A measure introduced in the Alaska Senate early last week would allow municipalities to exempt up to $50,000 of real estate value from local property taxes.
The current limit is $10,000, and five municipalities offer the exemption, including the Kenai Peninsula Borough, the Bristol Bay Borough, the Fairbanks North Star Borough, the North Slope Borough and the city of Valdez.
Senate Bill 136, sponsored by the Senate Community and Regional Affairs Committee, was scheduled for a hearing before that committee Monday afternoon.
If it becomes law, it could provide some flexibility to the Kenai Peninsula Borough, according to a committee sponsor statement.
In 2002, peninsula voters rejected a tax-relief initiative that aimed to restrict food items from local sales taxes. The borough and its cities opposed the initiative for several reasons, including that their general funds depended heavily on sales taxes, and food represented a significant portion of sales tax receipts. In addition, the sales tax was seen as a way to have visitors help pay for municipal services.
But residents pay the same sales tax. Senate Bill 136 would permit the local governments to go on collecting the sales tax from visitors and residents alike, but offer some counter tax relief to borough property taxpayers.
Mary Jackson, chief of staff to Sen. Tom Wagoner, R-Kenai, chair of the Senate Community and Regional Affairs Committee, said the Kenai Peninsula Borough had requested a measure to up the property tax exemption.
She said similar measures in the past have raised concerns within the Department of Community and Economic Development that raising the property tax break might lead municipalities to offer the break, but up their mill rates. That, in turn, would limit state revenue from oil properties.
The only property taxes collected by the state are assessed on oil industry properties. But because of a 20-mill total property tax cap imposed by state law, what municipalities assess against those same oil properties reduces the state's share an equivalent amount.
Of the five municipalities that offer the current exemption, only the Kenai Peninsula Borough has a sales tax.
"We have a lower mill rate because we also have a sales tax," Jackson said.
And because the borough collects some of its revenues from sales taxes -- about $14 million this year -- more of the property taxes collected from oil properties is available to go to the state.
"What we are trying to say is the Kenai Peninsula Borough is already giving $14 million to the state because we are collecting a sales tax instead of doing it all on property taxes as everyone else is doing," she said.
For instance, the city of Valdez has a 20-mill property tax. The state collects no property tax revenue there, despite the presence of millions of dollars worth of oil-related property. The North Slope Borough has an 18.5-mill levy, leaving the state only the revenue from 1.5 mills, she said.
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