Washingtonians who shop in Oregon or make tax-free purchases online might not know it, but they’re actually breaking the law. With a billion dollar budget shortfall, state lawmakers are considering drastic measures to make up this lost revenue.
SEATTLE — I remember the day my father brought home our flat screen TV. It was about seven years ago, he went on a business day-trip to Portland and came back with a huge flat box and a “guess what I got” smirk on his face. He said he happened to walk into an electronic store earlier that day, found the slick 52-inch flat screen for $800. The best part is, he didn’t have to pay sales tax in Oregon!
A lot of Washingtonians do the same. Drive a couple of hours (or just a few minutes if you live in Vancouver, WA) across the southern border and get the same things you can in Washington, but without up to 10% sales tax you’d pay here.
That’s a pretty good saving, and no harm done, right?
Well it turns out it’s illegal. And it’s costing our budget-crunched state government quite a chunk of change.
When you buy something out of state that you plan to bring back to use in Washington, you’re supposed to pay what’s called a use tax. So by crossing the border and shopping in Oregon tax-free, without reporting it and paying the tax later, you’re actually guilty of tax evasion.
The use tax rate is the same as the sales tax you would have paid to get the item in your hometown. And this applies to all sales-taxable purchases outside Washington — including online purchases.
When my dad bought the TV, he should have filed a consumer use tax form to pay the tax amount.
It’s a bit shocking to find out that your parents defrauded the state of about $80.
I may have considered turning them in, but in their defense, they didn’t know about the law. Most Washingtonians don’t, despite the fact that the it’s been around since the Revenue Act of 1935.
Mike Gowrylow, a spokesman for the Washington Department of Revenue, says the state loses about $80 million a year in sales tax because of cross-border shopping. If you include online purchases, that number shoots up to $430 million in lost revenue. It may be even more than that, but they haven’t done the calculations in a few years.
“We keep track of businesses’ use tax,” Gowrylow said, “but individuals, it’s hard to show.”
You probably know that for large purchases, like a car, made in Oregon, you’ll be prompted to pay a use tax when you register the car in Washington. But for smaller purchases, Gowrylow says it’s basically impossible to track. After all, no one is asking you to register your new TV.
The department of Revenue will audit and check up on businesses because their purchases tend to be larger and their documents are easier to check up on. But for individuals, it’s on the honor system.
And from those honorable, in-the-know Washingtonians, the Department of Revenue received about 5000 use tax forms last year.
But if you find yourself breaking the honor code with a shiny new TV, you don’t have much to worry about.
Gowerylow says the Department of Revenue sometimes gets tips from private citizens about people who evade use taxes. In those cases the department sends a warning notice. But with limited staff and funding, that’s the practical extent to which the state can enforce use tax.
Their main tactic is asking nicely. “Hopefully people will understand that sales tax is the single largest source of revenue in this state,” Gowerylow says, “people are paying for the fair share of services.”
All this lost revenue, coupled with a severe budget deficit, has prompted lawmakers in Olympia to propose creating a state income tax, and revoking sales tax exemptions in Washington.
Democratic Representative Kris Lytton proposed a bill that would eliminate sales tax exemptions for out-of-state visitors who shop in Washington. Critics argue that the measure would drive customers away from the state, while supporters insist that it would increase state revenue to fund education and other important services.
The income tax debate has lingered in Washington for many sessions, but some state legislators are more strongly advocating for it now, especially with the rise of the Occupy movement calling for higher taxes on the rich.
Some liberal lawmakers have included it as one of their highest priorities, since it would create a predictable and stable source of revenue. But in the past, Washington voters have shot down the idea.
So that’s it. You know about the use tax now. You can’t plead ignorance anymore.
But you also know you can get probably get away without paying it.
So why would you?
Consider this: This fiscal year, state lawmakers grappled with a budget shortfall of just under a billion dollars. In response they had to cut social services and limit government functions. The estimated $530 million ($80 million cross-border plus $450 million online) in lost sales tax revenue wouldn’t have filled the hole completely — but would have made a big difference.