Washington state consumers have long traveled to Oregon to take advantage of its lack of sales tax. A recent change to state law has revealed how much Washington businesses have likewise relied on clientele from Oregon.
Two months after the Washington state sales tax exemption was changed, some Clark County, Washington, businesses fret that they’ll see a drop in sales.
For decades, Don Thompson has sold tables, chairs and other furniture at America the Beautiful Dreamer. During that time, he’s seen customers with both Oregon and Washington license plates in the parking lot at his Orchards, Washington, store.
But over the summer, he said, some would-be customers from across the Columbia River suddenly declined to make purchases because shopping at his store had become more expensive.
The change to state law makes it difficult for residents of states with no sales tax, such as Oregon, to get an exemption to Washington’s sales tax.
“We’ve had some angry, frustrated customers that find out at the last minute,” Thompson said. “Oregonians pay income tax; they don’t want to pay double.”
One business owner, John Mackay of Hidden Gardens Nursery in Camas, Washington, said removing the exemption was one factor that led him to decide to shut his doors.
Other businesses are confident their products will continue to attract Oregonians regardless of the sales tax. Others have taken unexpected steps to keep customers or have found loopholes to benefit their customers.
Attic Gallery moved to Camas about three years ago from Portland. Maria Gonser, the gallery’s co-owner, said more than half of the business’ traffic still comes from Oregon. She said she worries her clientele will stay away due to the new requirement to fork over sales tax.
So far, her customers have kept coming. Gonser said she thinks the key is probably the uniqueness of the Attic Gallery’s art. If a customer wants a piece displayed at the gallery, they won’t be able to go anywhere else to get it, she said.
How the new law works
The new law took effect July 1. Oregonians can no longer request an exemption to Washington’s sales tax at the point of sale. Now, Oregonians need to save their receipts and submit them to the Washington State Department of Revenue as part of a single annual application for reimbursement. Few are expected to do so.
The state expects the change to generate nearly $53 million in new sales tax revenue during fiscal years 2020-21. The new law was part of a series of tax code changes Washington Democrats said were needed to generate money for services in the fast-growing state.
Vancouver, Washington-area merchants have argued that those dollars won’t materialize because the tax will scare off Oregon shoppers, and their businesses will suffer as a result.
All of Washington’s border counties will be affected, said Mark Johnson, senior vice president of policy and government affairs for the Washington Retail Association. Clark County is likely to be the worst hit, he said, because it has the highest concentration of out-of-state shoppers. Spokane County gets some shoppers from Montana, another state without a sales tax, he said. But many more Oregonians visit Vancouver.
“Vancouver and Clark County is the epicenter,” he said.
The Greater Vancouver Chamber of Commerce has also been apprehensive about how the change will affect Clark County retailers, according to Communications Manager Sarah Cooke.
“We believe the revenue expectations accompanying the bill are overly optimistic and that the change will result in less sales to Oregon customers, with some local merchants forecasting a potential 10% to 20% drop in out-of-state sales,” the chamber wrote in a letter to Gov. Jay Inslee in opposition of the new law.
Despite all the anxiety of business owners and associations, there are few sources of data or research that detail exactly how ending the point-of-sale exemption will play out. Thompson said he’ll need to wait until he has his furniture sales numbers from November and December to really gauge the impact. He said he remains concerned that the new law will make it difficult for businesses like his to operate near the Oregon border. At his location, the combined state and local sales tax rate is 8.4%.
“Best Buy moved out of Clark County for a reason,” he said, referring to the big-box electronics retailer, which closed its Clark County stores in 2008 and 2012.
For this report, The Columbian newspaper reached out to several businesses to see how they’ve fared. So far, the effects have been inconclusive.
Skip Ogden, owner of Dan’s Tractor in Dollars Corner, said he was concerned when he learned about the change earlier this year.
“(My initial thought was) ‘Uh-oh, there goes 20% of my business,’” he said.
But Ogden said he later learned about a loophole: Purchases are still tax free if the product is delivered to an address in Oregon. And as luck would have it, Ogden already delivers nearly all of his tractors, including to Oregon customers.
“That’s where we dodged the bullet on this one,” he said.
Another tractor business, Dirtworx Equipment in Woodland, Washington, hasn’t been so lucky. Owner Tim Doyle said his business has tanked in the past two months, and he’s planning to move to a new location as quickly as possible.
Oregon customer traffic has dropped by about 50% to 60%, he said — and Oregonians are the majority of Dirtworx customers because Washington buyers tend to trek down to Oregon to avoid their own state’s sales tax.
“That leaves me with Oregon customers that I can try to entice up here,” Doyle said. “Not anymore.”
Joe Lanning, owner of My Jeweler in downtown Vancouver, is experiencing the opposite situation. About 15% to 18% of his customers come from Oregon, he said, but there hasn’t been a noticeable drop in traffic since July 1. In fact, the business is enjoying a great summer sales season, he said.
Lanning said his business already directly competes with jewelers in the Portland area, and he has an advantage: His Oregon competitors have to factor additional costs into their pricing, such as state income and TriMet taxes.
Even with the sales tax added, Lanning said he’s confident he can keep his prices competitive. He said he expects his Oregon customers will be willing to save their receipts and fill out the reimbursement application.
Where are the numbers?
Five states have no sales tax. Jared Walczak, the director of state tax policy at the Tax Foundation, said Washington is the only state that has provided an exemption for residents of other states that lack a sales tax. He said there haven’t been many studies on how the lack of a sales tax in one state affects business in a neighboring state.
Vermont and New Hampshire, for example, previously didn’t have sales taxes, Walczak said. When Vermont enacted a sales tax, he said, more retail businesses migrated to neighboring New Hampshire. He said convenience will play a role in how often consumers cross borders to avoid sales tax, but it will happen.
“Washington can expect to lose some cross-border sales by not having this reimbursement system,” he said.
During an April committee hearing on the bill that changed the law, Patrick Connor, the director of the National Federation of Independent Business Washington, criticized the bill and told lawmakers they should first produce a study before they consider eliminating the exemption.
The legislation does include a fiscal note stating that ending the point-of-sale exemption will generate $53.92 million in state revenue for the 2019-21 budget cycle, which will rise to $62.51 million by 2023-25. Local governments will see $26.63 million and $33.14 million for those respective time periods. Clark County didn’t respond with projections of increased revenue from the new law by press time.
The Washington State Department of Revenue collects quarterly retail sales tax data. But the effects of the new legislation on Clark County businesses won’t be reflected until the third quarter.
During the hearing, Johnson predicted the changed law will translate to $850 million in lost sales, fewer jobs and even business closures. He said some businesses along the border draw 60% of their clients from Oregon.
In the meantime, there’s at least one business with a unique reason to not be concerned. William Phillips, owner of the Vancouver Cyclery in Hazel Dell, Washington, said his bike shop already pays the sales tax for Washington customers, a gimmick originally conceived as a way to stop Washington shoppers from crossing the river.
Now, he says, he’ll be doing the same thing for Oregonians.