Special assessment taxes

Key Takeaways

• Special assessments pay for one specific local improvement and are charged only to the properties that receive a special benefit from it.
• General property taxes are ad valorem, based on value, while special assessments are based on benefit, so two equally valuable homes can owe very different amounts.
• A special assessment ends once the improvement is paid off, usually over a set number of annual installments, while general property taxes recur every year.
• In Washington a local improvement assessment lien is superior to every other lien or encumbrance except the lien for general taxes (RCW 35.50.010).

What It Means

Special assessment taxes, also called improvement taxes, are charges levied on particular properties to pay for a public improvement that benefits those properties. New sidewalks, a sewer main, street lighting, and water lines are the standard examples. The local government builds the improvement, then spreads the cost across the parcels that gained from it instead of across every taxpayer in the jurisdiction.

That is the whole difference from ordinary property tax. General property tax is an Ad Valorem Tax, charged on the value of the property and spent on the general operations of schools, counties, and cities. A special assessment is charged on benefit rather than value, and the money can only go to the project that justified it. Two houses carrying identical assessed values on the same block can owe very different assessments if one fronts the new sidewalk and the other does not.

Special assessments are also finite. Once the improvement is paid for, the charge stops, usually after a fixed run of annual installments. General property taxes never stop, and an unpaid year stands as a Property Tax Lien against the parcel. Both kinds of charge attach to the land rather than to the owner, which is why both surface in the title commitment and get settled in escrow at closing.

How It Works in Washington

In Washington, special assessments are normally collected through a local improvement district. RCW 35.43.040 provides that whenever the public interest or convenience may require, the legislative authority of any city or town may order a local improvement and may levy and collect special assessments on property specially benefited by it. The statute enumerates what qualifies, including sidewalks, curbing and crosswalks, drains and sewers, street lighting systems along with their operating and electrical costs, and water mains and hydrants. Counties run a parallel process under chapter 36.88 RCW, which gives every county the power to create county road improvement districts and levy special assessments against the real property specially benefited.

How the bill gets split is set by RCW 35.44.010: the cost and expense shall be assessed upon all the property in accordance with the special benefits conferred on it. The city confirms an Assessment roll showing each parcel's share, and the charge becomes a lien. RCW 35.50.010 makes that lien paramount and superior to any other lien or encumbrance created before or after it, except a lien for general taxes. General property taxes live in an entirely separate body of law, Title 84 RCW, where RCW 84.40.030 requires property to be valued at one hundred percent of its true and fair value in money and RCW 84.60.010 gives the tax lien its priority. Keep the two systems apart on the exam and in practice: benefit funds the assessment, value funds the tax.

Example

The city of Kent forms a local improvement district to build sidewalks and street lighting along a four block residential street. The confirmed cost is $480,000, spread across 40 benefited parcels in accordance with the special benefits conferred, as RCW 35.44.010 requires. Ellen's lot fronts 60 feet of the new sidewalk and her share comes in at $12,000, payable in 10 annual installments of $1,200 plus interest.

Two years later, having paid $2,400, Ellen sells the house for $565,000 with $9,600 of the assessment still outstanding. The title commitment shows the local improvement district lien, and under RCW 35.50.010 that lien outranks the buyer's new mortgage even though the mortgage is recorded later. Escrow pays the remaining $9,600 out of Ellen's proceeds at closing and the buyer takes title clear of it. Ellen's regular property tax is handled separately and prorated to the closing date, because that charge is based on the value of the property and does not end when the sidewalk is paid off.

Common Mistakes and Exam Traps

• Special assessments are based on benefit and general property taxes are based on value. A question that ties a special assessment to assessed value is testing that swap.
• A special assessment ends when the improvement is paid for, so any answer describing it as a permanent annual charge is wrong.
• In Washington the local improvement assessment lien outranks every lien except the general tax lien, so it beats a mortgage recorded before it (RCW 35.50.010).
• Only the specially benefited properties pay, even though the general public can walk the sidewalk or use the road that the assessment funded.