Voters will decide on Oct. 1 on whether to increase the cap on the borough’s sales tax.

Under current Kenai Peninsula Borough code, sales tax is only applied up to the first $500 of a purchase. This cap has been in effect in the borough since 1965. According to the Alaska Department of Labor, $500 in 1965, adjusted for inflation on the Anchorage Consumer Price Index, would be worth about $3,195 in 2018.

The Borough’s sales tax of 3%, when applied to a purchase of $500 or more, adds an additional $15 to the cost of the purchase.

Proposition 2, if passed by voters, would raise that cap to $1,000. If applied under the current tax rate, the maximum amount paid on any given purchase would be $30.

Residential rentals are exempt from the potential cap increase because “it would disproportionately affect tenants of residential property who would pay the higher rate every month,” according to the language of Proposition 2.

The Kenai Peninsula Borough Finance Department estimates this increase in the sales tax cap would generate approximately $3.1 to $3.4 million annually in additional revenue.

On the Oct. 1 ballot, Proposition 2 will read:

“Shall Section 1 of Ordinance 2019-15, increasing the maximum amount of a sale subject to the borough sales tax, other than residential rentals, from $500 to $1,000, be ratified? The maximum amount of residential property rentals subject to the sales tax would remain at $500 per month.”

A “yes” supports increasing the sales tax cap. A “no” opposes the increase.

If enacted, the increase would go into effect Jan. 1, 2020.