Wrangell sets record for sales tax revenues

The borough collected a record amount of sales tax revenues in the fiscal year that ended June 30, passing the $4 million mark.

A growing share of the borough’s tax collections is coming from online sales, just over $401,000, according to Finance Director Mason Villarma.

That 10% share of total sales tax receipts in the past fiscal year is substantially higher than the roughly 6% share two years ago.

“It’s bittersweet,” Mayor Patty Gilbert said of the increase in online shopping.

The increased tax revenue is not entirely the result of residents spending more online; it’s also more merchants complying with the law.

The borough started collecting its 7% tax from online purchases only three years ago, and the number of online sellers following local laws and remitting sales taxes is increasing nationwide.

Wrangell, along with several other Alaska cities and boroughs, along with jurisdictions across the country, started collecting their local sales taxes on online purchases after a U.S. Supreme Court ruling in 2018 allowed states and municipalities to enforce their tax laws on so-called “remote merchants.”

Before the court ruling, most online merchants declined to charge taxes on goods shipped into states and cities with a local tax.

Established and administered by the Alaska Municipal League, the Alaska Remote Sellers Sales Tax Commission in 2020 started collecting and distributing local tax receipts on behalf of cities and boroughs statewide. The number of participating municipalities is now up to almost four dozen.

Wrangell’s total sales tax collections in the past fiscal year reached $4.044 million, an increase from the $3.627 million of the prior fiscal year (2022) and $3.265 million the year before that (2021).

The borough’s tax revenues were $2.682 million in fiscal year 2015.

While the increase is substantial — a 24% gain from 2021 to 2023 — Gilbert noted that it’s not just a matter of residents and visitors spending more money on goods and services. A lot of the increase is due to inflation.

The $2.682 million that Wrangell collected in sales taxes in fiscal 2015 would be worth about $3.458 million in September 2023 dollars, according to the U.S. Department of Labor inflation calculator. Add in tax revenues from online sales, and Wrangell isn’t as far ahead in economic activity as the $4 million in last year’s collections would indicate.

“Most of the increase in sales tax revenue seen over the past few fiscal periods was primarily attributable to inflation as opposed to increases in underlying consumer activity,” according to the borough’s budget write-up for the current fiscal year.

A wealth of federal pandemic relief to individuals, businesses, nonprofits, the tribe and borough likely drove some of the increase in consumer spending and tax receipts 2020-2022.

Last year’s record $4 million exceeded the borough’s cautious revenue estimate by $500,000, which is not uncommon — borough staff and the assembly in years past have adopted conservative tax revenue estimates to build the budget.

By ordinance, the borough dedicates 20% of sales tax revenues to schools. The rest of the borough’s annual contribution to the school district operating budget comes from federal dollars shared with the municipality. By law, those federal funds can only go to schools and roads.

Gilbert said the strong sales tax collections have prompted her to consider proposing that the assembly raise to 25% the share that goes to schools. That would allow the assembly to appropriate more of the federal money to roads, she said.

State law limits how much a municipality can contribute to its school district’s operating budget, and Wrangell this year is at the maximum allowed.

Sales tax is the single largest source of money for the borough’s general fund budget. Property taxes this year are estimated to bring in $2.095 million. The general fund budget totals about $7.185 million, which includes municipal operations and subsidies for the Nolan Center and Parks and Recreation programs. The total does not include the Port and Harbors Department or utilities, which operate as standalone accounts.