By Scott Richter and Dr. Patrick Jones
Physical property constitutes one of the most important components of wealth in a community. Taxable, physical property in Washington State consists of two categories: real (land, buildings, and some equipment affixed to land or buildings); and personal, or machinery, equipment, furniture, and supplies used by businesses and farmers.
Real property, essentially a combination of land and improvements made to the land, is subject to a property tax in most municipalities. Taxes owed are determined by multiplying assessed value of a property by a set tax rate. The rate varies by county or city and even within these jurisdictions due to different taxing districts.
Real property usually comprises over 90% of any county's total taxable property. Due to numerous exemptions allowed by Washington law, many large parcels of real property are not taxable. Nor are public investments a part of this series.
According to a recent guide by the Washington State Department of Revenue on personal property tax, “Most personal property owned by individuals is exempt. For example, household goods and personal effects are not subject to property tax.”
This remains true until personal property items owned by individuals are used in a business. If this occurs, these items are no longer considered exempt and property tax would apply.
Business inventories, including resale goods, and intangible properties such as copyrights and trademarks are not subject to property tax.
An easy way to tell the difference between real property and personal property is to consider the things you take with you, as well as what you cannot take when leaving an old home for a new one. The below ground pool at the house you are leaving is not land or a building, but it is attached to land or a building. Therefore, it is real property and subject to property tax.
The cheap, store bought above-the-ground pool left behind by the previous residents of your new home apparently is now your personal property. At least it is not subject to property tax and can be easily torn down and disposed of.
From a local government fiscal perspective, the taxable value of real property provides the basis of a significant revenue stream. Its growth rate provides another measure of the health of the local economy.
Walla Walla Trends indicator 1.5.1: Assessed Value of Taxable Total Property & Annual Growth Rate, shows consistent growth over the previous year. From start of the series to the present, the county total taxable property value more than doubled in less than two-decades - from $2.68 billion during 2001 to $6.28 billion during 2019. The growth since 2016 has been particularly marked.
There were four occurrences in this series where the total assessed value decreased from the previous year: 2003, 2005, 2009, and 2014. Each time, however, it only took until the following year to regain or exceed losses.
For example, most recently occurring from 2013 to 2014 when the loss of total taxable property was about $50 million. By 2015, the overall net gain from 2013 was $85 million.
This implies when property values and growth were hit hard everywhere during the housing market crash and Great Recession earlier in this century, they did not plunge as deep locally compared to the state. And the recovery happened more quickly here than state-wide., Since 2009, long-term growth in the county has lagged but not fallen drastically fall behind the state. The cumulative growth since then have been 43% in Walla Walla and 61% statewide.
This long-term growth of taxable property also implies that property values are on solid footing, regardless of what happens elsewhere. Since it is too early to see exactly how the covid pandemic and the emerging housing price appreciation bubble will affect property values locally, it might be enough solace to know Walla Walla County property values do not tend to drop as far as the state and hold their own during the recovery phase.