The borough assembly is considering adding a seasonal sales tax proposal to the ballot in October in an effort to increase borough revenue.
In the past year, the borough has seen major revenue streams drop off, including federal stimulus funding, school funding from the state, and property tax revenue lost to the borough’s newly-increased property tax exemption for seniors.
A seasonal sales tax would increase the sales tax rate in the summer months in an effort to capture more of the money spent by visitors during the summer tourism rush.
But unlike just a run-of-the-mill tax rate increase, a seasonal sales tax plan would also deliver tax relief in the winter. In theory, by shifting more of the year’s taxing to the part of the year with more spending from non-locals, the plan would offer a sort of silver bullet: increased revenue for the borough, but steady, or even reduced yearly tax burden for year-round residents who stick around for cheaper winter rates.
The details of what a plan would exactly entail have not been finalized, and the deadline to officially introduce ballot measures in the assembly is on July 8.
The assembly met last week to discuss a number of possible plans, and eventually formed a rough consensus behind one proposal that will be on the agenda for the July 8 assembly meeting. That proposal, in its draft form, would increase the current 5.5% sales tax by 1% in the summer. In the winter, the rate would come back down to 5.5%. To reduce the burden on year-round residents, non-prepared groceries, which are currently taxed year-round, would be untaxed from October to March.
At the meeting, assembly members Gabe Thomas, Craig Loomis, and Cheryl Stickler all expressed support for the plan.
“In the summer everyone has to go up 1%, but we typically have more jobs available and there’s more economy going on (in the summer),” said Stickler. “But going back to what we’re used to (in the winter), with the addition of exempted groceries, that is a break for year-round residents.”
Borough finance director Jila Stuart also said the grocery exemption could benefit local grocers. “It could change the equation in the winter so people decide to buy food here instead of putting the truck on the ferry to go to Costco,” she said.
Some assembly members also said a benefit of the plan was simplicity. Other proposals, they felt, with a tax-rate decrease in the winter, would be harder to sell to voters. “People don’t trust us when we’re moving around large sums of money,” said mayor Tom Morphet, who didn’t officially endorse any particular plan. “I feel like where (seasonal tax proposals) have fallen down in the past is they are a little complicated and take some explaining to the voters.”
Stuart projects the 1% increase in the summer would bring in a total of $559,000. Some of that would be lost to the grocery exemption in the winter, which according to a preliminary estimate from Stuart would subtract roughly $270,000. That would leave the borough with almost $300,000 in new revenue. Stuart said she is still working with grocers to provide a more exact projection.
Morphet emphasized that the seasonal sales tax wasn’t the only way the borough could close the revenue gap, and named a number of other potential funding streams, including reversing the senior tax exemption expansion and increasing the borough’s bed tax on short-term lodging like hotels and Airbnbs.
Which of those avenues the borough and the voters choose matters for who gets taxed, and how much. For the sales tax, everyone in the borough’s boundaries pays the same rate, no matter who they are or what their income is. And many purchases, like food and fuel, are basic necessities. That means the sales-tax burden falls more heavily on lower-income individuals.
“Some of us can afford to stock up in the spring, but others are living week to week,” said Southeast Alaska Independent Living development director Sara Chapell. They’re the ones that could struggle in the summer.”
The proposal will be up for further assembly discussion on July 8. And ultimately, if the ballot measure is approved at that meeting, it will be up to the voters to decide in October whether or not a seasonal sales tax goes into place.