If your business sells products to other Washington state communities, pay attention — the way you collect sales tax is about to change drastically.
On July 1, 2008, Washington retailers will be required to collect sales tax from where products are shipped to. Currently, retailers collect tax on where products are shipped from. For example, if a Bellingham store ships a product to a customer in Seattle, the company currently collects sales taxes for the sale according to Bellingham rates. Under the new law, the store would collect taxes for the Seattle jurisdiction.
While the change seems to complicate things, the state Department of Revenue claims it will simplify sales tax collection. Twenty-one other states have also joined this new program, called the Streamline Sales Tax Project. The project is meant to level the playing field for retailers that have a physical store in Washington but compete for revenue with businesses outside the state, especially over the Internet.
A store that sells a product out-of-state will still not apply sales tax, unless that business voluntarily registers to agree to pay sales taxes for locations within states that are members of the Streamline Sales Tax Project. More than 1,000 businesses have agreed to the proposition, and the state estimates a windfall of $31.6 million in tax revenue during the first nine months and $41.5 million the second year before leveling off.
But why would businesses voluntarily sign up to collect more taxes — and thereby increase prices for customers — especially for other states?
“There does not appear to be much of an incentive,” said Andy Skipton, chief financial officer of Logos Bible Software, which ships products worldwide. “And we could in fact lose sales to other retailers that do not choose to register voluntarily.”
There is an incentive, but it may not apply to all businesses. Mike Gowrylow, communications director for the state Department of Revenue, said sometimes retailers that do business in other states have salespeople in those areas. States often determine that constitutes a physical presence and say those businesses owe taxes. By registering with the Streamline Sales Tax Project, retailers can apply for amnesty from owing back taxes from sales.
“A lot of businesses are recognizing it’s a big grey area and maybe they should have been collecting sales tax,” Gowrylow said.
Regardless of the benefits, the new law will complicate things before it makes it simpler. Some, like Logos, have software that already computates state tax jurisdictions. But Gowrylow said it might be harder for smaller businesses that do not have the resources for a similar program.
“There’s a recognition that this is a major change and might be a shock to them,” Gowrylow said.
The Department of Revenue is preparing more than a year ahead of time for that shock with a massive educational campaign to inform retailers what they need to do for the new system.
Retailers that gross less than $500,000 can also apply for tax credits or free assistance to help soften the transition.
• For more information, tax tables or to apply for tax credits or free assistance, visit dor.wa.gov and click on “Do you deliver goods? Learn more about Streamlined Sales Tax” or “Watch an online presentation about Streamlined Sales Tax.”
• Visit streamlinedsalestax.org to learn more about the program, apply for amnesty and register with the organization.