Wrangell assembly members do not like the idea of a state sales tax, even if may be the only tax that state lawmakers are willing to consider.
Despite their objection, members agreed they should stay engaged in the issue, particularly as the Alaska Municipal League discusses state revenue options and talks with communities about how a state sales tax could work.
AML Director Nils Andreassen explained the situation at a borough assembly workshop March 23.
Given the political reality in Alaska, a statewide sales tax is plausible in the near future, he said. Not so a state income tax. As such, he started thinking about how to structure a state sales tax in a way not to hurt cities and boroughs.
This "sales tax of last resort," he said, takes into account that municipalities, most of which have their own sales tax, do not want to see a state sales tax.
"We do need some avenue for additional state revenue," he said. "If a sales tax is the only way, we need to think about how do we do that in a way that's responsible?"
The state is entering its 10th year in a row of pulling from savings to balance the budget. Borough Manager Lisa Von Bargen explained that even with recent gains in oil prices and the influx of one-time federal aid under the American Rescue Plan, the state still needs to find new sources of money.
"Nils has really taken a leadership role for municipalities to make sure we understand the implications and potential ramifications of potential revenue sources that the state may be exploring as state revenue continues to decline," Von Bargen said. "There's no tolerance in the Legislature, as we understand it, for any other type of revenue source but a statewide sales tax."
Andreassen presented a hypothetical plan to the assembly with a state sales tax at 4%. However, the state rate when combined with local rates could not exceed 5.5%, which is the national average for state sales tax rates.
There would be no cap on local rates, he said. In the case of Wrangell, with a 7% local sales tax, the state would add nothing to the rate and the community could stay at 7%. Wrangell and the city of Kodiak, also at 7%, are the highest in the state.
It's a matter of fairness, Andreassen told assembly members. Without a cap, the combined state and local rate could reach 11% in the highest communities. Rather than rates varying between 4% and 11% across Alaska, limiting it to a range of 4% to 7% "maybe feels a little more fair to the people who are paying it," he said.
"In a community that doesn't have a sales tax, the state would collect 4%," he said. "Where there's a community with 1.5% sales tax, the state would still collect its 4% and that would add up to 5.5%. Where a city has a 3% sales tax, the state's rate would be 2.5%, capped at (a total of) 5.5%."
Under this plan, Andreassen said 72% of Alaskans would pay only the 4% state sales tax. Anchorage does not have a local sales tax, nor does the Fairbanks North Star Borough or the Matanuska-Susitna Borough, the three largest municipalities in the state. The Mat-Su Borough cities of Wasilla and Palmer, however, do collect a tax on sales within their borders.
The tax rate would be 5.5% for 19% of Alaskans, with the state and local municipality each taking their share.
About 9% of Alaskans would pay nothing to the state, as their local tax rate is already higher than the 5.5% cap.
This state sales tax structure would bring in approximately $620 million a year in revenue for the state treasury, Andreassen said.
Von Bargen said she feared the state could be punitive toward Wrangell, where the state would collect no sales tax revenues. If Wrangell did not pay in, she said, why should the state pay out to the community when it came to community assistance?
Mayor Steve Prysunka added that there is not a lot of trust with the state when it comes to community assistance.
"My biggest fear is the state says, 'Don't worry Wrangell. We're going to take your sales tax away and we'll send you guys money, we promise,'" Prysunka said. "It's almost instantaneous that they start to dwindle down the amount of payments out to the communities. We just don't have room for more cuts. It makes me very nervous."
At the end of the workshop, Prysunka said it would be better to stay engaged in the discussions than to wait and see what the state comes up with on its own.
"I think, basically, it's very obvious we need to stay engaged," said Assembly Member Bob Dalrymple.
Reader Comments(0)