Interim rule for taxability of converting commercial properties into multifamily housing

OLYMPIA, Wash. - Oct. 7, 2024 - The Washington State Department of Revenue recently released temporary guidance that clarifies how the department will determine whether a proposed project converting underutilized commercial property into multifamily housing qualifies for a new state sales and use tax deferral.

The interim guidance is a key step in implementing Engrossed Second Substitute Senate Bill 6175 (E2SSB 6175), passed by the Legislature earlier this year, and helps pave the way for cities and developers to plan for the 2025 construction season.

See the interim guidance statement.

Revenue is currently working toward a final rule, which the agency expects to complete and adopt by next spring. The department is expected to conduct a public hearing to gather feedback before the final rule is adopted.

Interim guidance statements provide the department's current position on specific issues when final guidance has not yet been published. While it can take up to six months after a law has gone into effect to issue interim guidance, Revenue expedited its process to meet the demand for clarification and released the guidance in three months.

"This is a complex topic that takes careful consideration," Revenue Director Drew Shirk said. "We're pleased we were able to complete this important interim guidance statement so quickly and are encouraged that this will provide some essential help for projects to move forward."

E2SSB 6175 allows cities to provide a limited sales and use tax deferral for projects that convert underutilized commercial property into multifamily, affordable housing.

For comprehensive guidance on the requirements of E2SSB 6175, refer to the interim guidance statement.

Generally, to apply for the referral:

• Applicants must receive a conditional certificate of approval from the city providing the sales and use tax deferral.
• The owner of an underutilized commercial property used or intended to be used for retail, office-related or administrative activities that is conditionally approved by the city may apply to the department for a sales and use tax deferral certificate.
• An eligible project must be primarily for multifamily housing with at least 10% of the units to be rented or sold as affordable housing to low-income households.

The interim guidance covers various requirements to qualify for the sales and use tax deferral, including examples of common scenarios for properties that meet the requirements, and the application process.

For more information about the rulemaking process, check the Laws and Rules page on our website.

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