TAX NEWS - June 2010

B.C. Tax: HST frees shoppers from U.S. sales tax

B.C. residents to catch break of up to 9.5 per cent in Washington state

When the harmonized sales tax arrives on July 1, British Columbians won't have to pay tax on many purchases in Washington, the state says.

Under state rules, B.C. residents can expect sales- tax savings of 7.5 to 9.5 per cent, depending on the county, on items purchased for use outside Washington.

The state's Department of Revenue says a sales-tax exemption is available to residents of jurisdictions that impose a sales tax of three per cent or less. Residents of B.C. and Ontario previously did not qualify for the exemption.

But they'll qualify once the HST arrives because the state classifies the HST as a value-added tax, not a sales tax.

There are conflicting views on the impact of exemption. The B.C. government says it's unlikely British Columbians will divert their shopping dollars to Washington state.

But 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."

Only tangible personal property is eligible; the exemption does not apply to lodging, meals or other retail services.

"I think that will be very positive for our mall and for our store," said Theresa LeRoy, manager of women's clothing store Lane Bryant at Bellis Fair shopping mall in Bellingham. "And it's very positive for Canadians," said LeRoy, who anticipates more B.C. shoppers who live close to the border will head south for bargains.

To receive the exemption, British Columbians must show proof of residency, such as a driver's licence, when buying from a Washington merchant.

Mark Startup, president and CEO of Shelfspace, which represents retailers and entrepreneurs in B.C. and Alberta, said he doesn't believe the Washington exemption will hurt B.C. businesses. "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."

B.C. Finance Minister Colin Hansen took the same stance. "The issue of cross-border shopping has been an issue for decades now, and it'll continue to be an issue, but I think when people realize that they're still going to be paying the 12 per cent if they bring back things over and above their duty-free limit, I think it'll temper some of their enthusiasm for cross-border shopping," he said in a statement.

He noted that people shopping in the U.S. for less than 24 hours won't have a duty-free exemption when they come home. "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."

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