Posted: June 30, 2010 5:11:04 PM PDT
Skagit County Superior Court judge Susan Cook issued a temporary restraining order at 2 p.m. today (June 30, 2010) halting the implementation of new tax advice affecting retailers making sales to Canadian shoppers.
The temporary restraining order was in response to an action filed by the City of Bellingham and Whatcom County in Skagit County Superior Court, challenging a recent state ruling that allows Canadian shoppers to forgo paying sales taxes on some purchases in Washington.
The City partnered with Whatcom County Prosecuting Attorney Dave McEachran and Executive Pete Kremen in this effort, who are all united in their stance that the statute in question provides no exemption for Canadian shoppers.
“While our community welcomes Canadian shoppers, the loss of sales tax revenue, if the ruling prevails, presents significant challenges to already-financially-strapped local governments,” Bellingham Mayor Dan Pike said.
Prosecuting Attorney McEachran said, "We were extremely happy the court granted a temporary restraining order. We feel this is a critical issue to Whatcom County and it should be decided by a court as opposed to the Department of Revenue."
Executive Kremen said, “We raised with Judge Cook the issue of the Department of Revenue’s flawed interpretation that the 'Harmonized Sales Tax' is not a sales tax. I am encouraged her decision concurs with our position that this issue needs to be resolved in court.”
While the opportunity for savings may attract more B.C. shoppers to our communities, Whatcom County officials say the increase in total sales, and subsequent increase in B&O taxes collected, would not make up for the loss of sales tax revenues to local governments if the Department of Revenue ruling prevails.
Ken Oplinger, President, Bellingham/Whatcom Chamber of Commerce and Industry President, agrees the impact would be widely felt.
“While some businesses will see increased traffic from this change, there is no doubt that the community as a whole will suffer from the revenue loss to the cities, Whatcom County and the Whatcom Transportation Authority,” Oplinger said. “The increased paperwork and additional likelihood of municipal tax increases due to this revenue loss will mean that every business in our community will pay more for this state-mandated giveaway of local money.”
City and County officials say retailers should wait for further instructions from the Department of Revenue before changing any sales tax collection practices. They say the safest route for local businesses may be to provide no exemptions until the legal process runs its course.
The state’s early June ruling
State Department of Revenue and Attorney General's Office officials said earlier this month that British Columbia’s new "Harmonized Sales Tax” or “HST,” is a value-added tax, not a sales tax. They contend it meets the "value-added tax" definition because some participants along the supply chain get a partial rebate on tax payments, even though the end consumer also pays the tax on the final product’s sale.
If the state’s ruling stands, B.C. residents would be entitled to claim the tax exemption under a 1965 state law meant to help Clark County merchants entice Oregon shoppers. The law provides the exemption for residents of any state or province with a sales tax of less than 3 percent.
Impact to government and business
Pike said no public or private organizations collect all the data needed to make an exact estimate of how the loss of some sales tax revenue from Canadian shoppers will affect Bellingham.
He said Bellingham’s largest retailers report that as much as 30 percent of their shoppers are Canadian residents, and the City Finance Department’s best estimates are that citywide, 15-18% of affected retail transactions are from people who live in Canada.
Using those figures and the data the City collects, Bellingham Finance Director John Carter has estimated City sales tax collections will be reduced by at least $600,000 to as much as $1.3 million per year, beginning July 1, 2010.
“The City of Bellingham and our area businesses are proud to host our Canadian neighbors. Bellingham is the county’s retail hub, so the impacts of the sales tax exemption fall disproportionately on us. However, all our local governments are gravely affected by this ruling, as are businesses who must keep new records as the result of it.”
City and County officials say state law allows retailers to decline to provide the exemption to B.C. shoppers, but they risk alienating Canadian customers. Retailers who grant the exemption must document each tax-exempt sale and maintain the records for audit purposes.
The Bellingham City Council on June 21, 2010 authorized the City Attorney to present a legal challenge to the ruling, and Pike said he will continue to challenge this issue in the courts and the state legislature.
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Media contacts:
Bellingham Mayor Dan Pike, 360-778-8100
Whatcom County Prosecuting Attorney Dave McEachran, 360-676-6784
Whatcom County Executive Pete Kremen, 360-676-6717
Ken Oplinger, President/CEO, Bellingham/Whatcom Chamber of Commerce and Industry, 360-734-1330 or 393-9171
