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Lawmakers should pass streamlined sales tax legislation
by Don C. Brunell
President, Association of
For years, people ordering from catalogs did not pay sales tax. In fact, some national retailers avoided putting stores in Washington because they believed our state would force them to impose the sales tax on mail-order purchases.
Growing up in Montana, a state which has no sales tax, I didnt pay much attention to such things. My parents did, though. When we vacationed in Spokane and Seattle, they could avoid paying Washington sales tax by showing the clerk a Montana drivers license.
After moving to Washington 30 years ago, I started hearing about the competitive disadvantage Washington retailers faced trying to compete against mail-order companies like L.L. Bean and Lands End, which charged no sales tax. They were located outside Washington, had no stores here and the shipping charges were often less than the sales taxes would have cost them in Vancouver, Seattle or Yakima.
When Internet sales took off, store owners faced a new competitive disadvantage. Not only that, state and local governments felt the impact of the tax avoidance. Tax collectors worked harder to enforce collections, but the game had changed and the rules needed to catch up.
Nationally, states have been working together to develop a common framework for collecting sales taxes on Internet transactions. Its an effort to help our small Main Street retailers the people who support the local Little League team and provide jobs in the community compete against out-of-state Internet companies. Many businesses, both bricks-and-mortar retailers and e-tailers with no physical retail presence, support efforts to find common ground.
The national effort is called the Streamlined Sales Tax Project. Its one of those rare attempts to simplify tax policy that actually works.
The change would apply only to merchandise that is sold in one tax jurisdiction and delivered to another. It would require all retailers who deliver merchandise to collect sales tax based on the point of delivery, rather than the point of sale.
Washington lawmakers plan to make such a change to the way sales taxes are collected in our state, but theres a small hitch because the new rule would create some shifts.
For example, until now, Washington has collected sales tax at the point of sale regardless of where the merchandise was delivered. That favored cities with big distribution centers. Under the new law, the city where the merchandise is ultimately delivered gets the tax revenue. For example, if you purchase a snow blower from a business in Moses Lake and have it delivered to Renton; the city of Renton not Moses Lake will receive the local sales tax revenue. When the change was initially proposed, cities with large distribution centers opposed it, saying they would lose too much sales tax revenue under the new rule. The Legislature is working to smooth the transition by phasing in the change over time. In addition, because the state expects to collect sales tax revenue that had previously been evaded, it plans to use some of that revenue to compensate cities that lose out under the new law.
Legislation always trails changes in technology. It took a while to figure out how to handle catalog sales. Now, were finally close to figuring out how to handle the Internet in a way that strengthens retailing, whether its bricks-and-mortar or bricks-and-clicks.
The Streamlined Sales Tax legislation is a good thing. It eases the burden on businesses operating in more than one state, protects small Main Street retailers, and creates incentives for catalog and Internet sellers to voluntarily collect sales taxes. In addition, the change could ultimately benefit homeowners. Under the new law, state and local governments will be able to collect sales tax revenue that had previously been evaded, reducing the pressure to increase property taxes and thats good news for homeowners.