Will weird tax loophole hurt state's budget even more?



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Posted on June 10, 2010 at 5:56 PM

EVERETT, Wash.  - As you get closer and closer to the Canadian border, you see them. They are the outlet malls. And you guessed it - a lot of customers come from Canada.

Canadian shoppers tell us things are cheaper in the U.S.  Electronics and software especially.

And due to a technicality in Washington's tax laws, Canadians will get another break for shopping south of the border.   Starting July 1st, they will no longer be charged Washington Sales Tax that can range from around 8.5 to 9.5%.  

It's not that Washington's tax laws are changing as it relates to this, it's that British Columbia is about to instate the new Harmonized Sales Tax or HST north of the border.  

Where this gets tricky, is that the new HST is not considered an real sales tax by the folks at Washington State's Department of Revenue.  Officials in Olympia considere it a VAT, or Value Added Tax, which is widely used by other nations around the world.  

No 'sales tax' in B.C. means no charging of Washington sales tax on B.C. residents and residents of some other Canadian provinces.

The Washington law that makes this all possible has been around since 1965.

It's the same law  that allows residents of sales tax free Oregon to come across the state line and shop in Washington stores.  All they need is to provide proof of Oregon residency and if the store is willing, take their treasures back to Oregon.

Mike Gowrylow with the Department or Revenue says that  Washington's businesses would suffer if an Oregonian wanted too buy something in Washington and the sales tax drove that person back south.    Residents of Alaska and Montana have enjoyed the same break. Now, folks from B.C. 

Gowrylow says the uncollected sales tax from other states amounts to "$100 million a year."   He says the department does not know how much more the B.C. exemption will add to that.  

But he says you can't just look at the loss of sales tax in isolation.  More sales mean more revenue for a store and therefore more Business & Occupation taxes paid. 

The tax exemption doesn't apply to meals and hotel rooms, just goods. Residents of B.C. can bring hundreds of dollars worth of goods back into the country tax free, but that depends on how long they stay in this country.  A quick trip down and back will still subject them to the controversial HST on their return trip.