Washington State Legislative Update

Washington State Legislative Update

[ Blog/News ]

The Washington State’s 65th Legislative Session adjourned on March 8th. For only the third time in the last decade, the Legislature did not go into Special Session. This is no small feat, finishing on time has only occurred during the short (non-budget) legislative sessions of 2008, 2014, and now 2018. The next Legislative Session will begin on January 7th, 2019. CAI’s Legislative Action Committee (LAC) has already started planning for next year.

Join Us!

If you would like to join the LAC, please reach out to Krystelle Purkey, contract lobbyist, at krystellepurkey@icloud.com.

Government Icon Retirements

There is a high probability of another long session looming, leading to several lawmakers announcing they will not seek reelection in 2018, with more announcing every day.

“It’s almost like we need to be a full-time Legislature, or figure out a different schedule,” Representative Lytton said to The Seattle Times.

As of the end of March, 13 lawmakers have announced they will not be seeking reelection, leaving a large vacuum of political power in Olympia. Political jockeying to fill those voids of power has already begun.

The surprise retirement announcement of Senator Sharon Nelson (34th – Vashon Island), who is the current Majority Leader in the Senate, will mean that no matter what happens in November the Washington Legislature will have a completely new leadership structure. Several Democratic Senators have started throwing their names into the mix as the potential new leader.

In the Senate Republican Caucus, Michael Baumgartner (6th – Cheney) has announced he will be running for Spokane County Treasurer, instead of seeking another term as Senator. Rep. Jeff Holy, Sen. Baumgartner’s current seat mate, will be vying for this seat.

IIn the House of Representatives, three House Democratic Chairs have also announced their retirement:

  • Rep. Kristine Lytton (40th – Anacortes), Chair of the Finance Committee
  • Rep. Ruth Kagi (32nd – Shoreline), Chair of the Early Learning & Human Services Committee
  • Rep. Judy Clibborn (41st – Mercer Island), Chair of the Transportation Committee

On the Republican side of the aisle, 9 GOP House members have announced their retirement, including the House Minority Leader Dan Kristiansen (39th – Monroe). J.T. Wilcox (2nd– Yelm), who was the Deputy Minority leader, was elected as the new leader before the Legislature adjourned.

This large exodus of lawmakers means that the Legislature will have a lot of new personalities and new leadership in all four legislative chambers come 2019.

Government Icon 2018 Election Cycle

In 2018, every member of the House Representatives and half of the Senate is up for reelection.

Both parties have announced that they will be targeting key races throughout Washington State. The Democrats, wishing to secure their majority in all chambers, have announced their top targets as follows: Sen. Mark Miloscia (30th – Federal Way), Sen. Joe Fain (47th – Kent), Sen. Jan Angel (26th – Gig Harbor), and Rep. Mark Harmsworth (44th – Snohomish). The Republicans have announced they will be targeting Senator Steve Hobbs (44th – Snohmish), Rep. Christine Kilduff (28th – University Place), and Rep. Brian Blake (19th – Aberdeen).

Candidate filing deadline is on May 18. All candidates running will need to have declared by this date and then the campaign season will truly kick off.

Government Icon CAI Specific Legislation

During the 2017-18 Biennium, the Legislative Action Committee (LAC) advocated for the interests of CAI members. Over 20 pieces of legislation were actively worked on or monitored this year, however only 3 passed.

Substitute Senate Bill 6175 – WUCIOA

Brief Summary: Establishes the Washington Uniform Common Interest Ownership Act (WUCIOA) to govern the formation, management, and termination of common interest communities including condominiums, homeowner associations, and real estate cooperatives.

Only two sections of WUCIOA will automatically apply to existing common interest communities (condominiums, homeowner associations, and cooperatives) in Washington. One addresses the process for an existing community to elect to be governed by WUCIOA and the other addresses budget ratification and assessments. The full Act will only apply to common interest communities created after its effective date.

Prime Sponsor: Senator Jamie Pedersen

Bill Status: Governor Inslee signed the bill into law on March 27, 2018.

Effective Date: July 1, 2018

Second Engrossed Substitute House Bill 2057 – Foreclosure Fairness

Brief Summary: The striking amendment introduced by Senator Mullet is the culmination of a two-year process with over twenty stakeholders. The final bill is the agreed upon language that touches on everything from Department of Commerce’s foreclosure fairness fees to how the financial server can “maintain” the property. The two sections that impacted community associations were: deceased borrower and nuisance abatement.

The deceased borrower provisions created a process for servicer and associations to follow if an individual passes away without a will and is in a foreclosure procedure.

The nuisance abatement section forces servicers to conduct maintenance on the property if it falls into all three of the following categories:

  1. It is in a foreclosure
  2. The property is abandoned
  3. The city or county has deemed it a nuisance under prudery. Associations will be continuing the nuisance discussions over the interim

Prime Sponsor: Representative Tina Orwall

Bill Status: Governor Inslee signed the bill into law on March 29, 2018.

Effective Date: June 7, 2018

Substitute House Bill 2514 – Discriminatory Provisions Found in Written Instruments Related to Real Property

Brief Summary: Authorizes an owner of property subject to a written instrument containing provisions void by reason of Washington’s Law Against Discrimination to record with the county auditor a restrictive covenant modification document. Changes the list of unlawful provisions that homeowners association boards may (and in some cases, must) remove from their governing documents by majority vote to include all provisions that are void by reason of Washington’s Law Against Discrimination.

Prime Sponsor: Representative Christine Kilduff

Bill Status: Governor Inslee signed the bill into law on March 15, 2018.

Effective Date: June 7, 2018 – except for section 1, which goes into effect on January 1, 2019.

Government Icon What to Expect in 2019

Throughout the 2018 Legislative Session there was a constant chorus of “Washington needs a more robust housing supply.” However, with the Democrats gaining control again, they had several key pieces of legislation they wanted to pass, pushing the housing discussion off until next year.

This is where the LAC will come into play and we must prepare for what is to come. The following is a list of potential top housing issues for 2019: construction defect claims, dispute resolution programs, and association voter apathy.

As the LAC begins planning for the 2019 Legislative Session, it is always good to start with what was introduced during this last biennium, but did not pass, as it is likely to be reintroduced again.

House Bill 1172: Low-water landscaping

Brief Summary: Prohibits homeowner association and condominium association restrictions that limit private property owners’ ability to deploy low-water landscaping techniques.

Prime Sponsor: Rep. Tina Orwall

Substitute House Bill 1494: Private Road Maintenance

Brief Summary: Requires the holders of an interest in an easement to maintain the easement and permits agreements that allow maintenance obligations to be allocated to fewer than all holders of an interest in an easement. Requires the cost of maintaining an easement to be shared by each holder of an interest in the easement.

Prime Sponsor: Rep. Jeff Morris

House Bill 2022: Homeowners’ Association Violations

Brief Summary: Entitles an aggrieved party, if a willful violation of a homeowners’ association is found, to exemplary damages up to two times the actual damages sustained.

Prime Sponsor: Rep. Christine Kilduff

Substitute House Bill 2475: Tolling of Construction Defect Claims

Brief Summary: Revises the notice and opportunity to cure process in a construction defect action, adding a mediation process and further detail with respect to the termination of this process. Extends tolling provisions and provides for tolling in the context of claims by one construction professional against another.

Prime Sponsor: Rep. Cindy Ryu

Substitute House Bill 2485: Low-Water Landscaping

Brief Summary: Prohibits homeowner association and condominium association restrictions that limit private property owners’ ability to deploy low-water landscaping techniques.

Prime Sponsor: Rep. Tina Orwall

Substitute House Bill 2790: AGO Dispute Resolution Program

Brief Summary: The Office of the Attorney General (AGO) is directed to establish a dispute resolution pilot program in Clark, King, and Spokane counties, for the resolution of disputes between condominium and homeowners’ association boards and owners. The pilot also instructs the AGO to create educational materials on the rights of homeowners and the authority of the boards.

Prime Sponsor: Rep. Vicki Kraft

Substitute House Bill 2831: Association Notice Requirements w/Condo Defect Litigation

Brief Summary: Requires increased notice, a meeting, and a majority vote of the homeowners before the board of a condominium or homeowners’ association may commence a construction defect action.

Prime Sponsor: Rep. Tana Senn

SB 5082: Fire safety compliance

Summary: Requires an insurer, before issuing or renewing a policy of insurance to the owner of commercial or residential rental property for coverage of the premises, to require the owner to certify that he or she is in compliance with fire safety requirements. Requires an insurer, before issuing or renewing a policy of insurance to an association for a condominium, to require the association to certify that the condominium is in compliance with fire safety requirements.

Prime Sponsor: Sen. Kirk Pearson

SB 5134: HOA Notice and Opportunity Provisions Relating to Certain Enforcement Actions Taken by a Homeowners' or Condominium Association

Summary: Before a homeowner’s association or unit owner’s association may impose and collect charges for late payments of assessments, the owner must be give 45 days notice and an opportunity to be heard by the board of directors or their designee. It is also clarified that the opportunity to be heard must be fair and impartial.

Prime Sponsor: Sen. Bob Hasegawa

SB 5250: Condominium Association Bylaw Amendments

Summary of Bill: Revises the condominium act with regard to voting requirements when amending the bylaws of the association.

Prime Sponsor: Sen. Karen Keiser

Senate Bill 5377: HOA Budget Ratification Voting Requirements

Summary of Bill: Removes provision that a budget is ratified unless a majority of the ballots cast in the association vote to reject – and instead, adds requirement that the majority of ballots cast by those in the association present, by person or by proxy, determines the proposed budget vote.

Prime Sponsor: Sen. Tim Sheldon

Senate Bill 5428: Condo Association Litigation Costs

Summary of Bill: Revises the condominium act regarding costs of litigation for condominium associations by changing the definition of constructional defect and prohibits the board of directors from taking action on behalf of the association to: institute, defend, or intervene in litigation or administrative hearings.

The parties to a construction defect dispute must engage in mandatory binding arbitration.

Prime Sponsor: Sen. Mike Padden

Substitute Senate Bill 6001: Amendments to Bylaws

Brief Summary: The bylaws of a condominium may be amended by applying the minimum percentage of affirmative votes to the number of votes received rather than the total number of votes allocated if: 1) the proposed amendment is not seeking to amend the method of amending the bylaws; and 2) three notices are sent by certified mail, at least ten days apart, to the unit owners in advance of the vote either at a proposed meeting or other voting method authorized by the governing documents.

Prime Sponsor: Sen. Karen Keiser

Substitute Senate Bill 6005: Protecting Lienholders' Interests While Retaining Consumer Protections

Brief Summary: County treasurers, at least 180 days before the issuance of a certificate of delinquency, must provide notice to the record owner of residential property that contains information regarding the potential for the homeowner to access mediation under the Foreclosure Fairness Act.  The fee a person may charge a non-natural person to locate abandoned property is 35 percent of the value returned to the owner.

Prime Sponsor: Sen. Mark Mullet

We Need Your Support!

Government Icon Government Icon Government Icon

The LAC thanks all the members who have stayed involved and diligent this year. We will continue to fight for all community associations throughout the State, but we will still need your support.

In 2019, housing will be one of, if not the most, debated issues at the Washington State Legislature. Please keep a look out for CAI’s “Calls-to-Action” and let your lawmakers know how important it is for them to support our industry. We are essential to a thriving and prosperous Washington.

If you are not receiving emails for CAI’s “Calls to Action” and would like to get on the distribution list, please contact Dawn Bauman at Dbauman@caionline.org.

Written By WSCAI's Legislative Action Committee (LAC)

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Federal Tax Law Changes in 2018 for Community Associations

Federal Tax Law Changes in 2018 for Community Associations

[ Blog/News ]

Qualifying residential homeowners and condominium associations have the unique option in Federal taxation to file one of two tax forms. (This discussion does not include nonresidential, timeshare, cooperatives, commercial or exempt associations).

(Editor’s Note: This blog article first appeared in the April 2018 issue Community Associations Journal. It is a second in a two-part article. Part One appeared in the March issue.)

Federal Tax - Blue Icon Federal Tax - Orange Icon Federal Tax - Blue Icon

Community associations can file form 1120-H, U.S. Income Tax Return for Homeowners Associations or they can file form 1120, U.S. Corporation Income Tax Return. The determination as to which tax return to file is outside the scope of this analysis. However, it should be noted that if the association qualifies to file form 1120-H, this is an annual election and an association can change between the two tax returns each year.

The new Federal tax law makes no changes to form 1120-H. There is a flat tax rate on taxable income of 30%. That remains the same.

However, there is a Federal tax rate change when filing form 1120 effective January 1, 2018. 

From 2005 through 2017 there was a phased tax rate schedule as follows:

Over But not over Tax is Of amount over
$0 $50,000 15% $0
$50,000 $75,000 $7,500 + 25% $50,000
$75,000 $100,000 13,750 + 34% $75,000
$100,000 $335,000 $22,250 + 39% $100,000
$335,000 $10,000,000 $113,900 + 34% $335,000
$10,000,000 $15,000,000 $3,400,000 + 35% $10,000,000
$15,000,000 $18,333,333 $5,150,000 + 38% $15,000,000
$18,333,333 35% $0

It is common to hear that the U.S. corporate tax rate has been 35%. However, as noted above, that is not entirely true – and especially not for most community associations. In our experience, we have found that the majority of associations have taxable income under $50,000; thus, their tax rate has been 15%.

Under the new tax law there is a permanent flat corporate rate of 21%. Thus, many community associations will actually see an increase in their tax rate from 15% to 21% when they file their 2018 1120 tax returns.

Additionally, while we are not discussing the pros and cons of filing 1120 vs. 1120-H, it should be noted that filing 1120 is a much riskier tax option and requires much more diligent accounting and financial reporting. At times, the community association has been swayed into filing form 1120 due to the 15% tax differential. However, now that the tax rate difference is 9%, (21% vs. 30%) some associations may consider the cost versus benefits and conclude that the risk is no longer worthwhile for only a 9% tax savings.

For those associations filing form 1120, there are some additional tax law changes:

  • Expensing of short-lived assets (rather than depreciating them). This is fully in effect through 2022, and then gradually phased out by 2026.
  • Elimination of net operating loss carrybacks and limitations on carryforwards.
  • Elimination of the corporate alternative minimum tax.

Quite frankly, most associations will not be affected by the above items. The large, high taxable income community associations should discuss all the new tax law ramifications with their tax preparer. However, most associations filing form 1120 are limited in their ability to use the above deductions. Nonmembership and investment income is taxable. Tax regulations (IRC Section 277) do not allow for an offset to taxable income from membership losses, including depreciation deductions. Again, this is another reason that filing form 1120 is a more complex matter than form 1120-H.

Summary of Impact on Community Associations

  • Form 1120-H – No Change
  • Form 1120 – If taxable income under $50K, tax rate increase from 15% to 21%
  • Form 1120 – If taxable income over $50K – would need analysis based on specifics

By Gayle Cagianut, CPA

Owner, Cagianut & Company, CPA

Gayle Cagianut is the owner of Cagianut & Company (C&C), and has been a leader in the community associations industry for over 25 years. C&C now works with almost 800 associations in Washington and Idaho performing audits and tax returns. As education is a primary focus of C&C, Gayle provides numerous volunteer hours speaking and writing about accounting, auditing and tax matters specific to condominiums and homeowners association.

Gayle is a member of the Washington State Community Association Institute (WSCAI) and Washington Society of CPAs and American Institute of CPAs. She is a CAI National Faculty Member and was elected to CAI National Business Partners Council. 

A prior CAI National Author of the Year Award winner, Gayle is an original co-author for the “Guide to Homeowners Associations” for Practitioner’s Publishing Company (PPC), a national CPA manual. She is also a current contributing author/editor for a Commerce Clearing House (CCH) national CPA manual.

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UCIOA Update

[ Blog/News ]

SB 5263 Update – 2.24.15

The WSCAI LAC actively participated in the political process surrounding Senate Bill 5263, the Uniform Common Interest Ownership Act. A public hearing was conducted in Olympia February 4th with testimony provided by the UCIOA drafting group, representatives of the building and banking industries, homeowners and the LAC co-chairs.

The process revealed great passion on a number of issues with clear identification of those surrounding warranties and lien priority as flash points. After vigorous debate and two amendments to the bill, it did not make it out of the committee hearing phase this session. The bill will carry over to the 2016 legislative session.

The prime sponsoring senator Jamie Pedersen, has pledged to work with stakeholder groups in 2015 to seek an acceptable balance of interests toward this bill becoming law.

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CAI’s Call-To-Action: Oppose Federal HAM Radio Standards for Community Associations

[ Blog/News ]
In 2014, legislation requiring community associations to “reasonably accommodate” installation of HAM radio towers and antennas was cosponsored by 64 U.S. Representatives. While this legislation died at the end of the 113th Congress, the HAM radio lobby is back, aggressively pushing its pre-emption agenda in 2015.

Community Associations Institute asks that you please contact your legislator today, and voice your opposition to Federal HAM Radio Standards for Community Associations, to protect your client communities’ interest. Contact information can be found here: www.caionline.org/govt/advocacy/Pages/AdvocacyCenter.aspx

More background from CAI

The HAM radio lobby claims their legislation only requires that community associations “reasonably accommodate” their hobby.

This disguises the facts.

The Federal Communications Commission has historically interpreted “reasonable accommodation” to mean virtually no restrictions and no prior approval requirements. If a HAM radio “reasonable accommodation” standard becomes federal law, community associations will likely have little to no say on the installation of towers and large, fixed antennas used in HAM radio broadcasting.

The fact is many associations already accommodate HAM radio hobbyists. In a 2014 survey covering communities in 46 states, 64 percent of respondents confirmed their association’s board or architectural review committee had never denied a request to install a HAM radio antenna. An additional 27 percent could find no record of a denial. The survey also found that associations routinely provide space for HAM radio clubs so residents can pursue their radio hobby.

Federal pre-emption of community association architectural standards is a heavy-handed and unnecessary intrusion in community associations. Contact your U.S. Senators and U.S. Representative and tell them to oppose all legislation prohibiting association review or approval of HAM radio towers and large, fixed antennas.

How does the FCC view “reasonable”? See the following “reasonableness” guidance the Commission provides on installation of satellite dishes.(www.fcc.gov/guides/over-air-reception-devices-rule)

Q&A

Q: What types of restrictions unreasonably delay or prevent viewers from using an antenna? Can an antenna user be required to obtain prior approval before installing his antenna?

A: A local restriction that prohibits all antennas would prevent viewers from receiving signals, and is prohibited by the Commission’s rule. Procedural requirements can also unreasonably delay installation, maintenance or use of an antenna covered by this rule. For example, local rules or regulations that require a person to obtain a permit or approval prior to installation create unreasonable delay and are generally prohibited. Permits or prior approval necessary to serve a legitimate written safety or historic preservation purpose may be permissible. Although a simple notification process (e.g. post installation) might be permissible, such a process cannot be used as a prior approval requirement and may not delay or increase the cost of installation. The burden is on the association to show that a notification process does not violate our rule.

Q: What is an unreasonable expense?

A: Any requirement to pay a fee to the local authority for a permit to be allowed to install an antenna would be unreasonable because such permits are generally prohibited. It may also be unreasonable for a local government, community association or landlord to require a viewer to incur additional costs associated with installation. Things to consider in determining the reasonableness of any costs imposed include: (1) the cost of the equipment and services, and (2) whether there are similar requirements for comparable objects, such as air conditioning units or trash receptacles. For example, restrictions cannot require that expensive landscaping screen relatively unobtrusive DBS antennas. A requirement to paint an antenna so that it blends into the background against which it is mounted might be acceptable, provided it will not interfere with reception or impose unreasonable costs.

[From: www.caionline.org/govt/advocacy/Pages/AdvocacyCenter.aspx, 2/2/2015]

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UCIOA

[ Blog/News ]
The Washington State Legislative Action Committee for CAI (LAC) has announced that Senate Bill Senate Bill (SB) 5263 – the Washington State Uniform Common Interest Ownership Act – was filed on January 16, 2015, and referred to the Financial Institutions & Insurance Committee. The sponsors are Senators Pedersen, Benton, Mullet, Fraser, Roach, Hobbs, Rivers, and Fain.

You can find a copy of the bill at: http://app.leg.wa.gov/billinfo/summary.aspx?bill=5263&year=2015

The bill introduces a number of changes to how condominium and homeowner associations, cooperatives, and other types of common interest communities will operate.

By Brian P. McLean & Jim Talaga

LAC Co-chairs

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