The need for sales tax reform in Washington State

Oct 12, 2021

Key Findings

1. The Streamlined Sales and Use Tax collection process is burdensome on small business.

2. Adding a sales tax threshold and providing an option under that threshold to collect sales tax based on a flat rate destination sales tax will simplify tax collection and reduce tax filing for small business.

3. A flat rate destination sales tax for small business will not affect total state sales tax revenue.

4. A flat rate destination sales tax, apportioned to the destination, will not significantly affect local sales tax revenues paid to municipalities.

5. A flat rate destination sales tax will not jeopardize state certification in the Streamlined Sales and Use Tax agreement.


Most states collect sales taxes. There are only five states that do not collect a sales tax at the state level; Alaska, Delaware, Montana, New Hampshire, and Oregon. The sales tax rates imposed by the other 45 states vary from the lowest, at 4% for Alabama, to the highest, 7.5% for California. 

Washington’s sales tax rate is 6.5%, but local district, county and city sales taxes can push the rate people actually pay to over 10%. For example, the city of Lynnwood has a sales tax rate of 10.5% and is ranked 34th highest in the United States.3 The sales tax in Seattle is 10.25%.

Over the last several decades, the collection of sales taxes by state governments has become increasingly complex with the popularity of out of state mail order businesses, the expansion of local municipal sales tax authority and the explosion of online internet sales.

In 1999, the National Governors Association (NGA) and the National Conference of State Legislatures (NCSL), frustrated by the inability to collect sales tax from sales made to their residents in other states, created the Streamlined Sales and Use Tax Agreement (SSUTA).4 The agreement requires the 24 member states to calculate sales tax rates based on the shipping destination and for businesses to collect the tax for remittance.

The result over time, however, is that the combination of local municipal tax rates, sales tax exemptions and interstate tax collection rules, has made the sales tax processes overly complex. In the effort to collect more sales tax revenue and to standardize the tax collection process, the SSUTA has created a costly administrative process and a time-consuming effort for business and consumers.

Read the full Policy Brief here.

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