Since 1965, the Kenai Peninsula Borough has applied its sales tax levy to the first $500 of a sale, rental or service transaction. However, a sales tax proposal scheduled for introduction at Tuesday's meeting of the Kenai Peninsula Borough Assembly in Seward would amend the sales-tax code to apply the tax to the first $1,000, a move that could mean millions in increased sales tax revenues to the borough and its cities.
Under the existing tax code, no sales tax is applied to that portion of a product's cost exceeding $500. In other words, a $5,000 purchase brings in no more sales tax than a $500 purchase does.
Based on the consumer price index for Anchorage, what was worth $500 in 1965 now is worth almost $1,802, according to borough economic analyst Jeanne Camp.
Ordinance 2004-13, introduced by Mayor Dale Bagley, would authorize the borough to calculate the sales tax on the first $1,000 of a sale.
Scott Holt, the borough's director of finance, has estimated that increase would bring in an additional $1.96 million in sales tax revenue to the borough. Assuming the home-rule cities of Kenai and Seward also made the change, the total revenue increase spread among all the borough's five cities would be an additional $1 million. Because they are home-rule municipalities, Kenai and Seward have the power to set their own tax levies and have a choice whether to opt in or out of the proposal, Holt said.
Holt said Wednesday the borough is eying ways to increase revenues, including a possible increase in the property tax rate. The ordinance puts a sales-tax increase on the table as a possible alternative, Holt said.
"It is not anticipated that a sales tax increase and a property tax increase would be passed at the same time," he said.
If the ordinance becomes law, it is proposed to go into effect Jan. 1, 2005, which would give time for the administration to notify the public, publish changes and develop documents needed to administer the change.
Holt said the ordinance is "expected to have significant effect within the entire borough," and he has proposed two public hearings for the ordinance, on May 18 and June 1.
Assembly President Pete Sprague expressed doubts about such a sales tax move.
"I don't know where it is going to go," he said Wednesday. "I hate to speculate whether it would pass or not, but I have some reservations about it."
Sprague was a member of a tax committee a couple of years ago that studied ways to increase the borough revenue stream.
"We talked about this option but didn't bring it forward," he said.
Sprague said the borough has options. It could choose a seasonal sales tax increase to take advantage of the flood of visitors in the summer months, or the borough could raise its sales tax to 3 percent, the current sales-tax cap, Sprague said.
But raising the sales tax could impact the sale of big-ticket items if buyers chose to head to Anchorage, which has no sales tax.
"It could hurt local businesses, which I really don't want to do," Sprague said.
Also factoring into Sprague's "discomfort" is that a statewide sales tax remains a topic of discussion in Juneau. He did note the Legislature must make a decision on that subject, at least for this session, by mid-May.
Finally, Sprague said that in any case, the administration would have to work pretty hard to convince him that the borough needed to increase revenues.
