New tax law creates barriers to boundary moves
David W. Meyer
Bullivant Houser Bailey
Every so often a law designed for the convenience and benefit of government impairs commerce and daily living in significant ways. Such is the case with the 2005 enactment of Revised Code of Washington 84.56.345. The new law imposes a duty to pre-pay property taxes when changing the boundaries to your lot, stating:
"Every person who offers a document to the auditor of the proper county for recording that results in any division, alteration, or adjustment of real property boundary lines…(text omitted) shall present a certificate of payment from the [county Treasurer] for the affected property or properties. All taxes and assessments, both current and delinquent must be paid… …Taxes not yet levied and certified shall be collected as an advance tax under RCW 58.08.040."
This new statute impacts nearly every neighborly boundary adjustment and every sale of a strip of land off one parcel to be attached to the next, not just plats and subdivision of land. Taxes on all the "affected properties" now have to be paid in advance before any boundary-altering deed can be recorded. The only exceptions are boundary agreements between neighbors whose lines are actually lost and unknown and adjustments of boundaries to give additional land to government lots.
The Washington Department of Revenue, which bears great influence over the local county treasurers and auditors, takes the position that the new law requires county treasurers to collect taxes from boundary-altering property owners before the taxes are normally due, and requires them to be paid when the deed is recorded. Property taxes, by law, normally cannot be collected before February 15 (under RCW 84.56.010), and payment of them is not required until later: the first half is due April 30 and the second half not until October 31 each year. The parties to both sides of a boundary adjustment now have to pay their taxes early before they can record the new boundary with the auditor.
One might suggest waiting until after October 31 before recording because by then both law-abiding property owners would have already paid their taxes and none would be due until they were billed February 15 the next year, right? Wrong. In the first place, some boundary alterations cannot be delayed, especially if commencement of a building project is dependent on the boundary shift. Secondly, at last word to this writer, the DOR takes the position that parties to a boundary adjustment must pre-pay an estimated tax equal to 125 percent of the current year’s tax if they want to record a boundary adjustment after October 31.
Ideally the DOR’s position will change, because the statutes for prepayment of the next year’s tax (RCW 58.08.040) only refer to plats and subdivisions, and make no reference to boundary line adjustments that create no new tax lots.
One reason for the new statute is perhaps to give local treasurers and auditors time to adjust the tax parcel assessments and property tax billings for the newly sized parcels, but surely adjusting the tax records for two adjacent parcels after a lot line adjustment between them is no significant task. One would think that calculating, assessing and collecting an estimated tax of 125 percent then readjusting and re-billing the accurate tax next year is adding to the administrative chores, not lessening the burden on the local agencies.
This statute and its current application are bad policy, and unfairly impair private parties’ agreements to adjust private property boundaries between them. The new statute should not be interpreted to require payment of any taxes other than those currently due from parties to a boundary adjustment. The law really shouldn’t require any prepayments at all for such parties. By requiring prepayment of property taxes when no new lots are being created, the new law just plain gets in the way.
David W. Meyer is an of-counsel attorney with the Vancouver office of Bullivant, Houser, Bailey, PC, a West Coast regional, multipractice law firm with seven offices in four states. His practice emphasizes strategic planning, contract drafting, negotiation, litigation and appellate practice for clients under the areas of business law, estate planning, real estate and land use. He can be reached at 360-737-2301 or email@example.com.