Head of family exemption | Washington State Department of Revenue

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.

A County Assessor's Office requested information and/or a basic legal explanation

Why a Limited Liability Company (LLC) isn't treated like a Sole Proprietorship for purposes of the Head of Family personal property tax exemption. The taxpayer, an LLC, would like the Head of Family Exemption applied to its Personal Property Assessment and has told the assessor that the business is like a Sole Proprietorship with just a husband and wife being the owners of the LLC. The issue is whether an LLC can qualify for the Head of Family exemption provided by RCW 84.36.110(2).

Definitions

The definition of "person" in RCW 84.04.075 includes a "firm, company, association or corporation." In addition, RCW 1.16.080(2) provides:

Unless the context clearly indicates otherwise, the terms 'association,' 'unincorporated association,' and 'person, firm, or corporation' or substantially identical terms shall, without limiting the application of any term to any other type of legal entity, be construed to include a limited liability company.

Thus, a "person," as used in the property tax statutes, clearly includes LLCs unless otherwise expressly provided in statute or unless the context indicates otherwise.

However, just because an LLC may be a person for property tax purposes, it does not follow that an LLC is entitled to the Head of Family exemption. The exemption for the head of a family applies to "individuals" rather than all" persons." RCW 84.36.110(2) provides, in relevant part:

The personal property, other than specified in subdivision (1) hereof, of each head of a family liable to assessment and taxation of which such individual is the actual and bona fide owner to an amount of three thousand dollars of actual values . . . . (Emphasis added.)

In contrast to sole proprietorships, LLCs are not "individuals." This is made clear from the provisions of chapter 25.15 RCW which contain the statutes authorizing and regulating LLCs. RCW 25.15.030(2) states that "a limited liability company has the same powers as an individual to do all things necessary or convenient to carry out its business and affairs." It is clear from this statute that an LLC is not an individual; for if an LLC were considered to be an individual, there would be no need for the statute to state that an LLC has the same powers as an individual as it relates to carrying on its business and affairs.

The term "individual" has been defined as follows:

As a noun, this term denotes a single person as distinguished from a group or class, and also, very commonly, a private or natural person as distinguished from a partnership, corporation, or association; but it is said that this restrictive signification is not necessarily inherent in the word, and that it may, in proper cases, include artificial persons.

As an adjective, 'individual' means pertaining or belonging to, or characteristic of, one single person, either in opposition to a firm, association, or corporation, or considered in his relation thereto.

Black's Law Dictionary 773 (6th ed. 1990) (emphasis added). The above definition of "individual" supports the conclusion that the term usually pertains to natural persons (i.e., a human beings) rather than artificial entities such as corporations or LLCs.

Additional support for the conclusion that the Head of Family exemption in RCW 84.36.110(2) applies only to natural persons is found in RCW 84.36.120, which states:

For the purposes of RCW 84.36.110, 'head of a family' shall be construed to include a surviving spouse not remarried, any person receiving an old age pension under the laws of this state and 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 context of RCW 84.36.120 indicates that the term "head of a family" refers to natural persons, as an LLC or other artificial entity cannot be a surviving spouse and, presumably, cannot receive an old age pension.

Interpreting the head of a family exemption as not applying to LLCs and other artificial entities is in keeping with the rule of statutory construction that "an exemption in a taxing statute is to be construed strictly against the claim of exemption." Yakima First Baptist Homes, Inc. v. Gray, 82 Wn.2d 295, 299, 510 P.2d 243 (1973).

Finally, the conclusion that the Head of Family exemption does not apply to LLCs is consistent with the Department's long standing position, expressed in a Tax Commission Ruling dated March 8, 1935, that the exemption does not apply to a business that is a separate and distinct legal entity from the individual or individuals who own the business. In that ruling, the Tax Commission, based on an Attorney General Opinion, noted that the head of a family exemption did not apply to partnership property because a partnership, unlike a sole proprietorship, is a separate and distinct legal entity for taxing purposes from the individual partners who compose the partnership. An LLC is likewise a separate and distinct legal entity for state tax purposes from the individual member or members who compose the LLC.

Frequently asked questions

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.

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.

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.