If an Anacortes resident buys a couch in Burlington, Anacortes’ sales tax revenue could get a boost.
A new state law changes how retail sales tax is distributed — from the current origin-based system to a destination-based plan.
That means if an Anacortes resident buys a couch at a Burlington furniture store and has it delivered there, Anacortes, not Burlington, would get the city portion of the sales tax revenue. Burlington would get the tax, however, if that Anacortes shopper drove home with the couch.
Washington retailers used to collect local sales tax based on the jurisdiction from which a product is shipped or delivered — origin-based. Beginning this month, retailers now collect based on the destination of the shipment or delivery — destination-based.
Because Anacortes is largely residential and people do a lot of shopping out of town, the city expects to benefit from the change. Conversely, Burlington expects to lose some of its sizeable sales tax revenue.
But just how much Anacortes might gain is yet to be seen.
Steve Hoglund, city finance director, said it’s hard to know the impact on the city. Estimates range from a few thousand dollars more a year to hundreds of thousands.
“That’s how wide the opinions are,” he said.
One estimate is the city will gain about $44,000 a year in sales tax dollars. That’s an increase of less than 2 percent, he said.
In 2007, the city collected about $3.6 million in sales tax.
Of the 8 percent sales tax Anacortes residents pay, 6.5 percent goes to the state. Of the remaining 1.5 percent, 1 percent stays local. Of that 1 percent, .85 percent goes to the city.
So, on a $100 purchase, Anacortes would get 85 cents. To get to the $44,000 the city could benefit from the change, every Anacortes resident would have to spend about $250 on delivered or shipped goods in a year.
With a slowing economy, Hoglund said the new sales tax dollars will help.
“It comes at a good time because of the way sales tax seems to be flattening out (for the city),” Hoglund said.
He said it looks like the economy will stay flat for at least the rest of the year. The additional sales tax will make up for some projected shortfall in sales tax revenue and building permit revenue.
He said the new way of determining sales tax will allow the city to capture revenue that is going out of Anacortes.
But what looks like a positive change for the city has some local businesses scrambling to figure out how to deal with the new tax collection.
Rene Sommer, Tracy’s Furniture office manager, said office staff were still unsure how they are going to make the change in late June. With about 12,000 people in the company’s database from all around the state, figuring sales tax is going to be tricky.
“We deliver to so many different places,” Sommer said. “The islands have a different code. There’s unincorporated areas of Skagit County. We deliver to Bellingham.”
About 70 percent of sales are delivered, she said. They send a full truck to the San Juan Islands and Oak Harbor every week along with other deliveries around the state.
“A large number of our deliveries are out of Anacortes,” Sommer said. “I don’t even have any idea how we’re going to be able to separate out all the different taxes. It’s going to be so much work. We’re going to have to restructure how we pay the taxes.”
The change only affects businesses that ship or deliver goods. It does not affect deliveries outside the state, services or the sale of things like motor vehicles or watercraft.
The change in sales tax collection was required for Washington to join a national effort to standardize the way each state taxes goods, according to the Washington State Department of Revenue. The goal is to encourage out-of-state retailers to charge sales tax on sales into Washington and eliminate the unfair competitive advantage they have over in-state businesses that are required to charge sales tax.
A retail market study of Anacortes by consultants Berk & Associates says for largely residential cities, like Anacortes, the shift will mean more sales tax revenue flowing in. With higher income households, the city is expected to generate more delivery sales.
Auto and boat sales are excluded from the new system, which is good for Anacortes since about 40 percent of its retail sales tax is based on those, the study said.
“In light of these considerations, it appears that Anacortes should be well-positioned to benefit from the sourcing rule changes,” the study said. “It is also worth noting that the city may want to take actions to improve its position vis-à-vis delivered goods over time.”
The study, commissioned by the Anacortes City Council, said the city could encourage residents to have purchases delivered to homes or offices to help bring in more sales tax revenue.
For now, it’s a matter of waiting to see what the change brings.
“By the end of the year we should have an idea what the impact will be,” Hoglund said.
Sales tax workshops
A Destination Sales Tax Workshop is 2-3:30 p.m. Tuesday, July 8 in the Economic Development Association of Skagit County downstairs conference room at 204 W. Montgomery, Mount Vernon.
To help businesses understand and implement the change, the Department of Revenue is sponsoring a series of workshops in cities across the state. The workshops focus on three areas:
• How the change may affect your business.
• What tools and services are available to help you make the transition.
• What assistance may be available to help with your implementation costs.
The workshop is free but registration is required. Contact Debi at (360) 336-6114 or .
For more information on the destination-based sales tax program visit http://destinationtax.dor.wa.gov.
Tax revenue comes home if items delivered to Anacortes
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