Adding up the costs: Legislators tally pluses, minuses of sales tax

Posted: Wednesday, February 13, 2002

JUNEAU -- A 6 percent seasonal sales tax could raise up to $300 million a year, but it also could raise the cost of living and have other unintended consequences for Alaska businesses.

That was the gist of the discussion Tuesday as the House State Affairs Committee took testimony for the first time on a bill by Rep. Jim Whitaker, R-Fairbanks, to impose the tax from May to September.

''The intention behind a sales tax is to provide a tax that everybody pays,'' Whitaker said.

It's not a perfect tax, he acknowledged, and said he was open to suggestions for improving it.

Rep. Peggy Wilson, R-Wrangell, had one right away. She wanted some exemption for places, such as her hometown, that already charge sales taxes. Wrangell has a 7 percent sales tax and has high property tax rates, she said.

Adding another 6 percent to that could devastate the economically troubled area, Wilson said.

Whitaker agreed the extra tax would be unpleasant.

''This is not going to happen without some pain,'' Whitaker said. But doing nothing will be more painful, he argued.

He pointed to estimates that the state will have nearly a $1 billion hole in its budget this year and next year. If the Legislature takes no action, by mid-2004 Alaska will have nearly drained the state Constitutional Budget Reserve.

Rep. Jeannette James, R-North Pole, said she would prefer an income tax because businesses carry the burden of collecting sales tax.

Imposing the tax during the summer months also could prompt consumers to put off purchases until the

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fall, creating a seasonal slump in sales and making it difficult to manage inventories, she said.

James also complained that imposing a sales tax would raise the cost of living in Alaska.

No one from the public testified in person on the measure, although two people submitted written comments.

Mike McBride of Kenai urged legislators to cut all nonessential spending before turning to taxes.

Alaska Municipal League Executive Director Kevin Ritchie -- whose group is opposed to such a tax -- said many cities could wind up with combined rates of up to 13 percent if the bill becomes law. They could be forced to abandon sales tax as a revenue source, he said.

Deputy Revenue Commissioner Larry Persily said 97 cities and boroughs in Alaska charge sales taxes, with the rates ranging from 1 percent to 7 percent. Each municipality has its own exemptions, limits and other rules.

If legislators decide to go ahead with a sales tax, he suggested they impose uniform rules statewide to make collection easier for businesses, Persily said.

The state could collect the tax, then return to the communities the portion of tax the city itself charges. That is how most of the other states handle sales taxes, Persily said.

It probably would cost the state about $4 million to administer a sales tax, compared to about $7 million to administer an income tax program, Persily said.

Whitaker's proposed bill provides 15 exemptions including utilities, rent, health care, education, alcohol (because a separate alcohol tax increase is pending in the Legislature) and goods purchased with food stamps.

Only the first $2,000 of value on an item would be taxed.

The committee will hear a presentation on income tax bills on Thursday.

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