One part of Gov. Jay Inslee's budget proposal — requiring Oregonians to pay retail sales tax when shopping in Washington — isn't sitting well with business leaders in Southwest Washington.
Inslee's proposal, released Thursday, would save the state an estimated $63.7 million in the next two-year budget cycle by no longer giving nonresidents a tax exemption on their Washington state purchases. Because Oregon has no sales tax, businesses in border towns such as Vancouver worry they won't be able to compete with their sales-tax-free neighbors.
Kelly Parker, president of the Greater Vancouver Chamber of Commerce, said Vancouver niche businesses — such as furniture shops and art galleries — get 25 to 40 percent of their business from Oregon shoppers. Those Oregon shoppers could become turned off by having to pay a more than 8 percent sales tax on their purchases in Washington, she said.
"The (Greater Vancouver Chamber of Commerce) has been consistently supportive of the sales tax exemption because of the positive impacts it has on local retailers," Parker said Thursday.
Under Washington law, shoppers from other states or Canadian provinces are exempt from paying retail sales tax if they live somewhere with a sales tax of 3 percent or less. Qualifying states include Oregon, Montana and Alaska.
State Rep. Jim Moeller, D-Vancouer, said he supports the idea of doing away with the sales tax exemption, although he's also in favor of an amendment he says will soften the blow to border communities. That proposal would let Oregonians apply for a sales-tax refund on purchased they make in the Evergreen State.
"We're going to try to keep that as part of the package as this goes forward," Moeller said, adding that other lawmakers seem receptive to the idea.
Moeller said that tax rebate idea will be similar to an unsuccessful bill that was before state lawmakers last year.
That bill would have raised about $18 million in state revenue as a way to pay for all-day kindergarten. It would have required out-of-state shoppers to pay retail sales upon their purchase. Later, they could apply for a refund of the state's portion of the tax, which is 6.5 percent, but they couldn't get a refund for the retail sales tax they paid to local governments, which is typically a couple percentage points more.
To get a refund, shoppers would apply online through a process that proves their out-of-state residency. They would only apply once a year for their refunds, and the refunds would have to total at least $25.
Parker didn't appear keen on giving Oregon shoppers an extra hoop to jump through.
"I appreciate the spirit of compromise, but that will not help our retailers in Vancouver," Parker said.
Moeller also pointed out that repealing the sales tax exemption for out-of-state shoppers would not impact car dealerships, because car sales are included in a different part of the law.
Parker said repealing the tax exemption could still create a misconception among the public that they would have to pay sales taxes on vehicles. Oregonians will see a 30-second story on the news about having to pay sales taxes in Washington, and they'll assume that extends to buying a car, Parker said.
State Rep. Ed Orcutt, R-Kalama and assistant ranking minority member on the House Finance Committee, said he was disappointed with Inslee's budget proposal, which he said lacked innovation.
The sales tax exemption "is going to devastate many of our retailers along the border," Orcutt said. "It will have a huge effect on retailers in Southwest Washington."
During a press conference on Thursday, Inslee said he is staying true to his campaign promise of not raising new taxes. Much of the revenue he's proposing is simply an extension of recession-era tax hikes that were supposed to expire soon, Inslee said.
But, "extending any tax that is set to expire is a tax increase," Orcutt said, "and it's something I can't support doing."
Overall, Moeller said, Inslee's budget is a good first step.
"His budget proposal essentially follows much of the outline and priorities of what our (House Democratic) caucus has been working on," Moeller said, including closing tax breaks to fund basic education, keeping Washington's safety net intact, and embracing the Medicaid expansion.
Moeller also said that Washington's tax breaks need to be re-evaluated, especially at a time when the state's school system demands so much financial support.