The exemption may have incentivized construction of some types of
farmworker housing. Exemption requirements may not align with other current housing
practices.
December 2020
Tax exemption for building farmworker housing
The preference allows a sales and use tax exemption for housing providers who
build housing for farmworkers. The exemption can apply to the construction of
both seasonal and permanent housing.
The exemption was enacted in 1996 and does not have an expiration date.
JLARC staff identified at least 2,425 units of permanent housing and 29,987
seasonal beds that have been built since the exemption was enacted. It is
unclear how much of this housing was built using the exemption. The exemption
uses definitions that may not align with current housing practices or other
funding sources, which could limit how often it is used.
The Legislature should clarify the preference by including a performance
statement and determining if the preference should align with other
housing practices or be maintained in its current form.
While there is an ongoing need for farmworker housing, the preference was enacted
before the Legislature required a performance statement for new preferences. The
Legislature should clarify its expectations for this preference by adding a
performance statement that clearly states the public policy objectives and metrics
to determine whether the objectives have been met. Requirements for the preference
do not align with other current farmworker housing practices, which may limit how
often it is used.
The Commission endorses the Legislative Auditor's recommendation with comment.
Testimony from non-profit housing agencies noted that the tax preference has helped
to increase the supply of housing by offering an additional incentive that improves
the financial viability of housing developments. As noted by Legislative Auditor,
the preference can be improved by better aligning it with other funding source
requirements. In addition, combined written testimony by the Office of Rural and
Farmworker Housing, Catholic Charities, the Yakima Housing Authority, and Beacon
Development Group offers specific changes to the preference that should be
thoroughly reviewed by the Legislature.
Proposed Final Report: Farmworker Housing
December 2020
REVIEW Details
1. Exemption for building farmworker housing
The exemption provides a sales and use tax exemption for building
or improving farmworker housing
The preference allows farmworker housing providers to claim a tax exemption for
building housing for farmworkers. The exemption was created in 1996 and does not have
an expiration date.
Farmworker housing providers may claim the exemption
Farmworker housing providers may use a sales and use tax exemption for building,
repairing, decorating, or improving housing. The tax exemption also applies to labor
and services related to construction, and sales of items that become part of housing
structures. Many types of entities may claim the exemption, including agricultural
employers, housing authorities, religious organizations, nonprofit organizations, and
for-profit businesses.
To be eligible for the tax exemption, beneficiaries must construct housing that is
occupied only by farmworkers. Housing authoritiesPublic entities created by local governments to address a
shortage of safe or sanitary housing. may claim the exemption if at
least 80% of the housing is occupied by farmworkers earning less than 50% of the
county's median family income. If the housing does not meet these occupancy
requirements for the first five years after construction, the owner must pay back the
amount of the exempted taxes.
Washington's agricultural sector employs local and nonlocal seasonal workers
Employment in Washington's agricultural sector varies seasonally. In 2017, the number
of agricultural jobs fluctuated from approximately 65,000 in January to approximately
145,000 in July. Apples and other fruit crops are a key driver of seasonal change in
employment. These crops typically require large numbers of seasonal workers to harvest
fruit for a short period of time. Some seasonal workers are local to the areas where
they work and some are nonlocal.
Source: Employment Security Department 2017 Agricultural Workforce Report. This data
includes only workers covered by unemployment insurance, and excludes other workers
such as those who are self-employed.
Local workers are employees who live close enough to return home at night.
They may work in agriculture year-round or work in other industries during the winter.
The number of local farmworkers has increased over time.
Nonlocal workers are employees who work at a location far from their home.
These include domestic workers who migrate throughout the country following
agricultural jobs, and workers hired under the federal H-2A visa program. The program
allows agricultural employers to hire workers from other countries to fill temporary
agricultural jobs, and requires the employers to provide housing to these workers.
H-2A visa workers may work in the United States for up to twelve months at a time.
From 2007 to 2017, the number of requests for H-2A visa workers in Washington has
increased from 1,688 to 18,920. Multiple requests may correspond to a single worker,
so the exact number of visa workers is unknown.
Agricultural workers live in permanent and seasonal housing
Permanent housing is built to local building codes and is suitable to live in
year-round. Permanent housing can be located within city limits, on farms, or in rural
areas near farms. Permanent housing is occupied by local workers who live in the same
place year-round, and may be employed in the agricultural industry year-round or for
part of the year.
Seasonal housing is built to a simplified statewide code, licensed and
inspected by the Department of Health. Seasonal housing can only be occupied for part
of each year. Seasonal housing is occupied by nonlocal farmworkers, including both
domestic workers and H-2A visa workers.
Exhibit 1.2: Seasonal farmworker housing
Source: Living area, kitchen, and exterior of farmworker housing owned by Newhouse
Farms.
Exhibit 1.3: Permanent farmworker housing
Source: Exterior and interior photos of Villa los Milagros in Centralia, WA from
Environmental Works Community Design Center.
Proposed Final Report: Farmworker Housing
December 2020
REVIEW Details
2. Exemption intended to address farmworker housing shortage
The exemption was intended to address a stated housing shortage
for approximately 57,000 farmworkers in 1996. While at least 2,425 units of permanent
housing and 29,987 seasonal beds have been built since 1996, a shortage likely
remains.
The exemption was intended to alleviate a housing shortage by incentivizing
construction of farmworker housing
The Legislature did not state a public policy objective when it created the exemption
in 1996. Public testimony to the Legislature suggested approximately 57,000
farmworkers needed housing. JLARC staff infer the objective is to incentivize
farmworker housing construction and address the housing shortage.
There is no standardized central data source on farmworker housing supply or demand.
To determine the number of beds or housing units built since the preference was
enacted, JLARC staff combined datasets from the following organizations:
The Department of Health (Health)
The Department of Commerce (Commerce)
The Washington State Housing Finance Commission (HFC)
In addition to these public agencies, stakeholders recommended reaching out to the
following two housing developers who are responsible for 1888 housing units:
The Office of Rural and Farmworker Housing (ORFH)
Beacon Development
From these sources, JLARC staff identified 29,987 seasonal beds and 2,425 permanent
units of housing for farmworkers that were built or permitted since the exemption was
enacted in 1996. Permanent housingHousing suitable to live in year-round and occupied by local
workers. is reported in units, which may range from studio apartments
to units with three or more bedrooms. Multiple workers may occupy these units. Seasonal housingHousing suitable for
living in part of the year, used by nonlocal workers. is reported
as individual beds, which are occupied by a single worker. The data is not connected
to tax records from the Department of Revenue, and it is unclear how much of this
housing was built using the exemption.
Exhibit 2.1: Identified seasonal beds built by year
Source: JLARC staff analysis of data from Commerce, Health, HFC, Beacon Development,
and ORFH.
Exhibit 2.2: Identified permanent housing units built by year
Source: JLARC staff analysis of data from Commerce, Health, HFC, Beacon Development,
and ORFH.
Note: When completion year was not available, JLARC staff estimated a completion
date of two years after funding was awarded.
Most of the agricultural housing has been built in central Washington. None of the
housing has been built in the nine most eastern counties or on the Olympic Peninsula.
The maps below illustrate the density of housing since 1996. The data excludes housing
that was under construction at the time of this report.
Exhibit 2.3: Identified farmworker housing is concentrated in central Washington
counties
Source: JLARC staff analysis of data from Health, Commerce, HFC, Beacon Development,
and ORFH.
Note: The data excludes developments that were under construction at the time of
this report.
Data does not capture all housing available to farmworkers
The data includes housing licensed by the Department of Health or funded through
sources managed by the Department of Commerce and the Housing Trust Fund. It does not
capture all housing available to farmworkers. The data does not include:
Housing that is not licensed by Health.
Housing built without funding from the Housing Trust Fund or the federal
Low-Income Housing Tax Credit (LIHTC) program.
Market-rate housing available to the general public that may be occupied by
farmworkers.
New housing is unlikely to be enough to eliminate the most recent estimated shortage
Standardized data tracking the farmworker housing shortage is not maintained. A 2012
report completed at the direction of the Legislature estimated a shortage of housing
for 15,000 local farmworker households and 36,200 nonlocal workers and their
dependents. However, new housing added since 2012 is less than this shortage, while at
the same time there has been further growth in farmworker employment:
JLARC staff identified 539 units of permanent housing and 21,564 seasonal beds
that have been built since 2012.
Employment Security records note farmworker employment increased by over 10,000
jobs since 2012.
The 2019 Legislature funded a new study to estimate the farmworker housing
shortage
In the 2019 Capital Budget, the Legislature provided funding for Commerce to contract
for a study assessing the availability and affordability of farmworker housing. The
study is expected in Fall 2020 and will provide an updated estimate of the farmworker
housing shortage.
Proposed Final Report: Farmworker Housing
December 2020
Review Details
3. Some housing may have been built without exemption
At least 84% of seasonal housing is required by the federal H-2A
visa program and likely would have been built without the exemption. The exemption may
have incentivized the remaining 16% of seasonal housing, as well as permanent
housing.
Taxpayers using the exemption are not required to report information about the
housing they build to the Department of Revenue (DOR). As a result, it is unknown how
much housing has been built with the exemption or the extent to which it was
incentivized.
Housing built for H-2A visa workers was likely not caused by the exemption
The H-2A visa program allows agricultural employers to bring foreign nationals to the
United States to fill temporary agricultural jobs. In order to participate in the
program, agricultural employers are required to provide housing to all nonlocal
workers (domestic and H-2A visa workers).
Since 1996, 25,262 seasonal beds (84% of total seasonal beds) have been built in
connection to the H-2A visa program. Due to the federal requirement to provide
housing, it is unlikely that the exemption incentivized the construction of this
housing. Because the housing development data is not connected to tax records, it is
unclear how much of this housing was built using the exemption.
Other housing may have been incentivized
The tax preference allows housing providers to claim an exemption from sales and use
tax. Sales tax applies to certain development costs defined as retail sales.
JLARC staff analyzed cost certifications for farmworker housing developments funded
by the Washington State Housing Finance Commission (HFC)10% of all identified developments.. Entities
not claiming the exemption reported paying up to 5.6% of total development costs in
sales tax. This means that housing providers claiming the exemption may have saved
5.6% for similar housing.
Stakeholders told JLARC staff that savings provided by the exemption allow housing
providers to build more units, reducing the cost per unit, or to build more community
amenities. The exemption may have allowed housing providers to build more units at a
lower cost, or may have made some projects financially feasible that would not have
been otherwise. However, it was not possible to identify when this occurred.
Total estimated beneficiary savings is at least $3.4 million in the 2021-2023
biennium
DOR does not provide a separate deduction line for reporting sales of labor or
materials for tax-exempt farmworker housing. Businesses providing labor and materials
to entities building farmworker housing are not required to list it separately from
other deductions. As a result, the beneficiary savings estimate is based only on sales
of materials and services that the business explicitly reported were for farmworker
housing. The estimate is likely lower than the actual savings because it does not
include all farmworker housing developments. Businesses are not required to report
information about the housing or their customers, so it is unclear how many units or
beds have been built or how many organizations have used the exemption.
Exhibit 3.1: Estimated beneficiary savings
Biennium
Fiscal Year
Deductions
Estimated Beneficiary Savings
2017-19
7/1/15-6/30/17
2018
$29,713,000
$2,451,000
2019
$17,161,000
$1,418,000
2019-2021
7/1/17 - 6/30/19
2020
$20,883,000
$1,726,000
2021
$20,883,000
$1,726,000
2021-23
7/1/19-6/30/21
2022
$20,883,000
$1,726,000
2023
$20,883,000
$1,726,000
2021-23 Biennium
$41,766,000
$3,452,000
Source: JLARC staff analysis of Department of Revenue tax return deduction detail
for fiscal years 2018-2019. Estimates for fiscal years 2020-2023 calculated using an
average of deductions detailing farmworker housing from fiscal years 2013 through
2019.
Proposed Final Report: Farmworker Housing
December 2020
Review Details
4. Exemption may not align with other housing practices
The exemption requirements may not align with current housing
practices and other funding source requirements
Some housing providers build housing for both farmworkers and other populations,
which is not eligible for the exemption.
Some housing providers told JLARC staff that they often build housing that serves
multiple populations, and some funding sources are more likely to fund developments
that serve multiple populations. For example, they may build a housing development
with units specifically for agricultural workers, people with disabilities, and large
families. Stakeholders said that serving multiple populations can increase financial
stability and local support for the development. The exemption's requirements for
occupancy differ from other common housing funding sources.
Exhibit 4.1: The exemption’s requirements differ from other common housing funding
sources
Program
Portion of Housing for Farmworkers
Farmworker housing sales and use tax exemption
100% must be for farmworkers, or 80% if the entity is a housing
authority.
Low Income Housing Tax Credit (HFC)
Preference for developments with 75% of housing for farmworkers.
Housing Trust Fund (Commerce)
Portions vary by year. Individual budget provisos may include set-asides or
preference for developments serving farmworkers.
Source: JLARC staff analysis of documentation and interviews with Commerce and
HFC.
If a housing provider constructs housing that serves multiple populations, the
portion for farmworkers must be separate from other housing in order to be eligible
for the exemption.
Stakeholders operating seasonal farmworker housing stated that developments that only
serve seasonal farmworkers may not reach occupancy rates that cover annual operating
costs. Some housing operators have begun trying to use vacant housing for other
purposes during the winter. For example, the Yakima Housing Authority started using a
seasonal farmworker housing development as an emergency shelter for people
experiencing homelessness during the winter. However, the Department of Revenue's
(DOR) policy is that any use other than farmworker housing during the winter in the
first five years would make a property ineligible for the exemption.
The exemption's definition of agricultural employee differs from the definition used
by other funding programs. Housing eligible for funding from the Housing Finance
Commission or the Housing Trust Fund may not qualify for the exemption.
"Agricultural employee" is defined differently for the exemption and other funding
sources. This can limit housing providers that build farmworker housing from combining
multiple funding sources and claiming the exemption. For example, some stakeholders
recently began building housing for aquacultureAquaculture is the breeding, rearing, and harvest of aquatic
animals and plants such as fish and shellfish. employees. However,
DOR indicated that housing development for aquaculture employees does not qualify for
the exemption.
Many local farmworkers work in other industries during the winter. According to DOR,
if workers employed in non-agricultural industries live in housing built with the
exemption within the first five years after construction, this may disqualify the
housing. The Housing Finance Commission and the Housing Trust Fund define agricultural
employees based on the amount earned per year from farm work, which allows residents
who work in multiple industries.
Exhibit 4.2: The exemption’s definition of agricultural employee differs from the
definition used by other funding programs
Program
Definition of Farmworker
Definition of Farm Work
Farmworker housing sales and use tax exemption
Person who renders personal services to, or under the direction of, an
agricultural employer in connection with the employer's agricultural
activity.
Growing, producing, or harvesting of farm or nursery products, forestation or
reforestation of lands. DOR interprets this as not including aquaculture.
Low Income Housing Tax Credit (HFC)
Household with at least $3,000 in income from farm work per year.
Lists qualifying activities related to "any agricultural or aquacultural
activity."
Housing Trust Fund (Commerce)
Persons with at least $3,000 in income from farm work per year and household
income up to 50% of area median income.
Lists qualifying activities related to "any agricultural or aquacultural
activity."
Source: JLARC staff analysis of documentation and interviews with DOR, Commerce, and
HFC.
Due to these differences in practices and funding requirements, some projects are not
eligible to use multiple funding sources in addition to the exemption.
Proposed Final Report: Farmworker Housing
December 2020
Review Details
5. Applicable statutes
RCWs 82.08.02745, 82.12.02685
Exemptions—Charges for labor and services or sales of tangible personal property
related to agricultural employee housing—Exemption certificate—Rules.
RCW 82.08.02745
(1) The tax levied by RCW 82.08.020 does not apply to charges made for labor and
services rendered by any person in respect to the constructing, repairing, decorating,
or improving of new or existing buildings or other structures used as agricultural
employee housing, or to sales of tangible personal property that becomes an ingredient
or component of the buildings or other structures during the course of the
constructing, repairing, decorating, or improving the buildings or other structures.
The exemption is available only if the buyer provides the seller with an exemption
certificate in a form and manner prescribed by the department by rule.
(2) The exemption provided in this section for agricultural employee housing provided
to year-round employees of the agricultural employer, only applies if that housing is
built to the current building code for single-family or multifamily dwellings
according to the state building code, chapter 19.27 RCW.
(3) Any agricultural employee housing built under this section must be used according
to this section for at least five consecutive years from the date the housing is
approved for occupancy, or the full amount of tax otherwise due is immediately due and
payable together with interest, but not penalties, from the date the housing is
approved for occupancy until the date of payment. If at any time agricultural employee
housing that is not located on agricultural land ceases to be used in the manner
specified in subsection (2) of this section, the full amount of tax otherwise due is
immediately due and payable with interest, but not penalties, from the date the
housing ceases to be used as agricultural employee housing until the date of payment.
(4) The exemption provided in this section does not apply to housing built for the
occupancy of an employer, family members of an employer, or persons owning stock or
shares in a farm partnership or corporation business.
(5) For purposes of this section and RCW 82.12.02685, the following definitions apply
unless the context clearly requires otherwise.
(a) "Agricultural employee" or "employee" has the same meaning as given in RCW
19.30.010;
(b) "Agricultural employer" or "employer" has the same meaning as given in RCW
19.30.010; and
(c) "Agricultural employee housing" means all facilities provided by an agricultural
employer, housing authority, local government, state or federal agency, nonprofit
community or neighborhood-based organization that is exempt from income tax under
section 501(c) of the internal revenue code of 1986 (26 U.S.C. Sec. 501(c)), or
for-profit provider of housing for housing agricultural employees on a year-round or
seasonal basis, including bathing, food handling, hand washing, laundry, and toilet
facilities, single-family and multifamily dwelling units and dormitories, and includes
labor camps under RCW 70.114A.110. "Agricultural employee housing" does not include:
(i) Housing regularly provided on a commercial basis to the general public;
(ii) Housing provided by a housing authority unless at least eighty percent of the
occupants are agricultural employees whose adjusted income is less than fifty percent
of median family income, adjusted for household size, for the county where the housing
is provided; and
(iii) Housing provided to agricultural employees providing services related to the
growing, raising, or producing of marijuana.
[ 2014 c 140 § 18; 2007 c 54 § 14; 1997 c 438 § 1; 1996 c 117 § 1.]
NOTES:
Severability—2007 c 54: See note following RCW 82.04.050.
Effective date—1997 c 438: "This act is necessary for the immediate
preservation of the public peace, health, or safety, or support of the state
government and its existing public institutions, and takes effect immediately [May 20,
1997]." [ 1997 c 438 § 3.]
Effective date—1996 c 117: "This act is necessary for the immediate
preservation of the public peace, health, or safety, or support of the state
government and its existing public institutions, and shall take effect immediately
[March 20, 1996]." [ 1996 c 117 § 3.]
RCW 82.12.02685
(1) The provisions of this chapter shall not apply in respect to the use of tangible
personal property that becomes an ingredient or component of buildings or other
structures used as agricultural employee housing during the course of constructing,
repairing, decorating, or improving the buildings or other structures by any person.
(2) The exemption provided in this section for agricultural employee housing provided
to year-round employees of the agricultural employer, only applies if that housing is
built to the current building code for single-family or multifamily dwellings
according to the state building code, chapter 19.27 RCW.
(3) Any agricultural employee housing built under this section shall be used
according to this section for at least five consecutive years from the date the
housing is approved for occupancy, or the full amount of a tax otherwise due shall be
immediately due and payable together with interest, but not penalties, from the date
the housing is approved for occupancy until the date of payment. If at any time
agricultural employee housing that is not located on agricultural land ceases to be
used in the manner specified in subsection (2) of this section, the full amount of tax
otherwise due shall be immediately due and payable with interest, but not penalties,
from the date the housing ceases to be used as agricultural employee housing until the
date of payment.
(4) The exemption provided in this section shall not apply to housing built for the
occupancy of an employer, family members of an employer, or persons owning stock or
shares in a farm partnership or corporation business.
(5) The definitions in RCW 82.08.02745(5) apply to this section.
[ 1997 c 438 § 2; 1996 c 117 § 2.]
NOTES:
Effective date—1997 c 438: See note following RCW 82.08.02745.
Effective date—1996 c 117: See note following RCW 82.08.02745.
Proposed Final Report: Farmworker Housing
December 2020
Recommendations & Responses
Legislative Auditor's Recommendation
Legislative Auditor recommends clarifying the preference
The Legislature should clarify the preference by including a performance
statement and determining if the preference should align with other housing
practices or be maintained in its current form.
While there is an ongoing need for farmworker housing, the preference was enacted
before the Legislature required a performance statement for new preferences. The
Legislature should clarify its expectations for this preference by adding a
performance statement that clearly states the public policy objectives and metrics to
determine whether the objectives have been met. Requirements for the preference do not
align with other current farmworker housing practices, which may limit how often it is
used.
Legislation Required: Yes
Fiscal Impact: Depends on Legislative action.
Proposed Final Report: Farmworker Housing
December 2020
Recommendations & Responses
Letter from Commission Chair
Proposed Final Report: Farmworker Housing
December 2020
Recommendations & Responses
Commissioners' Recommendation
The Commission endorses the Legislative Auditor's recommendation with comment.
Testimony from non-profit housing agencies noted that the tax preference has helped to
increase the supply of housing by offering an additional incentive that improves the
financial viability of housing developments. As noted by Legislative Auditor, the
preference can be improved by better aligning it with other funding source
requirements. In addition, combined written testimony by the Office of Rural and
Farmworker Housing, Catholic Charities, the Yakima Housing Authority, and Beacon
Development Group offers specific changes to the preference that should be thoroughly
reviewed by the Legislature.
Proposed Final Report: Farmworker Housing
December 2020
Recommendations & Responses
DOR & OFM Response
Proposed Final Report: Farmworker Housing
December 2020
Recommendations & Responses
Department of Commerce Response
Proposed Final Report: Farmworker Housing
December 2020
Recommendations & Responses
WSHFC Response
We provided an invitation to the Washington State Housing Finance Commission (WSHFC) to comment on this report. We did not receive a formal response from the Commission.
