Mitigation for local governments

Sales tax rates in Washington are destination-based, however prior to July 1, 2008, they were origin-based.

This change shifted local sales tax revenues among local jurisdictions, resulting in some jurisdictions gaining revenue and others losing revenue. To offset the net revenue loss experienced by some jurisdictions, the streamlined sales tax statute includes a provision to mitigate losses in revenue (Chapter 6, Laws of 2007 (SSB 5089)).

Additional changes to mitigation payments were made when the marketplace fairness law passed and again during the 2021 Legislative Session.

Mitigation timeline

December 31, 2008 – Mitigation payments begin.

July 1, 2017 – Mitigation payments are limited to cities, counties, and public facility districts.

January 1, 2018 – Marketplace Fairness law goes into effect. Marketplace facilitator/remote seller offset revenue begins to be collected.

June 30, 2018 – Mitigation payments are modified based on the offset of the prior quarter, which now includes increased revenue resulting from marketplace facilitator/remote seller revenue gains.

September 30, 2019 Mitigation payments end.
Exception: Cities having more than $50,000 in SST Mitigation payments in Calendar Year 2018 will continue to receive SST Mitigation payments through June 30, 2020.

June 30, 2021 – Lump-sum mitigation payments for specific cities cover June 30, 2020 to July 1, 2021.

July 1, 2021 – Quarterly mitigation payments reinstated for cities receiving a payment of $60,000 or more on June 30, 2020.

July 1, 2026 – Mitigation payments end.

Calculation of payments

Through June 30, 2020, a jurisdiction’s revenue loss is based on a business-by-business comparison of sales patterns in each jurisdiction before and after the change to destination-based sales tax.

Payments are calculated by adding the gain from the voluntary compliance revenue and marketplace facilitator/remote seller revenue to the total loss in revenue, resulting in a net revenue amount. If the net revenue is a loss (negative) the jurisdiction will receive a mitigation payment.

Beginning July 1, 2021, quarterly mitigation payments equal the payment made on June 30, 2020, for cities that received a payment of $60,000 or more on June 30, 2020.

Beginning July 1, 2022, quarterly mitigation payments are reduced by 20% of the previous year’s payment for the same quarter.

Distribution and conclusion of payments

Through June 30, 2020, mitigation payments were distributed at the end of each quarter. The annual loss was fixed, and the payment was based on the offset of the previous quarter. For example, the June 2018 mitigation payment was for the months of January, February, and March 2018.

Mitigation payments to an individual jurisdiction ended if a jurisdiction’s voluntary compliance revenue and marketplace facilitator/remote seller revenue exceeded its loss of local sales tax revenue.

Beginning July 1, 2021, mitigation payments are distributed at the end of each quarter.

The last mitigation payments will be made on June 30, 2026.

Funding and management of the mitigation program

Through September 30, 2019, mitigation payments were taken from the Streamlined Sales and Use Tax account. Each July 1, the estimated total payments amounts were transferred to this account from the State General Fund.

From October 1, 2019 to June 30, 2021, mitigation payments were taken from the State General Fund.

Beginning July 1, 2021, mitigation payments are taken from the warehousing and manufacturing job centers account. Each July 1, the total payments for the current fiscal year are transferred to this account from the State General Fund.

Through June 30, 2020, a committee of local government representatives advised the Department of Revenue.

Local sales tax mitigation

Through June 30, 2020, local sales taxes were eligible for mitigation if all of the below apply:

  • The local tax was imposed by a local taxing jurisdiction.
  • The local sales tax was negatively impacted by the change to destination-based sales tax.
  • The local sales tax was in effect before July 1, 2008.

Taxes imposed after June 30, 2008

Through June 30, 2020, some taxes imposed after June 30, 2008 are considered when determining the voluntary compliance revenue offset and the marketplace facilitator/remote seller offset.

See the list of local sales and use taxes to determine whether they are considered in annual losses.

Understanding the mitigation process

Use the following guides to learn more about the mitigation process prior to 2021. We recommend that you read them in order.

  1. How are gains and losses calculated? (pdf)
  2. What is offset revenue? (pdf)
  3. How do tax components impact mitigation? (pdf)
  4. How are mitigation payments calculated? (pdf)

Questions about mitigation?

Valerie Torres​
ValerieT@dor.wa.gov
360-534-1521

Beth Leech​
BethL@dor.wa.gov
360-534-1513