Excise Taxes: How much and what is it based on?
If you’ve sold real estate in Washington State you’ve encountered our wonderful excise tax. The state imposes a tax on the sale of real property equal to 1.28% of the selling price. In addition, counties and/or towns may add additional taxes if they so choose. RCW 82.45.060. For example, if your property is in King County, and within the City of Seattle your total tax is 1.78%. For a complete list of tax rates in other areas of the state click here.
The tax seems easy enough to compute, right? Usually it is, but when the Department of Revenue (DOR) begins questioning the selling price, things can get more complex. In the event the DOR believes the selling price is not an accurate measure of market value it will challenge it by requesting an independent appraisal to determine the actual market price. WAC 458-61A-102. If the appraisal comes back higher than the selling price, the seller owes more tax.
I believe this framework is reasonable as you should have to pay taxes on the fair market value of an asset. Unfortunately, in reality challenges to the selling price are rarely supported by independent appraisals as required by statute, but are only supported by the subjective opinion of the person administering the tax. Fortunately, taxpayers can challenge, and should challenge, the tax through the Department of Revenue, Board of Tax Appeals or Superior Court when this occurs. In fact, they have up to four years after they pay the tax to dispute the amount.
Could you imagine what would happen if taxpayers didn’t, or couldn’t challenge the tax? It would mean that the free market would no longer determine fair market value, and it would be left to the sole discretion of the government. Let’s hope this never happens.
As long as you pay close attention to the selling price and it accurately represents fair market value, you will likely never have the pleasure of challenging the tax.