TAX NEWS - June 2010

B.C. Tax: B.C. shoppers exempted from Washington state retail sales tax

VANCOUVER — B.C. shoppers heading to Washington state will soon qualify for a non-resident tax exemption, a change that has some U.S. retailers drooling.

"I think that will be very positive for our mall and for our store," Theresa LeRoy, manager of women's clothing store Lane Bryant at Bellis Fair shopping mall in Bellingham, said in an interview Wednesday.

"And it's very positive for Canadians," added LeRoy, who anticipated more B.C. shoppers who live close to the border heading south for bargains.

LeRoy, whose clientele is about 50-per-cent Canadian, was not aware of the change, which goes into effect July 1 and allows residents of B.C. and Ontario to qualify for an exemption from Washington state's retail sales tax.

The exemption – which will mean tax savings from 7.5 per cent to 9.5 per cent, depending on the county — applies only on items purchased for use outside the state.

According to the Washington state department of revenue, state law allows a sales tax exemption to residents of jurisdictions that impose a sales tax of three per cent or less.

The state said in a news release that residents of B.C. and Ontario previously did not qualify for the exemption but both provinces are adopting a harmonized sales tax (HST) in tandem with the Canadian federal government beginning July 1 and that the HST technically is a value-added tax (VAT) and not a sales tax.

The exemption applies only to tangible personal property and does not apply to lodging, meals or other retail services that are provided in Washington, the release stated.

Mark Startup, president and CEO of Shelfspace, which represents 4,000 storefronts and 6,000 entrepreneurs in B.C. and Alberta, said in an interview that he doesn't believe the tax exemption will hurt B.C. businesses.

"In terms of the impact on B.C. retailers, I feel it would have a very insignificant impact when you compare it to the $56 billion in retail sales in B.C. annually.

"There are serial cross-border shoppers who will shop [in the U.S.] regardless. That segment will do a little dance today. But most B.C. shoppers shop in their local communities and that won't change one bit."

Startup also noted that cross-border shoppers will still have to pay the 12 per cent HST if they are in the U.S. for just one day.

In order to receive the exemption, qualifying residents must show proof of residency, such as a driver's license, to the Washington seller, the Washington state release stated.

Alaska, Colorado, Oregon, Montana, Delaware, New Hampshire, eight Canadian provinces, and four U.S. possessions already qualify for the exemption, the release stated.

Meanwhile, Finance Minister Colin Hansen believes the exemption won't have a major impact on B.C. shoppers heading south.

"Most of what British Columbians will be buying in the U.S. will have the same 12 per cent tax after July 1 as they do today," Hansen said in a statement. "Cross-border shoppers are also required to pay PST and GST at the border when they return to B.C. along with whatever duty might be applicable, and that requirement will still be in place under the HST."

Hansen noted that people shopping in the U.S. for less than 24 hours won't have a duty-free exemption coming back to Canada. "If you're down there for 24 to 48 hours, you can bring back $50 worth without paying the additional levies. If you were there for more than 48 hours, then it's $400."

Hansen noted that British Columbians will still be subject to the Washington state tax on restaurant meals, haircuts and lodging.

He said most B.C. retailers are happy to see the provincial sales tax disappear, as this will save approximately $150 million annually in administration costs.

"The HST will result in an additional 113,000 people working in British Columbia — people who will get paycheques that they can spend in the economy, in our stores and in the restaurants of B.C."

However, NDP finance critic Bruce Ralston said the exemption is more proof the HST is a bad tax and should be scrapped. "Washington state retailers dropping their sales tax when the HST is implemented will give them a competitive edge over B.C. businesses," said Ralston. "This will hammer B.C. businesses at a time when we're just emerging from the downturn."