SITKA — Sitka’s senior citizen sales tax exemption ends at midnight Saturday, June 30, replaced by a needs-based rebate.
In a cost-savings move, the Assembly at its April 24 meeting narrowly approved eliminating the long-standing exemption from sales tax for residents age 65 and up, deciding instead to offer a needs-based rebate to qualifying Sitka seniors at the end of each fiscal year.
The rebate amount is $350 per senior per year, or $450 per household with two or more qualifying seniors. The figure is a broad estimate of the sales tax seniors pay on essentials, such as food, utilities and heating fuel for an average one or two person household, the finance department said.
“It is trying to acknowledge that some seniors live with very limited fixed incomes,” said city Finance Director Jay Sweeney.
“The intent is to still provide a rebate program for folks who need it,” said Maegan Bosak, city community affairs director.
Seniors qualify if they are a Sitka resident and present proof that they receive assistance from Medicaid, the Supplemental Nutrition Assistance Program, Baranof Island Housing Authority, Sitka Tribe of Alaska General Assistance Program, the National School Lunch Program, and Senior Benefits Program.
In the past, all Alaskan seniors, regardless of income, were entitled to an exemption from the 5 or 6 percent sales tax.
The city estimates changing the exemption to a rebate will bring in some $480,000 to $525,000 in the first year, and less after the rebate program is implemented.
Changing the elderly exemption was a tough decision to make, said Assembly members who voted in favor.
“It was the single most difficult thing I’ve done on the Assembly and one of the most difficult things I’ve done in my life,” said Bob Potrzuski, one of the four Assembly members who voted in favor. “But I wouldn’t have done it if I didn’t think it was absolutely necessary.”
“I knew it was the right thing for Sitka’s future,” Mayor Matt Hunter said today. “Times have changed since we had very few folks retiring and an extremely young community. We’re transitioning to an older region. ... We would have fewer and fewer people paying taxes if we don’t all pay equally.”
The recently adopted Sitka comprehensive plan estimates the senior population will increase from the 14 percent in 2016, to 17.5 percent in 2020 and 23 percent in 2030.
Hunter said he would like to get rid of the sales tax on groceries for all residents but it is not possible unless Sitka finds another source of revenue to replace it.
“People from all age groups are struggling,” Hunter said. “If we can help people struggling the most, it’s better than any sort of arbitrary age limit.”
The meeting in which the tax was discussed drew 42 comments from the public on both sides of the issue, with about two dozen weighing in against getting rid of the exemption, saying eliminating it would cause hardship.
Ben Miyasato, who voted against the change, cited respect for elders and concern that it was sending a message to seniors to shop out of town. Others commented that there were better options than eliminating the exemption, such as making further cuts to the city budget.
“There are a lot more cuts that could be made prior to taking away the sales tax exemption,” Aaron Bean said today.
The filing period for the senior rebate will be Jan. 1 through March 31, the same filing period as the Alaska Permanent Fund dividend program. Seniors must apply annually to receive a rebate, which will be paid in July.
But for all the time and effort expended in making the change in the senior sales tax exemption, it may have all been for nothing, say state tax officials. That’s because of the recent U.S. Supreme Court decision related to sales tax on purchases from out of state sellers such as Amazon.
In the landmark case South Dakota v. Wayfair the high court said states may charge tax on purchases made from out-of-state sellers, even if the seller does not have a physical presence in the taxing state.
“This had to do with sales tax and the taxation of internet commerce,” said Marty McGee, state assessor, in a letter to city officials statewide. “This is not directly a property tax decision. All of us are reading this for the first time and looking at how it will impact our communities. In general this only allows for the taxation by a statewide sales tax. It is silent about local sale tax. So no city or borough in Alaska should think that they now have reason to believe they can enforce their local sales or use tax on internet commerce.
“This decision will probably strengthen the argument for a statewide sales tax,” he said. “A statewide sales tax opens Pandora’s box on many issues, about sharing revenue and exemption from tax. Most states dictate to local governments on these issues. They are not inclined to adopt existing local laws and exemptions. Local governments have a limited ability to add on a local tax levy or add on special exemptions.”
In all likelihood, McGee said, under a statewide sales tax there would be a “statewide tax with statewide uniform exemptions.”
“Local governments that are very dependent on the sales tax have a lot to deal with if there is a statewide tax,” McGee wrote. “Local assessors should anticipate a lot of questions following this decision.”
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