Ballot prop asks to raise sales tax cap to $1,000

Kenai Peninsula residents who voted last year may have a moment of déjà vu when they look at their ballots again this year — one of the propositions is virtually identical to last year.

 

Voters are again being asked to consider raising the cap on taxable sales in the borough from $500 to $1,000. If passed, the proposition would not change the base sales tax rate, but would add extra tax for purchases between $500 and $1,000, which previously were exempt. Tax applies to anything up to $500, and beyond that, tax stops accruing.

If the proposition passes, when someone purchases something for between $500 and $1,000 in the borough outside city limits, it means that instead of $15 in tax, it could mean up to $30 in tax, if the purchase is exactly or more than $1,000. Inside city limits, the city rates would also apply, as it currently does — in the city of Kenai, for example, someone would pay $30 in taxes on a $500 purchase as opposed to $15 in the borough outside the cities on the same purchase.

If the proposition passes, it will bring in an estimated $2.9 million–$3.1 million in additional sales tax revenue to the borough, according to a fiscal note attached to the ballot. The cities will also see an increase, according to information produced by Borough Mayor Mike Navarre’s administration — about $235,000 for the city of Soldotna, $433,000 for the city of Kenai, $358,000 for the city of Homer, $203,000 for the city of Seward and $5,600 for the city of Seldovia.

Those estimates are flexible, said Larry Persily, special assistant to the mayor. If the proposition passes, it will only be in place for part of fiscal year 2018. The cities also have to accept the change — Seward’s city council has to affirmatively accept the change, and Homer, Soldotna and Kenai’s city councils would have to take formal action not to accept the change, he said. So the actual dollar amounts will depend on

Voters last considered raising the sales tax cap in October 2016 and rejected it by a margin of more than 15 percent. The proposition this year is identical except for one provision: last year’s exempted residential rent entirely from sales tax, while this year’s keeps the cap on residential rent sales tax at $500.

The proposition was born as an alternative to a bed tax proposed by Borough Mayor Mike Navarre’s administration as a method to shore up the borough’s fund balance. The Kenai Peninsula Borough Assembly approved a budget that relies on the fund balance to bridge a gap between spending and revenue, drawing an estimated $4 million out of the borough’s savings. Concerned about the long-term stability of the fund, Navarre’s administration proposed a 4 percent bed tax for the October 2017 ballot.

However, the lodging industry, particularly in Homer, objected to the bed tax, and as an alternative, assembly president Kelly Cooper and Navarre worked on the sales tax cap increase as an alternative.

“Unlike the temporary lodging tax, this would be a broad-based tax that does not target one segment of an industry, placing an unfair burden on that segment,” Cooper wrote in a joint memo with Navarre to the assembly.

The assembly killed the bed tax and narrowly passed the sales tax cap ballot proposition, with those opposing it saying they didn’t want to ask the same question two years in a row.

Throughout the campaign for borough mayor and for the various open assembly seats, it’s been a fair divisive topic. The proposition has earned explicit support from assembly candidates Hal Smalley, Leslie Morton, Dan Castimore and mayoral candidate Linda Hutchings. Other candidates have offered reluctant support — assembly candidate Brent Hibbert and mayoral candidate Dale Bagley voted against placing the question on the ballot because voters rejected it last year. Assembly candidate Norm Blakeley and mayoral candidate Charlie Pierce have said they’d support it if it passed but didn’t favor raising taxes.

Assembly candidate Duane Bannock has said he opposes the proposition, opting to cut expenses rather than raise taxes. He said he expects the impact on the economy to be larger than Navarre’s administration has projected, adding together the taxes collected by both the cities and the borough.

“That’s $4.8 million, new money, out of the economy going directly to local governments, which is one of only segments of the economy that has shown growth,” he said.

Caps on taxable sales are fairly common across the state. According to information compiled by Navarre’s office, the Kenai Peninsula Borough’s cap of $500 is one of the lower limits in the state; North Pole in the Fairbanks North Star Borough is lower, with a $200 cap. Nome and Kotzebue have no cap for general sales, though they have caps for specific items like boats, cars, trucks and ATVs. The City and Borough of Juneau raised the sales tax from $7,500 to $12,000 in 2015, and both Haines and Bethel have $10,000 caps on general sales.

Reach Elizabeth Earl at elizabeth.earl@peninsulaclarion.com.

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