A 45-year old law designed to help merchants along the Oregon border, threatens to wreck local government budgets in Washington's upper left-hand corner. Bellingham and Whatcom County face severe losses in sales tax revenue from Canadian shoppers, under a recent interpretation by the Washington state Department of Revenue.
It took a combination of dubious actions on both sides of the international border to create this pinch. The Washington legislature approved a non-resident sales tax exemption in 1965 for shoppers whose home states or provinces have a sales tax of 3 percent or less. The idea was to boost Clark County sales to Oregonians, who have only to show Oregon identification in order to claim an exemption from the Washington sales tax.
It was not meant to apply to the thousands of British Columbia shoppers who bring their money to Blaine and Bellingham. But it soon will.
Here's where it gets complicated. British Columbia has for years collected what it calls the GST — the goods and services tax. It was viewed by Washington officials as a sales tax, and it was higher than the 3 percent threshold that makes Oregonians eligible for the sales tax refund. Therefore, Canadians had to pay state and local sales taxes when they shopped in Washington.
They come by the thousands on weekends, to the crowded Costco and Wal-Mart in Bellingham, and to clothing stores in Bellis Fair shopping mall. The sales taxes they pay supplies one-sixteenth to one-eighth of the city of Bellingham's $16 million dollar sales tax revenue.
Look out. At the end of this month B.C. is scheduled to replace the GST with an HST, or harmonized sales tax. What's in a name? Millions of dollars in lost taxes for Bellingham. The Washington state Department of Revenue announced on June 4 that in its view, the harmonized sales tax is not a sales tax but rather "a value-added tax."
This means British Columbia residents, along with Oregonians, will now be exempt from the 8.5 percent combined state and local taxes on whatever they buy to take home.
There's distress on both sides of the 49th parallel. Canadians are angry that the HST will apply to many items that are not taxed under the GST. Canadian border towns are upset at the prospect of losing even more trade to Washington stores, once the exemption takes effect in July. Local governments in Whatcom County predict disaster.
Bellingham merchants, however, whose business relies heavily on Canadian trade — as much as 50 percent in some stores — are drooling all over the merchandise. High sales taxes in Canada with an exemption in Bellingham, what could be better?
Best they enjoy it while they can. The new Canadian tax may not survive the year. An initiative campaign to repeal the HST picked up the required number of signatures well ahead of the deadline. The Vancouver Sun's political sage, Vaughn Palmer, says if the provincial government declines to repeal the tax as the initiative demands, the organizers will redirect their energy toward recalling the provincial government.
Bellingham and Whatcom County, heavily dependent on sales taxes, can't wait around to see what the province decides. They'll have to plan for more draconian cuts from already-shrunken budgets. Especially vulnerable is the area's much-admired bus system, Whatcom Transportation Authority. It depends on sales tax for about 85 percent of its revenue. Voters refused a WTA request for a sales tax increase in April, and the bus service executives are even now in the process of deciding which routes they will cut.
Whatcom County's deputy administrator, Dewey Desler, summed up the exasperation of county and city governments: "It's actually ludicrous" he told the Bellingham Herald, "to have our tax policy set by foreign governments."