The assembly voted on Thursday to adopt an ordinance exempting sales tax for long term residential renters.
The new ordinance defines long term as nine months or more, and adds that “rent” or “lease” refers to a dwelling, apartment, or commercial establishment.
“It often happens where somebody rents a house — they rent it by the month during the summer and they rent it long term in the winter, but I think even that’s going to be minimized by this clarification,” said Borough Manager Debra Schnabel. “You’re either a short term rental facility, or you’re a long term rental facility. You’re one or the other.”
Additionally, the ordinance specifies what is meant by “short term rentals.”
Short term rentals is now defined as “a single accessory dwelling unit, or room within a dwelling which is rented by or on behalf of the owner for compensation for transient occupancy for a period of less than nine months.”
Vacation rentals, bed and breakfasts in private homes, and guest rooms in a dwelling are included in the definition of a STR.
According to assembly member Sean Maidy, who proposed the ordinance, the period of nine months was determined as the threshold for long term rentals because of the state’s requirement to be in Alaska for nine months in order to claim a Permanent Fund Dividend (PFD).
“Is there any way in this at all to guarantee that the renters will be the beneficiaries of the tax break and not the landlords?” assembly member Heather Lende asked.
Maidy responded that the most standard part of a lease in a town where you have sales tax to collect is, “Your rent is X amount of money, plus sales tax.” According to Maidy, landlords “don’t even need to amend their current leases, because all they need to do is realize that plus sales tax now means plus zero, unless you are classified as a short term rental, then plus sales tax still applies.”
Though the vote to adopt passed unanimously, assembly member Tom Morphet said that, “As we do this, we are forfeiting up to $75,000 in sales tax revenue that we now receive.” He suggested that the borough ask those who currently receive senior property tax exemptions to pay more, “with wording like, the borough would gratefully accept any amount toward your full assessment.”
Assembly member Tresham Gregg asked how, given a potential $75,000 loss, this ordinance is going to help the borough.
“It’s not always about money,” Maidy said. “It’s about ridding a regressive tax and putting a little bit of money into the pockets of people most affected.”
Maidy also said the revenue the borough brought in from the excise tax on tobacco imposed earlier this year could make up for the loss “So, by [imposing] a regressive tax on a choice, which is to smoke, and removing it from a regressive tax [on something] you need to survive, which is shelter and housing, that’s as close as I can get to balancing it out.”
“This is a value-based decision and has nothing to do with making money for the borough,” said assembly member Stephanie Scott.
Among Southeast communities, Petersburg and Juneau exempt sales tax on residential renters. Ketchikan exempts sales tax on rentals in excess of $1,000. Sitka, Wrangell and Skagway all charge sales tax on rent.