Changes to Washington’s retail sales tax collection for Oregon residents are projected to generate $53 million for the state over the next two years.
But at Wall 2 Wall Furniture, owner Brian Gaines believes his business and others in the community will instead lose customers because of it.
An estimated 20 percent of sales at his Main Street store in Walla Walla come from Oregon, where customers can drive just 15 minutes across the state line for service at the showroom and, until July, still claim their sales tax exemptions at the register.
Once they have to pay it, they may not come at all, he fears.
ESSB 5997 was approved by the Democrat-controlled House and Senate in the last flurry of activity that included passage of the $52.4 billion budget for 2019-21. This is the first time the state budget has surpassed $50 billion. It reflects an 18 percent increase in spending.
All three 16th District legislators cast no votes for the sales tax change.
The legislation is directed to residents of all sales tax-exempt states as well as those whose taxes are less than 3 percent. It doesn’t eliminate the exemption, which has been optional for business participation. It defers it. Consumers can make an annual request for remittance with proof of at least $25 in purchases and their residency.
Gaines is skeptical they will choose to organize receipts and wait a year rather than staying in their home state to shop and enjoy the immediate sales tax exemption.
“The reality with consumers is you only have to give them one little reason not to visit your business,” he said. “It’s the most ignorant thing ever.”
For instance, in the face of road construction, he said, consumers aren’t lost because of bumps in the road; they’re lost when they forge a new path around what’s in the way. Even when the old route opens, some don’t ever go back. He believes this change is similar.
Since the Senate president and House speaker signed the bill last Sunday the legislation has been forwarded to the governor and awaits a signature.
Throughout the week, Walla Walla area retailers and officials were just beginning to wrap their heads around how the change might impact sales and tax collection locally.
According to the Department of Revenue, 222 businesses in Walla Walla County reported participating in offering sales tax exemptions to qualified nonresidents in 2018.
The fiscal note from Revenue estimates state revenues of $25.46 million in 2020 and $28.46 million in 2021. It does not break down estimates among the 39 individual counties.
It does, however, provide a percentage estimate of the state sales tax revenues by region. According to that, Clark County is projected to easily contribute the most additional revenue through the change with 19.6 percent. The area that includes Franklin, Walla Walla, Columbia, Garfield and Asotin counties is projected to contribute 8.2 percent of the additional revenue.
Nonresidents who request the remittance would only get the 6.5 percent of Washington sales tax. There will not be a reimbursement for local taxes. So when a resident of Oregon — Walla Walla’s hands-down largest feeder of sales-tax exempt shoppers — pays 8.9 percent in the city of Walla Walla and follows through with the remittance request, they will not receive the remaining 2.4 percent of local taxes back.
For businesses such as Wall 2 Wall Furniture, where the average transaction is $2,000, the change is feared to deliver a huge blow.
Tara Redberg of Walla Walla Sew & Vac and Spas has similar worries. The Rose Street business she owns with her husband doesn’t deal in high volume transactions. But it does see a diversity of customers.
On Friday, eight of the 15 transactions at the store were from Oregon residents, she said.
“I see both sides. I understand the state wants to collect that sales tax and I understand why it’s reasonable,” she said. “At the same time these small businesses that are on the border are very much affected.”
Competition is already fierce with the internet and stores in the Tri-Cities. For centrally located lawmakers, the sales tax change may not seem like much. But she has customers who will exercise their exemption over a $3.99 item. Many fume when they realize the current exemption doesn’t apply to servicing the equipment.
To qualify for the remittance, she said, a nonresident would have to spend over $285.
“We work so hard to provide good customer service to try to make it worth coming to a smaller town and shopping here already,” she said. “It’s not just for sales. We offer service on every single thing that we sell. Very few stores do that nowadays. If things keep going the way they are, stores like ours are going to be pushed aside.”
Rep. Skyler Rude, R-Walla Walla, believes legislators from nonborder communities may not grasp the significance of the relationships with nonresidents.
“I think it’s going to be harmful for border communities like ours,” Rude said.
Exactly how it will be implemented remains to be determined and is dependent on the governor’s signature. Rude said he has communicated his hope for a veto but has little confidence that will happen.
Milton-Freewater and other Southeastern Oregon towns have many of their own retailers to draw customers. But with Walmart just across the state line in College Place, and numerous other shops here that aren’t available there, the choice will be whether to drive elsewhere in Oregon for options, order online, or pay the tax at the time of purchase here.
Even if it’s the latter, Walla Walla Deputy City Manager Byron Olson is skeptical the community will see a big jump in retail sales tax collection like the state expects.
“It may be a small increase, but it’s hard to judge because we don’t know exactly how it will be implemented,” Olson said. “I don’t see it being a windfall.”
He said it could have a different unintended effect: the spurring of more retail in Milton-Freewater, which would be good for the Walla Walla Valley economy, but not on the side Washington lawmakers had in mind with the legislation.
“I think this may spark some economic interest on our side of the border from our own citizens actually,” Milton-Freewater City Manager Linda Hall seconded. “For the first time, longtime Oregon residents will see first hand how fast that tax can add up, particularly on major purchases.”
Inland Octopus toy store owner Bob Catsiff said it’s hard to tell what impact the change may have for his Main Street shop.
He said some of his Oregon customers stop in during trips to Walla Walla for appointments and other errands, bringing more of a “destination shopping” vibe.
“I don’t know that the sales tax will deter them,” he said.
What it may do though is influence their extended activities, he lamented. If paying the upfront sales tax on their retail purchases takes more of their money through shopping, maybe they won’t dine in a restaurant or pop into a coffee shop, he said.