News and Insights

Council of the District of Columbia Reverses Decision and Reduces Property Tax Structure

Tax Development Jul 20, 2018

Washington, D.C. (“DC”) real estate rates have been unchanged for many years. DC commercial property owners have relied upon the 1.85% of 100% tax rate for budgeting purposes.

Since the release of the city’s Fiscal Year 2019 budget in late March, the Apartment and Office Building Association (AOBA) has raised concerns about the impact of the increase in the commercial property tax structure and long-term effects these increases have on the “cost of doing business” in DC. As noted previously, the Mayor’s budget proposal would have increased the commercial property tax rate from $1.85 to $1.87 per $100 of assessed value to support the District’s $178.5 million commitment to the local mass transportation subway system known as Metro. However, in a shocking last-minute maneuver, the Chairman’s budget increased the rate an additional 2 cents and created a two-prong commercial property tax structure and rate for values under and above $5 million.

Because of AOBA’s continued advocacy efforts and support from other business organizations, the Council’s final budget included a reduction in the rate for the properties that would have been most impacted from the two-tier structure.

Beginning October 1, 2018, there will be three new tax rates: $1.65, $1.77, and $1.89, depending on your property’s value. New tax rate structure is based entirely upon the assessed value of the property. Larger properties will pay more. New tax rates are intended to increase revenue and are not subject to appeal or challenge, unlike proposed real property assessments. The purpose of these increased tax rates is to fund DC’s contribution to Metro.

The previous split rate, in which the first $3 million of your property assessment would be computed at $1.65, with the balance at the $1.85 rate, no longer exists. All properties will be assessed the flat rate for the entire $100 of the assessed value.

  • $1.65 for each $100 of assessed value if the real property’s assessed value is not greater than $5 million;
  • $1.77 for each $100 of assessed value if the real property’s assessed value is greater than $5 million but not greater than $10 million; or
  • $1.89 for each $100 of assessed value if the real property’s assessed value is greater than $10 million.

The abandonment of a consistent and stable tax rate for DC commercial real estate is troubling because it had been so well established, and taxpayers could rely upon it. Whether this indicates a future trend by the DC Council of arbitrarily raising these rates annually to fund future infrastructure or other projects is problematic. At the very least, DC property owners and managers should be aware that their future budgeting assumptions may have to be revisited, and Ryan is always available to assist in such calculations and future tax estimates.