The renewed emphasis on prosecuting merchants who fail to remit city sales taxes begs the question of how much city sales tax raises in revenue.
According to City Finance Director Bob Bartholomew, city sales tax and property tax are the two primary revenue sources for the city, and more than 80 percent of the city’s general government revenues comes from those two programs. Each bring in about $40 million a year.
The total amount of revenue raised from the sales tax increased steadily over a five-year period, bringing in $30 million in 2003 to $40 million in 2008. As the national recession hit, however, that figure began to taper off. It decreased by about a million dollars in 2009, then another million dollars in 2010. Revenue began to recover in 2011 and 2012, and now revenue has rebounded to pre-recession levels.
“It was kind of growing, you get 2008 and the national recession hit and then things kind of flattened out, and sales tax actually declined and property tax just flattened out” Bartholomew said. “And now starting in pretty much Fiscal Year 2013 and into 14, we’re seeing the economic activity grow again so things are starting to increase.”
In 2012, both sales and property tax brought in $41 million. In fiscal year 2013, city sales tax brought in $43 million while property tax brought in $44 million.
Now Bartholomew forecasts that Fiscal Year 2014 will bring in the most revenue ever from city sales taxes: $44 million. Property taxes are slated to bring in $46 million.
During the years revenue dropped, the city made up for that by using fund balances, Bartholomew said.
“They had accumulated savings and for Fiscal Years 2009, 2010 and 2011, and even 2012, they drew on those fund balances,” Bartholomew said. “And we’re still doing it a little bit, but much smaller amounts, and toward getting close to where the recurring revenues can fund the ongoing budget.”
So what does the money go to? The permanent one percent (of the five percent) tax goes to general government; another one percent which is temporary and comes up for a vote every five years goes toward multiple capital projects; and the other three percent goes toward a variety of things including general government, capital projects and youth activities grants.
“It goes into a blended pot of the operating budget, so everything that the city does is primarily funded by property or sales tax,” Bartholomew said of the three percent. “So that’s the general government departments — what goes on with Parks and Rec and with Finance and police and fire. So it just ferrets out to the departments, and if you think about the departments 80 percent-plus of their budget is coming from property or sales tax.”
For that latter three percent, the Assembly historically allocates a about 40 percent toward capital projects.
The city’s departments pay for the rest of their budget through service charges, such as charging for ambulance service and permits, so the departments have their own program revenues. The other big part of the city budget is from enterprise funds, like the airport, harbors and hospital. (About two-thirds of the school district budget is funded by the state, and one-third is funded by the city. The city’s portion of that comes from property tax, not sales tax.)
Many states levy sales tax at the state level, but for a state like Alaska that does not, city sales tax is a standard way to raise revenue for local government, Bartholomew said.
“It just appears to be an effective way to raise revenue, and people haven’t come up with a lot of better ways,” Bartholomew said
Juneau voters first passed the sales tax — at a rate of one percent — in July 1950 with the intent to raise revenue to provide government services to citizens. Since then, voters have continually agreed to tax themselves, at a rate of five percent since 1999.
The city’s policy of enforcing sales tax rules is to ensure that money is collected, especially given the $4.5 million general government budget shortfall in Fiscal Year 2011 and the $3.2 million shortfall in Fiscal Year 2012. There was no shortfall in Fiscal Year 2013.
Bartholomew said Fiscal Year 2014 is expected to have a shortfall, “but we are still working on that budget,” he said. “There may been to be some budget reductions in FY 14 (Fiscal year starting July 1, 2013), but no final decisions have been made.”
Does going after delinquent businesses who fail to remit the taxes make a difference in closing that gap?
“The measurable amount of income from specific enforcement actions (not limited to just what CBJ Law worked on) is less than $350,000,” Bartholomew said. “It is important to collect from non/delinquent payers but it is very small in relation to the overall budget and solving the gap. There is a positive effect from increased/visible enforcement that is hard to measure, but there (is) a major benefit. When enforcement actions get public attention there is an increase in delinquent taxpayers and non-filers coming forward to settle CBJ claims.”
• Contact reporter Emily Russo Miller at 523-2263 or at email@example.com.