Judge rules for borough

Assembly found to have authority to set sales tax

Posted: Wednesday, January 02, 2008

A Kenai Superior Court judge ruled Monday afternoon that the borough has the authority to increase the sales tax to 3 percent without a vote of the public.

Judge Carl Bauman denied motions filed by the Alliance of Concerned Taxpayers on Dec. 4 seeking an injunction against the tax increase that went into effect Jan. 1.

In a summary judgment, Bauman ruled in favor of the borough, finding that voter authority for a sales tax of up to 3 percent granted in Oct. 1964 still applied, and further, that a majority of voters had again approved the tax increase from 2 percent during the October 2006 election.

"This was an overwhelming reaffirmation by the courts that solidifies the borough's position," Borough Mayor John Williams said. "On virtually every point, the judge ruled in the borough's favor. The borough will now go ahead and proceed to continue doing business in a more balanced basis without concern for the issue. Our whole intent is to streamline government and make it more efficient."

ACT's attorney, Ken Jacobus, of Anchorage, filed suit late in 2006 challenging the assembly's contention that it had the right to raise the sales tax up to 3 percent without a public vote. That suit languished until early in December when he filed for an injunction and summary judgment declaring the borough tax increase illegal.

Following the borough's answer several days later, Jacobus acknowledged that one party or the other should be granted a summary judgment in the case. The court agreed, tossing out any need for an injunction.

Bauman noted that a state law, last modified in 1985, that appears to require a public vote, did not apply in this case, because nothing in its language restricted the time within which an assembly could increase the tax after being so authorized.

Borough taxpayers paid a 3-percent sales tax until 1975 when it was cut to 2 percent. The borough's authority to raise it up to 3 percent never was repealed.

In 2005, the borough attempted to increase the tax rate to 3 percent, adding that provision to an omnibus revenue-enhancement measure, 2005-09. ACT challenged that increase successfully that fall with an initiative drive and ballot measure to set the sales tax at 2 percent. Voters also said future increases would require a 60-percent supermajority of voters to approve.

The following year, however, another ACT ballot measure designed to roll back all parts of 2005-09 failed at the ballot box. Under applicable election rules, all parts of 2005-09 were on the table, including the tax increase taxpayers had rejected the year before.

Failure of the referendum on 2005-09 meant that the tax increase was again valid, at least as far as the borough was concerned.

ACT disagreed with that interpretation and filed suit in December 2006. In Monday's ruling, Bauman said the action by voters in 1964 approving a sales tax of up to 3 percent was still valid and the borough has "continuing legal force and effect" to authorize an increase. State law does not require a second approval once voters have given approval, he said.

"Interpreting the ratification requirements of (the 1985 law) to apply to a resumption of the previously approved 3-percent rate would vitiate the will of the voters of 1964," Bauman said. "Such an interpretation would violate pre-existing borough authority which the Legislature preserved through the savings clause in 1985 when AS 29.45.670 (the 1985 law) was enacted."

Even if the 1964 vote were insufficient, voters in 2006 elected to retain 2005-09 in its entirety, thus affirming the tax increase, he said.

Bauman further ruled that the 60-percent supermajority approved in the 2005 ballot proposition was invalid, basing his finding on Alaska Supreme Court case law.

Hal Spence can be reached at hspence@ptialaska.net.

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