Two months after a change to Washington’s sales-tax law, it remains too early to draw conclusions about the impact. But state lawmakers must keep a close eye on the situation and be ready to reverse course if necessary.
The Democratic-led Legislature this year removed sales-tax exemptions for customers who live in states without a sales tax. With Oregon being one of five states without a sales tax and with Clark County sitting across the river from that state’s most populous county, the change likely will impact local businesses more than anywhere else in Washington. “Vancouver and Clark County is the epicenter,” said Mark Johnson of the Washington Retail Association.
Many local proprietors say a large percentage of their business has come from Oregon residents drawn, in part, by the exemption. Now, they worry that customers will stay away from Clark County and remain close to home rather than pay Washington’s sales tax. The new law allows out-of-state customers to file once a year for a rebate on their Washington sales tax payments, but few are expected to do so.
Legislators estimate that removing the exemption will generate about $53 million in new state taxes for fiscal year 2020-21. Local governments would receive about half of that.
All of this is speculative. While the bill was under consideration, the Greater Vancouver Chamber of Commerce wrote to Gov. Jay Inslee, “We believe the revenue expectations accompanying the bill are overly optimistic and that the change will result in less sales to Oregon customers, with some local merchants forecasting a potential 10 to 20 percent drop in out-of-state sales.”
Therein lies the problem. Undoubtedly, some shoppers from Oregon will be scared off by the new tax, but the impact will not be known for a while. Some out-of-state customers who frequent a particular retailer in Clark County might continue to patronize a favorite store, but how long will they continue to return when they have to pay sales tax in excess of 8 percent of the purchase price? And will new customers be attracted to a unique retailer? As a recent story in The Columbian pointed out: “There are few sources of data or research that detail exactly how ending the point-of-sale exemption will play out.”
And then there is the dirty little secret about “Oregon” shoppers in Washington stores. Many local residents retain Oregon driver’s licenses and Oregon vehicle registration in order to avoid this state’s higher fees. The guess is that many shoppers who have been using Oregon identification to procure the sales-tax exemption actually live in Clark County.
How many? It is difficult to say. But we hope that Clark County residents will shop at local outlets, even if they now have to pay sales tax.
The impact of all these variables is impossible to predict. That will require state officials to keep a close eye on the situation. If local businesses see a decline in revenue from a loss of Oregon shoppers, lawmakers must be quick to restore the exemption. If retailers are employing fewer people or paying less in Business & Occupation tax because of a decline in revenue or closing their doors, that will more than offset the benefits of additional sales-tax revenue. And time will be of the essence.
The Columbian long has argued editorially in favor of keeping the exemption; now that it is gone, we hope the change is not deleterious. And we hope the Legislature is prepared to work for the benefit of Washington businesses.