Tuesday, February 7, 2023
Feb. 7, 2023

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Clark County’s ‘sales tax leakage’ decreases

Finance Director Gassaway: Less revenue is being lost due to shoppers going to Oregon stores

By , Columbian staff writer
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Clark County’s sales tax leakage, the government revenue lost when locals head to tax-free Oregon for their shopping, has been on the decline for the last few years, according to County Finance Director Mark Gassaway.

Gassaway reviewed the most recent sales tax numbers during the county council’s Wednesday meeting.

“The range that I calculated for sales tax leakage, or the loss, has … actually decreased. In the latest analysis, our range of sales tax loss is somewhere between $2.1 (million) to $5.9 million. Two years ago, in the same analysis, it was somewhere between $2.7 (million) and $8.7 million,” Gassaway told the council.

Gassaway cautioned that the report was not a scientific analysis and captures only the basic and optional sales tax revenue allowed by state law. It does not include other sales tax collections, like the mental health sales tax and the newly passed public safety sales tax.

The report also showed Clark County is now 19th among the state’s 39 counties in sales tax per capita. Gassaway said that’s a slight improvement over 2021, when the county was ranked 21st, and 2019’s ranking at 22nd.

The county’s sales tax per capita — the average per person — has been on the rise since at least 2019. The report shows the 2022 per capita was $230.26, an increase of 20.3 percent over 2019’s per capita of $190.34.

Among the state’s 10 largest counties, Clark County is in eighth place behind King, Benton, Spokane, Thurston, Whatcom, Pierce and Snohomish counties. Gassaway said that’s also an improvement from last year, when the county ranked ninth.

The tax leakage has long been a concern for county officials, especially when the amount of revenue lost each year was markedly higher. In 2017, the county estimated that sales tax revenues would be 40 percent higher if shoppers stayed in Washington, a leakage that cost the county’s general fund over $24.6 million. The county’s mental health sales tax, which collects 10 cents for every $100 spent, was losing $5.3 million each year.

Tax law change helped

Much of the recent improvement is due to the state’s change to destination-based sales tax in 2008. Prior to this, sales tax was collected based on the location from which products were shipped. The 2008 law instead required retailers to collect sales tax based on where the customer received the merchandise.

Collecting sales tax based on destination played a key role in boosting the county’s annual revenues as more people turned to online shopping during the pandemic. The county’s 2021 sales tax revenue increased by around 20 percent from the prior year, and was in addition to an 8 percent increase in 2020.

Not all of the increase came from retail sales, Gassaway noted. In a December 2021 interview, he said commercial construction, which tends to be less affected by economic downturns, accounted for 30 percent of the county’s annual sales tax revenue.

One source of lost sales tax revenue that continues to plague the county is vehicle registrations. Despite living in Clark County, some residents hang on to their Oregon driver’s licenses and continue to register their cars in Oregon, costing the county hundreds of thousands of dollars, and possibly more, in revenue. Although the Washington State Patrol’s License Investigation Unit has been working to catch illegally registered vehicles, the problem persists.

“We see a lot of people using the bridge who have just come from a Washington residence with their Oregon tags,” Chair Karen Bowerman said.

Bowerman said finding solutions that will have as much of an impact as the destination-based sales tax should be a priority for the council next year.

“I somewhat stopped beating this drum when I saw our sales tax (revenue) increase dramatically,” Councilor Gary Medvigy said during the council meeting. “It was hard in that context, not knowing whether or not the problem was solved by the pandemic and people shopping more online … or how much we could still be losing.”

Medvigy said he had forwarded the report to state legislators with the hope that the Legislature will address the issues when it convenes next month.

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