Kenai takes 'wait-and-see' stance on rent tax exemptions

Posted: Monday, September 30, 2002

Despite complaints and ill feelings voiced about the Kenai Peninsula Borough Assembly, the Kenai City Council decided to accept a borough ordinance exempting senior citizens and disabled veterans from paying sales taxes on their housing rents -- at least for the time being.

The assembly voted unanimously to pass the ordinance Sept. 3. Specifically, the ordinance exempts senior citizens 65 and older, disabled veterans and their widows from paying sales tax on the rent they pay for their primary residences. Senior citizens who own property already are exempted from paying this sales tax, so this measure was billed as a way of extending that exemption to seniors who rent their homes.

In its Sept. 18 meeting, the council discussed the ordinance and how it would affect Kenai. The ordinance is set to take effect Tuesday.

Cities within a borough are required to have tax codes that mirror the borough's, although they can set different tax rates, so by the borough enacting this exemption, it means cities within the borough are subject to it as well.

The two exemptions to this rule are Seward and Kenai, which are home rule cities and can choose not to follow the borough's tax policies.

Seward's city code is set up so its council has to vote to accept any ordinance the borough passes, so this ordinance doesn't automatically take effect.

In Kenai, the city code states borough ordinances such as this tax exemption automatically take effect unless the council passes an ordinance exempting the city from the borough ordinance.

The problem the council faced with this borough ordinance is it doesn't want to accept it, but it did not have enough time to do anything about it. By the time the council met and discussed the issue Sept. 18, it was too late to introduce an ordinance, give it a first and second reading and a public comment period, which is required by the city code, before the borough ordinance goes into effect.

Council members voiced four points of contention with the borough ordinance. The first three are issues that also have come up in regard to the borough ballot proposition to exempt sales taxes from nonprepared foods.

One of the main arguments in both sales tax issues is that entities outside the city are trying to influence city business.

"This boroughwide ordinance allows the dictation of policy within the boundaries of our city to occur by people not living in the city," said Kenai Mayor John Williams. "That's just wrong."

The revenue the city stands to lose if either of these exemptions are enacted is another point of contention for the council, especially since the city already is facing a budget deficit.

Williams calculated the revenue the city gets from its 3 percent sales tax on rental properties for seniors and estimated the city could lose upward of $15,000 from this exemption.

"If we lose the $15,000 ... we have to recoup the money," said council member Jim Bookey. "Somebody has to pay the bill sooner or later."

The third argument is that allowing tax exemptions for certain groups or on certain items complicates implementation and accounting procedures.

"There are a million great reasons to exempt sales taxes for (seniors and disabled veterans)," council member Duane Bannock said. "We could spend the rest of our political careers debating who deserves to be in the front of the line (for tax exemptions). But who picks up the slack? And where do you stop the madness? We are entering now into taxation madness -- who to tax and who not to tax."

When the tax exemption for senior and disabled veteran renters goes into affect, it will be an accounting nightmare, Williams said, especially for landlords of senior rentals who already have to keep track of subsidy rates for each senior renter and report gross and net revenues to the borough on a quarterly basis.

It becomes even more complicated for landlords who own rental properties in multiple communities, because the exemption may not go into effect in every city.

The short time period itself between the assembly passing the ordinance and its implementation date is the other source of displeasure for the council because it doesn't leave enough time for the council to act on it, and it makes implementation by Tuesday nearly impossible, Williams said.

Bookey and Williams have said they thought the assembly's chosen implementation date was purposefully tied to election day.

The council could have enacted an emergency ordinance, which can be passed in one meeting, to keep the borough ordinance from going into affect in Kenai, but decided to put off any action until after election day.

According to Williams, the council could make up the estimated $15,000 loss from the sales tax exemption through increasing the rental rates at Vintage Pointe Manor and cutting the city's senior services budget.

But if the nonprepared food tax exemption overwhelmingly passes in Kenai, the council will have to rethink its stance on that issue and possibly face an estimated $1 million loss in those sales tax revenues as well, he said.

All council members present at the Sept. 18 meeting (council member Joe Moore was absent) agreed to take a wait-and-see stance on the tax exemption for seniors and disabled veterans until after the election.

"The absolute worst thing you can do in government is have a knee-jerk reaction to something that happens," Williams said. "Any time you tamper with government it has far-reaching ramifications in other areas of government. The rapid action the borough took is a very good example. They've thrown other local governments into chaos as far as implementation goes by not engaging local government in a broader discussion."

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