Lynnwood
Lynnwood may lose chunk of tax revenue

By Lynn Thompson
Times Snohomish County bureau

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LYNNWOOD — The city could lose about 10 percent of its annual sales-tax revenue — about $1.3 million — if the state adopts a proposal to change the way it distributes tax revenue to local jurisdictions.

Lynnwood and other cities with big commercial centers would be the losers, while small cities and most counties stand to gain tax revenues, according to estimates prepared by the state Department of Revenue.

Under the state proposal, which would shift state sales-tax allocations from the point of sale to the point of delivery, Edmonds would gain about $507,000 annually in sales-tax revenue, Mountlake Terrace about $311,000 and Brier about $95,000, according to Revenue Department estimates. Snohomish County would also be a big winner, increasing its sales-tax revenue by an estimated $3 million a year.

"We feel this is particularly unfair to cities which have encouraged business growth through land-use planning and infrastructure," Lynnwood City Administrator Steve Nolen said.

Nolen said sales-tax revenue helps pay for the retail development's effects, including the need for road projects and more police. "Under these rules, we wouldn't get the taxes, but we'd still have the impacts," he said.

A tax-streamlining bill that the Legislature passed this year directed the Revenue Department to study the effects of shifting sales-tax collection to the point of delivery rather than the point of sale. No new taxes would be imposed; rather, the 1 percent of sales-tax revenue the state now returns to cities and counties would be allocated differently.

Forty-one states have joined in the effort to streamline sales-tax collection.

The move could allow the states to tap into Internet and catalog sales, which currently are not taxed unless the company has a physical presence in the state. Other online-commerce and national catalog companies do not have to collect sales tax because of a U.S. Supreme Court ruling that state tax rates are too varied and thus present an unfair burden to retailers.

But the rapid increase in Internet sales prompted states to revisit the issue and try to adopt more uniform tax measures.

"No one is out to punish one city while rewarding another," Revenue Department spokesman Mike Gowrylow said. He said the state would look at allocating more sales-tax revenue to those cities that would lose the most under the change. The department estimates 184 cities would gain revenue and 74 would lose money.

Lynnwood Finance Director Mike Bailey questioned whether taxing the point of delivery is workable. He said the proposal would put a new burden on retailers to identify and code sales to where an item is delivered.

Bailey gave the example of the purchase of a washing machine in Lynnwood. Currently, the state rebates 1 percent of the sales tax to Lynnwood. Under the proposal, the community where the washer was delivered would receive that sales-tax revenue.

Lynnwood city officials earlier this month traveled to Olympia to raise their concerns about the tax proposal. They joined officials from Bellevue, Kent, Auburn, Redmond, Everett and other cities that stand to lose significant revenues.

Edmonds finance director Dan Clements questioned whether the gains and losses projected by the state are accurate.

"These numbers look way too high," he said, noting that the state projections have changed often.

But, Clements said, the move would help offset Edmonds' loss in state tax money caused by citizen-approved tax rollbacks of the past few years.

The Lynnwood City Council also is considering hiring a lobbyist for the 2004 legislative season to fight the proposal.

"It's very important to us," council President Lisa Utter said. "When something is going to impact the city this much, it's worthwhile to have someone in Olympia to represent our interests."

Lynn Thompson: 425-745-7807 or lthompson@seattletimes.com

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