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'Simplified' sales-tax plan would hurt some By
NEIL MODIE 1/13/04 When you buy a mattress from the Sleep Country USA store in Bellevue and it's delivered to your home in Lake Forest Park, the local share of the sales tax you pay goes to Kent, where Sleep Country's warehouse is. But as a side effect of an effort to make it easier for the state to collect sales tax from Internet and remote purchases, the sales-tax revenue in the future would go instead to your hometown, Lake Forest Park. And city officials in Kent -- home of Washington's largest concentration of manufacturing, wholesaling and warehousing -- are in a panic. "Our whole economic underpinning revolves around an industry that we have spent decades building up, and the Streamlined Sales Tax would remove that incentive," Mike Martin, Kent's chief administrative officer, said last night. The SST agreement is a movement among states and private industry to simplify sales-tax systems throughout the country. For Washington cities and counties that collect the tax, it would have some winners and some losers -- including some really big losers, such as Kent. To encourage out-of-state Internet and catalog retailers to collect the tax voluntarily, the agreement would require distributing local tax revenues on the basis of where the purchase is delivered to the buyer, not the product's point of origin. Washington uses both destination- and origin-based methods of sales-tax collections depending on the type of sale. Online retailers are required to charge sales tax to Washington residents only if they have a physical presence in the state. Technically, residents are supposed to pay a "use tax" on online purchases through a remote retailer although hardly anyone does. Businesses with a presence here pay use taxes because the state can audit their accounting books. The aim of the SST project is to make tax administration easier for both retailers and state tax agencies. That is viewed as a prerequisite to congressional or court action allowing states to require remote sellers to collect sales tax on in-state sales. The state Department of Revenue estimates that $3.1 billion in remote sales in 2002 went untaxed, causing a loss of $59 million in sales-tax revenue for state and local governments. To comply with the national SST agreement, the department is asking the Legislature, which opened its 2004 session yesterday, to change the taxable place of sale from the point of origin to the point of delivery. But the issue has divided local governments, especially cities. King County's general fund -- its basic operations fund -- would come out about $540,000 a year ahead, according to the state. But sales-tax revenue for the county's Metro Transit system would lose about $2.97 million annually, so the county's net loss would be $1.9 million. Generally, big retail, manufacturing and warehousing hubs such as Seattle and Bellevue would be losers, and wealthy residential enclaves such as Clyde Hill and Yarrow Point with little commercial activity would come out ahead. Seattle would lose about $2.4 million, or 2 percent of its sales-tax revenue. "This has been called a reverse Robin Hood," said Marie Morris, an official with the Washington State Association of Counties, in a briefing to the King County Council about the SST plan yesterday. Lake Forest Park, which doesn't have heavy retail sales, would gain about 39 percent increase in sales-tax revenue, according to the Revenue Department. Kent would lose about $2.27 million a year, 11.9 percent of its sales-tax revenue, on which it depends more heavily than many cities because it doesn't collect a business and occupation tax. Martin, Kent's administrator, said his city's officials dispute the state's estimate and think Kent's tax loss would be closer to $3.8 million. Washington retailers generally favor the change, because currently they have to charge the customer a sales tax that their out-of-state Internet competitors don't charge. Jan Teague, president of the Washington Retail Association, said retailers must pay the cost of processing the sales tax and pay a transaction fee on the tax as well as on the purchase when a customer pays with a credit or debit card. The proposed change would make collecting sales tax easier for retailers, said Jeff van Burkleo, tax director for Issaquah-based Costco Wholesale Corp.
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