Councilman Howie Rosenfeld, Friday Harbor, noted REET 2 has been in effect in Friday Harbor for several years.

The state legislature made REET 1 and REET 2 available to counties whose long-range planning is dictated by the Growth Management Act. Henley said the Legislature identified a "nexus" between real estate sales and future development, and the revenue generated by those excise taxes is intended to help counties manage development costs. 

In addition to REET 1, the county also collects a 1 percent tax on real estate sales that is dedicated exclusively for use by the Land Bank. That excise tax is paid by the buyer, while REET 1 and REET 2 are paid by the seller.  

REET 1 contributed $342,651 into the county capital improvement fund two years ago, a significant drop from the $803,667 it generated in 2007. 

At the insistence of Councilwoman Patty Miller, Orcas East, the council unanimously approved revising the "reserve policy" of the capital improvement fund to help ensure the county does not end up with a list of capital projects that it can't pay for in the future. 


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