It may have ended before it started, that Canadian bonanza Northern Washington retailers were hoping for. Starting Thursday (July 1), Canada Day, a big national holiday north of the border, British Columbia shoppers were to be excused from paying the Washington state sales tax. That didn't happen — and won't, at least for a while (except in stores where merchants haven't gotten the word).
The exemption, based on a June 8 opinion from the Washington Department of Revenue, promised a huge boost in cross-border shopping, even beyond the 700,000 shopping trips Canadians made to Whatcom County stores in May. It also threatened budgetary chaos for local governments in Whatcom County. They depend heavily on sales taxes paid by Canadian residents, who flock to Bellingham, Ferndale, and Blaine to shop on weekends.
Whatcom County and the City of Bellingham sued the State Department of Revenue on Thursday, and Superior Court Judge Susan Cook of Skagit County issued a temporary restraining order designed to delay the effect of the exemption. Judge Cook's order requires the Department of Revenue to notify retailers of the legal challenge, and to advise them to continue collecting the sales tax. Retailers will be told they may have to pony up the amount of the unpaid tax at some later date if they don't continue to collect it from the B.C. shoppers.
As reported by John Stark in Friday's Bellingham Herald, the court order created confusion for retailers and shoppers. Some merchants were granting the sales tax exemption, others weren't.
Earlier, city and county officials had warned that their budgets, already hit hard by a drop in consumer spending, would be in desperate shape if they lost the sales tax revenue from the north. The exemption would hit hardest the Whatcom Transit Authority, whose popular bus service depends on sales tax for about 85 percent of its revenue.
Local governments had no warning that the exemption was pending. It resulted from a major change in Canada's tax system that took effect Thursday (July 1). Department of Revenue attorneys believe the changes qualify B.C. for the sales tax exemption, under a 45-year-old law meant originally to help merchants in Clark and Spokane Counties compete for Oregon and Idaho customers.
Judge Cook's restraining order keeps the sales tax revenue coming until the courts or state legislators have a chance to consider the issue. The judge scheduled a new hearing on the issue for July 9. Meanwhile British Columbia citizens, upset by the new tax system, have sent an initiative to their provincial parliament, demanding that it repeal the change.
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