Online sales tax revenues brought in more than $90,000 in nine months last year, with receipts continuing to rise, according to Wrangell Borough officials.
While the municipality is struggling with rising costs and decreasing revenues, one bright spot has been the collection of sales taxes from online, out-of-town merchants.
The borough is budgeted this fiscal year to collect $1.25 million in sales taxes, projected to be down substantially from last year due to the pandemic-inflicted economic slowdown.
A 2019 U.S. Supreme Court decision opened the tax door for states and municipalities to require online merchants to collect and remit sales taxes, even if the business has no shop or office or warehouse in the jurisdiction.
Wrangell is benefitting from its association with an organization collecting sales tax from out-of-state online retailers on behalf of about 33 municipalities across the state.
The Alaska Remote Sellers Sales Tax Commission was formed in late 2019 by the Alaska Municipal League to assist local governments with sales tax collection, administration and enforcement.
Borough Manager Lisa Von Bargen said the commission helps local governments collect sales taxes owed by out-of-town merchants that might
otherwise not collect and remit the funds. It would be very difficult to achieve as much success in collections if Wrangell were not part of the statewide cooperative effort, she said.
Out-of-town merchants that sell at least $100,000 in goods in Alaska, or 200 sales per year, are required to sign up and collect the sales tax for each municipality where they ship their goods. By pooling with other Alaska cities and boroughs, Wrangell benefits because few online retailers do that much business just in Wrangell, Von Bargen said.
"We hit this threshold for the state as an aggregate, rather than as individual municipalities," she said.
Wrangell began collecting online sales tax in March 2020. The commission collects the taxes on a monthly basis for its member communities, Von Bargen said, and then distributes it to each community.
Finance Director Joyce Mason said the commission takes a percentage in fees, but Von Bargen said the fees will decrease as collections build. The most recent numbers currently available to the city show that Wrangell received a little over $19,000 in online sales tax revenues in November 2020. After fees, they kept a little less than $16,000.
From March 2020 to November 2020, Wrangell received $91,099 in taxes after the fees. "But if we weren't signed up for this, we'd be getting none of this money at all," Von Bargen said.
Mason said the city does not have any projections for how much money Wrangell can expect to receive from online sales taxes, as this is still the first year. But the monthly numbers have steadily increased as more online businesses meet the criteria for collection, she said, adding she is unsure when they would plateau.
"It's showing a steady climb," Mason said.
Von Bargen said collecting sales tax on online purchases levels the playing field between online retailers and in-town businesses, as all now have to collect the tax.
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