Study shows 0.5% sales tax will not cause shoppers to flee to Abbotsford

As the upcoming transit and transportation plebiscite inches closer, some small business owners in communities such as Langley and Maple Ridge have expressed concern that the proposed 0.5% Metro Vancouver Congestion Improvement Tax —the funding source to pay for the Mayors Council’s $7.5 billion plan to expand transit in the region— will devastate their businesses as shoppers flee to Abbotsford.

A new report shows that a 0.5% sales tax differential between Metro Vancouver and the Fraser Valley Regional District will not impact small businesses in the region, including in Langley.

Cross-jurisdiction tax evasion has been studied extensively in the US and is of particular interest to the Washington State government. Vancouver, Washington has an effective 8.4% sales tax rate, while its neighbour Portland, Oregon has no sales tax.

People in Vancouver, Washington can simply walk across a bridge to Portland, and pay no sales tax.

A new study from the Washington State Department of Revenue, called the “2014 Cross Border Study,” shows that cross-jurisdiction tax evasion varies depending on the tax differential.

The study shows that while the 8.4% tax difference results in a 25% loss in taxable retail revenue, it also concludes that a 0.5% tax difference only causes a 0.67% loss in retail sales. Based on this analysis, the impact of cross-jurisdiction tax evasion will be statistically insignificant to local businesses in Metro Vancouver.

Food and vehicle purchases represent the largest retail sales categories. Grocery stores, coffee shops, fast food joints, and restaurants are expected to be exempt from the 0.5% Metro Vancouver Congestion Improvement Tax, just as they are with the current PST.

Concerns among automotive retailers are also unfounded.

In Washington State new vehicles are assessed state tax based on where they are registered. This means that if you buy a car in Portland, you still pay Washington sales tax.

The BC Provincial government is expected to adopt a similar system for Metro Vancouver residents.

The fact of the matter is that people will not drive to Abbotsford to save a few cents. In fact, according to research commissioned by the Canadian Urban Transit Association, improved transit service will actually grow small business.

Based on their analysis, for every dollar spent on transit, $3.30 is returned back to the economy, giving people more money in their pocketbooks which they can spend at small businesses throughout the region.

Background Information

Clark County (Vancouver) Washington Retail Sales in 2014
Total Taxable Retail Sales: $5,064,617,284
Taxable Retails Sales Loss at 8.4% difference: $1,177,815,000 (23.25% Loss)
Taxable Retails Sales Loss at 0.5% difference: $34,179,400 (0.67% Loss)

Canada Retail and Food Service Revenue 2013
Total: $538,781.2m
New and used vehicles: $88,102.5m
Food (Non-Prepared): $84,142.9m
Food and Beverage Service $54,771.6m

Source: Statistics Canada, CANSIM, Table 080-0022, Retail store sales by selected commodity.
Soruce: Statistics Canada, CANSIM, Table 355-0006, Monthly survey of food services and drinking places.