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Food tax measure may not affect cities

Posted: Friday, August 29, 2008

If Proposition 1 meets with voter approval in October, Kenai Peninsula Borough consumers would no longer be charged taxes on non-prepared food items between Sept. 1 and May 31 each year.

That rule would also apply to the cities of Soldotna, Seldovia and Homer, all general law cities restricted by state law to taxing the same sources as the borough. The loss of tax revenue from food could have a severe impact on the finances of those cities, according to borough and city officials.

State law, however, permits those cities to charge sources different from the borough if authorized to do so by the borough.

At its Tuesday meeting, the Kenai Peninsula Borough Assembly will take testimony on an ordinance that would do just that, allowing those communities to continue collecting taxes on non-prepared foods even if the borough cannot.

A second hearing is planned for Ordinance 2008-28 on Sept. 16 when the assembly meets in Homer.

The cities of Kenai and Seward are home rule cities, and are exempted by state law from the statutory requirement to tax the same sources as the borough. Thus, they are already empowered to tax non-prepared foods, even if Prop 1 passes.

On Aug. 13 in anticipation of a successful Prop 1, the city of Soldotna formally requested authorization from the borough to tax non-prepared foods. Homer had already taken that step at its July 28 meeting.

Though Seldovia's city council has not followed suit, the proposed borough ordinance would extend authorization to that city as well, if adopted.

Non-prepared foods are foods purchased at markets that are not ready for immediate consumption. For instance, a frozen pizza is a non-prepared food item and would be exempt from taxes; a hot slice from the store's deli is prepared food and would be subject to the sales tax.

Proposition 1, promoted by Alaskans for Grocery Tax Relief Now, could reduce the borough revenue stream by $1.8 million annually. Sales tax revenues of the borough go to fund schools.

However, the borough recently increased its sales tax from 2 percent to 3 percent, increasing sales tax revenues substantially. In addition, property values have increased significantly, and some property tax dollars are used to pay for schools as well.

Proponents of Proposition 1, including its prime sponsor, James Price, of Nikiski, say the borough can get along without the $1.8 million, and that considering the rising cost of fuels and other consumer goods, residents deserve a break from food taxes.

If the ordinance passes, Soldotna, Seldovia and Homer could charge city sales taxes on non-prepared foods if Prop 1 is approved.

Hal Spence can be reached at hspence@ptialaska.net.



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