A Washington State judge has temporarily blocked the sales-tax exemption for B.C. residents that was supposed to take effect Thursday – dashing the hopes of thousands of cross-border shoppers planning to head south over the long weekend.
And even if the court fight against the exemption ultimately fails, both Democratic and Republican legislators say they’re gearing up to kill the exemption when they resume sitting in January.
"I think there’s a lot of momentum to repeal the law," said Doug Ericksen, a Republican state representative from Whatcom County.
Last month, Washington’s Department of Revenue announced that, once B.C.’s HST took effect July 1, British Columbians would be eligible for a non-resident sales tax exemption, saving them anywhere from 7.5 to 9.5 per cent on their cross-border purchases.
However, lawyers for the city of Bellingham and Whatcom County fought the decision in court, worried that it would lead to reduced tax revenues for local government.
On Wednesday afternoon, Skagit County Superior Court Judge Susan Cook issued a temporary restraining order forcing the state to inform retailers that the sales-tax exemption could be overturned.
Technically, Cook’s order doesn’t forbid retailers from offering the exemption and some, such as the Target at Bellis Fair mall, say they’ll honour it for now.
But doing so raises the risk retailers could be on the hook for unpaid taxes if Cook ultimately strikes the exemption down.
The case is due back in court on July 9, when Cook will decide whether to extend her order.
In 1965, Washington passed a law, designed to lure cross-border shoppers from sales-tax-free Oregon, that residents of any jurisdiction with a sales tax of three per cent or less don’t have to pay sales tax in the state.
The state’s revenue department decided in June that the HST is a "value added tax", not a sales tax, and so B.C. and Ontario residents would be eligible for the exemption once the HST took effect on July 1.
Ericksen said there is broad support among legislators for amending the law so that it would no longer apply to B.C. residents.
Democratic representative Kelli Linville, who chairs the state’s ways and means committee, agreed.
"I personally believe … there will be support in the legislature next year to not include B.C. in that tax exemption," she said.
A state election in November could change the political makeup of the statehouse, but given the cross-party support for the change, both Linville and Ericksen predict the B.C. exemption won’t last.
Unlike in B.C., in Washington State a portion of the sales tax goes directly to local communities to pay for things like public transit and libraries.
According to estimates from local business groups, as much as 30 per cent of Bellingham shoppers are Canadians and the sales-tax exemption could deprive local governments of up to $3 million a year in lost revenue.
"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 in a statement.
Oplinger said Bellingham is already such a popular destination for B.C. shoppers, he’s not convinced the sales-tax exemption helps local retailers much.
"There’s really no reason to do this – we don’t think it’s going to give us any substantial boon that we weren’t already getting," he said. "You go to Bellis Fair mall today, you’ll see at least half the cars in the parking lot are B.C. plates."
He expects the court ruling will make some B.C. shoppers unhappy and said he’s already received some angry e-mails from B.C. shoppers.
"I understand people are upset about the HST," he said. "But why folks think it’s our responsibility to make up for the decision made by the provincial government there, I’m not clear."
Aside from lost tax revenue, some local businesses are concerned about the extra paperwork the sales-tax exemption requires.
Tax-exempt purchases can be audited by state officials, meaning retailers need to take down names and ID numbers from B.C. shoppers for every sale.
Under the 1965 law, retailers have the discretion to offer the exemption or not.
However, many retailers fear that, given the media attention the exemption has received in B.C., not offering the exemption risks alienating Canadian customers.
According to an Ipsos Reid poll last week, more than half of B.C. residents said they were more likely to shop in Washington State because of the exemption, including 31 per cent who said they were a lot more likely to cross-border shop.
cskelton@vancouversun.com
– With files from The Bellingham Herald
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