Tax Talk: Borough assembly to consider raising sales tax cap

Posted: Tuesday, May 03, 2011

The Kenai Peninsula Borough Assembly will be mulling over an ordinance that raises the sales tax cap by $2,000 at its meeting tonight in its Soldotna assembly chambers.

The current sales tax cap is set at $500, the same figure that it's been at since 1965. In today's dollars, that cap would be equal to some $2,700, according to inflation calculations done by the borough.

The ordinance is proposing the borough increase the sales tax cap to $2,500, meaning sales tax will be applicable to purchases up to that amount.

Assembly President Gary Knopp, who is a co-sponsor on this ordinance, said that he asked administration what would happen if the sales tax cap was increased.

"I felt that by changing that cap it would have the least amount of impact on our daily lives," he said. "It would only impact big ticket items."

But that being said, Knopp said, he thinks the ordinance might raise more revenue than the borough actually needs. According to borough calculations, raising the sales tax cap to $2,500 could bring in nearly $6.3 million in additional revenue.

"That particular ordinance, in my mind, raises too much revenue," Knopp said. "We only need enough to stop the fund balance slide."

One major concern for Knopp is that an increased sales tax cap will affect residents who pay rent. Right now, renters within city limits pay $30 in tax total for properties because of the $500 sales tax cap and 6 percent sales tax in Kenai and Soldotna.

"It would affect rent and that's one of the things we're trying to figure out how to address," Knopp said.

If the borough were to change the cap, he said he would support raising it to $1,000.

"We're going to discuss it and see where the body wishes to take it," he said.

Borough Mayor Dave Carey said he is presenting assembly members with a budget that does not include any tax increases at the meeting tonight.

Earlier this year when funding for the multi-million dollar Homer Solid Waste Transfer Site was uncertain, the mayor said he was interested in looking at every expense and possible revenue generator.

"We did look at everything," Carey said.

But with the cost of the Homer transfer site now being spread out over three years, immediate revenue is not necessary.

"There is not a need for an increase to any sales taxes or property taxes," Carey said. "There is not a need for this to be put into effect."

He said it is hard to say how sales would be affected in the borough if the sales tax cap were raised.

"It is very hard to estimate how many people will go to Anchorage rather than buying down here. Many people will choose to buy in Anchorage," Carey said.

It could "hurt business here," he added.

He said one mill brings in roughly $6.4 million for the borough at a 4.5 mill rate, which is $4.50 of tax on every $1,000 of assessed property value.

If the sales tax cap was increased to $2,500 it would bring in nearly the equivalent of one mill in revenue for the borough.

"If the assembly did decide to raise the tax, I believe the mill rate for property should be lowered to balance it, so it would put more responsibility on sales tax payers," he said.

From his standpoint the sales tax cap had to be considered, but it is not a good time to do it.

Another thing the ordinance could do is overrule another one enacted by Kenai Peninsula voters in 2005. That initiative amended borough code to require any increase to the maximum sales tax be subject to at least 60 percent of voter approval at the regular election. The borough successfully challenged the initiative at the state superior court level and is waiting for a decision from the Alaska Supreme Court.

According to a borough memo, the assembly would have the authority to adopt the proposed sales tax cap ordinance because it has been more than two years since the initiative was enacted.

The ordinance will be up for public hearing tonight. The meeting starts at 7 p.m.

Brielle Schaeffer can be reached at brielle.schaeffer@peninsulaclarion.com.



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