Sales Tax Exemption for Canadian Residents?

British Columbia is making a minor change in their sales tax today that for some incomprehensible technical reasons winds up exempting all of their residents from paying sales tax in Washington. The City of Bellingham and Whatcom county will be heavily impacted by this and have sued the Department of Revenue to get them to change their interpretation.

The Court issued an injunction on the Department of Revenue (DOR) June 30th enjoining them from providing advice to retailers while this gets worked out. Retailers are kinda stuck between a rock and a hard place here – if they collect the tax and the customers are eventually found to be exempt they could get sued by the customer. If they don’t collect the tax and the city and county win their lawsuit they WILL be held responsible for the money by the DOR.

Here’s what the DOR is allowed to say:

I’m very sorry, but the Department has been sued by the City of Bellingham and Whatcom County. 

The City and County are challenging the Department’s interpretation of RCW 82.08.0273, the nonresident retail sales tax exemption statute.

The Skagit County Superior Court has issued a temporary restraining order barring the Department from providing advice to retailers on whether British Columbia residents qualify for the nonresident exemption.

The outcome of the pending litigation is unknown.

However, if a retailer sells goods to a B.C. resident without collecting tax, the retailer may be liable for the unpaid tax if the court eventually determines that B.C. residents do not qualify for the nonresident exemption.

If I were a retailer I’d collect the tax. I’ll try to unwind this situation in the Legislature next year, but won’t be able to do anything about the first 9-12 months of implementation of whichever way the court orders. It does not make sense to me that out of state people get an exemption from paying tax and in-state residents have to pay more as a result.

About the Author

Ross
I am the Director of the Department of Early Learning for Washington State. I formerly represented the 48th Legislative District in the State House of Representatives, chairing the Appropriations committee and spent many a year at Microsoft.