Despite the pandemic and its hit to the economy, Wrangell’s sales tax collections were higher than expected last year and, though lower this year, still coming in several hundred thousand dollars better than anticipated for the fiscal year that ends June 30.
Some of the better numbers likely are due to the federal pandemic relief aid that went to individuals, who spent much of the money in town, and also to the federal assistance that enabled some businesses to catch up on their bills, including sales taxes, Borough Manager Lisa Van Bargen said Tuesday.
The borough distributed much of its 2020 federal CARES Act money as grants, but required that businesses must be current in their sales taxes to receive the funds, prompting some owners to pay off their arrears, adding a one-time boost to tax collections, the manager said.
Wrangell’s biggest source of revenue is its sales tax on goods and services sold in the community.
Many communities statewide collected more than anticipated from sales taxes over the past year, said Nils Andreassen, executive director of the Alaska Municipal League, also pointing to the benefits from local spending of the federal cash sent to individuals in 2020 and 2021.
“We saw significant buying from that,” he said. Congress in 2020 and 2021 approved payments of up to $600, $1,200 and $1,400 to most individuals, in addition to enhanced unemployment benefits to help people get through their income loss during the pandemic.
“When you pump a billion dollars into an economy, it helps,” Andreassen said.
Separate from the federal dollars that boosted household spending, some of Wrangell’s better-than-expected sales tax receipts this past year are due to the borough’s success in collecting the tax from online sales delivered into the community.
As of Monday, the borough has received almost $135,000 in sales tax revenues collected by online merchants, about 6% of the community’s total sales tax revenues to date this fiscal year.
Wrangell was one of the original 15 members of a statewide collective effort through the Alaska Municipal League to ensure remote retailers collect and remit the tax.
The first collections under the AML program were in February 2020, after a U.S. Supreme Court ruling in June 2018 allowed states and municipalities to enforce their sales tax codes on out-of-town sellers, such as Amazon and other online merchants.
“Quite likely we would be seeing none of this revenue if not for the exchange,” Von Bargen said of the Municipal League sales tax project.
It cost Wrangell almost $27,000 in fees this fiscal year to the AML tax program, which handles administration and collection of the money from online merchants. By working together and sharing the costs, the participating cities and boroughs can collect more than they could earn on their own. The additional revenue “has been significant” for Wrangell, Von Bargen said.
The Alaska Municipal League now has 36 cities and boroughs signed up for the sales tax effort and expects to be at 40 by the end of this month, with about $9 million in collections shared among participating communities this fiscal year, growing to an estimated $12 million next year, Andreassen said Tuesday.
About 1,100 remote sellers have registered with the AML program to collect and send in sales taxes.
The $135,000 deposited into the Wrangell treasury so far this year does not include taxes collected and remitted by Amazon on orders it sells or fills itself. Those collections go directly to the borough, and are not part of the Municipal League total, Von Bargen said, adding that individual tax returns are confidential and the borough cannot disclose what it receives from Amazon.
The sales tax on orders sold through the Amazon marketplace but fulfilled by other businesses are routed through the Municipal League and are included in this year’s $135,000, Von Bargen said.
Amazon is the only online retailer to report and pay some of its tax collections directly to the borough, she said.
Under Wrangell’s municipal code, 68% of sales tax collections go to the general fund, 4% to streets, and 28% to health, safety and education spending. In total, the borough had budgeted to collect $1.888 million in sales taxes in the fiscal year that will end June 30, as the borough was conservative in its revenue projections. But as of Monday, actual collections totaled $2.386 million, the manager said.
Even with the unexpected boost, this year’s sales tax receipts are running behind last year, when the borough collected almost $3.2 million, though similar to this year, that number was about $500,000 better than expected.
“I am a little worried” about next year, Von Bargen said, without the massive amounts of federal aid to individuals to boost spending. “I think we’ll probably see a dip” in sales tax receipts.
Andreassen shares the same concerned outlook for next year’s tax collections by communities statewide.
For the past year, however, though cruise ship-dependent communities like Skagway, Juneau and Seward saw steep drops in sales tax collections, other communities saw minimal losses and even some gains.
Tax collections in Haines are down this year but, like Wrangell, not as much as they had feared. Haines officials credited revenues from online sales tax collections and local spending of federal pandemic aid.
The city of Kenai reported almost a 6% gain in sales tax receipts for 2020 over 2019. Soldotna also reported higher sales tax revenues in 2020.
“It’s important to note that when the pandemic first hit, many of us are stuck at home,” Mouhcine Guettabi, an associate professor of economics at the University of Alaska Anchorage, told Kenai/Soldotna public radio station KDLL in February.
“When you look at things like retail sales and grocery spending and traffic, or foot traffic in grocery stores, you see that it’s been really, really elevated. And to me, that partially explains why sales taxes … have stayed fairly robust,” Guettabi said.
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