On July 1, the state of Washington will conform with the national Streamlined Sales and Use Tax Agreement. It will be the 22nd state to have implemented the change.
The switch will affect taxes only on delivery sales. Under the new agreement, sales tax will be appropriated based on the location of the consumer rather than the manufacturer or warehouse from which goods are received. The streamlined sales tax is not applicable to the sale of trailers, motor vehicles, mobile homes, aircraft and most florist purchases. Most services are also exempt.
The switch to streamlined or destination-based sales tax is an attempt to level the playing field between physical “brick and mortar” businesses and retailers which currently are not required to collect sales tax. Mike Gowrylow, media representative for the Washington Department of Revenue, said Internet commerce is growing at a rate of 10 percent to 20 percent annually, a rate at which regular business retailers cannot keep up.
“For the health of the retail base, we need to do something,” Gowrylow said.
The U.S. Supreme Court ruled in 1992 against requiring Internet-based businesses to collect sales tax unless under a voluntary basis.
There are currently 200 voluntary remote sellers collecting sales tax around the nation. Gowrylow said on July 1 there will be 1,100 participating online retailers in the mix.
Internet retailers with any presence, or nexus, in state are required to collect sales tax. He said establishing a nexus can be easier than expected. For example, if a Washington resident buys a computer online and requests assistance for a malfunction, an Internet retailer is considered to have a nexus if the company contracts with another to service the product. Gowrylow said there are many Internet retailers with this kind of nexus that may be held accountable for unpaid taxes.
“It’s a bit of a cat and mouse game,” he said.
In order to aid remote retailers in this situation, states compliant with the agreement can give amnesty for these back payments if online retailers agree to comply with the new streamlined tax.
Skagit County Budget and Finance director Trisha Logue said from the county’s standpoint, the change will be well-received. She said the county expects to gain $900,000 to $1 million in added tax revenue annually.
“In Skagit County, we don’t have as many retail sellers as we have buyers,” Logue said. “We’re on the receiving end.”
Revenue increases are projected for Mount Vernon while commercial hubs like Burlington are expected to lose revenue.
In order to offset this effect, a statute of the agreement will require mitigation for areas losing out on tax revenue.
Including revenue from the 1,100 voluntary remote sellers, Washington state will accrue an estimated $49 million in both state and local tax revenue its first fiscal year under the SSUTA, Gowrylow said.
He said $32 million of this revenue will be distributed as compensation for cities like Burlington which can expect their tax revenue to decrease. He said this kind of compensation will be given to offset ill-effects each year until these areas “break even,” provided the funds are available.
Rep. Ed Orcutt, R-Kalama, said he voted against the agreement because of the added expense Washington residents will incur as well as added pressure put on small businesses attempting to calculate tax rates and remit them accordingly. He said he also believes the change will not solve the problem, persuading Internet retailers to relocate to non-participating states rather than pay the tax.
Workshops were held in April and June to educate businesses on how to meet these expectations.
“We realize this is a big change for retailers,” Gowrylow said. “We have been working with them to give them a variety of tools.”
Gowrylow said tools can range anywhere from online tax rate search devices, downloadable databases and Excel worksheets to old-fashioned paper lists.
“We haven’t solved everyone’s problem, but we’re working on it,” Gowrylow said.
Small businesses will have access to some aid while making the switch. Businesses can claim up to $1,000 in tax credits for the purchase of software needed to make the change or receive two years of free service from a certified provider.
To be eligible for this assistance, businesses must accrue less than $500,000 in annual Washington sales. In addition, 5 percent of all taxable income must be brought in through deliveries and 1 percent of all taxable income must come from deliveries made outside their jurisdiction.
The Economic Development Association of Skagit County will be hosting a free workshop from 2 to 3:30 p.m. July 8 in the downstairs conference room at 204 W. Montgomery, Mount Vernon. Registration is required. For more information or to register e-mail or call 360-336-6114.
Destination tax to take effect next week
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