Sales tax rates in Washington State 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 (Chapter 6, Laws of 2007 (SSB 5089)) includes a provision to mitigate losses in revenue.
Additional changes to mitigation payments were made when the marketplace fairness law (EHB 2163) was passed.
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.
Local jurisdictions that experience a net loss in sales tax revenues because of the change to destination-based sales tax are eligible for mitigation. Types of eligible jurisdictions are: Cities, Counties, and Public Facilities Districts (PFDs). Other special districts that impose a local sales tax, such as transit districts, were eligible from December 31, 2008 to June 30, 2017.
Calculation of payments
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.
Distribution and conclusion of payments
Mitigation payments are distributed at the end of each quarter. The annual loss is fixed, and the payment is based on the offset of the previous quarter. For example, the June 2018 mitigation payment will be for the months of January, February, and March 2018.
All mitigation payments will end September 30, 2019. Mitigation payments to an individual jurisdiction may end sooner, if a jurisdiction’s voluntary compliance revenue and marketplace facilitator/remote seller revenue exceeds its loss of local sales tax revenue.
Funding and management of the mitigation program
Mitigation payments are taken from the State General Fund.
A committee of local government representatives advises the Department of Revenue.
Local sales tax mitigation
Local sales taxes are eligible for mitigation if:
- 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; and
- the local sales tax was in effect before July 1, 2008.
Taxes imposed after June 30, 2008
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 chart below:
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. We recommend that you read them in order.
- How are gains and losses calculated? (.pdf)
- What is offset revenue? (.pdf)
- How do tax components impact mitigation? (.pdf)
- How are mitigation payments calculated? (.pdf)
Questions about mitigation?