Tax not easy to implement: Borough notifies retailers on what food items will be exempt

Posted: Tuesday, November 25, 2008

The Kenai Peninsula Borough has notified retailers how they are expected to implement the voter-approved seasonal food-tax holiday set to go into effect Jan. 1.

Beginning on that date, the borough's 3 percent sales tax will be lifted from so-called "non-prepared" food items, essentially groceries, through May 31. After that, the exemption will then be applied annually from Sept. 1 through May 31.

In a letter sent Nov. 19, business owners were informed that the exemption would apply to items that were eligible for purchase with federal food stamps at food-stamp eligible retailers, and that at non-restaurant locations, food items would be exempt from sales taxes unless they were considered "prepared" foods.

The borough code now defines prepared foods as food sold in a heated state or heated by seller, or where two or more ingredients are mixed or combined by the seller for sale as a single item. The code goes on to define more broadly what qualifies as non-prepared food. (See sidebar page A-8)

Accurately defining a non-prepared food item, or grocery, proved a difficult task, according to borough Mayor Dave Carey.

"Although it might seem easy to define what is a grocery, it is not nearly as easy legally," Carey told the Kenai Peninsula Borough Assembly on Nov. 18, the day before the letter went out to business owners.

The tax holiday was the result of an initiative pushed by Alaskans for Grocery Tax Relief Now and approved by a strong majority of borough voters in October. In general, the initiative required that the borough's sales tax be removed from non-prepared foods, that is, groceries, as opposed to prepared items such as slices of pizza that might be found in a grocery store's deli. The initiative language went on to link non-prepared foods to any items eligible for purchase with federal food stamps.

Carey noted, however, that the federal regulations describing what items were acceptable for purchase with food stamps were more than 50 pages long, making writing implementation policy difficult.

"It is not easy. The commercial distributors of the borough, the stores, very much need information," he told the assembly.

Nikiski resident James Price headed Alaskans for Grocery Tax Relief Now (AGTRN). He said he didn't see the same difficulties, calling the initiative straightforward.

"I understand there may be 50 pages of regs with the food stamp program, but if the borough adopts those regs, they would be in compliance," he said.

The general public should get any food item tax-free whenever and wherever a food stamp recipient can purchase them tax-free, Price said. "In defense of the administration, there may be some gray areas in some places, in places that don't take food stamps, and such," he said.

Assistant Borough Attorney Scott Bloom, who worked on implementing language, said part of the difficulty stemmed from the fact that the food stamp program did not use the term "non-prepared foods" in reference to food stamps. Also, he said, some retail places do not accept food stamps or are otherwise considered ineligible retailers under provisions of the food stamp program. The borough's sales tax holiday must also apply to those companies, Bloom said.

Eventually, the borough adopted the two-tiered system outlined above.

So far, Kenai and Seward, which are home rule cities and empowered to make their own sales tax decisions independent of the borough, have not adopted the exemption for their city sales taxes. Neither has Soldotna, a general-law city that cannot tax items not also taxed by the borough, unless the borough grants the authority to do so.

The borough recently granted such authority to Soldotna, as well as to Homer and Seldovia.

All those cities can continue to tax food (city sales tax) all year round if they choose.

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



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