Washington poised to eliminate sales tax exemption for certain nonresidents

Update 6.24.2019: SB 5997 has been enacted. The nonresident sales tax exemption is eliminated effective July 1, 2019. Qualifying nonresident consumers may request a refund of the state portion of the sales tax paid from the Washington Department of Revenue. Additional information.

Lately a lot of ink has been spilled over states’ efforts to tax remote sales. Here’s a new twist on that familiar theme: Washington is making it harder to obtain the sales tax exemption available to residents of the five states with no general sales tax — New Hampshire, Oregon, Montana, Alaska, and Delaware (the NOMAD states) — as well as American Samoa, the Canadian provinces of Alberta and Nunavut, and the Canada’s Northwest Territories and Yukon Territory.

Residents of states, territories, and provinces with no general sales tax are eligible for a sales tax exemption on tangible personal property, digital goods, and digital codes purchased in Washington for use outside of Washington. Under current law, they aren’t required to pay sales tax at checkout if they present a valid form of identification from a NOMAD state or other qualifying province/territory, provided the seller offers the exemption.

The Washington Department of Revenue underscores that “sellers are not required to make tax-exempt sales to nonresidents.” If the sellers choose to collect sales tax, consumers cannot request a refund from the DOR. Additional information about the current policy is available on the DOR website.

If Governor Jay Inslee signs Senate Bill 5997, the nonresident sales tax exemption would be converted to a remittance program.

People eligible for the exemption would be required to pay the state sales tax due at the time of purchase; subsequently, they could request a remittance of the state portion of the sales tax paid from the DOR. Such requests will have to include proof of the consumer’s “status as a nonresident at the time of the purchase.”

The department may also request additional information, including but not limited to:

• A description of the item purchased
• The sales price of the item purchased
• The amount of sales tax paid
• The date of the purchase
• The name and address of seller
• Copies of sales receipts

This new policy is set to take effect July 1, 2019, if enacted. Qualified out-of-state residents would be able to request a remittance of the paid sales tax any time between January 1 and December 31, 2020, for purchases made between July 1, 2019 and December 31, 2019.

Starting January 1, 2021, the sales tax remittance could be requested during any calendar year for the state portion of sales tax paid during the immediately preceding calendar year. Only one remittance request could be made per person per calendar year. Requests must be for at least $25: “The department must deny any request for a remittance that is less than twenty-five dollars.”

The sales tax remittance for qualifyied out-of-state residents only applies to the state portion of the sales tax (6.5 percent), not any applicable local sales taxes. Additionally, it doesn’t apply to tax paid on purchases of marijuana, useable marijuana, or marijuana-infused products.

SB 5997 could raise more than $50 million over the next two years, because many visitors won’t bother to request the remittance.

The measure was delivered to Gov. Inslee on April 30. He has 20 days to sign it into law or veto and hasn't yet commented on it. If he fails to act on it, it may become law without his signature.

Many Washington businesses located along the border with Oregon have expressed concerns that changing the exemption for Oregon residents could negatively impact sales. However, the current policy requires retailers to check the purchaser’s identification and maintain a record of the identification presented (including expiration dates) and the exempt sales for a period of five years; the new policy could save them that hassle. Additional information for retailers is available here.

Learn more about Washington sales tax.