The Washington State legislature has passed a new law (HB 2003) with the public policy goal to incentivize the placement of affordable housing on public lands. The new law, which goes into effect on June 6, 2024, creates a leasehold excise tax exemption for qualified affordable housing projects located on state-managed public lands.
The leasehold excise tax is a tax on the use of tax-exempt public property by a private party. Businesses leasing property from government entities are responsible for paying the leasehold excise tax on the fair market rental value of the property or the actual rent paid.
Under this new law, an exemption to the leasehold excise tax is provided for 20 years when the lessee commits to renting or leasing 100% of the housing units to low- and moderate-income households. To meet this standard, all units must be leased to households earning no more than 115% of area median income (AMI), as reported by the United States Department of Housing and Urban Development, and the rent charged to such households may not exceed 30% of the household’s monthly income.
For the purposes of this new law, “public lands” means lands of the State of Washington administered by the Department of Natural Resources, including but not limited to state lands, state forestlands, lands included in a state forestland pool, and aquatic lands. Of note, this definition does not include land owned by cities, counties, or other local government entities.
If you have any questions about the impacts of this new legislation or anything else related to affordable housing, please contact Matt Markovich, Emily Fenster, Robert Garcia, Jesse Johnson, or any other member of the HCMP real estate team.