SB 6175 Brings Tax Deferral Opportunities for Eligible Projects

A new Washington State law introduced a sales and use tax deferral program for conversion of commercial buildings into affordable housing, impacting many construction companies and developers that may pursue tax incentives for affordable housing projects.

Governor Jay Inslee signed Senate Bill (SB) 6175 on March 28, 2024, which goes into effect June 6, 2024.

Learn details of the law below to see requirements your business may need to take to successfully leverage tax incentives for specific construction projects.

Who Is Affected by SB 6175

SB 6175 could impact construction companies that specialize in multifamily housing units and affordable housing projects, particularly those capable of converting commercial properties into residential ones.

What Changes with SB 6175

Effective June 6, 2024, Washington cities may determine targeted residential areas where sales and use tax may be deferred for construction related to commercial real estate converted to affordable residential housing. 

To obtain approval, certain requirements must be met:

  • The investment project is set aside primarily for multifamily housing units and the applicant commits to renting or selling at least 10% of the units as affordable housing to low-income households
  • The applicant commits to any additional affordability and income eligibility conditions adopted by the local government
  • The project will occur on underutilized commercial property and is, or will be at the time of completion, in conformance with all local plans and regulations
  • The area is located within an area zoned for residential or mixed uses and wasn’t acquired through a condemnation proceeding
  • Other requirements may be imposed by the city

If a conditional recipient maintains the property for qualifying purposes for at least 10 years, then the deferred sales and use taxes won’t need to be paid.

Next Steps or Opportunities with SB 6175

To receive the exemption, an owner of the property must apply on forms adopted by the city.

An owner must also submit an application to the Washington Department of Revenue (DOR) before initiation of construction of the project. Once the DOR receives the conditional certificate of tax exemption and the approval of the application internally, the DOR will issue a sales and use tax deferral certificate for state and local sales and use taxes on eligible investment projects.

The deferral certificate is valid during active construction of a qualified investment project and expires on the day the city issues a certificate of occupancy for the investment project.

Within 30 days of the issuance of a certificate of occupancy for an investment project, the conditional recipient must file with the city the following items:

  • A description of the work completed and a statement that the eligible investment project qualifies the property for a sales and use tax deferral
  • A statement of the new affordable housing to be offered
  • A statement that the work has been completed within three years of the conditional certificate of program approval

Within 30 days of receipt, the city must determine and notify the conditional recipient whether the investment project continues to qualify for the tax deferral.

It’s recommended to review your current and upcoming projects to determine if you qualify for this tax deferral.

We’re Here to Help

For assistance with the application process or meeting compliance requirements, contact your Moss Adams professional.

Additional Resources

Special thanks to Ben Macomber, tax staff, for his contributions to this article.

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