Plugging the Internet sales-tax loophole

Washington state residents don't pay all the sales taxes they owe in a state that has decided to live on sales-tax revenue. Many ignore, or aren't aware of, a law requiring people to pay a "use" tax, roughly equivalent to the sales tax, on items they buy from out of state.

With the rise of Internet purchases, what used to be a small leak of should-be tax revenues has become a hemorrhage. A state Department of Revenue spokesman said about $794 million in state and local use tax goes unpaid every year. The Washington Legislature should plug the hole by changing a law so the state can become a full member of the multistate Streamlined Sales Tax project. Twenty-one states are participating so far, and about 1,000 retailers have agreed to collect sales taxes.

The House Finance Committee today is expected to hold a hearing on House Bill 1072, which will bring Washington law in line with the project's requirements of assigning the tax revenues to the place where the items are delivered.

That has been a prickly point for several cities, such as Kent, that have built their tax bases on the warehousing industry, because the sales tax is collected currently from the point where items are shipped.

A reasonable compromise is embedded in the House bill and in a Senate companion that passed out of committee Monday. Some of the new proceeds, a large chunk at first, would mitigate affected cities' revenue loss until the voluntary collection of sales tax makes up for any deficit.

Kent, which stands to lose about $4.4 million a year or 5.5 percent of its general fund without any mitigation, supports this approach.

Occasionally, some committee or think tank floats the idea that Washington should eschew its sales tax in favor of an income tax — and is roundly drowned out with catcalls.

If sales tax is what we have, not joining the Streamlined Sales Tax project — and soon — is like leaving money in the street. The Legislature should not delay.