Soldotna residents will soon have the chance to weigh in on whether the city brings back its year-round grocery tax.

The Soldotna City Council introduced an ordinance at its Wednesday meeting that would amend city code to restore the year-round tax on nonprepared food items, also known as the grocery tax.

When it was a first-class city, Soldotna had to collect sales taxes in the same manner as the Kenai Peninsula Borough did. In 2008, the borough assembly passed an ordinance that allowed first-class cities to levy their own taxes, which allowed Soldotna to not participate in the nine-month grocery tax exemption. A group of citizens challenged the ordinance and were handed a favorable decision in 2014 from the Alaska Supreme Court, allowing them to gather signatures for a ballot initiative to repeal the 2008 ordinance.

When the ordinance passed in the October 2015 municipal election, Soldotna had to reapply the exemption and only collect the tax during summer months.

Members of the Soldotna Charter Commission that created the home-rule charter voters approved in the Oct. 4 election have said that Soldotna residents had overwhelmingly voted to keep the year-round grocery tax last year. They did, by a nearly 27 percent margin, according to the borough election results. Now that Soldotna is a home-rule
community, it has the option to opt out of the exemption on collecting the tax.

According to the proposed ordinance, the new section of code would read: “Except as provided in AS 29.45.700(D) which exempts food purchased under the Food Stamp Act or Special Supplemental Food Program for Women, Infants and Children, there shall be no sales tax exemption on non-prepared food as provided by Kenai Peninsula Borough Code…”

When the council was working on its fiscal year 2017 budget in June, City Manager Mark Dixson had proposed raising the city’s mill rate from 0.5 mills to 2.0 mills to make up for lost revenue from the lack of a year-round tax. At that time, he said that even quadrupling the mill rate wouldn’t get Soldotna completely out of the hole created in part by the loss of year-round sales tax revenue on nonprepared foods and by the loss of state funding.

Soldotna had been projected to lose $1.2 million in revenue in the wake of losing its year-round grocery tax, and Dixson said after a May budget work session that the city’s first-quarter payment came in $488,000 lower this year.

In the end, the city council voted in June to keep Soldotna’s mill rate the same and use its reserves to make up for the deficit, which would have still been $900,000 had the property taxes been raised to 2 mills.

Introduced on the council’s consent agenda, the ordinance to restore the sales tax will come up for public hearing at the council’s Oct. 26 meeting.

Reach Megan Pacer at megan.pacer@peninsulaclarion.com.