June 17, 2008 in City

Shippers face sales tax hurdle

By The Spokesman-Review
 
Rajah Bose photo

President Paul Fish chats with employee Laurel Carr at Mountain Gear headquarters in Spokane Valley on Monday afternoon about the new sales tax structure his company is implementing.
(Full-size photo)

Nearly every Washington-based retail business that ships goods to in-state customers will start charging sales tax differently July 1.

Or that’s the goal.

Some companies say they’re prepared for the change, part of a nationwide effort to simplify how sales taxes are charged. Others said they had no idea the law was about to change.

The law means companies in Spokane County selling products to buyers elsewhere in Washington must use the sales tax rate of the buyer’s home. Previously, a Spokane company selling goods to a buyer in, say, Tacoma charged Spokane County’s rate of 8.6 percent. Now the sales tax would be the 7.8 percent rate most Tacoma residents pay.

Also under the new law, the state will distribute the sales tax revenue to the taxing districts where the buyer lives, rather than where the item was shipped from. Existing local sales tax rates will not change.

Washington state’s adoption of the new system is part of a national coalition working to streamline and simplify sales-tax laws, said Cindi Holmstrom, state Revenue Department director. “We think this is the right thing for Washington state,” Holmstrom said.

Economists say about 20 percent of Washington businesses will be affected.

State officials know many companies are confused about how the new law affects their business. As a result, a grace period will continue indefinitely after the switchover July 1.

“I had heard about this change, but I have to say right now we’re not prepared for the change on July 1,” said Brian Toone, CEO of Spokane-based Jewelry Design Center.

Toone said his only option will be using a calculator and sales tax charts to determine taxes on jewelry sold via the Web or by phone. At the same time, he said, the volume of online in-state sales is relatively small.

Wholesalers are exempt from the new law. Retail florists are exempt until 2009.

Washington vehicle dealers already charge sales tax based on buyer’s address.

The new law does not affect shipments to out-of-state customers unless the seller is part of a voluntary group of online retailers belonging to a SST (streamlined sales tax) initiative, an effort of 22 states, including Washington.

Nationwide, 1,110 online retailers have joined the SST effort. Rory Rawlings, president of a Bainbridge Island, Wash., firm that helps businesses deal with the switchover, said the SST group has agreed not to identify members.

One Washington online firm that is not among the 1,000 is Amazon.com. While it does not, by and large, charge out-of-state customers sales tax, it will continue charging Washington residents sales tax on online orders.

But after July 1, Spokane buyers shopping on Amazon will save a few pennies per order, as the retailer will use Spokane’s 8.6 percent rate, rather than King County’s rate of 9 percent.

While efforts to establish a federal sales tax on Internet sales have so far failed, the 22-state SST coalition is a step toward helping local governments collect revenue otherwise lost to online sales, said Rawlings.

Two of Spokane’s larger online retailers, Mountain Gear Inc. and Huppin’s OneCall.com, are not among the 1,100 companies joining the voluntary SST effort.

Even so, both firms have implemented changes to their accounting and sales systems to accommodate the new law.

Paul Fish, president of outdoor retailer Mountain Gear, said the changes in tax-tracking are his company’s biggest information technology challenge of the year.

Fish said he agrees with the basic goal of a uniform, nationwide sales tax for online sales. “But we won’t make the change unless it’s the same for everyone. It becomes a competitive challenge for our business” if Mountain Gear adds sales taxes nationwide before his competitors do the same, Fish said.

Rawlings said Washington retailers that generate less than $500,000 in annual sales within the state can seek help from the state to offset the cost of making the change. If they qualify, they can get a $1,000 credit toward the cost of making a switch to a different accounting or tax-management system. Or companies that hire a contractor to handle the job of sales tax collection and remittance to the state can have the state cover that cost, said Rawlings.

Three service providers are certified by the SST coalition to help companies meet the changes in tax tracking. Avalara is the only one on the West Coast; the other two are based in the East.

Rawlings said the state is acting cooperatively to help companies handle the change with minimal strain. “There will be a grace period. The state hasn’t said how long that period will last, but they want to help companies comply,” he said.


Thoughts and opinions on this story? Click here to comment >>

Get stories like this in a free daily email