New sales taxes may be delayed

Editor’s note: This article has been corrected to show that the ordinance to delay sales taxes for nonprofits and vendors that do not accept food stamps that sell food was withdrawn by the three sponsors.

An ordinance before the Kenai Peninsula Borough Assembly to allow nonprofits with storefronts and businesses selling food that don’t accept food stamps a little more time before they have to implement sales taxes next year was withdrawn by the three sponsors.

After Borough Mayor Mike Navarre’s administration undertook a comprehensive review of the borough’s property and sales tax codes, he submitted a set of ordinances to reform the way taxes are administered. Two of the ordinances had to go to public vote — raising the maximum taxable amount of a sale from $500 to $1,000 and gradually phasing out the borough’s optional portion of the senior property tax exemption — and failed to pass.

The other two, containing numerous language and application revisions to the property and sales tax codes, were submitted to the assembly and passed after discussion. One of the revisions to the sales tax code included in the ordinance required nonprofits operating regular storefronts and vendor who don’t accept food stamps selling nonprepared food items to charge the borough’s 3 percent sales tax on them.

Nonprofits such as Salvation Army and the Holy Assumption of the Virgin Mary Russian Orthodox Church in Kenai, which operates a small gift shop, will now have to charge sales taxes. Gas stations and other businesses that sell food will also be subject to sales taxes.

The ordinance to delay the effective date, which would have been introduced at the assembly’s Tuesday meeting, would have kicked back the effective date one fiscal quarter from Jan. 1, 2017 to April 1. Several affected organizations requested the delay because “the provisions will create broader issues than anticipated,” according to the ordinance.

One of those organizations was Alaska Village Missions, a Homer-based nonprofit that operates a Bible college with housing and meal service. In public comments to the borough, Alaska Village Missions Executive Director Randy Weisser wrote that he was unsure if the nonprofit should have to charge sales tax on its housing as a rentals and on its meal services.

“We assume that the Borough is likely targeting those nonprofit organizations that have income-generating sources that are unrelated to their mission, and that directly compete with private businesses,” Weisser wrote. “In our case, we do not consider our fees as unrelated business income. Having the students and staff stay on campus is an integral part of the discipleship program that we offer. Our on-campus program does not complete with any private business.”

Tara Riemer, the executive director of the Alaska SeaLife Center in Seward, a nonprofit aquarium and marine mammal research facility, raised concerns about the far-reaching consequences of the tax changes and asked that the borough both delay the implementation and reconsider requiring nonprofits to collect sales tax. She submitted comments both as the executive director of the SeaLife Center and as the treasurer of the Kenai Crewsers Rowing Club, another nonprofit in Seward. In comments to the borough, she explained that the change would impact the SeaLife Center’s gift shop and admission fees. For other nonprofits, it might mean charging sales taxes on swimming club fees, senior center meals or child development center tuition, she wrote.

She also raised concerns about the work burden of processing sales taxes. Recording and reporting taxes might take more staff time than is worth it from small businesses, she wrote.

“As treasurer of the Kenai Crewsers Rowing Club, I can estimate the amount of work it would take for me to collect and report on sales tax for rowing fees, regatta entry fees, and a small amount of merchandise sales,” she wrote. “The value of my time exceeds the $300 the borough might collect from our $10,000 annual budget!”

It’s hard to pin down exactly how many nonprofits operate in Alaska — some are small enough that they have not registered with the Internal Revenue Service, are relatively inward-facing groups such as church congregations, or are nonprofits registered in another state with operations in Alaska. A 2010 report from the University of Alaska Anchorage’s Institute of Social and Economic Research estimated that there were about 7,000 charities operating in Alaska at that time. Requiring nonproits to charge sales taxes is estimated to bring in more than $100,000 annually, while the change requiring the additional taxes on nonprepared foods, taxes on alcohol by nonprofits and taxes from vending machines are estimated to bring in less than $50,000 annually each, according to a July 2016 financial analysis from Navarre’s office.

The sponsors — assembly members Dale Bagley and Brandii Holmdahl and Assembly President Kelly Cooper — also requested an expedited hearing on the ordinance so it can be dealt with before Jan. 1, the original effective date. However, the three assembly members withdrew it before the meeting, saying they felt the administration would handle the organizations’ concerns.

Another ordinance introduced Tuesday would exempt flightseeing tours from collecting sales taxes, reversing a provision included in the mayor’s sales tax revisions. Bagley, the sponsor, wrote in the memo that the assembly originally exempted air charter and air taxi services from sales tax in 1994 in response to a state law prohibiting municipal taxes on air transportation o individuals or goods by certain air carriers. Bagley said during the discussions over the sales tax changes that he was concerned about lawsuits should the assembly vote to impose sales taxes on flightseeing tours, as previously reported by the Clarion.

“…This exemption was enacted to avoid expensive protracted litigation with questionable long-term benefits,” Bagley wrote in the Nov. 9 memo.

The mayor’s office projected the earnings at more than $200,000 annually, according to the July 2016 estimates.

The assembly will hear the flightseeing ordinance at its Jan. 3, 2017 meeting. Bagley included a clause in the ordinance that would be retroactive because the current policy is set to go into place Jan. 1, 2017.

 

Reach Elizabeth Earl at elizabeth.earl@peninsulaclarion.com.

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