A 2018 U.S. Supreme Court decision on sales taxes and a 2020 statewide initiative started by the Alaska Municipal League are benefitting Wrangell’s public treasury.
The borough in the past fiscal year collected about $440,000 in sales taxes from purchases made online, by phone or mail and delivered to Wrangell households and businesses.
That is up about 10% from the prior year and up substantially from $180,000 in revenues in 2021, the first year of the program.
Before the court ruling, states and municipalities were blocked from collecting sales taxes from so-called “remote sellers” that did not have a physical presence in the tax jurisdiction. Wrangell residents could order tax-free through Amazon, Walmart, Eddie Bauer and other online sites.
In response to the court decision removing the legal barrier to applying local sales taxes to online purchases, the Alaska Municipal League set up the Alaska Remote Seller Sales Tax Commission, which serves as a central administrator to collect and distribute tax revenues to almost 50 cities and boroughs around the state.
The statewide organization in fiscal year 2024, which ended June 30, distributed almost $24 million in sales tax receipts, after administrative expenses, to those municipalities — almost triple the $8.5 million in the first full year of the program in fiscal 2021.
A municipality must have a general sales tax in order to collect tax from online sales, and the tax rates must be the same for online and local businesses.
Wrangell’s 7% sales tax on goods and services generated $3.765 million in revenue for the fiscal year that ended June 30. Revenue from online sales was almost 12% of that total.
“It’s bittersweet,” Mayor Patty Gilbert said. It’s good that the borough is able to collect revenue on sales by out-of-town businesses, but it’s unfortunate that the dollars are being spent outside the community, she said.
Sales tax revenues from online purchases are increasing as people shop more online and as more remote merchants around the country follow the law and collect state and local taxes. Before the Supreme Court ruling in 2018, most online merchants declined to collect sales taxes on goods shipped into states and cities with a local tax.
Last year’s total sales tax revenues were the second highest on record in Wrangell, down from $4.04 million in 2023. That record year was skewed higher by a $90,000 collection on an old sales tax lien, according to Borough Manager Mason Villarma.
Tax receipts have risen every year since 2017, particularly in the past few years as inflation has driven up prices and as residents spent several million dollars in federal pandemic relief payments.
But a tightening economy, and fewer cruise ship tourists this summer than last year, have led to lower expectations for tax revenues, Villarma said.
Painfully low salmon prices last summer meant less money for fishermen and fewer hours for seafood processor workers, likely further cutting into sales tax receipts, he said. This year’s salmon prices were better, but runs were down.
The assembly adopted a budget for the fiscal year that started July 1 with sales tax revenues estimated at $3.625 million, down about $140,000 from last year’s actual receipts.
“We’re seeing a decline a little bit in collections,” Gilbert said.
Borough code dictates that 20% of sales tax revenues go to the schools. The rest is deposited into the general fund, which covers the parks and recreation department, police and fire departments, the Nolan Center and other municipal services.
Sales tax is far and away the single largest revenue source for the borough, easily surpassing property taxes, which are projected at $2.1 million for this year.
Retail sales, including groceries, and gasoline, diesel and other fuels top the list of taxable purchases in town, Villarma said.
Sales tax on purchases made online are collected by the merchant and remitted to the borough, the same as taxes collected by businesses in Wrangell.
To help promote local shopping, the borough for years has set aside two days a year as tax-free days, one in May and one in October. An ordinance that would allow the assembly to designate just one day a year was pulled from consideration at the Oct. 8 meeting but likely will return to the agenda for the Nov. 18 meeting, Villarma said.
Each tax-free day costs the borough about $20,000 to $30,000 in lost revenue, he said.
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