Borough, ACT tell it to the judge

Posted: Sunday, December 23, 2007

Attorneys for the Alliance of Concerned Taxpayers and the Kenai Peninsula Borough presented oral arguments in Kenai Superior Court Friday regarding a pending sales tax increase.

With the borough sales tax set to increase to 3 percent from 2 percent on Jan. 1 and an appeal likely by the losing side, Judge Carl Bauman said he would endeavor to issue a ruling as quickly as possible, likely later this week.

ACT, a grassroots group challenging the sales tax increase, filed suit late in 2006 after voters failed to repeal a 2005 ordinance that included a tax increase among other provisions. The assembly opted not to raise the sales tax after the 2006 referendum failed, but insisted it still had the authority to do so. The assembly subsequently passed an ordinance raising the sales tax in April. ACT filed for an injunction on Dec. 4 to prevent the increase from taking effect.

ACT's argument, reiterated by attorney Ken Jacobus in court Friday, is that a sales tax increase cannot take effect until it is approved by a vote of the people. Jacobus cited Alaska Statute 29.45.670, a measure passed in 1985.

Borough Attorney Colette Thompson asserted the borough's authority to levy a sales tax up to 3 percent had been granted in a 1964 vote as the borough was incorporated. Thompson argued that even though the sales tax rate was cut to 2 percent in the 1970s, borough voters never repealed the authority to levy a sales tax rate of up to 3 percent. A savings clause was connected to the passage of AS 29.45.670, Thompson said, that prevents rights maintained by municipalities prior to the passage of the statute from being taken away. The authority to set a tax rate of up to 3 percent is one of those rights, Thompson said.

Furthermore, Thompson argued, the defeat of the 2006 referendum to repeal the 2005 sales tax increase ordinance means the ordinance became law upon certification of the election results. The assembly in 2006 took action to keep the sales tax at 2 percent, but, the borough argues, was justified in raising the rate to 3 percent in April without sending the issue to voters to vote on again.

Both sides have requested a summary judgement on the legality of the tax increase.

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