New sales tax put on hold

Assembly opts to delay per-person, per-day tax until April 1

Posted: Thursday, January 04, 2007

When voters declined in October to repeal a controversial 2005 revenue-enhancement ordinance, they said yes to a portion of that law meant to revamp the way recreational sales are taxed throughout the borough.

The “per-person, per-day” tax was to go into effect Monday, Jan. 1. Because implementation of the new taxing regime is expected to be problematic, Borough Mayor John Williams sought a yearlong delay, asking the assembly to set an implementation date of Jan. 1, 2008 instead.

He did so, in part, because the new law would tax each element of recreational package deal — for example, car rental, meals, fishing charters, and tours — in the tax jurisdictions in which each is delivered, thus requiring businesses to account for varying tax levies inside, outside and among borough cities and rural districts.

“The administration believes that it is in the best interest of the borough to delay ... until Jan. 1, 2008, so that these concerns regarding how the new taxing procedures will be implemented and what constitutes a ‘recreational sale’ can first be adequately addressed,” he said in a memo to the assembly.

The assembly, however, approved an amendment proposed by assembly member Grace Merkes, of Sterling, to delay implementation only until April 1. After the ordinance was adopted, assembly member Deb Germano, of Homer, asked for reconsideration at the Jan. 16 meeting.

Germano said she foresaw problems in collecting and accounting for the tax. She said she sympathized with businesses having to readjust to the multiple points-of-sale from which they might have to collect taxes. She also noted a larger issue — how to address situations where, for example, Anchorage companies setting up recreational packages on the peninsula weren’t collecting peninsula sales taxes.

“It seems to me we’re setting up a situation where we’re going to have some real auditing problems here. We’re going to have to have more staff just to audit what the businesses are doing,” she said.

Finance director Craig Chapman said peninsula companies selling through recreation wholesalers off the peninsula should be collecting sales taxes for their own transactions.

Assembly member Gary Superman, of Nikiski, wondered how the borough could do anything but charge taxes at the point of sale.

“I’m kind of glad we’re having this discussion again tonight, because I’m wondering, if a guy sells a fishing trip in Sterling, and depending on where he puts in the river and fishes, how do you determine if that’s in the city limits?” he said. “Suppose he sells a trip out of Sterling and then you fish in Homer? But I don’t think you fish in Homer because I don’t think the city limits go out to where they fish for halibut.”

Chapman said sales taxes are applied for fishing trips in the jurisdiction at which a customer boards the boat.

Superman said he couldn’t see any see any other avenue but to postpone implementation.

Assembly member Pete Sprague countered that a “black and white” sales tax code was unachievable, and that there were always going to be some problems. While some might find the new law confusing, he saw it as “a simple concept.”

“You buy a bed for the night you pay sales tax every night. Everyday you buy a seat to go fishing or go for a boat ride you pay sales tax that day. What is so hard about that?” he said. “We have been wrestling with this for years and we are ready to go, and I really don’t think it is a big issue.”

Sprague noted that business owners have said they aren’t opposed to the tax, but are confused on how to administer it. He warned that delay for a year would most likely allow opponents to gather their forces to oppose implementation next year.

“It’s easy to say you’re not opposed to it when you have another year to build up your opposition,” he said.

Sprague noted another argument for implementation sooner than later. An estimated $250,000 per year in tax revenues will be derived from the per-day, per-person style of taxation.

“That’s significant,” Sprague said.

Williams said point-of-sale taxation is a problem and point-of-delivery taxation is a solution. But that is going to take educating the business community, and some planning, not to mention more borough employees, to make the system work.

“It is a convoluted situation and you need some time to figure it out and some time to establish it,” he said. “I can tell you right now that if tonight I was told implement this tax tomorrow morning, I would go the administration and say, well, you know, I’m just going to have to say no and hope that the assembly understands why I can’t do it. I’m not going to.”

Germano suggested that recreational businesses operating in the borough now should have little problem collecting the various municipal taxes. A charter business providing a fishing trip within that package ought to be collecting sales taxes itself, she said.

“If they’re not, then that’s a different problem,” she said. “Maybe the larger issue is ... that if the (tax) cap were not so low we probably wouldn’t be having this discussion at this level at this time.”

The borough collects sales taxes only on the first $500 of a sale because of the tax cap. The assembly has considered raising it to $1,000, but has not done so.

In arguing for an April implementation date, Merkes said the assembly had acted, voters had voted, and the industry had been aware of the coming change for a long time. A few months should be time enough for the industry to get its books ready to deal with the new tax regime, she said.

Williams warned that implementation in April would put a strain on a short-staffed finance department and pressure on the administration that is working on the upcoming budget.

“We need a little bit of time to hire a couple of more people, get ourselves in gear, get a program set up,” he said. “If you say no, we implement yesterday. If you vote yes, you only give me three months. We are in a quandary.”

Nevertheless, the assembly voted 6-2 (Ron Long abstained) in support of the ordinance with the April 1 implementation date. Germano and Gary Knopp voted no.

Germano later called for reconsideration. If a reconsideration vote puts the matter back on the table on Jan. 16, the April effective date could be changed again if the assembly so desires.

In other business, the assembly:

· Adopted Ordinance 2006-19-34 accepting and appropriating a state grant of $262,5000 and appropriating $112,500 in matching funds to heating, ventilation and air-conditioning control upgrades at Sears Elementary, Cooper Landing, Seward High, Soldotna High and Kenai Middle schools.

· Adopted Ordinance 2006-19-35 appropriating $150,000 in school revenues to playground improvements at several schools.

· Adopted Ordinance 2006-19-36 appropriating $1.7 million in interest income to the capital improvement project at Central Peninsula Hospital.

· Adopted Ordinance 2006-19-37 appropriating a $100,000 state grant and appropriating $133,000 in matching funds from the Bear Creek Fire Service Area for construction of a public safety building.

· Adopted Ordinance 2006-19-38 accepting and appropriating a $421,000 state grant and appropriating $364,522 of Anchor Point Fire and Emergency Medical Service Area capital funds to build a fire station at Nikolaevsk.

Hal Spence can be reached at harold.spence@peninsulaclarion. com.

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