Washington law regarding real and personal property tax collection is trapped in the early 1980s. An overhaul is due, and legislation introduced by 4th Legislative District Rep. Matt Shea and Sen. Mike Padden would bring the state up to date.
Padden’s bill, SB 5503, is the less ambitious of the two, and the one most likely to be passed. Shea’s proposal, HB 1430, may not get a hearing before the end of next week, likely dooming the bill for this session. Too bad.
Current law imposes penalties of 3 percent after three months and 8 percent after nine months on delinquent taxpayers, who also pay interest at the rate of 1 percent per month on the unpaid balance. After one year, the taxpayer faces 23 percent in penalties and interest, plus the balance which, again by law, can only be paid in full; no partial payments allowed.
The stiff penalties and interest charges are the residue of the early 1980s, when the interest rate charged the most creditworthy bank customers soared to 20 percent. Instead of paying their taxes on time, savvy property owners invested in short-term securities and pocketed the difference between the high rate of return and county charges for late payment. They could ride that relatively secure bet for three years, when foreclosure for nonpayment loomed.
Good luck playing that game today with certificates of deposit earning 1 percent, or less.
Spokane County Treasurer Rob Chase says the law is unnecessarily harsh on those behind on their taxes, perhaps due to prolonged unemployment or medical expenses. Many want to pay something that could be set aside in their household budgets, but the prohibition on installment payments makes that impossible.
The computer systems of 30 years ago may have been incapable of tracking partial payments. That is not the case today. Idaho, for one, already takes the money in whatever amount property owners can handle.
Padden’s bill, which received a “do pass” recommendation Thursday from the Senate Government Operations Committee, helps by allowing property owners, with treasurer consent, to make tax payments as they can afford them, as long as the county is whole by the end of the tax year. The flexibility will help seasonal workers, to give one example.
The payments must be electronic; processing paper payments is just too expensive.
Shea’s bill goes further by removing the penalties for late payments, and so assuming the 12 percent interest rate is incentive enough for taxpayers to get themselves square with treasurers.
However, counties scraping for any revenue they can find have probably stymied HB 1430. Spokane County, for example, stands to lose $2 million per year if the law is revised. That may be just 1.5 percent of total county revenue, but it is revenue not easily replaced.
A House version of Padden’s bill, HB 1004, will be voted on by the House Finance Committee on Tuesday.
The tax penalties are too stiff – Idaho charges 2 percent – but the flexibility to pay property taxes in installments will help many. The Legislature should get that much done this year.