Concerns from local businesses has prompted state Rep. Deb Wallace to withdraw a bill that would have ended the Washington sales tax exemption for out-of-state residents.
Wallace, a Vancouver Democrat and four-term state legislator who is running for Congress, said Monday she did not realize the full impact her sales tax bill would have until she talked with owners of several businesses that depend on Oregon customers.
One was Ed Piel, owner of Adco Commercial Printing & Graphics in Vancouver. Piel told Wallace, a client of his, that 16 percent of his printing business is with a major Portland-based medical provider. Losing that client would force him to lay off two of his nine union employees, Piel said.
“I had been thinking that the impact would be to retail stores,” Wallace said Monday from Olympia, shortly before the 2010 Legislature convened. “I wasn’t necessarily thinking about the wholesale impact of the bill. So I began to look at the potential for job impacts. There could be significant job impacts at a time when we’re trying to increase employment.”
Piel, who has owned the printing company since 1995, said that well over half his customer base is across the river in Portland, and he competes directly with Portland-area printers for business.
“The way I understood it, we would have to increase our rates by 8.2 percent,” the current Washington state sales tax rate, for Oregon customers, Piel said. “My best guess is that they aren’t going to pay that. Why would they come across to Vancouver to buy a product and pay an extra 8.2 percent?”
His only other options, Piel said, would have been to absorb the sales tax for out-of-state customers or move his business to Portland.
“When your profit margins are only 4 to 5 percent and you’re looking at an 8.2 percent tax, that taxes us out of business,” he said.
Wallace also heard from the proprietor of one of her favorite shoe stores, Contessa in downtown Vancouver, who told her she would feel the pain if a sales tax kept her Oregon customers from crossing the river to shop at her boutique.
“The impact is much more broad than I had expected,” Wallace said. “It’s really important to do my homework. I called the speaker of the House and told him I need to kill the bill. The impact is just too great for Southwest Washington.”
Kim Capeloto, chief executive officer of the Greater Vancouver Chamber of Commerce, said his organization had not yet taken a position on Wallace’s bill, but of the 15 to 20 unsolicited comments he had received from members, “100 percent were opposed to that bill.”
Capeloto said he heard from a local jeweler and owners of a music store, a variety store and a sign company, among many other business owners.
“What they said, the general sense, was, ‘We understand that there are budget issues. We understand that many individuals from this community go across the bridge each day to work, and don’t have the representation’” on Oregon tax issues. “But in this environment, to do anything that precludes people from shopping in Vancouver was viewed as a bad idea,” Capeloto said.
“We are trying to attract folks to come to Southwest Washington and check out how special and beautiful it is here,” he said.
Wallace first introduced her bill in the 2009 session, calling it an issue of tax equity. “We are a sales tax state and we should stop pretending that we are not,” she said. “This is how we pay for our schools, police and fire.”
Her bill drew mixed reactions and stalled in the House Finance Committee. But she announced in December that she would reintroduce it this year, arguing that as a sales-tax-dependent state facing a gaping budget deficit, Washington no longer could afford to provide out-of-state shoppers the luxury of a sales tax discount.
At the time, Wallace predicted that the $2.6 billion state budget deficit facing lawmakers could breathe new life into the legislation.
The Office of Financial Management has estimated that ending the exemption could allow the state to reclaim as much as $500 million in sales tax revenue over a period of 10 years. But the Department of Revenue says it would be hard to estimate how much net revenue the state would see, because retail purchases by out-of-state residents would decline.
Under Wallace’s bill, the exemption would have remained in place for the purchase of autos, trucks, boats and aircraft by out-of-state residents.
The exemption was enacted in 1965 primarily to help Washington retailers near the Oregon border compete with tax-free Oregon. It allows residents of five states, including Oregon, and certain U.S. territories and Canadian provinces — those that impose no sales tax or a sales tax of less than 3 percent — to ask for a waiver of the sales tax for purchases intended for use out of state.
