The King County Prosecuting Attorney’s Office is researching what it must do with excess property taxes collected for a court and juvenile detention complex in the wake of a Court of Appeals decision that the county had improperly calculated property tax rates for the project since 2014.
If a levy collects too much money for one year, the county must adjust future property tax bills to compensate for the amount property owners were overcharged, according to officials from the Department of Revenue, the Washington state department that deals with taxation.
Depending on what actions the county takes, renters may get shortchanged.
State law requires that the property owner who pays the taxes receives the adjustment, but it doesn’t automatically compensate renters who may pay the cost of the tax increases through higher rent. Renters have no clear accounting of how much of their rent goes to cover property taxes and would receive a benefit from the adjustment only if landlords decide to pass the savings on to them. Even if the savings benefited the renter, those who have moved into a building with a smaller property tax bill or people who have sold their homes in the past three years may miss out.
The situation is unusual. Toni Nelson, a finance consultant with the Municipal Research and Services Center, spent 27 years working in and with local governments and has seen only one example of a similar situation in the 1990s.
“It would be very complicated,” Nelson said. “I don’t envy anybody on either side.”
The conundrum arises out of a Court of Appeals decision announced on Sept. 26 that language in a voter-approved ballot measure from 2012 intended to fund a $210 million Children and Family Justice Center was unclear. Rather than raising property taxes for the duration of the levy, the measure “lifted the lid” by 7 cents for every $1,000 in value for a single year — 2013.
However, the county calculated property taxes in subsequent years off of the higher 2013 property tax rate. The court agreed with the attorney representing Ending the Prison Industrial Complex, a community organization that sued the county, that property taxes after 2013 should have been calculated as though the lid had never been lifted.
If it stands, that means the county overcharged property taxes between 2014 and 2017.
What happens next is an open question, but it doesn’t look great for people renting in King County.
How property taxes factor into rent is a hard question for economists, even if they’re armed with all of the relevant data, said Joan Youngman, a senior analyst with the Lincoln Institute of Land Policy, a think tank.
How much rent a property owner can charge is dictated by the market, Youngman said. If there’s an oversupply of rental units depressing rents, a property owner may not be able to raise rents to cover a tax increase.
In a hot market, like Seattle in particular and King County in general, landlords have more opportunity to raise the rent for whatever reason.
“Actually saying in any year who bore the burden of this tax is not something that even an economist doing a technical study could say with 100 percent accuracy,” Youngman said.
A measure intended for the August ballot, I-127, would have required landlords to itemize rent bills, which could have included a charge for property taxes. It did not make the ballot.
Ashley Archibald is a Staff Reporter covering local government, policy and equity. Have a story idea? She can be can reached at ashleya (at) realchangenews (dot) org. Twitter @AshleyA_RC
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