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Originally published Tuesday, February 22, 2005 at 12:00 AM

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Paying Oregon income tax riles some Washington residents

Many of the jobs that anchor Clark County's economy are across the Columbia River in Oregon. But those jobs come at a price — an Oregon...

Seattle Times staff reporter

VANCOUVER, Wash. — Many of the jobs that anchor Clark County's economy are across the Columbia River in Oregon. But those jobs come at a price — an Oregon levy that can claim as much as 9 percent of taxable income Washingtonians earn in that state.

The tax long has been a sore point, with cross-river commuters complaining they must pay thousands of dollars to an Oregon state government that provides them with few benefits and no say in how the money is spent.

Two Washington state Democrats are about to wade into the controversy, introducing companion bills in the U.S. Senate and House that would ban Oregon from imposing the income tax on Washington residents.

Sen. Maria Cantwell and Rep. Brian Baird, in a joint appearance yesterday at a Vancouver transit center, acknowledged the proposed legislation faces long odds. But they want the legislation, which will be introduced in the weeks ahead, to at least grab the attention of Oregon politicians.

"We would hope that this would be a spur for legislators and the governors to get together to at least begin a dialogue," Baird said. "What we are trying to do is use our offices to move this forward. And it's a perfect time to do it, as so many residents are filling out tax returns."

"It will be a tough battle, but worth fighting," Cantwell said.

The legislation appeared to catch Oregon's governor by surprise. "This came out of nowhere," said Anna Richter Taylor, spokeswoman for Oregon Gov. Ted Kulongoski. "Does Congress have the authority to do something like this? Is this an infringement on state rights?"

Oregon's Senate delegation, Republican Gordon Smith and Democratic Ron Wyden, could not be reached yesterday for comment.

Baird, whose 3rd Congressional District includes Clark County, said the proposed legislation would tackle an important tax issue. Under terms of the bill, Oregon could continue to impose the tax on out-of-state commuters only if it reaches a new agreement with Washington that offers more equity to those residents. He acknowledges the bill would raise "legitimate and important constitutional questions" and likely would face legal challenges if it became law.

The border skirmish over taxes reflects the dramatically different approaches the two Pacific Northwest states have taken to funding state government.

Oregon consistently has rejected a state sales tax in favor of an income tax that is now the dominant source of revenue for the state general fund.

Washington has rejected any income tax in favor of a sales tax to anchor its state budget.

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The states also have taken different approaches to taxing out-of-state residents.

To help keep Washington merchants competitive, state law allows them to waive the sales tax for any Oregonian who displays proof of residency with a driver's license. In Vancouver, Wash., that results in more than $5 million a year in lost sales taxes, according to Vancouver Mayor Royce Pollard. In Oregon, Washington residents are expected to pay the full income tax on revenue they earn in that state. And over the past decade, as Clark County emerged as one of the Northwest's hottest growth spots, commuters who work in the Portland area have become a major source of tax revenue for Oregon.

A 2001 Washington state job study found that roughly one-third of Clark County workers were employed in Oregon.

In 2002, the most current year with statistics published by the Oregon Department of Revenue, more than 51,000 Clark County income-tax returns were filed with the department, yielding more than $104 million. That same year, Oregon income-tax filings from other Washington counties contributed another $49.8 million, according to department statistics.

Oregon politicians consistently have said Washington residents do receive benefits for their income-tax dollars. They get to use Oregon roads to commute to work, benefit from Oregon public-safety spending and may tap into other state programs through their jobs. Oregon also has depended on the tax to help create a level playing field in the greater Portland metropolitan area. If Vancouver were exempt from the state income tax, the city might get a stampede of new residents from Oregon eager to evade the tax.

And as Oregon lawmakers struggle to come up with enough money this year to fund education and other essential government services, they are in no mood to contemplate a further erosion of their tax base. "We're a billion dollars short of what we need and still don't know what the March forecast is," said Chuck Sheketoff of the Oregon Center for Public Policy.

But Baird and Cantwell say Oregon needs to rethink the Washington tax policy.

Perhaps Oregon could reduce the taxes Washington residents pay to reflect the fact they don't benefit from Oregon public schools and many other services, they said. Or, as an alternative, Oregon could provide Washington income-tax payers with additional benefits. Perhaps these residents could send their children to all Oregon universities at in-state tuition prices rather than just those now available in the Portland area.

Rick Thompson, a Clark County resident who works at a Boeing plant east of Portland, appeared at yesterday's news conference to back that idea. Thompson said he has been paying Oregon income taxes for years, with the annual bill now more than $3,000. He has a 17-year-old son who would like to consider the University of Oregon, or perhaps Oregon State University. But without in-state tuition, those universities are not an option, Thompson said.

Hal Bernton: 206-464-2581 or hbernton@seattletimes.com

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