In a unanimous decision, the borough assembly took the first step toward increasing flexibility for the number of annual tax-free days, allowing for anywhere between zero and two days in a year.
Currently, there are two sales tax-free days per year, often bookending the summer season so that full-time residents (rather than tourists) can enjoy the town-wide discounts in the spring and fall. On tax-free days, Wrangell’s 7% sales tax is removed for 24 hours. Local businesses tend to run additional sales on these days, with the hope of increasing foot traffic in their stores.
However, the opportunity cost for the borough on these days is sizable.
Borough Manager Mason Villarma estimates the borough loses between $20,000 and $30,000 in revenue every tax-free day. As it currently stands, sales tax revenue is divided into two buckets: 80% contributes toward the borough’s general fund, and the remaining 20% is allocated to the school district.
With the school’s reserve fund headed in a steep descent downward in the coming years and the borough trying to maximize revenue for capital projects like road improvements, the assembly recognizes that increased funding has to come from somewhere. That is driving the change to the municipal code governing tax-free days.
Though the change will likely result in a single tax-free day in 2025 according to Villarma, the flexibility of the proposed ordinance opens up the possibility of a future return to two days. It also means that if the borough finds itself in a tighter fiscal pinch, the assembly could do away with tax-free days altogether.
Assembly Member Anne Morrison also sits on the borough’s code review committee. She teamed up with Mayor Patty Gilbert to rewrite the language in the proposed ordinance, which the assembly approved in the first reading on Nov. 18.
Morrison explained the decision to change the code: “I’ve talked to several business owners here in town and they advocate for the one tax-free day rather than the two,” she said.
Currently, the chamber is responsible for scheduling and seeking approval for the exact dates for tax-free days. If there is just one in a calendar year, the chamber will need to determine if a spring date or a fall date is preferred.
Borough Clerk Kim Lane said the proposed ordinance would reframe the planning process for such days. If the ordinance is passed in the second and final reading next month, the chamber would need to submit the requested tax-free days to the assembly by April. This would allow the City Hall finance team to adjust the upcoming fiscal year’s budget accordingly.
Meanwhile, borough officials are exploring possible solutions to revitalize sales tax revenue, which dropped 6.9% last year, including implementing a sales tax on purchases made on cruise ships while they are in town.
The second reading and public hearing to adopt the changes for tax-free days is scheduled for the borough assembly meeting on Dec. 17.
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