Bill Virgin: Tacoma, Seattle topping out in retail sales tax rate

Tacoma, you may trail Seattle in population, number of tech companies, traffic snarls, housing prices and people perched way up in tall trees downtown, but for the moment you can claim parity with your rival in at least one aspect of daily life.

As of April 1, both cities can boast having the highest retail-sales-tax rate in their respective counties of Pierce and King.

Seattle got there first, establishing a transportation benefit district that, as of April 1, 2015, raised the local portion of the sales tax, pushing the overall rate (when the state’s cut is included) from 9.5 percent to 9.6 percent. This is essentially an extra dime on every $100 purchase for a total tax hit of $9.60.

Not to be outdone, Tacoma got one of those transportation benefit district things of its own, so that one year after Seattle, its retail-sales-tax bite also climbs to 9.6 percent.

But here’s an interesting wrinkle: Neither city will be able to boast having the highest retail sales tax in the state.

That’s because a whole bunch of towns and unincorporated patches of Snohomish County find themselves roped into a Public Transportation Benefit Area, which will increase the tax rate by 0.003 percentage points.

Congratulations, Bothell, Edmonds, Lynnwood, Mukilteo and other communities. As of April 1, you’ll be paying an overall sales tax rate of 9.8 percent. By contrast, Everett is at “just” 9.2 percent.

And even that isn’t the biggest tax bite in Washington. For that you need to venture to Mill Creek where, according to the Department of Revenue’s chart, the sales tax rate is 9.9 percent.

If you’re feeling pinched, things could be worse. You could, for example, be in Chicago, which, according to the Tax Foundation’s recently released report on state and local sales taxes around the county, will hit you up for an extra 10.25 percent on your purchase, including state and county taxes, giving it “the distinction of imposing the highest sales tax of any large city in the United States.”

It could get even worse there, what with Illinois’ massive deficits in public-pension funding. Remember too that, unlike Washington, the state, county and city all impose income taxes. That was one of the perplexing features of Boeing’s decision to move its headquarters to Chicago, moving from a state with no income tax to a city with three of them.

As high as Washington’s sales taxes look, that lack of an income tax is a mitigating tradeoff (just as in Oregon there’s an income tax but no sales tax). So too are variations, even within counties. While Tacoma is at 9.6 percent, places such as Buckley and Eatonville will grab just 7.9 percent.

Thus the Tax Foundation’s calculations of the highest average rates (state and local combined) puts Washington in the top tier, but only in fifth place, at 8.9 percent. Tennessee comes in highest at 9.46 percent.

But that’s now. What comes next?

Washington hasn’t breached the 10 percent ceiling on general retail sales taxes yet, but with at least one county a mere tenth of 1 percentage point away, it won’t be long before some county, municipality or special entity decides it wants the money and nudges its portion of the rate enough to push the overall take over the threshold.

The trends suggest that day is coming soon. There’s the increasingly favored technique of shoving huge swaths of spending out of general budgets, using specifically designated tax levies to support them. There’s the pressure from various entities wanting more money; Sound Transit has been talking about adding 0.5 percentage points to the regional sales tax to fund an expansion proposal that will be on the November ballot. The state Supreme Court and others are lusting after spending increases for education, and that money has to come from somewhere (i.e., you).

But government still has some options before resorting to anything so crude as a sales-tax increase for which they might be punished by voters. It can pare away at some of the exemptions on taxes, including sales, or it could broaden the base on which sales taxes are applied (including more services, for example).

What it chooses to do, and by how much, matters to consumers watching their household budgets, and to businesses in competition for customers who have lower-cost venues available for shopping (such as in Oregon, or online). Those concerns might temper the enthusiasm of taxing entities to leapfrog one another in setting ever higher sales-tax rates — assuming, that is, those concerns are voiced loudly enough to drown out the lovely (at least to politicians) sirens’ song of more tax revenue.

Bill Virgin is editor and publisher of Washington Manufacturing Alert and Pacific Northwest Rail News. He can be reached at bill.virgin@yahoo.com.

This story was originally published March 27, 2016 at 7:01 AM with the headline "Bill Virgin: Tacoma, Seattle topping out in retail sales tax rate."