Nikiski residents paying Kenai tax

GCI billing address quirk snags customers outside city limits

Posted: Thursday, February 24, 2000

Two weeks ago, Don Troy of Nikiski called GCI's customer service line to ask about his Internet charges.

While on the phone, he found an unsettling entry on his bill.

"I started looking at all the taxes and surcharges," he said. "I noticed I was being charged Kenai city taxes."

Troy said he examined statements from GCI for previous years -- which he saves for tax purposes -- and the tax was charged on those as well.

"I called a couple of friends and they were getting charged, too," he said.

When Troy called customer service in Anchorage, he was told by a supervisor there that the company would change his account so he would no longer be charged taxes and refund him for the past six months.

Troy said he is less worried about the money he has spent erroneously on taxes than he is about the principle of the matter.

"My main concern is to fix it so it doesn't happen again," he said.

GCI company spokesman David Morris said the taxing confusion originates with customers' billing addresses.

The company charges local taxes based on each customer's zip code.

"That's the best way to determine a tax area," Morris said.

He said the company cannot use a telephone number's PDX -- the first three digits -- because there is frequently overlap among taxed and untaxed areas.

In Nikiski, this affects people with post office boxes in Kenai or on HC routes.

The tax rate for the borough is 2 percent, and the Kenai city rate adds another 3 percent, said Larry Semmens, Kenai' finance director.

"It's easy to overlook it on a bill," Semmens said.

Semmens said the borough is required to collect taxes for cities.

"The city of Kenai has nothing to do with the collection of sales tax," he said.

Semmens said GCI most likely will adjust its tax bill to reflect refunds made to customers, paying less to the borough.

The borough, in turn, will give the city less money.

Semmens said he cannot estimate the effect on the city, since he does not know how many people will get refunds, or how much they will get.

"It could have an impact (on the city's finances)," the director said.

He added that any decrease is bad for the city and that fiscal blows are coming from several directions right now.

"Any time you have a revenue decline is a bad time," he said. "In the current environment, where state revenues are decreasing, any other negative revenue impact is not good."

However, Semmens said he does not see the impact being substantial, especially compared with the city's overall sales tax revenue.

"Most of the telephone sales tax is collected correctly," he said. "It's unfortunate. Those people are right. They should not be paying Kenai taxes. It was just a practical matter of determining who should be paying 5 percent and who should be paying 2 percent.

"I can sympathize with GCI, and I can certainly understand why someone in the situation would be a bit upset."

The problem is not unique to either Nikiski or GCI, Morris said. It also happens anywhere two different levels of tax run close together.

PTI spokesman Tom Jensen said although he was unaware of any complaints about incorrect taxing, it is possible for the company to make the same mistake GCI has.

"To my knowledge, we haven't gotten any calls," he said.

Jensen said such an error would not benefit the company in any way.

"Initially, it would go to PTI, but we're responsible for remitting the taxes. It is a pass-through," he explained.

Because of the accounting and processing expense of paying taxes, any increase in collections creates an increase in expenses.

"We would lose money," Jensen said.

Sandra Ghormley, Homer Electric Association's manager of marketing and member relations, said HEA does not have difficulty determining proper taxation because meters are located where service is.

There is, however, a relatively simple solution for those paying extra sales tax.

Jensen recommended making a note on the bill about the problem and not paying the extra tax.

Morris said anyone being charged tax improperly -- by any utility -- should write a letter to the company's tax department explaining the service is not in the tax area. The company should change the account status to reflect that and cease tax assessments.

"What they're doing is signing the letter saying they should not be taxed," Morris said. "We need to have on file paper work, in case (of an audit) we'll be able to say we received notice not to tax that person."

By signing the letter, it serves as a type of affidavit for the city to look to. For someone to claim exemption from a tax they are subject to is fraud, Morris said.

"It is not a way for the city to be getting taxes they should not be getting," he said. "It's not as pernicious as that."

As for refunds, Morris said, they are given primarily on a case-by-case basis.

"Certainly if you'd paid taxes and you didn't need to, some sort of refund is in order," he said.

Refunds involving large amounts of money or long periods of time will take longer to correct and might be examined more closely.

Morris said this is because the company, in turn, would need to get a refund from the city.

"That doesn't go into our profits," he said. "That's passed right through. It goes right to the borough (which collects city taxes). We don't keep it."

The address of the GCI tax department is 2550 Denali St., Anchorage, AK 99503.

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