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WA appellate court upholds document surcharge for homeless/housing funding

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(The Center Square) – A state appellate court has upheld the validity of a $183 surcharge levied on real estate-related documents recorded by county auditors to help fund homeless and affordable housing programs in Washington.

The opinion issued Tuesday by the Division II Court of Appeals upheld a lower court ruling in 2022 that favored the state in a lawsuit brought by the Building Industry Association of Washington and a Puyallup-based company, Soundbuilt Homes.

The BIAW, a trade association representing the housing industry, initially filed suit in Thurston County Superior Court, contending the state constitution’s uniformity requirement restricts the use of fees to only fund services directly related to the fee and to a single topic.

At the time, BIAW attorney Jackson Maynard said the association supports efforts to address homelessness and fund public housing. But he argued the recording fee was unconstitutional because the state was using the revenue to fund various subsidized housing programs rather than simply offsetting county auditors’ costs of processing and archiving documents.

But Judge Carol Murphy granted a summary judgment decision in favor of the state which was upheld this week by appellate Judges Meng Li Che, Linda Lee and Bradley Maxa.

In the published, 14-page opinion authored by Che, the judges called the surcharge “an excise tax” related to the specific activity of recording documents and not a property tax subject to the constitution’s uniformity requirement.

“No one is required to pay the document recording surcharge merely for owning property,” the ruling stated.

The judges noted that BIAW filed its lawsuit prior to last year’s legislative enactment of Senate Bill 5386, which took effect in July. The measure sought to clarify provisions of state law regarding the $183 fee, which applies to documents recorded by county auditors on transactions involving real property such as deeds, mortgages, and real-estate conveyances.

The fee is not applied on other documents such as birth or marriage certificates, liens, wills, or previously recorded deeds of trust.

“ … the document recording surcharge is not unconstitutional,” the appellate opinion stated. “The fact that BIAW and Soundbuilt individually paid the surcharge does not change this determination.”

In an emailed comment Friday to The Center Square, BIAW Communications Director Janelle Guthrie said, “We are disappointed in this ruling as it’s just another way Washington makes housing less affordable for families.”

“We are reviewing our legal options to determine our next steps,” she said.

The allocation of real estate recording fees for state homeless/housing programs have increased from $13 per document to the current $183 due to legislative revisions over the past several years.

Of the funds, 1% – that is, $1.83 per recorded document – is retained by county auditors for their activities. The remainder goes to the state treasurer for distribution overseen by the Washington Department of Commerce: 54% to a “home security” account, 13% to an “affordable housing” account, and 1.8% for “landlord mitigation.” Washington’s counties and local jurisdictions then receive revenue shares for their Commerce-approved homeless housing plans. Those can include property acquisition, building and maintenance costs, rental assistance vouchers, and operating costs for emergency shelters and licensed overnight youth shelters.

“The overwhelming purpose of the surcharge is to alleviate the housing crisis by financing certain funds, which is a desired public benefit,” the appellate judges said in their ruling.

The BIAW was represented on appeal by Maynard and attorney Ashli Raye Tagoai. The state was represented by Alicia Young and Peter Gonick of the Attorney General’s Office and attorney Elizabeth Petrich.