Personal property tax | Washington State Department of Revenue

State law requires assessors to determine the value of real and personal property and the subsequent calculation of taxes. The key characteristic in distinguishing the difference between real and personal property is mobility. Personal property can include machinery, equipment, furniture, and supplies. It also includes improvements made to land leased from the government (leasehold improvements).

Here is a list of additional information on personal property:

Frequently asked questions

Title plants

What is a “title plant?"

RCW 48.29.020 and 040 requires title insurance companies to maintain title tract indexes. These tract indexes commonly make up what is called a “title plant,” consisting of the records, maps, and indexes maintained and used by the title company for its production of land title reports and land title policies. Such data exists for every parcel located in a county for which the title insurance company providing service. Title plants are either original or microfilmed hardcopies, computerized data bases, or a combination of such. The title plant excludes the furniture and equipment used in the production of the same. As a result, title plants are tangible personal property and are valued for assessment purposes.

How do county assessor’s value title plants?

The method of valuation for title plants was arrived through considerable analysis by a workgroup of stakeholders, including assistance from the Washington Land Title Association. Annually, as part of the Personal and Industrial Valuation Guidelines (guidelines), the Department updates “Table B” in the guidelines. The table gives a per parcel rate for the title plant assessed, where the rate is a graduated value based on the number of real property parcels in the county. The rate per parcel is then multiplied against the total number of real property parcels in the county.

So where does the county assessor obtain the real property parcel count for assessing the title plant?

In September of each year, the Department sends every county assessor a letter requesting real property data and various stratification reports for the county, necessary for completing the Department’s real property ratio study. The Department asks for real property parcel counts for the study, where those particular parcel counts make up the “latest” real property parcel numbers used in valuing title plants for the following assessment year.

What if a title company does business in one county but the actual title plant is located in another county – how is the title plant assessed and by whom?

Assessors are required to value each title plant physically located in their respective county. This includes assessing those title plants located within the county boundaries, even though the title plant is for parcels outside the county. The following demonstration should be helpful.

Scenario: County A Title head offices are located in County “A,” in which they own and maintain a title plant there and provide title services in County “A.”

County A Title also operates a satellite office in the adjacent county – County “B,” where they conduct title services in County “B.” However, the entire title plant resides at the head office in County “A.”

Result: County A Title should be assessed for the title plant owned and maintained in County “A.” The total parcel count necessary to assess this title plant will come directly from the real property ratio study information for the county, multiplied by appropriate graduated per parcel value from the guidelines.

Since County A Title also owns and maintains a title plant for County “B” but physically located in County “A,” that title plant will be assessed in County “A.” However, it will be important for the assessor to use the real property parcel count from County “B,” multiplied by the appropriate per parcel value from the guidelines.

In order to obtain the real property parcel count for County “B,” the County “A” assessor can contact the County “B” assessor or the Department’s Ratio Specialist to determine the real property parcel count.

Overall, there must be a physical presence of a title plant in the county where it is assessed. If a title company has title plants for multiple counties residing in only one county, those title plants will be assessed where residing, keeping in mind the parcel count used is based on the real property parcel count of the county that the title plant data relates.

So if title companies do not always have a physical presence within the county where they provide service, how does an assessor discover title plants then?

Discovery of title plants within your county requires the assessor to determine the location of the title plant, as well as the county or counties the title plant pertains to. As a result, supplemental questionnaire may be needed in order to assess these assets – not just assuming a title company has one title plant.

The following are examples of supplemental questions to ask title companies:

Do you own and maintain a title plant for this county that is located within this county? Do you own and maintain a title plant for any other county that is located within this county? If you answered "yes" to the previous question, please list all of the counties for which your company maintains a title plant that is located within this county.

I see under “Table B” of the guidelines the assessor can use actual sales to value title plants, is that correct?

Although seldom used, assessors do have an alternate method to value title plants based on sales data, if or when available, and those sales are confirmed as “arms length” transactions and represent market value for the title plant sold.

Do you subscribe to a service that provides you with data from a title plant that is owned by another company?
If yes, what is the name of that company and/or service provider?

Head of family exemption

What is the Exemption for the Head of Family?

Each head of a family is entitled to an exemption from his or her taxable personal property in an amount up to $15,000 of actual value. The taxpayer must qualify for the head of a family exemption on January 1st of the assessment year (the assessment date) or the exemption is lost for taxes payable the following year. Household goods, furnishings, and personal effects not used for business or for commercial purposes are already exempt from property taxation. As a result, the exemption for the head of a family does not apply to such property.

What are the requirements to qualify?

The exemption for the head of a family applies only to individuals (i.e., natural persons) and does not apply to artificial entities such as corporations, limited liability companies, or partnerships. The head of a family includes the following residents of the state of Washington:

Any person receiving an old age pension under the laws of this state; Any citizen of the United States, over the age of sixty-five years, who has resided in the state of Washington continuously for ten years; The husband, wife, or domestic partner, when the claimant is a married person or has entered into a domestic partnership, or a surviving spouse or surviving domestic partner, who has neither remarried nor entered into a subsequent domestic partnership; and Any person who resides with, and has under his or her care and maintenance, any of the following:

His or her minor child or grandchild, or the minor child or grandchild of his or her deceased spouse or deceased domestic partner;
His or her minor brother or sister or the minor child of a deceased brother or sister;
His or her father, mother, grandmother, or grandfather, or the father, mother, grandmother, or grandfather of a deceased spouse or deceased domestic partner; or
Any of the other relatives mentioned in this subsection who have attained the age of majority and are unable to take care of or support themselves.

The rule in WAC 458-16-115(3)(b) has not changed, in which it specifies that the personal property exemption for the head of family does not apply to the following: private motor vehicles; mobile homes; floating homes; or, houses, cabins, boathouses, boat docks, or other similar improvements that are located on publicly owned land.

Where can I get more information to find out if I qualify for the personal property exemption for Head of Family?

For specific information regarding your personal property tax and qualifications for the Head of Family Exemption, contact your county assessor personal property section for the county where your is located. Check the government listings portion of your phonebook for your county assessor phone number.

Do I still need to send a personal property tax listing to my county Assessor?

The answer is yes. However, if the county assessor is satisfied that all of the personal property of any person exempt from taxation as a head of family, then a listing would not be required by the owner or taxpayer. In the event the value of taxable personal property exceeds $15,000, then the taxpayer would need to make a complete listing. The assessor will then deduct $15,000 from the total amount of the assessment and assess the remainder.

The Assessor classifies my boathouse as personal property because it’s located on DNR land. Can I apply the $15,000 exemption for Head of Family to my boathouse?

The answer is no. While privately owned improvements located on publicly owned lands are defined as personal property, and are carried on the personal property tax rolls, the exemption for head of family does not apply to those properties.

Leasehold improvements

When valuing LHIs such as retail tenant improvements located at a shopping mall or strip center for purposes of property taxation, is it proper to value the tenant-installed improvements (TIs) as personal property?

Yes. These improvements will appear on the tenant’s depreciation schedule and add value to the business enterprise.

What if the landlord installed the improvements and billed the tenant an extra amount to recover the cost over the term of the lease?

While these improvements add value to the business enterprise, they do not appear on the tenant’s depreciation schedule—but they could. These are capital improvements, and the increase in tenant occupancy cost is essentially a financing agreement, not additional rent. In most cases, these assets should be valued as personal property of the landlord. However, if the income approach is used to value the real property and the additional rent for TIs is included and valued, then they may be valued as real property. TIs should always be valued as personal property unless it is clear they are valued as real property.

What if the LHIs are walls, plumbing, and electrical; aren’t those improvements automatically real property?

When LHIs are permanently affixed to the real estate, they may appear to be real property. However, the value of the property rights associated with the improvements is what must be determined. The value of LHI is taxable; the question is whom do those improvements benefit and give value. In nearly every situation, the answer is that the tenant is the sole beneficiary of the value of these improvements. It doesn’t matter if they are classified as real or personal property, but in nearly every case it is the tenant who benefits, and thus the LHI value is personal property. If the landlord installed the LHI, then the landlord should be assessed for the value of the LHI as personal property. LHIs are seldom assessed as part of the real property. However, if it is certain that the value associated with the LHI is assessed as real property, it should not be assessed as personal property.

What if the tenant has a lease term that is shorter than the life of the assets?

When the term of the lease is less than the life of the assets, it is important to consider if it is likely the tenant will renew the lease or remain as a tenant. If there is no requirement that the tenant vacate the premises, the LHI must be assessed as personal property. However, if the tenant has given notice or received notice to vacate, the effect on value must be considered. Nevertheless, the value of the property rights associated with the LHI is personal property unless it is clear the LHI property is assessed as real property.

If the tenant leases a shell and finishes the space but is required by the lease terms to leave any tenant improvements in place when the lease expires, are the TIs personal property? What if at the end of the lease these improvements will be removed by the landlord before the next tenant leases the space?

Yes. The tenant improvements are personal property if the tenant is required to remove them at the end of the lease. If the landlord requires that the TIs be left but rarely if ever re-leases the space without removing the former tenant’s TIs, they are still personal property since there is no likely benefit to the landlord. These improvements may even be considered a detriment to the real property since it will cost both time and money for the landlord to remove the improvements. Landlords often require that TIs be left so that the demolition and build-out for the new tenant can be in the landlord’s control, minimizing the overall time and expense to re-tenant the space. Nevertheless, if the TIs are included in the real property assessment of the property, they shouldn’t be assessed as personal property.

Are leasehold improvements permanently affixed to a building real property even if the life of the asset is shorter than the length of the lease?

No. This is personal property; the issue is whether it is personal property of the tenant or of the landlord.

What if the TIs are trade fixtures?

Trade fixtures are defined in WAC as personal property, so they are always personal property when owned or installed by or on behalf of the tenant.

What if improvements are unique to the tenant’s business?

Unique TIs, even if installed by the landlord as part of the lease agreement, are personal property because the benefit is only to the business enterprise even though there may be financial benefit to the landlord in terms of rent received. If the income approach includes additional rent for TIs to value the real property, then TIs may be valued as real property. However, TIs should always be valued as personal property unless it is clear they are valued as real property.

If the landlord installed the tenant improvements and charges market rent for finished retail space, are the improvements to finish the space (TIs) real property?

If the value of the TIs is captured in the real property appraisal, they are real property. However, it is better to assess these improvements as personal property in most instances because the economic life of these assets is not consistent with the life of the real estate; for example, carpeting may have only a 5-year life while the real estate has a life of 25-plus years. Valuing carpeting and other short-lived assets using a real property income approach can overvalue the property because real property has a much longer life than these assets. A significant component of the capitalization rate recaptures the investment based on its life so that capitalized rent associated with an abundance of shorter-lived assets could overstate the value of those assets by three or four times. Net income from TI rent of $1,000 at a recapture rate of 20 percent translates into $5,000, but at 4 percent, it is $25,000. However, in markets where landlord-installed TIs are typical and are reflected in capitalization rates and other market units of comparison, real property assessment is reasonable and accurate even when rent associated with these short-lived assets is included. High-rise office buildings are often leased as finished space, while retail space is rarely leased this way in most markets.

To ensure all taxable property (property rights) is assessed and taxed, what are the best procedure or procedures and policies to follow, giving significant weight to ease of administration for both taxpayer and tax administrator?

Ensuring uniformity is the priority, making sure to avoid double assessment while equally avoiding omitted property assessments. Focus on ensuring that the value of all property rights are captured, not on what asset is real property and what asset is personal property; the assignment is to value the property rights associated with the tangible assets.

Common policies and procedures for discovery and assessment of both real and personal property must be in place to limit double assessments, avoid omissions, and coordinate efforts between real property and personal property assessments. County assessor real property appraisers’ valuation methods and procedures must be communicated to the personal property appraisers and vice versa, especially those affecting the assessment of LHIs. As a general rule, list and value all LHIs as personal property. If the LHIs are owned by the lessee and are not valued with the real estate, those LHIs need to be listed and valued on the lessee’s personal property account for assessment.

For tenants, or lessees, reporting their LHIs on their annual personal property listing form, it is equally important to detail those LHIs as much as possible, because that can benefit both the tenant and the assessor in avoiding double assessments. For example, if a tenant leasing a motel replaces all doorknobs and paints the exterior as part of an update of furniture and fixtures, it would be beneficial for the tenant to separate those improvements from the furniture and fixtures or from a lump-sum “Leasehold Improvements” entry on the personal property listing form. By providing more detail, the assessor could make a determination if those specific LHIs were included within the assessor’s valuation model for the real property.

Uniformity is important when assessing LHIs, and each county needs to establish a process for making any necessary corrections to minimize the impact to taxpayers and county assessment staff time when double assessments are substantiated.

What valuation table/column should be used for leasehold improvements?

The appropriate table is the one that is appropriate for the specific asset. That is, the appraiser should consult the Department’s Index to Personal Property Valuation Indicators (Index) and use the indicated table/column for the type of property being assessed. However, there are occasions when a taxpayer lists the property simply as “leasehold improvements.” When this occurs, the Index may be used by identifying the nature or type of business activity, e.g., the rate for “Office Furniture and Fixtures” could be utilized to value LHIs of an office-building tenant.

An alternative method would be to value the assets on the basis of the lease term. Let’s assume a tenant has a 10-year lease with one 5-year option to extend the lease, for a total of 15 years. The unidentifiable LHIs could be viewed as having a 15-year life. By consulting the “Combined Table” in the Index, the appropriate table/column can be selected. The economic life in years is noted at the top of each column of percent good factors, immediately under the rate. The rate that most closely matches the 15-year lease term is the 10 percent column.

In either case, the economic life of the LHIs is the primary basis by which the rate should be chosen.

What are some definitions used in assessment and valuation of leasehold improvements?

LEASEHOLD IMPROVEMENTS – Improvements or additions to the leased property that have been made by the lessee.

LEASEHOLD ESTATE – The interest held by the lessee (the tenant or renter) through a lease conveying the rights of use and occupancy for a stated term and under certain conditions. The leasehold estate is the lessee’s, or tenant’s, estate. When a lease is created, the tenant usually acquires the rights to possess the property for the lease period, to sublease the property (if this is allowed by the lease and desired by the tenant), and perhaps to improve the property under the restrictions specified in the lease. In return, the tenant is obligated to pay rent, surrender possession of the property at the termination of the lease, remove any improvements the lessee has modified or constructed (if specified), and abide by the lease provisions.

FEE SIMPLE ESTATE – Absolute ownership unencumbered by any other interest or estate, subject only to the limitations imposed by the governmental powers of taxation, eminent domain, police power, and escheat.

LEASED FEE ESTATE – An ownership interest held by a landlord with the rights of use and occupancy conveyed by lease to others. The rights of the lessor (the leased fee owner) and the leased fee are specified by contract terms contained within the lease. The market value of the leased fee interest depends on how contract rent compares to market rent.

REAL PROPERTY – Land and appurtenances, including anything of a permanent nature such as structures, trees, minerals, and the interest, benefits, and inherent rights thereof.

PERSONAL PROPERTY – For the purposes of taxation, [it] shall be held and construed to embrace and include, without especially defining and enumerating it, all goods, chattels, stocks, estates or moneys; all standing timber held or owned separately from the ownership of the land on which it may stand; all fish trap, pound net, reef net, set net and drag seine fishing locations; all leases of real property and leasehold interests therein for a term less than the life of the holder; all improvements upon lands the fee of which is still vested in the United States, or in the state of Washington… . (RCW 84.04.080.)

TRADE FIXTURES – Articles placed in or attached to rented buildings by a tenant to help carry out the trade or business of the tenant are generally regarded as trade fixtures. For example, a tenant’s shelves used to display merchandise are trade fixtures and retain the character of personal property, as opposed to all other fixtures that were but are no longer personal property when they are attached to and become part of the real estate. Despite the consensus on the concept of trade fixtures in general, applicable law and custom govern when a specific item is a trade fixture in a particular assignment (USPAP, 2002 ed.). Also called chattel fixtures.

This concept, which is peculiar to the landlord-tenant relationship, refers to the machinery or equipment of any commercial or industrial business that operates on leased land or in rented quarters. Such machinery or equipment is a trade fixture; i.e., the tenant’s personal property, no matter how firmly it may be attached to the landlord’s realty, unless it could not be removed without virtually destroying the building housing it, or otherwise seriously damaging the landlord’s realty. Brown on Personal Property (2d Edition 1955), Sec. 144. (WAC 458-12-005(9).)

LHIs may be real or personal property, depending on a number of factors. Trade fixtures on land owned by the person who owns the improvements may be classified as real property, but on leased land, the same improvements are personal property.

Mobile and manufactured homes

Are “mobile homes” the same as “manufactured homes?”

For property tax purposes, these have the same meaning. Both are dwellings (homes) designed and built on a permanent chassis that can be transported in one or more sections. A “mobile home” refers to those built before June 15, 1976, and a “manufactured home” refers to those built to HUD standards after that date.

Is a mobile/manufactured home the same as a “modular home?”

No. A modular home is different than a mobile home. It is built to state or local building codes, transported on flatbed trailer, and must be set on a permanent foundation. A modular home becomes part of the real property.

Are mobile homes considered real or personal property?

Mobile homes are generally classified as real property for property tax purposes with the exception of for tax collection purposes when the home is moved or in transit. A mobile home is specifically defined as real property when it “…has substantially lost its identity as a mobile unit by virtue of its being permanently fixed in location upon land owned or leased by the owner of the mobile home and placed on a permanent foundation (posts or blocks) with fixed pipe connections with sewer, water, or other utilities.…” (RCW 84.04.090)

This applies to most mobile homes, even those located in a manufactured home park on a leased site.

Why does the county assessor call my mobile home personal property?

Some county assessors refer to mobile homes as personal property for tracking purposes, especially in the case of mobile homes located in manufactured home parks where the space is leased. Some counties also create a "mobile home parcel."

Whether the county assessor calls a mobile home “real property” or “personal property,” the tax rate is the same.

How does title elimination affect my mobile home?

Title elimination is a lending requirement for certain types of financing. Title elimination is not required for property tax purposes and should not affect property taxation (see RCW 65.20.910), as most mobile homes are already defined as real property.

I remodeled my mobile home – it now looks just like a site-built home – why does the assessor still call it a mobile home?

Property tax laws require the assessor to identify a mobile home on the assessment records (see RCW 84.40.343). While an extensive remodel may give an appearance of a site-built home, the mobile home identification merely identifies a fact of the original home. The assessment records should reference the newly remodeled attributes as well.

How does the assessor value my mobile home?

The basis for property valuation is found in RCW 84.40.030. It specifies “…all property shall be valued at one hundred percent of its true and fair value in money and assessed on the same basis unless specifically provided otherwise by law.”

Since most mobile homes are real property, the valuation should be on the same revaluation cycle as other real property in the county. The county assessor determines the true and fair market value by comparing the property being appraised with sales of other similar properties using criteria from RCW 84.40.030 and WAC 458-07-030.

Mobile homes are best valued when compared to other mobile homes. However, a mobile home where the owner also owns the land is less comparable to a mobile home on a leased space in a manufactured home park.

The county assessor may also use a cost approach to determine market value, based on the cost of replacing an existing structure with a similar one that serves the same purpose. This method is better used when valuing new construction.

I want to sell my mobile home and upgrade to a newer one. Why does my assessed value seem higher than what I can sell my used mobile home for?

The selling price for a pre-owned mobile home to be moved will likely be lower than the assessed value, since the market value in-place includes all the costs associated with set up of the home. The selling price differs from the assessed value because it does not have these costs and the purchaser has risk in moving and reassembling the mobile home.

What happens if I want to move (or sell) my mobile home from its current location?

To ensure all property taxes are paid, the treasurer has authority to collect the tax for the current year and advance tax that will become due the following year (RCW 84.56.070 and 84.56.090).

The fact the mobile home changed from real property to personal property, when moved, makes advance tax collectable on the mobile home.

If the mobile home is sold and moved, what appeal rights does the purchaser have?

Since the purchaser of the mobile home is the "taxpayer" of the advance tax, they have the right to petition the county Board of Equalization regarding the assessed value of the home under RCW 84.40.038 and WAC 458-14-056. Any mobile home purchaser petition to the Board will be reviewed to determine whether the assessed value of the mobile home as real property was the true and fair value of the mobile as of January 1 of the year of sale.

Will the assessor include the mobile home as “new construction” when set up at the new location?

No. The law only authorizes placement of the mobile home on the assessment roll when it has never been subject to property taxes in Washington or if no advance tax was paid when moved from its original county. (RCW 36.21.090)

If I move a mobile home to a different location, is it considered destroyed property?

No. Merely moving a mobile home to a different location does not qualify it as destroyed property under RCW 84.70.010. The destroyed property law only applies to property that has actually been destroyed.

Is a park trailer (or park model trailer) the same as a mobile home?

No. While similarities exist between the two, a park trailer is defined as “…a travel trailer designed to be used with temporary connections to utilities necessary for operation of installed fixtures and appliances. The trailer's gross area shall not exceed four hundred square feet when in the setup mode. "Park trailer" excludes a mobile home.” (RCW 46.04.622)

Is a park trailer real property or personal property?

Like mobile homes, most park trailers are generally classified as real property for property tax purposes with the exception of tax collection purposes when the home is moved. A park trailer is considered real property when it “…substantially lost its identity as a mobile unit by virtue of its being permanently sited in location and placed on a foundation of either posts or blocks with connections with sewer, water, or other utilities for the operation of installed fixtures and appliances.” (RCW 84.36.595)

If I move my park trailer, will it be subject to advance tax like a mobile home?

Yes. When the park trailer will be moved out of the county, the county treasurer has the authority to collect an advance tax under provisions similar to those that cover mobile homes (RCW 84.56.070 and 84.56.090).

Do park trailers qualify for an exemption the same as travel trailers?

No. A specific definition applies to the exemption for “travel trailers” in RCW 84.36.595. Park trailers are defined differently and are not exempt.

If I license my park trailer with the Department of Licensing, will that make it exempt?

No. Again, RCW 84.36.595 does not provide an exemption for park trailers, licensed or not.

Are mobile homes for sale on a dealer’s lot exempt as business inventory?

Yes, so long as the mobile homes are personal property held for sale. If the mobile homes are on a permanent foundation with fixed pipe connections, they become real property and would not qualify for the exemption. (See RCW 84.36.477 and RCW 84.36.510).

If a dealer has a mobile home set up as a model home ready to move in, would it be exempt as inventory?

No. Again, a mobile home on a permanent foundation with fixed pipe connections is real property. The exemptions provided by RCW 84.36.477 and 84.36.510 only apply to personal property inventory.

If I qualify for the “head of family” exemption, will my mobile home be exempt if it is assessed for $15,000 or less?

No. The head of family exemption in RCW 84.36.110 excludes mobile homes.

Rental equipment

When personal property assets are rented, such as various tools and equipment, are those assets assessable for property tax purposes?

The answer is “yes.” Rental assets, whether held or owned for short-term rental (generally less than 30 days), or long-term rental/lease, are assessable for property tax purposes and are to be valued at 100 percent of their true and fair market value.

What if the rented or leased equipment is “always for sale,” or could be purchased by the lessee/renter at any time – would the equipment be exempt as inventory?

The answer is “no.” While business inventories held for sale in the normal course of business are exempt from property tax under RCW 84.36.477, rental equipment is not.

Specifically, “‘business inventories’ does not include…property held within the normal course of business for lease or rental for periods of less than thirty days." RCW 84.36.477(2)(iii)

If rental assets are taxable, how are those assets handled for property tax purposes and how does the assessor value equipment?

Washington law requires all property be assessed and appraised at 100 percent of the true and fair market value. As a result, RCW 84.40.040 requires owners, users, and persons in control of personal property to list their assets with the county assessor every year, as of January 1st. As part of listing personal property, the owner must include the date of purchase, acquisition cost (including all costs associated with making the property operational), and a description of the property.

The Department of Revenue annually publishes “Personal and Industrial Valuation Guidelines” (Guidelines) to assist counties in estimating values for tangible property. The Department recommends that assessors consider the guidelines in the valuation process in order to promote and improve statewide uniformity and standardization in the assessment of personal property. As well, in the case of personal property, boards have further ruled that the market value of assets in use in a business is to be assessed at the value-in-use level, sometimes called the “value in continued use.”

I see in the Guidelines under the Rental Equipment index, there is Public U-Rent (excluding Heavy Equip) and Rental of Heavy Equipment. What is the difference?

As a general rule of thumb, Public-U-Rent rental equipment is the type rented from a rental service store which can be placed in the back of a pickup. Whereas “heavy” type equipment is commonly transported on a trailer or a larger vehicle. Some notable examples of “heavy” equipment include backhoes, dozers, scissor-lifts, skidsteers, etc.

While not always a specific delineation between Heavy vs. Public-U-Rent, the assessor makes the final determination given the particulars of the equipment for the category and table reflects the corresponding economic life for the asset. In nearly all cases, “heavy” equipment is the type of equipment that has a long life, regardless of whether rented or not.

What about rent to own furniture, where there’s an option to buy the furniture. Are those assets taxable or exempt?

There are two considerations to keep in mind. First, the owner of the furniture is ultimately responsible for the property tax. There is an exemption for one's "household goods, furnishing, and personal effects" in RCW 84.36.110 (further delineated in WAC 458-16-115), where furniture might be an item exempt as one's household goods, if normally found in or about a residence. However, this exemption would not apply to rented furniture if it was not owned by the homeowner.

If the “rent to own furniture” lease agreement met the criteria of a security agreement (i.e. a financial arrangement used to purchase property), as specified in the Property Tax Advisory (PTA) 10.1.2009, then the rental customer would be the owner of the furniture. In that case, the furniture might qualify for an exemption under RCW 84.36.110. However, if the lease is a true lease, then the rent to own company is the owner of the furniture and would not be exempt as household goods and furnishings.

Secondly, while the leasing/rental company might make the furniture available for purchase at any time or at the end of the rental, the assets would not be exempt as inventory under RCW 84.36.477(2). That is, if the furniture was leased or rented at any time during the calendar year prior to the year of assessment, it would be taxable. For example, if the year of assessment is 2010 (1/1/10), then if the furniture was leased or rented at any time during 2009, then it would be taxable. If it was not leased or rented in 2009 - i.e. the furniture was for sale, then it would be considered business inventory and would be exempt from personal property tax.

Allocated vs. historical costs

What is the difference between allocated and historical costs?

We’ve seen it — an “allocated cost” (or sometimes a “lump sum” cost) for a business that recently sold, where a buyer and seller allocate value between the personal property and real property during the escrow process.

Allocated costs are just that, often allocated based on buyer and seller allocated values between the personal property and real property during the escrow process, where the allocation might be for a particular tax benefit not associated with property tax purposes. Typically, the buyer then uses the allocated value as a new basis for the personal property assets when filling out their annual personal property listing form.

Historical costs, however, are the actual costs incurred in acquiring an asset and preparing it for use. For purposes of listing taxable personal property, the historical cost (or total original cost) includes all costs associated with making the property operational but excludes sales tax. For example, installation, freight, and engineering charges are costs that may be incurred while placing property into operation.

How should the county assessor handle the new allocated figures when a new owner lists the allocated costs on their annual personal property listing?

Each case should be taken on a case-by-case basis, the Department of Revenue (Department) recommends using original/historical costs, typically the prior year’s personal property listing, oppose to an allocated (or lump sum) value/costs for the equipment. The new value might represent the fair market value in the year allocated, but is less reliable as an indicator of market value and a cost basis for subsequent years.

Why should historical costs be considered, rather than allocated costs?

Property owners in Washington who own or control taxable personal property are required to file an annual listing of all their taxable personal property located in each county as of January 1st. The law also requires assessors to appraise all property at 100 percent of the true and fair market value (RCW 84.40.030). In the case of personal property, the courts have further ruled that the market value of assets in use in a business are assessed at the value-in-use level (value in continued use).

The Department annually publishes guidelines for counties to use in the valuation of personal property, which work best when applied to the historical (or original) cost of new assets. When asset costs are “allocated,” or restated, the potential to produce inequitable values when comparing those assets to other like property likely exists. Additionally, the market value might be distorted in the future by producing a different “floor” value due to restarting the acquisition year.

What if the new owner is only able to provide allocated cost(s)?

The Department recommends the new owner use the original/historical costs, along with the original acquisition year, when filing their annual personal property listing. So, this may involve the purchaser working with the seller to determine the appropriate original costs or reviewing the seller’s most recent personal property filing. Using the original/historical costs and year of acquisition provide a better indication of market value, as well as provides a useful means for deletions and additions of the equipment. As the new owner disposes of existing equipment and adds new equipment, it can be easily tracked, rather than attempting to adjust a lump sum amount. This will further avoid double assessment.

Instances might occur where historical costs are not available, where if the owner uses an allocated cost, the assessor is still required to value all property at 100 percent of true and fair market value. In all cases, the Department urges the property owner to work proactively with the county assessor to ensure uniformity in the reporting of the equipment. This may involve an onsite inspection of the equipment to confirm what equipment is still in place.

Capital improvements

What are capital improvements?

Generally, capital improvements (sometimes called capital repairs) are substantial improvements made to property that typically add value.

Examples include:

Replacing a major component or structural part of the property.
Creating an increase in capacity, productivity or efficiency.
Rebuilding property after the end of its economic useful life.

Are capital improvements the same as maintenance and repairs?

No. Maintenance and repairs are routine in nature and/or recurring activities (inspection, cleaning, testing, replacing parts, etc.). Typically, maintenance and repairs are performed as a result of the use of property to keep the property in its ordinary operating condition. As well, maintenance and repairs are commonly expensed, but can sometimes appear in the asset account.

I’ve heard the term “betterments.” What are betterments?

Generally, betterments are expenditures for replacement of assets, and might look like a capitalized repair. However, these assets are typically intended to make the asset better, more efficient, more productive, or profit enhancing but will not necessarily extend the life of the asset. Betterments should not be recorded as a capital improvement, but as an addition to the asset bettered and included in the depreciation base.

What are some examples of capital improvements?

Examples of capital improvements might include (but aren’t limited to): engine replacement or rebuild/overhaul, transmission replacement or rebuild/overhaul, axle assemblies, etc.

What are some examples of maintenance and repairs?

Examples of maintenance might include (but aren’t limited to): fluid and filters (oil, fuel, coolant, etc.), brakes, tires, etc. Examples of repairs might include (but aren’t limited to): hydraulic line or pump repairs, electrical repairs, welding repairs, etc.

What is the best way to record capital improvements on a personal property listing?

Communication between the property owner and assessor is essential to accurately report and record capital improvements. For example, a property owner may have “Engine Overhaul” reported on their property listing, but a follow up inquiry may reveal that the overhaul consisted only of the replacement of some internal engine parts, which might only be a repair.

How should capital improvements be recorded on a personal property listing and how should they be assessed?

Not all property owners report capital improvements in the same manner, because of differing accounting practices. For assessment purposes, capital improvements should be accounted for in the depreciation base.

The Department recommends: 1) Removing the cost of the capital improvement from the cost of the asset receiving the capital improvement and make a note in the asset’s description to account for the adjusted cost. For example: Log Loader ($200,000 original cost minus $10,000) 1999 $190,000 Adding the cost of the capital improvement to the listing as of the year it was completed. For example: Log Loader Engine 2006 $10,000.

Construction work in progress

What is construction work in progress (CWIP)?: CWIP is a general ledger account categorized as a fixed asset, in which the costs directly associated with constructing an asset are recorded. A company that is currently constructing their new operation or reconstructing an old facility may have an account titled CWIP. Commonly, they will book all their construction costs and assets to this account until the project is completed and all costs associated with the assets are known. Then the assets and associated those costs, including interest during construction, will be booked and placed in their permanent fixed asset ledger accounts under Generally Accepted Accounting Practices (GAAP).
Is CWIP assessable?: Yes. All property now existing, or brought into Washington, is subject to assessment and taxation with reference to January 1st of each year for property tax purposes, unless specifically exempted (RCW 84.36.005). Additionally, all personal property subject to taxation needs to be listed and assessed every year with reference to its value and ownership on the first day of January (RCW 84.40.020). Regardless of whether the (CWIP) assets have been placed in service or not, the appraiser will have to review this account to determine if there are personal property assets taxable for assessment purposes on January 1st.
How should CWIP be valued?: Because the CWIP is “in progress” and located on site, it is considered personal property until such time as it is affixed to the realty. This can also include machinery and equipment that, when the plant is completed, will be classified as real property, but located on site (or in the state) and not installed as of January 1. For personal property valuation purposes, the CWIP account will need to be listed and assessed as part of other capital assets of the business – where the value is the cost of the assets in the CWIP account (and installation costs, if any).

Omitted property and value

What is omitted property?

Omitted property includes all real and personal property that was not entered on the assessment roll. Omitted property does not include:

(a) Real or personal property that was listed on the assessment roll but improperly exempted from taxation in prior years; and

(b) Real or personal property that was accurately listed but improperly valued by the assessor.

What is omitted value?

Omitted value includes all personal property that was assessed at less than its true and fair value due to inaccurate reporting by the taxpayer or person making the personal property listing.

Omitted value does not include: (a) Personal property that was listed on the assessment roll but improperly exempted from taxation in prior years; and (b) Personal property that was accurately listed but improperly valued by the assessor.

What is the duty of the assessor upon discovery of omitted (personal) property or value?

When the assessor discovers, or becomes aware of omitted property or value the assessor is required to:

make an omitted property/value assessment at the property's true and fair value for each year omitted.
notify the taxpayer/owner of the omitted property/value assessment for each year omitted and the value shall be stated separately from the value of any other year.
This also is to include a copy of the amended personal property statement and a letter of particulars informing the taxpayer of the assessor's findings.
notify the property owner or taxpayer of the right to appeal to the board of equalization and the right to request the board be reconvened.

How far back can the assessor make an omitted property assessment?

No omitted property or omitted value assessment can be made for any period more than three years preceding the year in which the omission is discovered. RCW 84.40.085

When are taxes on omitted property or omitted value assessments due?

When an omitted property or omitted value assessment is made, the taxes levied as a result of the assessment may be paid within one year of the due date of the taxes for the year in which the assessment is made without penalty or interest.

An assessment is "made," for purposes of omitted property or omitted value assessments, when the assessor notifies the taxpayer in writing of the property and/or value that was previously omitted from the assessment roll. Taxes resulting from an omitted property or omitted value assessment are due on April 30th, and cannot be timely paid in two installments, unlike taxes for the current tax year. If the taxes due on an omitted property or omitted value assessment are not paid by the due date, the penalties and interest provided in RCW 84.56.020 begin to accrue from the date the taxes become delinquent.

Where can I go for additional information regarding omitted property?

The rule in WAC 458-12-050 is a good resource, including several examples.

Software

What is software?

Software is a set of directions or instructions that exist in the form of machine-readable or human-readable code, is recorded on physical or electronic medium and directs the operation of a computer system or other machinery and/or equipment. Software includes the associated documentation which describes the code and/or its use, operation, and maintenance and typically is delivered with the code to the user. Computer software does not include data bases, but does include the computer programs and code which are used to generate data bases.

Software can be canned, custom, or a mixture of both.

What is canned software and how is it valued for assessment purposes?

Canned software is designed for and distributed “as is” for multiple users without modifying its code. It is also referred to as prewritten or standard software. Valuation: •

In the first year of assessment, canned software is listed and valued at 100% of its full acquisition cost in the first year.

In the second year, it is listed at 100% full acquisition cost, and valued at 50% of full acquisition cost.
After the second-year assessment year, canned software is valued at zero.
Canned software that is sold with computer hardware retains its identity as canned software, and should be valued as such.

What is custom software and how is it valued for assessment purposes?

Custom software is specially designed for the specific needs of a user. This includes modifications to canned software. It can be created in-house, by an outside developer, or by both.

Valuation: Custom software is exempt from property taxation, unless it is embedded.

What is embedded software and how is it valued for assessment purposes?

Embedded software can be either canned or custom, and resides permanently on an internal memory device in a computer system or other machinery/equipment that is not removable in the ordinary course of operation. Embedded software is necessary for its routine operation – the computer system or machinery equipment will not operate without it.

Valuation: Because embedded software is part of the computer system, machinery, or other equipment, it has no separate acquisition cost and is valued as part of the computer system or other machinery/equipment in which it is housed.

What are some general ways to determine if software is embedded?

The first question you need to ask: “Is this software necessary to make the equipment operate?” If the answer is yes, then it’s likely embedded software. If the software is not needed to make the equipment operate, but instead enhances the operation of the equipment, then it might be custom or canned software. How a company books the acquisition cost of the software may cause some uncertainty as to taxability. It can become confusing when a company separately itemizes the software needed to operate the equipment, because it often appears to meet the definition of canned software. Therefore, it is important to ask whether software listed separately is needed to operate the equipment or not. If the equipment will not operate without the separately listed software, then it meets the definition of embedded. In some cases a company may allocate a portion of the cost as software; this is a strong clue that the software is embedded – merely allocating a portion of the overall equipment as software does not make the software canned or custom software.

What are software licenses?

Software licenses grant the purchaser the right to use the software. In this sense, a software license is no different than a box of canned software and should be treated as such. A software license is inherent with canned off-the-shelf software, and without the license or the right to use the software, the software has no use or value (i.e., the user must click the “I AGREE” button when installing or downloading canned software).

Are software licenses taxable for assessment purposes?

Software and a software license will show up as a separate item on an asset listing and should be reported as part of a taxpayer’s personal property listing. In most instances, the software license is in lieu purchasing hard copy versions and should be treated as canned software under RCWs 84.40.037 and 84.36.600

Where can I go for additional information regarding the assessment of software?

The rule in WAC 458-12-251 is a good resource for the definitions and valuation pertaining to the assessment of software.

Timeshares

What is a timeshare?

The Appraisal of Real Estate (13th edition, Appraisal Institute) defines timesharing as: Limited ownership interests in, or the rights of use and occupancy of, residential apartments or hotel rooms. There are two forms of timesharing: fee timeshares and non fee timeshares. Fee timeshares may be based on timeshare ownership or interval ownership. There are three types of non fee timeshares: a prepaid lease arrangement, a vacation license, and a club membership.

Generally speaking, timesharing is a concept known as a form of vacation unit ownership, entitling the purchaser to use a specified, or unspecified unit, for a particular timeframe. In many instances, owners have points with virtually undivided and non-controlling interests to stay at various locations in a network as an alternative to staying in a motel. Timeshare units are typically managed, rented, sold, and/or often traded for similar units through property managers.

So would personal property assets associated with a timeshare assessable for property tax purposes?

Yes. In Washington, all property is considered taxable unless otherwise exempt by law– i.e. “all property now existing or that is hereafter created or brought into this state shall be subject to assessment and taxation ...excepting such as is exempted from taxation by law.” (RCW 84.36.005) At this point in time, an exemption does not exist for personal property assets associated with timeshares.

Specifically, “‘business inventories’ does not include…property held within the normal course of business for lease or rental for periods of less than thirty days." RCW 84.36.477(2)(iii)

Wouldn’t the personal property assets found in timeshare be exempt for the “owners” as household goods and furnishings?

No. The real and personal property for timeshare units are controlled and managed for the use of their owners commercially. The unit furnishings are not specifically owned purchasers – i.e., timesharing owners are not allowed to remove furnishings when they leave the facility or the unit at the end of their specified timeframe.

While the rule in WAC 458-16-115(2) provides that, “…all household goods and furnishings actually being used to equip and outfit the owner's residence or place of abode and all personal effects held by any person for his or her exclusive use and benefit are exempt from property taxation…” The rule further specifies when household goods are not exempt, which includes: “…personal property held for sale or used for any business or commercial purpose does not qualify for the household goods exemption. Thus, property used to equip and outfit a motel, hotel, apartment, sorority, fraternity, boarding house, rented home, duplex, or any other premises not used by the owner for his or her own personal residence or place of abode does not qualify for this exemption…” [Emphasis added] Keeping in mind exemptions are to be strictly, though fairly, construed in favor of taxability, the furnishings held for timeshare owners are not exempt as household goods and furnishing. Rather, the assets would be subject to personal property assessment and would need to be listed on the annual personal property listing (RCW 84.40.185).

Watercraft/vessels

Are watercraft and vessels taxable or exempt?: Boats, vessels, ships, etc., that are a form of transportation are exempt from property tax or are assessed by the Department of Revenue (Department). Therefore, if it floats and is a mode of transportation, it is not assessed by the county assessor, but could be assessed by the DOR if it is a commercial vessel. If it floats but is not a mode of transportation (boathouse, dock, etc.), it is assessable by the county assessor.
Which RCW’s and WAC’s deal with the taxability of watercraft and vessels?: - Several laws exist within Title 84 (the title dealing with property tax) that touch on the taxability of vessels, commonly referring to others found in Title 82 and 88 for definitions. The laws regarding vessel exemptions are in to RCW 84.36.079, RCW 84.36.080, and RCW 84.36.090. Whereas, the definition of a vessel is found in RCW 88.02.010(1).
Is my personal ski boat and personal watercraft (Sea-Doo, Jet Ski, Wave Runner, etc.) assessed as personal property by the county assessor?: No, ski boats and personal watercraft are exempt from property tax (exempt as a vessel) but are subject to excise tax which is part of the license fee paid to Department of Licensing (DOL)
What about a ski boat or personal watercraft rented by a local marina, are they subject to assessment by the county assessor for personal property tax?: No, it doesn’t matter if the boat or personal watercraft are rented or for personal use. They are still exempt from property tax but subject to excise tax included within the licensing fee.
What about small boats, dinghies, kayaks, canoes, etc. that don’t require licenses from the DOL, are they subject to personal property tax?: No, they are considered vessels for transportation and are exempt regardless of size and if rented or personal.
Are houseboats, like the ones rented on Lake Roosevelt, assessed by the county assessor?: No, houseboats are determined to be vessels for transportation and are exempt from property tax. They are subject to excise tax included within the license fee paid to DOL. However, assets that are used to equip the houseboats that are not permanently attached (pots, pans, life vest, linens, etc.) should be assessed as personal property.
Are boathouses (floating garages) assessed by the county assessor?: Yes. A boathouse at a marina that is located on government-owned leased space is personal property, whereas a boathouse located on owner-occupied water frontage will likely be assessed with the real property. Boathouses do not qualify for the $15,000 head of family exemption even if they are assessed as personal property.
Are floating homes assessable?: Yes, floating homes are assessed by the county assessor.
What about commercial fishing boats and U.S. Coast Guard document vessels used primarily for commercial purposes? Are these assessable by the county assessor?: No. These types of vessels are not subject to local assessment of personal property tax; however, commercial vessel tax may be due, which is a type of personal property tax. Commercial vessels exempted from watercraft excise tax are subject to the state personal property tax levy. Vessels used exclusively for commercial fishing purposes and U.S. Coast Guard documented vessels used primarily for commercial purposes such as charter and time-share boats, tugs, and barges are subject to this tax. Please see the Department’s Commercial Vessel Tax information page for more detailed explanation.