In a brief ceremony Tuesday morning in Olympia, Gov. Jay Inslee signed legislation ending the immediate sales tax exemption for residents of Oregon and other states, a bill that Washington retailers predict will have severe consequences for them.
Beginning July 1, the immediate sales tax exemption for Oregon, Alaska, Montana, Delaware and New Hampshire residents will expire. Out-of-state retail purchasers will instead have to apply for a reimbursement, according to the provisions of the bill, which was approved in the closing days of the legislative session as part of the two-year state budget.
Kelso-Longview Chamber of Commerce president Bill Marcum said he believes the bill will be “devastating” for communities like Cowlitz County, which lie along the state border and attract clients from across the Columbia River.
“Many of our businesses are going to see a loss of revenue, a loss of sales,” Marcum said. “I haven’t talked to any local businesses or (Chamber of Commerce) members that said they felt it was not going to harm their business.”
Starting in January, Oregon residents and others seeking reimbursement for the state’s 6.5 percent sales tax must save sales receipts to submit together and complete special reimbursement paperwork. They will be reimbursed for state-paid sales taxes, but not local taxes, totaling $25 or more. Only one application per calendar year will be allowed. It’s a process that used to be paperless and took just seconds and the flick of an ID at checkout stands.
The state anticipates the change will generate nearly $53 million in fiscal years 2020-21. Marcum said the state lawmakers are counting on the hope that many people won’t apply for the tax rebates or will forget about small-ticket purchases. Shoppers would be required to hold onto receipts for up to a year, and they may decide it’s just not worth the effort, Marcum said.
“Use (Bob’s Sporting Goods) as an example: If (shoppers) make six trips a year and spend $100 dollars each time, that’s $600 dollars, $60 in tax,” Marcum said. “(The state is) hoping they will not save all the receipts. There’s a $600 dollar loss to Bob’s if they don’t come over.”
The change comes after at least five years of off-and-on attempts to alter or eliminate the sales tax exemption. The previous proposals often featured Washington retailers along the Columbia River saying the exemption was necessary to keep them competitive with Oregon, which has no sales tax. Proponents said the exemption was an unfair tax loophole and a drain on potential money for Washington.
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On Monday, 38 legislators, including local state Reps. Ed Orcutt, Brian Blake, Jim Walsh and Richard DeBolt and state Sens. Dean Takko and John Braun, sent Inslee a letter urging him to veto the sales tax exemption changes, saying they would put too many retailers at a disadvantage.
“Areas like Longview/Kelso have lost significant retailers in recent years — retailers such as Sears and Macy’s,” the letter said. “We are concerned that non-resident shoppers will switch to shopping in Oregon — jeopardizing retailers’ ability to keep their doors open for Washington residents.”
While the new law does not affect vehicle sales, it will apply to most other “tangible goods,” such as furniture, appliances, electronics and vehicle parts. Sales of marijuana or marijuana-infused products cannot be exempted under the bill since Cannabis is illegal under federal law.
Marcum said he doesn’t believe the Washington-Oregon sales tax divide was a problem to begin with.
“I think it was working fine the way it was,” Marcum said. “There was no necessity to need those funds, and yet they still chose to do it.”
The bill’s second part takes aim at Washington residents with cars illegally registered in Oregon and other states to avoid paying sales taxes on the vehicles. It cites a 2007 Washington State University study which found the Department of Revenue lost $80 million dollars of taxes and fees in a five-year period from improperly registered vehicles, as well as a “public safety risk” from inaccurate information being provided to law enforcement and car insurance companies.
It allows prosecutors to impose a $500 fine on those who are cited for failure to register but manage to properly register their vehicle within 90 days of the citation. Otherwise, the prosecutor “must seek the full penalty available,” the bill says.