Chilkat Valley News - Serving Haines and Klukwan, Alaska since 1966

Should cottage businesses pay sales tax?


February 14, 2019

What is the appropriate profit margin for a lemonade stand to begin collecting sales tax?

This was a question the Haines Borough Finance Committee explored on Tuesday, the answers to which will have impacts on small-scale businesses who sell food and other items at popular events such as the Haines Farmers Market and the Southeast Alaska State Fair.

Borough finance director Jila Stuart proposed a code amendment to better define “casual and isolated vendors.”

“Frequently, individuals disagree about what constitutes a sale not in the regular course of business,” Stuart wrote in a memo. “The clarification aims to make tax collection more equitable.”

“If there was an issue with a lemonade stand across from the cruise ship dock every Wednesday run by a 10-year-old kid, we might think they didn’t need a business license,” Stuart said. “But if it was an adult, we would probably think they should have one.”

Committee chair Tom Morphet asked why the revision was needed. “Why doesn’t our law just say, ‘If you are required to have a business license for your business, then you are required to remit sales tax?’”

Stuart said providing business licenses is a judgement call by borough staff.

“I think then the changes need to be made to the section of code about business licenses,” Morphet said. “The taxation goes with the business license.”

Stuart proposed that if a business generated more than $1,000 a year in net profits, it would require a business license.

“Somebody that’s collecting $250 per quarter is not in any business,” committee member Brenda Josephson said. “Keep in mind that it’s $50 just to get a business license.”

The committee asked staff to reconsider such a threshold.

“We want to encourage people to start small businesses, but we don’t want to encourage them to do that without collecting sales tax,” Stuart said. “We don’t want to create an unfair environment.”

The finance committee also looked at proposals from staff to change the amount of sales tax designated for different funds. For example, it would reduce the percentage of tax from tourism to half a percent from 1 percent, and shift the difference to the areawide general fund. Such a shift would put more money into public facilities and maintenance.

Morphet and Josephson said they were opposed to re-appropriating funds that tax payers had voted on.

Committee member Stephanie Scott said she had to think about it, but wondered if it was fair and helpful.

“The proposal is a little bit like robbing Peter to pay Paul,” Morphet said. “If we need more money we should go to the voters.”

Public facilities director Brad Ryan said he instigated the proposal by asking for more money to improve facilities.

Staff also proposed increasing the sales tax cap for construction from $5,000 to $10,000, which would bring in $9,000-$12,000.

The committee rejected the proposal.


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