| With the so-called “streamlined” sales tax effective on July 1, it means most businesses that deliver or ship within the state will have to charge sales tax not based on point of origin (ie location of business), but based on final destination. The change is the result of the state of Washington being accepted into Streamlined Sales and Use Tax Agreement consortium, which will allow Washington to receive taxes collected by a number of online retailers. Although there is no federal law mandating Internet retailers to collect sales tax in the states where they don’t have a physical presence, about 1,100 online retailers voluntarily do so for states that are members of the consortium.
The revenue collected as a result is estimated at about $49 million for the first year and as much as $70 million per year in a few years — with part of that flowing into the coffers of local jurisdictions. “It will help communities that have a lot of residents but not a lot of retail,” says Mike Gowrylow, spokesman for the state Department of Revenue.
Washington State has been involved with the consortium from the early stages, being one of the states that developed the idea of an Internet sales tax. Although the Legislature passed a bill for streamlined tax in 2003, there was a holdup while state officials could determine a plan to mitigate losses to jurisdictions. The Legislature enacted the new law during the 2007 legislative session, with a July 1, 2008 effective date. The law was supported by groups such Association of Washington Business and Washington Retail Association.
Studies conducted by the state prior to the new law showed that in Kitsap County, the city of Poulsbo was expected to have the biggest loss during the first year, estimated at about $95,000 (but $5,000 would be gained back from Internet taxes). On the Greater Kitsap Peninsula, the city of Gig Harbor is estimated to be among the biggest losers, at $200,000 estimated for the first year (with $7,000 gained back from Internet collections). These jurisdictions would be compensated by the state based on actual losses — the state is expecting to lose as much as $7 million during the first fiscal year of the legislation, according to Gowrylow, for compensating jurisdictions as well as qualified businesses. The compensation to the jurisdictions is temporary, until the new Internet-generated revenue offsets the losses.
Some jurisdictions stand to gain big time, based on DOR estimates. For example, estimates show the city of Bainbridge Island would gain nearly $300,000 per year from the streamlined tax plus another $30,000 from Internet sales; Bremerton will gain about $53,000 from streamlined tax and another $24,000 from Internet sales, and Kitsap County would gain more than $1 million from both.
The new law doesn’t impact wholesalers, out of state shipping/deliveries, service providers and sellers of certain big-ticket items like cars, watercraft and manufactured homes. Florists will be exempt, at least in the first fiscal year.
The rest of the businesses are expected to comply starting July 1, and Gowrylow said the state has conducted extensive outreach, workshops and so on, and has prepared a variety of ways to help. Certain businesses will also receive free technical assistance or reimbursement, in the form of a one-time B&O tax credit, for point-of-sale software upgrades (for complete details on eligibility, rules etc visit the DOR Web site at www.dor.wa.gov).
Several Kitsap area businesses polled said they have such minimal in-state deliveries to other jurisdictions that they haven’t even started thinking about the changes. Others, however, have stated major frustrations and big costs. Sharon Snuffin, owner of Snuffin’s Catering in Gig Harbor, said whomever is responsible for this regulation “has never had to fill out sales tax forms.”
“Since the location is determined by the zip code plus the four-digit code, it means that we have to ask every client and rental venue for their four-digit code so that we can change our billing system to include the four digits. Since the tax is collected at the point of delivery or the location of the event, we cannot rely on billing information alone for sales tax amounts,” she said. “Each invoice will have to be individually coded so that we can properly sort when it’s time to pay sales tax. A huge amount of work!”
She said the change will about double invoicing time, and will create a lot of extra work for the billing person. “On top of all this extra work, businesses have not received any paperwork or forms that will be used for reporting,” she said in mid-June. “The new system goes into effect July 1 — and we have no idea what the reporting will look like.”
Gowrylow said the state is not going to play “gotcha” with businesses as they try to figure out the system. If errors are caused by honest mistakes, businesses will not get penalized, but those who simply disregard the new law could face liability for the difference between what was and what should have been collected. He said DOR has a variety of tools ready to go for a variety of situations, including maps and software that can work with PDAs for field use.
“We expect them (businesses) to do their best,” he said. “We’re going to help them if they don’t do it right.”
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