The B.C. government and retailers are trying to downplay a decision by Washington State that will allow residents in British Columbia and Ontario to enjoy a sales tax break on goods purchased in the U.S. state once the harmonized sales tax comes into effect.
Washington officials say residents in those two provinces will be eligible for a tax exemption on tangible goods purchased for use outside of the state, such as clothing or electronics, once the HST begins July 1.
Lodging, restaurant meals and other services inside the state are exempt.
Washington gives its retailers the option to waive the state's 6.5 per cent sales tax for residents living in areas with sales taxes below three per cent.
Although the incoming HST will be 12 per cent in B.C., Washington's Department of Revenue considers the levy to be zero because the harmonized tax is "value added," or VAT, instead of a straight sales tax.
B.C. Finance Minister Colin Hansen says the HST will still apply to some Washington state products people bring back to Canada over their duty-free limit and that might temper some people's enthusiasm for cross-border shopping.
Mark Startup, President of Retail B.C., says some chronic cross-border shoppers will be thrilled with the news.
But he also says retailers on this side of the border have managed to compete and survive with their U.S. competitors despite the lure of a strong Canadian dollar.
To receive the exemption, visitors must show proof of identity, like a driver's licence, to the U.S. seller.
The state already offers a similar exemption to provinces that already have the HST, such as Nova Scotia, New Brunswick, Newfoundland and Labrador and Quebec.
The news isn't being received favourably by retailers in Washington State. Ken Oplinger, the President and CEO of the Bellingham/Whatcom Chamber of Commerce & Industry, says the tax break will remove $1 to $2-million from Whatcom County's tax base this year alone.
"The sales tax paid by Canadians here is being used for our tax base – now all this money will no longer be used for services we need, like roads and public safety," Oplinger told ctvbc.ca in a phone interview Wednesday morning.
"The bottom line is that in our economy that's already hard hit with a municipal government that is already cutting services is going to look at another round."
The exemption law was first enacted in the state in 1965 to attract Oregon residents to shop in Washington.
Oplinger said although retailers are not obligated to give the tax break, historically the vast majority have because they feel they have no choice.
"When you look at the city of Vancouver, Washington, just across the border from Oregon, there are only a handful of small retailers that don't participate," he said.
"They'll see an increase in customers if they give it and see customers that are going to be expecting that money taken off. They'll walk if they don't."
David Webster, the Chief Administrative Officer for Bellingham, says the new rules won't change how they receive British Columbian shoppers.
"This will clearly be an impact on our sales tax revenue but we're still going to welcome people from B.C. with open arms," he said.
Both Bellingham's chamber of commerce and city council are asking Washington's governor to weigh in on the law and is considering asking for it to be repealed.
Any purchases coming back into Canada are still subject to duty and border restrictions. Canadians returning from the U.S. are allowed $50 worth of items duty free after a 24-hour absence. The limit jumps to $400 after 48 hours.
