With property taxes on the rise in Washington state, many property owners are looking for creative ways to plan and utilize their land to reduce their tax burden. Washington’s Open Space Taxation Act, Chapter 84.34 RCW (the “Act”), enacted in 1970, may be such an avenue. The Act generally permits property owners to reduce their real estate tax burden by allowing certain lands to be taxed at their current use rather than their highest and best use. Practical application of the Act is largely determined by individual counties.
Do I Qualify?
To take advantage of the savings, lands must meet the qualifications of one of three current use classifications: open space land, farm and agricultural land, or timber land. The Act includes many requirements for qualification; however, broadly, it defines each classification as follows:
- Open space land is any land designated as such by an official comprehensive land use plan, land that meets certain environmental preservation or conservation criteria or that enhances natural or scenic resources, historic sites, vistas, or recreational opportunities, or certain farm and agricultural conservation land. Some counties, including King County, have established public benefit rating systems to govern the eligibility and valuation of the land.
- Farm and agricultural land is land that meets certain size and/or income requirements and is primarily devoted to commercial production of livestock or agricultural commodities or other commercial agricultural uses/conservation.
- Timber land is land at least five acres which is devoted primarily to the growth and harvest of timber for commercial purposes. Timber land classification may be unavailable in some counties and may have been merged with the forest land program under Chapter 84.33 RCW, which program is outside the scope of this blog post.
How Can I Apply?
To utilize the tax savings of the current use classifications, a property owner must apply to their county and/or city “granting authority” for the appropriate classification. Counties in Washington, including King County, provide additional helpful information on the current use classifications and how to apply, and it is essential to confirm your local programs, availability, procedural requirements, and proper granting authority prior to applying.
Once I Receive Current Use Classification, are There Ongoing Burdens on my Property?
The decision to classify (or buy) property with a current use classification is not one to be taken lightly. Once land has a current use classification, there will likely be significant conditions imposed on the future use of the property. The classification continues until a triggering event occurs, such as a request for removal by the owner, the land no longer complies with the requirements of the classification, a new tax exemption applies, or the property is sold and the new owner does not sign a Notice of Continuance. Significant additional tax (equal to the difference between the property tax paid as classified land and the amount of property tax otherwise due and payable for the last 7 years had the land not been so classified), interest, and a 20% penalty may be imposed if the removal of classifications does not meet one of the narrow exceptions. Certain land may, however, be reclassified without additional tax, interest, or penalty so long as the land meets the applicable qualifications for the new classification. Sellers of classified land should ensure that the new owner sign a Notice of Continuance, which is attached or shown on the corresponding real estate excise tax affidavit; otherwise, the seller is liable at the time of sale for the additional tax, interest, and penalty.
Washington’s Open Space Taxation Act may be a powerful tool for property owners to reduce their property tax burden; however, it is crucial to carefully evaluate the requirements, benefits, implications, and restrictions of doing so before applying for classification or purchasing classified property. For more information on the Act and whether current use classification may be available for your property, please contact Stephanie Gero Dahlstrom or any of Montgomery Purdue’s environmental attorneys.