Sales tax change might not happen this year

There was still a chance before the scheduled end of the state Legislative session that “tax poor” cities would get some financial help from the state – and that some of the richer cities would lose – but predictions were that it wouldn’t happen.

Several versions of a proposal that would change the way sales tax is levied in the state, as of March 9, had failed to pass either the state Senate or House of Representatives. Legislators were still discussing the matter, and since the plan is considered a budget item, it was not subject to the cutoff for bills to pass either house. But the session was scheduled to end March 11 (after deadline for this edition of The Enterprise).

“There’s still potential that something could happen this year,” said Steve Nolen, city administrator for Lynnwood, which would stand to lose under the plan. But as of March 9, “nobody wants to do a compromise,” he said.

The proposal, called “sales tax streamlining,” would redistribute tax receipts for delivered items from the city in which they are purchased to the city in which they are delivered. If an Edmonds resident, for example, were to buy a bed at a department store at Alderwood Mall and have the bed delivered to his home, the tax would go to the city of Edmonds instead of the city of Lynnwood.

The plan was hatched by the state Department of Revenue (DOR) as a way to enable the state in the future to levy an Internet tax once it is approved at the federal level.

Edmonds officials supported the plan, noting that the city – which has had trouble making ends meet in recent years in the wake of tax cutting initiatives – would gain roughly $500,000 per year as a result. Other local cities with small sales-tax bases, such as Mountlake Terrace and Mill Creek, would also gain. Lynnwood officials, on the other hand, estimated their city would lose about $1.2 million per year.

Several versions of the plan were put forth in the Legislature this year, officials said. Most involved “mitigation,” meaning that the cities that lose would be paid back a portion of the receipts to lessen their losses.

The House version was based on a DOR proposal to pay the losing cities 80 percent of their lost receipts back over the first five years and 65 percent over the next five, said Mike Doubleday, a lobbyist working on the issue for the city of Edmonds.

But another stand taken by the losing cities was to delay the implementation of the change until an Internet tax is approved by Congress. The House plan would not have waited, and Lynnwood opposed it.

When the Internet tax is coming, “no one knows,” Nolen said.

The Senate version proposed to wait until the Internet tax comes, and in addition pay 80 percent mitigation to losing cities. Lynnwood supported this proposal, Nolen said.

“It was a responsible bill that dealt with the real issue,” he said.

State Sen. Paull Shin, D-Mukilteo, whose 21st District encompasses Edmonds and Mukilteo, another city that would gain, and Lynnwood, said he thinks implementation should be delayed until the onset of the Internet tax “so cities can prepare.”

Edmonds opposes waiting, said city finance director Dan Clements, who has been tracking the issue for the city. He said the city supported a proposed amendment to the Senate bill that would have eliminated the delay. He noted that Edmonds would have gained roughly $300,000 per year even with the high mitigation payment.

Clements said cities that would gain aren’t the only ones supporting the plan. Some cities that would lose, such as Seattle, Bellevue, Vancouver and Bellingham, are behind it, as well as the Association of Washington Business, the Association of Washington Retailers, Microsoft and Amazon.com, according to Clements. Cities and counties – almost all the latter would gain considerably – who support it encompass about three-quarters of the state’s population, he said.

Doubleday said March 8 he thought there was about a 30 to 40 percent chance a bill would pass this session.

If nothing passes this year, Nolen said it would be a “temporary victory” for Lynnwood.

“We wouldn’t have to face a near-term loss in revenue, but the issue doesn’t go away,” he said.