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It is the purpose of this chapter to encourage the redevelopment of underdeveloped property in targeted urban areas, thereby increasing affordable housing, employment opportunities, and helping accomplish the other planning goals of Washington cities. The legislative authorities of cities to which this chapter applies may authorize a sales and use tax deferral for an investment project within the city if the legislative authority of the city finds that there are significant areas of underdeveloped property and a lack of affordable housing in areas proximate to the property. If a conditional recipient maintains the property for qualifying purposes for at least 10 years, deferred sales and use taxes need not be repaid.
The definitions in this section apply throughout this chapter unless the context clearly requires otherwise.
"Affordable homeownership housing" means housing intended for owner occupancy to low or moderate-income households whose monthly housing costs, including utilities other than telephone, do not exceed 30 percent of the household's monthly income.
"Affordable rental housing" means housing for very low or low-income households whose monthly housing costs, including utilities other than telephone, do not exceed 30 percent of the household's monthly income.
"Applicant" means an owner of underdeveloped property.
"City" means a city with a population of at least 135,000 and not more than 275,000 at the time the city initially establishes the program under this section.
"Conditional recipient" means an owner of underdeveloped land granted a conditional certificate of program approval under this chapter, which includes any successor owner of the property.
"County median price" means the most recently published quarterly data of median home prices by the Washington center for real estate research.
"Eligible investment project" means an investment project that is located in a city and receiving a conditional certificate of program approval.
"Fair market rent" means the estimates of 40th percentile gross rents for standard quality units within counties as published by the federal department of housing and urban development.
"Governing authority" means the local legislative authority of a city having jurisdiction over the property for which a deferral may be granted under this chapter.
"Household" means a single person, family, or unrelated persons living together.
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"Initiation of construction" means the date that a building permit is issued under the building code adopted under RCW 19.27.031 for construction of the qualified building, if the underlying ownership of the building vests exclusively with the person receiving the economic benefit of the deferral.
"Initiation of construction" does not include soil testing, site clearing and grading, site preparation, or any other related activities that are initiated before the issuance of a building permit for the construction of the foundation of the building.
If the investment project is a phased project, "initiation of construction" applies separately to each phase.
"Investment project" means an investment in multifamily housing, including labor, services, and materials incorporated in the planning, installation, and construction of the project. "Investment project" includes investment in related facilities such as playgrounds and sidewalks as well as facilities used for business use for mixed-use development.
"Low-income household" means a single person, family, or unrelated persons living together whose adjusted income is more than 50 percent but is at or below 80 percent of the median family income adjusted for family size, for the county, city, or metropolitan statistical area, where the project is located, as reported by the United States department of housing and urban development.
"Moderate-income household" means a single person, family, or unrelated persons living together whose adjusted income is more than 80 percent but is at or below 115 percent of the median family income adjusted for family size, for the county, city, or metropolitan statistical area, where the project is located, as reported by the United States department of housing and urban development.
"Multifamily housing" means a building or a group of buildings having four or more dwelling units not designed or used as transient accommodations and not including hotels and motels.
"Owner" means the property owner of record.
"Partially used land" means a parcel occupied by a use that includes enough land to be further subdivided for additional development without rezoning.
"Residential target area" means an area within an urban center or urban growth area that has been designated by the governing authority as a residential targeted area in accordance with this chapter.
"Underdeveloped property" means any vacant, partially used, or underutilized land identified by the governing authority under RCW 36.70A.115 as suitable for development of affordable homeownership or rental housing. "Underdeveloped property" does not include state-owned lands held under lease, held in trust, or that are otherwise intended for specific purposes.
"Underutilized land" means a parcel in multifamily, mixed-use, commercial, and industrial zones that could be redeveloped to a more intensive land use than that which currently occupies the property including, but not limited to, land used as a surface parking lot for parking of motor vehicles off the street or highway, that is open to public use with or without charge, as of June 9, 2022.
"Urban center" has the same meaning as in RCW 84.14.010.
"Vacant land" means any property, dwelling, building, or structure that meets two of the following factors:
The dwelling, building, or structure has not been lawfully occupied for a period of five years or more from the time of application;
The property, dwelling, building, or structure constitutes a threat to the public health, safety, or welfare as determined by the governing authority; or
The value of improvements on the property is less than $10,000, unless that property is in use by an adjacent property.
"Very low-income household" means a single person, family, or unrelated persons living together whose adjusted income is at or below 50 percent of the median family income adjusted for family size, for the county, city, or metropolitan statistical area, where the project is located, as reported by the United States department of housing and urban development.
For the purpose of creating a sales and use tax deferral program under this chapter, the governing authority must adopt a resolution of intention to create a sales and use tax deferral program as generally described in the resolution. The resolution must state the time and place of a hearing to be held by the governing authority to consider the creation of the tax deferral program and may include such other information pertaining to the creation of the deferral program as the governing authority determines to be appropriate to apprise the public of the action intended. However, the resolution must provide information pertaining to:
The application process;
The approval process;
The appeals process for applications denied approval; and
Additional requirements, conditions, and obligations that must be followed postapproval of an application; and
Additional affordability and income eligibility conditions not otherwise inconsistent with this chapter.
The governing authority must give notice of a hearing held under this chapter by publication of the notice once each week for two consecutive weeks, not less than seven days, nor more than 30 days before the date of the hearing in a paper having a general circulation in the city. The notice must state the time, date, place, and purpose of the hearing.
Following the hearing or a continuance of the hearing, the governing authority may authorize the creation of the program.
The duly authorized administrative official or committee of the city may approve the application and grant a conditional certificate of program approval if it finds that:
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The investment project is set aside primarily for multifamily housing units and the applicant commits to renting or selling :
At least 50 percent of the units as affordable rental housing or affordable homeownership housing to very low, low, and/or moderate-income households; or
20 percent of the units as affordable rental housing or affordable homeownership housing to very low, low, and/or moderate-income households if the city requires it and the investment project is located in a residential target area that the governing authority has determined has adequate affordable housing;
In a mixed-use project, only the ground floor of a building may be used for commercial purposes with the remainder dedicated to multifamily housing units;
At least 50 percent of the investment project set aside for multifamily housing units will be rented at a price at or below fair market rent for the county or sold at a price at or below county median price; and
The applicant commits to any additional affordability and income eligibility conditions adopted by the local government under this chapter not otherwise inconsistent with this chapter;
The investment project is, or will be, at the time of completion, in conformance with all local plans and regulations that apply at the time the application is approved;
The investment project will occur on land that constitutes underdeveloped property;
The area where the investment project will occur is located within an area zoned for residential or mixed uses;
The terms and conditions of the implementation of the development meets the requirements of this chapter and any requirements of the city that are not otherwise inconsistent with this chapter;
The land where the investment project will occur was not acquired through a condemnation proceeding under Title 8 RCW; and
All other requirements of this chapter have been satisfied as well as any other requirements of the city that are not otherwise inconsistent with this chapter.
The following criteria must be met before an area may be designated as a residential targeted area:
The area must be within an urban center, as determined by the governing authority;
The area has a high number of underdeveloped, underutilized, and/or vacant properties;
Proximate to the land, as determined by the governing authority, there is insufficient available, desirable, and convenient residential housing, including affordable housing, to meet the needs of the public;
A significant number of existing improvements proximate to the area do not meet the maximum permitted density for property that allows for multifamily, mixed-use, commercial, and industrial uses;
The provision of additional housing opportunity, including affordable housing, in the area, as determined by the governing authority, will assist in achieving one or more of the stated purposes of this chapter; and
The city must determine that designation of the area is in compliance with the antidisplacement requirements in RCW 36.70A.070(2).
For the purpose of designating a residential targeted area or areas, the governing authority may adopt a resolution of intention to so designate an area as generally described in the resolution. The resolution must state the time and place of a hearing to be held by the governing authority to consider the designation of the area and may include such other information pertaining to the designation of the area as the governing authority determines to be appropriate to apprise the public of the action intended.
The governing authority must give notice of a hearing held under this chapter by publication of the notice once each week for two consecutive weeks, not less than seven days, nor more than 30 days before the date of the hearing in a paper having a general circulation in the city or county where the proposed residential targeted area is located. The notice must state the time, date, place, and purpose of the hearing and generally identify the area proposed to be designated as a residential targeted area. The governing authority must send a copy of the notice to all taxing districts in the proposed residential targeted area.
Following the hearing, or a continuance of the hearing, the governing authority may designate all or a portion of the area described in the resolution of intent as a residential targeted area if it finds, in its sole discretion, that the criteria in subsections (1) through (3) of this section have been met.
After designation of a residential targeted area, the governing authority must adopt and implement standards and guidelines to be utilized in considering applications and making the determinations required under RCW 82.92.040.
The governing authority may adopt and implement as a contractual prerequisite to any exemption granted pursuant to RCW 82.92.020:
A requirement that applicants pay at least the prevailing rate of hourly wage established under chapter 39.12 RCW for journey level and apprentice workers on residential and commercial construction;
Payroll record requirements consistent with RCW 39.12.120(1);
Apprenticeship utilization requirements as defined in RCW 39.04.310; and
A contracting inclusion plan developed in consultation with the office of minority and women's business enterprises.
Before changing any adopted standards, guidelines, requirements, or conditions under subsections (5) and (6) of this section, the governing authority must notify all taxing districts in the residential targeted area of the proposed changes.
Within 30 days of the issuance of a certificate of occupancy for an eligible investment project, the conditional recipient must file with the city the following:
A description of the work that has been completed and a statement that the eligible investment project qualifies the property for a sales and use tax deferral under this chapter;
A statement of the new affordable housing to be offered as a result of the new construction; and
A statement that the work has been completed within three years of the issuance of the conditional certificate of program approval.
Within 30 days after receipt of the statements required under subsection (1) of this section, the city must determine and notify the conditional recipient as to whether the work completed and the affordable housing to be offered are consistent with the application and the contract approved by the city, and the investment project continues to qualify for a tax deferral under this chapter. The conditional recipient must provide the department a copy of the city's determination within 30 days from receiving the city's determination to schedule an audit of the deferred taxes. The department must determine the amount of sales and use taxes qualifying for the deferral. If the department determines that purchases were not eligible for deferral it must assess interest, but not penalties, on the nonqualifying amounts.
The city must notify the conditional recipient within 30 days that a tax deferral under this chapter is denied if the city determines that:
The work was not completed within three years of the application date;
The work was not constructed consistent with the application or other applicable requirements;
The affordable housing units to be offered are not consistent with the application and criteria of this chapter; or
The owner's property is otherwise not qualified for a sales and use tax deferral under this chapter.
If the city finds that the work was not completed within the required time period due to circumstances beyond the control of the conditional recipient and that the conditional recipient has been acting and could reasonably be expected to act in good faith and with due diligence, the governing authority may extend the deadline for completion of the work for a period not to exceed 24 consecutive months, and must notify the department of the extension.
The city's governing authority may enact an ordinance to provide a process for a conditional recipient to appeal a decision by the city that the conditional recipient is not entitled to a deferral of sales and use taxes. The conditional recipient may appeal a decision by the city to deny a deferral of sales and use taxes in superior court under RCW 34.05.510 through 34.05.598, if the appeal is filed within 30 days of notification by the city to the conditional recipient.
A city denying a conditional recipient of a sales and use tax deferral under subsection (3) of this section must notify the department and taxes deferred under this chapter are immediately due and payable, subject to any appeal by the conditional recipient. The department must assess interest at the rate provided for delinquent taxes and penalties retroactively to the date of deferral. A debt for deferred taxes will not be extinguished by insolvency or other failure of the recipient.
A recipient of a conditional certificate of program approval issued by the city must submit an application for a sales and use tax deferral certificate to the department before initiation of the construction of the investment project. In the case of an investment project involving multiple qualified buildings, applications must be made for, and before the initiation of construction of, each qualified building. The application must be made to the department in a form and manner prescribed by the department. The application must include a copy of the conditional certificate of program approval issued by the city detailing specifics of the investment project conditionally approved and clarifying any portions of the project not approved for a tax deferral, estimated construction costs, time schedules for completion and operation, and any other information required by the department. The department must review the application for completeness and provide a tax deferral certificate within 60 days.
The department must provide information to the conditional recipient regarding documentation that must be retained by the conditional recipient in order to substantiate the amount of sales and use tax actually deferred under this chapter.
The department may not accept applications for the deferral under this chapter after June 30, 2032.
The application must include a waiver by the conditional recipient of the four-year limitation under RCW 82.32.100.
This section expires July 1, 2032.
After receiving the conditional certificate of program approval issued by the city, for each eligible investment project, and provided to the department by the applicant, the department must review the application for completeness and provide a sales and use tax deferral certificate for state and local sales and use taxes due under chapters 82.08, 82.12, and 82.14 RCW, within 60 days, on each eligible investment project.
No certificate may be issued for an investment project that has already received a deferral under chapter 82.60 RCW or this chapter.
The department must keep a running total of all estimated sales and use tax deferrals provided under this chapter during each fiscal biennium.
The deferral certificate is valid during active construction of a qualified investment project and expires on the day the city issues a certificate of occupancy for the investment project for which a deferral certificate was issued.
This section expires July 1, 2032.
2.
This section does not apply after 10 years from the date of the certificate of occupancy.
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Year in which use occurs
Percent of deferred taxes due
1
100
2
90
3
80
4
70
5
60
6
50
7
40
8
30
9
20
10
10
b. The department must assess interest at the rate provided for delinquent taxes under chapter 82.32 RCW, but not penalties, retroactively to the date of deferral.
Transfer of investment project ownership does not terminate the deferral. The deferral is transferred subject to the successor meeting the eligibility requirements of this chapter.
The transferor of an eligible project must notify the city and the department of such transfer. The city must certify to the department that the successor meets the requirements of the deferral. The transferor must provide the information necessary for the department to transfer the deferral. If the transferor fails to notify the city and the department, all deferred sales and use taxes are immediately due and payable. The department must assess interest at the rate provided for delinquent taxes , but not penalties, retroactively to the date of deferral.
(1) This section is the tax preference performance statement for the tax preferences contained in chapter 241, Laws of 2022 and chapter . . ., Laws of 2026 (this act). This performance statement is only intended to be used for subsequent evaluation of the tax preferences. It is not intended to create a private right of action by any party or to be used to determine eligibility for preferential tax treatment.