The borough assembly has rejected a staff proposal to remove the cap on sales taxes payable on individual purchases. Dropping the limitation, which shuts off Wrangell’s 7% sales tax on the purchase price above $3,000, could have generated an estimated $500,000 a year in additional revenue for the borough.
The assembly April 12 accepted moving to second reading the other provisions of the ordinance that would make some administrative changes to the sales tax code, but deleted the change to the tax cap.
The ordinance is scheduled for a public hearing at the April 26 assembly meeting.
The tax limit does not affect smaller purchases but is an issue for larger items, such as outboard motors, appliances and services bills, such as work at The Marine Service Center. Wrangell’s sales tax applies to services, as well as goods.
Assembly member David Powell, who manages The Bay Co., a marine and outdoor equipment retailer, spoke out at the April 12 meeting against the provision to remove the tax cap. He said it would unfairly target his business and others in the marine service industry.
The taxable limit in borough code had been $1,500 until 2019, when it was increased to $3,000.
Most of the more than 100 cities and boroughs in Alaska have some limitation on sales taxes on big-ticket items, ranging from their local tax shutting off after a few hundreds ofthe purchase price to several thousand dollars.
Removing Wrangell’s $3,000 cap “will not influence the everyday consumer, but it will result in increased revenue from big-ticket items and services (i.e., marine fabrication, construction, etc.),” Finance Director Mason Villarma stated in his summary of the ordinance for the assembly.
“With projected costs rising for the borough in the fiscal year 2023 budget (starting July 1) and decreases in other vital revenue streams like property taxes, this ordinance gives the borough the resources to address deferred maintenance, keep up with inflation and save for future essential capital projects,” Villarma stated.
In a presentation to the assembly in February, Villarma reported that removing the limitation on taxable sales could raise almost $500,000 a year for the borough, about a 15% boost in sales tax revenues.
A remaining provision of the ordinance going before the assembly April 26 would change how the borough divvies up sales tax revenues. Currently, 28% goes to bond debt, schools and sewage projects, with 4% for streets and sidewalks, and 68% to the general fund. If approved, the ordinance would change the allocation to 20% toward bond debt and schools, with 80% to the general fund.
“General fund money can be used for any purpose appropriated by the assembly, creating more freedom in addressing pressing priorities for the borough,” Villarma wrote in his explanation of the ordinance.
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