<< Previous   of   Next >> Enterprise/CHRIS GOODENOW  (click to enlarge) Customer Tamara Atkins (right), of North Seattle, and her daughter, Eva, 4, examine refrigerators as they shop for appliances for their renovated kitchen, Thursday, June 19, at Albert Lee Appliance store in Lynnwood. Enterprise/CHRIS GOODENOW  (click to enlarge) A customer (right) hands over a bank card to purchase plants and other items, Monday, June 23, 2008 at Wight's Home and Garden nursery in Lynnwood. For the Enterprise/Jeff Faddis  (click to enlarge) Underhills delivery driver Pablo Alonso unloads chairs that are part of a larger dinning set, Saturday, June 21, 2008 for a resident in unincorporated Bothell. Enterprise/CHRIS GOODENOW  (click to enlarge) Customer Tamara Atkins, of North Seattle, and her daughter, Eva, 4, examine the features of a new oven range as they shop for appliances for their renovated kitchen, Thursday, June 19, 2008 at Albert Lee appliance store in Lynnwood. Enterprise/CHRIS GOODENOW  (click to enlarge) Wealthy communities such as Woodway, seen here June 21, will benefit under the new streamlined sales tax system.

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Winners per capita

Who stands to benefit from the new Streamlined Sales Tax, 2009-2013: 1. Clyde Hill, $818 per resident 2. Normandy Park, $231 per resident 3. Edgewood, $189 per resident 4. Mill Creek, $185 per resident 5. SeaTac, $184 per resident Where local cities rank: 10. Lake Forest Park, $147 per resident 12. Brier, $140 per resident 13. Woodway, $125 per resident 18. Mountlake Terrace, $107 per resident 22. Edmonds, $61 per resident 28. Shoreline, $14 per resident Washington Department of Revenue

CONTACT THE ENTERPRISE Jocelyn Robinson, Copy editor jrobinson@heraldnet.com

Caught in the sales tax shuffle

How a new policy aimed at Internet sales will help rich suburbs, and could create a burden for state taxpayers

By Chris Fyall
Enterprise editor

Go today, buy a $5,000 fridge at Albert Lee Appliances in Lynnwood, have it shipped from Lynnwood to your home, and your tax bill will be about $445.

Lynnwood thanks you. A slice of that sales tax, about $50, goes directly into the city's coffers.

But the rules are about to change.

Starting July 1, that $50 slice of your sales tax will follow you home. Instead of paying for Lynnwood's police and parks, that money will pay for yours.

The change is part of a multi-million dollar tax shuffle called the "streamlined sales tax," or SST, an effort to tax Internet sales which in Washington should immediately make big winners of rich suburbs, shifting new burdens to state taxpayers and companies that deliver products -- fridges, couches, even pizzas -- to you.

The law was adopted last year, when Washington became the 22nd state to join the Streamlined Sales and Use Tax Agreement (SSUTA).

"This is a major policy change," said Jim Justin, assistant director for legislative services with the Association of Washington Cities (AWC), and one of the central figures who helped make SST a reality in Washington. "It (created) the most internal, within the cities, controversy of any issue in the last 20 years."

It could also have massive impact. Although local governments express skepticism with official figures. The state's Department of Revenue says SST could bring $246.3 million into Washington, much of it to be distributed to cities like Mill Creek.

The goal

The change is an attempt to simplify tax collection for Internet, mail order or phone-order companies.

Many of those businesses do not collect sales taxes now, which puts traditional Main Street businesses at a disadvantage, SST advocates believe.

"We want businesses to compete on price, product and service," said Mike Gowrylow, communications director for the DOR. "Not on whether or not taxes can be avoided."

Even in the midst of what is widely seen as a recession, Internet retail sales shot up 15 percent year-to-year in April 2008, according to the Internet research firm comScore.

The winners

The state's richest areas -- not just cities, but also counties and even transit districts -- stand to win the most.

For instance, Clyde Hill is a wealthy city of about 2,800 people outside Bellevue. It has only one gas station, and one coffee store. In the next five years, though, the city could collect $2.3 million in new sales taxes, or $818 per resident, according to DOR estimates.

Other winners are bigger. King County and Snohomish County governments, for example, should expect to gain $28.1 million and $25.9 million in new sales taxes before 2013, according to the DOR.

In Mill Creek, SST is projected to boost sales tax revenue by $3 million over the next five years.

"That sounds more like a lifetime of sales tax revenue," Mill Creek Finance Director Landy Manuel said laughing. "We're not putting a lot of stock in the DOR projections. In fact, we won't really know that we're gaining any money from the change for at least another full budget cycle."

The city's budgeting for an increase of between $100,000 and $150,000 a year, while the state projects Mill Creek will gain approximately $500,000.

The same scenario is playing out in Mountlake Terrace and Brier. Two years ago, the DOR told city officials in Mountlake Terrace to expect a $250,000 annual windfall. In Brier, the DOR projects a $900,000 increase.

Not 'losers,' but others

For the cities that house shipping businesses, what had been virtual gold mines will disappear almost overnight.

"I'm really glad (Mill Creek) isn't in the losing category," Manuel said. "You look at cities like Kent and Lynnwood that planned their economic development around these warehouse businesses. This change basically nullifies all that planning; those businesses remain in the city, but they won't generate the sales tax."

The state is promising full SST relief for actual losses, -- approximately $11.2 million in Lynnwood, according to the DOR.

Lynnwood's finance director John Moir said he anticipates receiving the state reimbursements Dec. 31 to cover net losses from July, August and September.

Those losses "mean we're going to have to deal with reality," Moir said. "What we're going to have to do is adjust the budget to offset whatever growth there would have been."

By 2013, Washington will spend $193 million on SST mitigation, according to the DOR. The money will come directly from the general fund.

There is hope that more money will flow in. Out-of-state retailers who voluntarily participate in the SSUTA should send $246.3 million to the state before 2013, the DOR estimates.

In the program's first year, the DOR's projecting a $5.9 million loss, due to mitigation payments.

"If the state comes up against really hard times, will it continue to pay all these cities?" Manuel asked. "There's just so much about this that we don't know yet, including whether or not the state will see any additional tax dollars. It could just break even."

Still, the state is offering relief to businesses. It has already distributed software programs to help retailers charge, and track, different sales taxes.

The help is appreciated, but with such a major shift, the state needs to be sensitive, said Amber Carter, the tax and fiscal policy director with the Association of Washington Business.

At Underhill's Furniture, a four-store family-owned business with a location in Lynnwood, preparations started long ago.

Company accountant Sue Bowden used to have four sales tax codes to wrestle with. Now she has 210.

"This is the biggest change we've ever dealt with," said Bowden, who has had to rework her accounting software. She has worked with DOR officials, and attended seminars, Bowden said. "This is huge."

A needed change

The SST switch was necessary despite the difficulties facing businesses and local governments, said Justin. As consumers shift to the Internet, so must the state's tax system, he said.

Cities need healthy businesses, and they need to collect taxes, Justin said.

The projected benefits, however, remain to be seen.

"We just don't know," Manuel said. "The state says we're going to make all this additional sales tax revenue. It seems very optimistic to me."

Enterprise editors Oscar Halpert and Alexis Bacharach contributed to this story.