Competition: Millions in tax lost as buyers cross borders

By Drew DeSilver
Seattle Times business reporter

Costco Wholesale's highest-grossing warehouse store isn't in Silicon Valley. It's not in Naples, Fla., suburban Atlanta or even Issaquah.

No, the most lucrative of Costco's 409 stores worldwide is in a nondescript industrial area just southeast of Portland International Airport. The store takes in an eye-popping $250 million a year, more than 2-1Ž2 times as much as a typical Costco warehouse store.

And Richard Galanti, Costco's chief financial officer, is pretty sure he knows why. Besides being the company's second-oldest warehouse, the store is wedged between Interstate 205 and the Columbia River, making it the closest of the four Portland-area Costcos to Washington's Clark County.

Computers, VCRs and 24-roll packs of paper towels that would be subject to 7.7 percent sales tax on the Washington side of the river are tax-free.

"My guess is that there are some people who, because of the discrepancy in the sales tax, go down there to shop," Galanti said. "That is a positive factor."

Cross-border shopping costs state and local government millions of dollars in lost tax revenue. A 2000 study estimated the state's loss at $49 million a year.

But the impact extends beyond government coffers: Folks in Vancouver and other border areas have complained for years that Washington's sales tax siphons cash out of their communities.

Pinning down that impact is complicated by geography and other factors, said Revenue Department researcher Lorrie Brown, author of a 1988 study on the subject. For example, Brown said, even if Clark County had no sales tax, Portland would still be attractive to shoppers because of its larger array of stores.

But even when such complications are taken into account, she said, the sales-tax disparity still depresses sales in border areas.

Brown's study concluded that if rates were the same on both sides of the border, taxable sales in Washington border counties would rise 13 percent.

In 1992, John Beck of Gonzaga University in Spokane estimated that similar rates on both sides of the border would increase taxable retail sales — and tax revenues — by 22 percent.

More recently, a 1999 study by Deloitte & Touche estimated sales "leakage" from Clark County to Oregon at $500 million to $930 million a year.

Analysis of state and federal data by The Seattle Times likewise indicates a border effect.

Of the 14 counties that border either Oregon or Idaho, all but two (Cowlitz and Spokane) are below the state average of taxable sales per $1,000 of personal income. Of the 25 nonborder counties, 12 were below the statewide average and 13 above it.

Clark County has the state's third-highest per-capita income ($29,085 in 2000, the most recent year for which figures are available) but ranks 22nd in taxable sales per person and 26th in taxable sales per $1,000, the Times analysis shows.

While Vancouver suffers from being across the river from Portland, Spokane is the retail center for much of Eastern Washington and Northern Idaho. Spokane County ranks 11th in per-capita personal income ($25,550) but fifth in taxable sales per person and eighth in sales per $1,000.

The findings don't surprise Gerald Baugh, Vancouver's manager of business development.

"If somebody wants to go on a real big shopping binge, nine times out of 10 they're going to head down to Portland," Baugh said.