Gov. Mike Dunleavy has proposed a 4% statewide summer sales tax and a 2% tax the rest of the year, effective through 2034, as part of his plan to bring Alaska’s state revenue and expenses in line over the next several years.
If adopted, the sales tax would be Alaska’s first statewide, general-purpose levy since legislators abolished Alaska’s income tax in 1980.
Alongside the tax bill, the governor has proposed a tighter state spending cap and a constitutional amendment that would guarantee a Permanent Fund dividend more than double the average of what legislators have approved in recent years.
“This comprehensive plan is designed to bridge the next seven years by stabilizing state finances, limiting spending growth, restoring a rules-based PFD and sharing responsibility through targeted, time-limited revenue measures that support investment and predictability,” the governor wrote in a letter to lawmakers.
In addition to sales taxes, the governor’s 56-page bill would eliminate corporate income taxes starting in 2031 and institute a small increase in oil production taxes. It’s a lot of work — winners and loser and controversy — for legislators to resolve before their mid-May adjournment deadline.
“In a normal environment this is a two- or perhaps even three-year project in terms of getting into the nitty gritty detail and … involving the public at every step of the way," House Speaker Bryce Edgmon, of Dillingham, said Jan. 22 during a media briefing where the general aspects of the plan were discussed.
Since 2015, persistently low oil prices and plateaued oil production from the North Slope have dogged state lawmakers who have struggled to balance Alaska’s need for services with the desire to pay large Permanent Fund dividends.
While most of Alaska’s general-purpose state revenue comes from the Permanent Fund, oil remains the No. 2 source of flexible spending money for the state, leaving the annual budget process subject to fluctuating oil prices.
The governor’s plan resembles one drafted by a bipartisan, bicameral legislative working group in 2021 and 2022. That plan and others like it have never significantly advanced in the Legislature.
Senate Bill 227, containing the bulk of the governor’s plan, was introduced on Jan. 26 and referred to the Senate Finance Committee for further discussion. An identical version was introduced in the House two days later.
The most fiscally consequential item in the bill is the sales tax, which would peak during the summer tourist season and drop to 2% between October and March. That tax is expected to raise as much as $815 million per year for state services and the Permanent Fund dividend by fiscal year 2032.
The Dunleavy administration expects that revenue from new oil production and a proposed Alaska North Slope natural gas pipeline will compensate for the phaseout of all the taxes in the long term.
Under SB 227, the state’s corporate income tax would fall to zero in 2031 and the sales tax would expire until 2034.
“Normally, sales tax is left to local governments. So I know it was a hot issue in Anchorage when the mayor proposed that, so I think it is going to hit a lot of households,” said Bethel Sen. Lyman Hoffman, co-chair of the Senate Finance Committee.
The Alaska Municipal League, which represents city and borough governments across the state, is particularly interested in the governor’s proposal.
The League has previously said it would prefer a statewide income tax to a sales tax.
In almost every part of Alaska, except for Anchorage, sales taxes are a pillar of services.
Many cities and boroughs exempt certain things, like food and utilities. Under the Dunleavy proposal, the state would set the rules and be in charge of collecting sales taxes and remitting the money to cities and boroughs.
Local exemptions and sales tax caps could vanish in the process, with the state instead determining what is taxed and not.
The governor’s plan for the Permanent Fund dividend, enclosed in a constitutional amendment proposal separate to SB 227, is similar to one he proposed in 2021.
Currently, the state’s No. 1 source of general-purpose revenue is an annual transfer from the Permanent Fund to the state treasury. That transfer will be worth $4 billion for next year.
The “50-50 dividend” proposed by the governor would reserve half of that transfer for dividends, or about $2 billion, if it were in place this year.
That amounts to roughly $3,200 per PFD recipient, based on the number of recipients in 2025.
Putting a dividend formula in the constitution would bind future governors and legislators, and put the dividend atop the annual budgetary priority list.
Adopting a constitutional amendment requires two-thirds of the House, two-thirds of the Senate, and approval by voters in the next general election.
Alaskans have not adopted an amendment since 2004, and the Legislature hasn’t put one before voters since 2016.
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