Assembly members expressed interest — but also caution — in what borough staff can come with to change the sales tax code to possibly raise more revenue without raising the actual tax rate.
Raising more money from sales tax would allow the borough to continue funding the schools without raising property taxes, Borough Manager Mason Villarma said.
There are options for increasing revenues other than raising the tax rate. Currently, Wrangell charges a 7% sales tax on goods and services up to $3,000 in value. There is no tax charged on purchases that exceed the $3,000 cap for goods or services performed or delivered in a single transaction.
Villarma estimated the annual loss at $917,000 in borough revenue due to the cap that shuts off the tax calculation at $3,000.
That is a significant amount of money, when measured against the $3.5 million the borough estimates it will collect from sales tax for the fiscal year that ends June 30.
At the borough assembly meeting April 23, Villarma discussed options that included raising the cap or changing the rate. Changing the tax rate would require a vote of the public, whereas changing the cap would only need assembly approval.
Every city and borough in the state with a sales tax sets its own limit on how much of a purchase is subject to the tax. The taxable limit in Juneau this year is $14,300; it’s $12,000 in Sitka; $5,000 in Haines; $500 in the Kenai Peninsula Borough; and $200 in North Pole, the lowest in the state.
Assembly members floated the idea of raising the cap in Wrangell to $10,000, but there was a consensus that conversations would be needed with local business owners before making any changes. There were concerns among assembly members whether a higher cap might drive business elsewhere.
Raising the taxable limit would particularly affect sellers and buyers of big-ticket items such as boats and motors, home appliances and boat repairs.
Separately, City Hall staff this year will conduct random sales tax audits to check for compliance, and Mayor Patty Gilbert said she wants to see the results of those reviews before changing anything in the tax code.
Villarma also discussed other options to raise revenue that include special tax rates, such as higher sales tax rates for items like alcohol and tobacco and lower rates for groceries. Multiple cities and boroughs around Alaska charge additional taxes on alcohol and tobacco — Wrangell does not — and many communities do not tax groceries.
Currently, the borough hosts two tax-free days per year, one in the spring and one in the fall. Villarma estimated that each tax-free day costs the borough roughly $60,000 to $70,000 in lost sales tax revenue. Many other communities in the state only have one tax-free day.
Villarma noted at the April 23 meeting that getting rid of a tax-free day could be an option before changing any sales tax rates or caps.
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