In the ongoing push to whip Juneau’s city budget into better shape, the Assembly’s tax exemption committee has turned its focus to three of Juneau’s tax breaks: those for senior citizens, the out-of-borough sales tax exemption and the $7,500 cap on sales tax.
About $78 million in sales was exempted from Juneau sales taxes in 2013 thanks to 50 different tax exemptions, according to city numbers. Some of those exemptions are state and federal mandates and cannot be altered, city finance director Bob Bartholomew said in a past Empire report. The rest are being scrutinized by the committee and are subject to change.
Although no decisions have yet been made to change any tax exemption on the books, the committee keeps coming back to three in particular, Bartholomew said after a Thursday meeting. The Assembly will hold public hearings before any changes are made.
On top of a state property tax exemption for seniors, the City and Borough of Juneau offers a property tax hardship exemption to Juneau residents 65 and older who make 120 percent or less of Juneau’s two-person median income: $76,100 per year. The Matanuska-Susitna Borough is the only other municipality in the state that offers a similar tax break.
Instead of erasing the exemption altogether, Bartholomew has proposed a sliding scale in which households making between 110 and 120 percent of the median income, or $91,320, per year would get a 25 percent tax exemption; those making 100 to 110 percent would receive a 50 percent exemption, and so on, down to the 90 percent category who would receive 100 percent of the exemption.
Right now, 104 people have filed for the senior property tax hardship exemption. Based on those numbers, the city would collect as much as $22,447 more on property tax if the sliding scale was implemented. The exemption currently costs the city $176,000 per year.
Assemblyman Jesse Kiehl questioned if 120 percent of Juneau’s median income should be considered a hardship.
“This step approach is great, it’s really easy to understand,” Kiehl said. “It doesn’t get to the question: Is median income hardship?”
At a past meeting, the committee discussed the senior sales tax exemption and suggested that only necessities like food be exempted. It did not discuss the senior sales tax exemption at this meeting.
The committee did discuss altering the city sales tax cap on purchases greater than $7,500. Since 1991, a purchase greater than $7,500 is taxed only to that level. In 2013, the city made about $1.2 million in taxes on 3,185 big-ticket purchases, mostly cars.
If the cap were raised to $10,000, the city could bring in almost $400,000 more. If the cap were $11,500, it could make almost $600,000 more. If the cap were doubled to $15,000, the city could bring in $1 million more in taxes, although Bartholomew called those estimates “at the high end of doable.”
“I would be recommending a lower number than is here, so we don’t rely on something we don’t think we could get,” he said.
Bartholomew and sales tax administrator Clinton Singletary have been meeting with business owners to talk about the cap and whether changing it would affect their businesses.
“I know that in talking with three significant vendors... we had one of them that was pretty adamant it would cost them sales, we had two other ones that said there might be an effect but they don’t think it was significant to them,” Bartholomew said.
The out-of-borough sales tax exemption affects those who order from stores in Juneau from another Alaska community or the Lower 48.
If a family in Hoonah takes the ferry to Juneau to load up on supplies from Costco, they pay sales tax. If they order the same supplies over the phone and have them delivered, there is no tax.
“To me that’s a disparity we could be fixing,” Bartholomew said after the meeting. “There are some inequities in the current structure.”
According to city estimates, if Juneau removed its out-of-borough exemption, it raise $1 million more in revenue. Again, Bartholomew called that estimate on the “very, very high end of doable” because it doesn’t take into account sales lost if the tax is imposed.
Bartholomew and Singletary reached out to about a dozen businesses to get feedback on removing the out-of-borough exemption. Bartholomew said the Assembly will have to wait for public testimony to see who would be impacted by the change and how.
“You’re not going to change anything without pushback,” he said. “The easy changes are done.”
“And they weren’t easy,” Mayor Merrill Sanford replied.