OSOYOOS TIMES-July 7, 2010

By Paul Everest - Osoyoos Times

Shoppers from B.C. expecting to escape the HST by heading to Washington state may not be able to find the tax breaks they were expecting.
Because Washington state’s Revenue Department views the HST, which came into effect July 1, as a value-added tax, British Columbians are eligible for exemptions from state and local taxes when buying goods across the border.
In Okanogan County, for instance, a shopper could be eligible for an exemption of the state’s 6.5 per cent sales tax and the county’s 1.2 per cent sales tax.
But on June 30, the City of Bellingham and Whatcom County, both in Washington state, filed a motion for a temporary restraining order in Skagit County Superior Court challenging the department’s interpretation of the HST as a value-added tax.
A judge issued a temporary restraining order preventing the department from advising Washington state retailers that B.C. residents can buy goods without paying sales taxes.
The judge also directed the department to notify retailers that a legal challenge has been made to the department’s interpretation of the tax and, because the outcome of the litigation is still pending, any retailer that offers tax exemptions to B.C. residents may have to pay the taxes down the road if the challenge is successful.
Mike Gowrylow, a spokesman for the department, said what that means is that retailers can still offer the exemption, but run the risk of having to pay the tax themselves if the department’s interpretation of the HST is overturned.
He added that the matter will be back before the court later this month when the City of Bellingham and Whatcom County will argue for an injunction against the tax exemption.
According to a media release, the department views the HST as a value-added tax (VAT) and not a sales tax because a “VAT is not imposed on the full selling price of a final sale to a consumer.”
“It is imposed on the value added by the retailer – that is the only amount of tax paid to the governments as a result of the final retail sale.”
A sales tax, however, ‘is imposed on the good’s complete selling price.”
The department’s media release includes an example of how a VAT differs from a sales tax.
“Retailer buys a bottle of shampoo for $5.00 and pays 60 cents in VAT to the Wholesaler,” the release states. “Retailer sells the shampoo bottle to a consumer for $10.00 and collects $1.20 in VAT from the consumer. Retailer takes a credit of 60 cents – the amount of VAT the Retailer previously paid when it purchased the shampoo at wholesale.
“As a result, the federal and provincial governments receive 60 cents in VAT from the final sale.”
According to a report in the Bellingham Herald, few stores in that city were granting the tax exemption to B.C. customers and most shoppers from Canada were aware of the challenge to the exemption.
The tax break in question is due to a law that’s been in effect since 1965 and aims to lure residents of states – specifically Oregon – and Canadian provinces such as Alberta that have sales taxes of three per cent or less to shop in Washington.
While the exemption benefits residents outside Washington state, the state is losing out in sales tax revenues to the tune of $100 million, although businesses still pay state gross income taxes.
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