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WA State Sales and Use Tax Exemptions, Possible Sources of Revenue


The Washington State Department of Revenue's 2012 Tax Exemption Study, published in January, details all of the Washington state tax exemptions that would increase state revenue if they were repealed.

The study offers a window into how Washington Legislators might view tax exemptions, in particular sales and use tax exemptions, when looking to raise more revenue for the state. 

Just how important is sales and use tax to Washington state revenue in the first place? The following chart from the study shows that sales and use tax exemptions save tax payers the most money of any exemption listed in the report (note: property tax exemptions are not included).

However, exemptions follow taxation, as illustrated in this next chart from the report, which shows how much each category of exemption saves taxpayers against how much money the state collects from non-exempt items within the same categories:

Taxpayers will save $12,099 million from sales and use tax exemptions in the 2011-2013 period; Washington state will collect $14, 736 from sales and use taxes in the same period. So, not only does sales and use tax represent the largest source of revenue of those listed in the report, it also represents the largest opportunity for additional revenue, should Washington decide to start repealing exemptions.

And what are the biggest revenue opportunities within the sales and use tax category? Here are the top three sales and use tax exemptions, in terms of money saved, according to the study:

Sales and Use Tax Exemption Estimated Taxpayer Saving in 2012 (State Tax)
The exclusion of personal and professional services $1,578,190 Million
Personal property brought into the state by nonresidents $418,817 Million
Vehicles used in interstate commerce $462, 661 Million

Of course, just because there is money to be made by repealing exemptions in these areas, does not mean that Washington will do so. However, as states look to balance their budgets during tough economic times, some are turning to sales and use tax for additional cash. For instance, in his 2012 State of the State address Rhode Island Governor Chafee called for additional taxes on services, and an application of a 1% sales tax on many currently exempt items.

How will Washington use this study in the current legislative session? Whatever the case, the connection between state budgets and sales/use tax remains undeniably strong.

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Avalara Author
Will Frei
Avalara Author Will Frei
Will Frei covers sales tax news including best practices, legislation and sales tax technology. He is the Social Media Manager at Avalara.