The attorney representing the grassroots group Alliance of Concerned Taxpayers filed motions Tuesday in Kenai Superior Court seeking an injunction to prevent implementation of the 3-percent borough sales tax scheduled to go into effect Jan. 1.
Claiming that the 1-percent increase to the existing 2-percent sales tax approved by the Kenai Peninsula Borough Assembly earlier this year violates Alaska statutes (Title 29), Anchorage Attorney Ken Jacobus said the injunction should be imposed until the courts decide the legality of the increase.
Jacobus has also requested a summary judgment that the tax increase is illegal and invalid.
ACT officials said the matter could well end up before the Alaska Supreme Court.
"Title 29 is very clear on sales tax increases and it is time for our borough assembly to comply with the law," said ACT member James Price, of Nikiski, in a press release Tuesday.
"It was a big move for us to file a legal action that would force our borough government into compliance with state law, but one we felt was necessary," said Mike McBride, of Nikiski, another ACT member.
Jacobus filed a lawsuit in December of 2006 challenging the legality of a borough claim that despite previous voter-approved ballot initiatives limiting the sales tax to 2 percent, the borough assembly retained the power to raise the tax if it deemed it financially necessary. This latest action would prevent the tax from jumping to 3 percent Jan. 1 until that suit is settled.
Borough Attorney Colette Thompson could not be reached for comment. Borough Mayor John Williams reserved detailed comment Thursday until he had had time to consult with the legal department.
The increase in the sales tax is expected to generate upward of $9 million in new revenue in 2008, money the administration has said is vital to meeting rising expenses increases that, in some cases, are beyond the borough's control.
ACT member Ruby Denison, of Ninilchik, disagrees with the level of need.
"We hear how the borough is short of money, but it is difficult to imagine when they are receiving a huge windfall from the price increases in everything the consumer buys," she said. "Real property taxes have also increased substantially through higher valuations and tax bills are up for almost everyone, even with the mill rate reduction."
In his filings, Jacobus argues that Title 29 prohibits increases in sales taxes without ratification by a majority of voters, and that that ratification has not taken place.
The borough, however, claims a 2006 referendum vote reaffirmed the assembly's power to raise the sales tax to 3 percent without a vote a position the borough claimed has existed since voters approved sales taxes of up to 3 percent in 1965.
The 2006 ballot measure, the borough said, reversed an ACT-sponsored initiative approved by voters in 2005 that had capped the tax at 2 percent and required a supermajority (60 percent of voters) to approve future increases.
Whether the tax cap still applies is at the heart of ACT's December 2006 lawsuit.
As to the injunction, Jacobus argued that taxpayers would suffer irreparable harm if the tax goes into effect and ACT's suit subsequently prevails because there would be no way to return the illegally collected tax revenue.
Given that ACT sued over the tax issues a year ago, and knew by spring that a tax increase was to take effect in 2008, why they waited until only a few weeks before the tax was to go into effect to seek an injunction is a question the administration would like answered. Borough Mayor John Williams has a theory.
"It's another harassment plan on ACT's part to create as much chaos and confusion in government as they possibly can," Williams said.
McBride said an injunction wasn't necessary until now.
"Now the effect date is pending," he said. "We'd just as soon get this tidied up before it takes effect."
Borough Finance Director Craig Chapman said the borough already has used to mailings to active sales tax filers about the impending change and will send out another notice with December sales tax forms. They will also advertise the change over then next couple of weeks.
He said it would present no particular headaches to stop the change should a judge impose an injunction prior to Jan. 1, but would be problematic if that injunction occurred after businesses have readjusted computers to account for the new tax.
Hal Spence can be reached at email@example.com.
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