Several Vancouver business-owners voiced strong opposition this week to a sales-tax exemption proposal they say will disproportionately affect Southwest Washington retailers and service providers.
The measure, proposed by state Rep. Deb Wallace (D-Vancouver) earlier this month, would eliminate the exemption for residents from states, like Oregon, that either have no sales tax or impose a sales tax of less than 3 percent. Legislators hope that proposals such as the exemption removal will create extra revenue to help plug a projected $2.6 billion dollar state deficit.
But some local small business owners said the measure would have the opposite effect. "They are not taking into account the negative sales tax revenue impact of struggling businesses having to close," said Erik Runyan, owner of Erik Runyan Jewelers in downtown Vancouver.
According to Runyan, removal of the sales tax exemption would permanently roll back gains made by his family-owned business into the large Portland market. Oregon residents today make up a greater share of his customer base, he said, partly due to Runyan's advertising on C-TRAN commuter buses, MAX trains and outdoor advertising in the Portland area.
"Everyone is trying to grow their business," Runyan said. "For us to lure Oregon shoppers without immediately penalizing them with an 8 percent tax is a challenge."
David Montei, owner of Richey's Tire Factory in Vancouver, said his business also would be severely impacted by the loss of the sales tax exemption. According to Montei, Oregonians compose nearly 12 percent of Richey's customer base.
"If she thinks this is going to provide badly-needed revenue for the state, she is sadly mistaken," Montei said of Wallace.
However, Wallace said a state Department of Revenue study showed $20 million in added sales tax revenue locally and $60 million on the state level in a two-year period as a result of scrapping the exemption.
And according to Wallace, the benefits of the proposal could extend well beyond the desperately-needed additional revenue for local municipalities and the state. "This is a way to offset the need for local tax increases," she said, referring to looming property tax hikes and a revived Business and Occupation Tax in Vancouver.
A recently-declared Democratic candidate for Rep. Brian Baird's open seat in the 3rd Congressional District, Wallace is expected to push for the proposal's passage when the body convenes Jan. 11. "Certainly some cuts will be necessary, but we risk long-term damage to our state's economic and social infrastructure if we don't find revenues to sustain critical services," she said in a statement.
Under the proposal, car dealerships would be allowed to continue exempting sales tax for out-of-state residents. However, if an Oregonian wants to purchase tires for that car, they will have to fork over the 8 percent sales tax – a piece of legislative irony not lost on Montei. "It would be one thing if this affected everyone equally, but it won't," he said. "It's Clark County businesses like ours that will be hit the hardest."
The sales-tax exemption was passed in the 1960s to benefit businesses in border communities like Vancouver and Kennewick in Benton County. Since then, retail centers like Westfield Vancouver Shopping Mall have benefitted from an optional tax exemption that has created a level playing field for businesses competing with their Oregon counterparts for customers.
The level of business owner anxiety over the tax proposal seems proportionate to the distance from the Columbia River dividing Washington state with sales tax-free Oregon. "I don't think it will affect us that much," said Lulu Suchinda, owner of Lulu's Boutique in Battle Ground Village. "It's not a big part of our business."
Instead, it is businesses located in downtown Vancouver, especially those selling big-ticket items like Runyan's, that seem to be in danger of losing the most in an exemption-less sales tax scenario.
Even with business up this year compared to 2008's miserable holiday season, profit margins at the third-generation jeweler are still too tight to absorb an 8 percent sales tax for Oregon residents, Runyan said.
"We are committed to being here and being part of this community," he said. "Otherwise, why would we choose to set up shop across the river from a sales tax-free state? It would be suicide."
