The borough set a record last year for sales tax collections, exceeding budget estimates for the fiscal year that ended June 30, 2021. And so far this year, sales tax receipts are continuing on another record pace.
Multiple factors are leading to the increase in sales tax collections, officials said.
The borough collected $3.26 million from its 7% sales tax on goods and services last year, about $300,000 more than in the pre-pandemic fiscal year 2019 and $600,000 above the 2017 number.
Sales tax revenues have exceeded budget estimates each of the past three fiscal years, particularly during the pandemic when borough officials were cautious and projected lower tax revenues because of job losses and reduced tourism spending the past two years.
Sales taxes are the single largest source of revenue for the borough budget, not counting utility, port and harbor user fees. The borough last year collected from sales tax about two-thirds more than it received in property tax revenues.
Taxes collected from online sales are part of the gain, an estimated $200,000 in the current fiscal year that will end June 30. Wrangell, along with multiple cities and boroughs across Alaska, started collecting their local tax from online sales by out-of-town merchants about two years ago after a U.S. Supreme Court decision allowed states and municipalities to tax sales by remote merchants the same as local businesses.
“That has made a big difference,” Mayor Steve Prysunka said of tax collections from online sales delivered into the community.
However, that’s not all good, the mayor said. It means that money is spent out of town.
After accounting for the commission that the borough pays on the remote sellers tax program managed under the Alaska Municipal League, the $200,000 in sales tax revenue for the borough this year represents about $3.5 million in actual retail spending.
That works out to about 10% of taxable retail spending in town, according to Sentinel calculations of borough tax receipts.
“It’s been leaving town for quite a while, Prysunka said. “It’s an issue throughout the U.S.”
The mayor said the shift to ordering from out of town becomes “a self-fulfilling prophecy.” Shoppers find, for example, that they can get a new toaster for $5 less online, he said, so local merchants stock less merchandise, leading to fewer sales in town — even when someone walks into a local store and wants to buy a new toaster.
The millions of dollars of federal pandemic aid that flowed to Wrangell households the past two years also helped boost consumer spending and tax receipts, said the mayor and Borough Finance Director Mason Villarma.
Direct federal payments to individuals totaled as much as $3,200 per person the past couple of years, depending on income. In addition, millions went out to Wrangell households through federal aid administered by the WCA tribal council, renters and utilities assistance administered by the Alaska Housing Finance Corp., business grant programs run by the state, and other cash assistance grants.
Inflation that is driving up the cost of goods and services, particularly gasoline and diesel at the pump, also is pushing up sales tax receipts in Wrangell and other Alaska communities. More than 100 cities and boroughs across the state collect a sales tax — the biggest tax-free holdouts are the state’s two largest municipalities, Anchorage and the Fairbanks North Star Borough.
Another reason for the higher tax collections in Wrangell is better compliance, the mayor said, pointing to the addition this winter of a sales and property tax clerk at City Hall.
“I can say with confidence the new property and sales tax clerk position has increased sales tax collections immensely,” Villarma said. “Increased oversight and accountability have brought in a lot of delinquent sales tax.”
The clerk maintains an email list to remind taxpayers of upcoming deadlines. “She has also been diligent in identifying nonpayers, notifying them and helping me estimate sales tax payments for those who failed to file,” the finance director said. The borough has succeeded in getting some of the larger past-due accounts on payment plans, “which has significantly increased cash inflows for the past quarter.”
Sales tax collections are divvied up according to percentages in borough code: 28% for bond debt for school and health facilities, and to pay toward operation of the public schools, the community’s sewage system, health and sanitation services; 4% for street and sidewalk improvements; with the balance of 68% available for appropriation by the borough assembly.
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