Leaders protest proposed sales tax

Critics say state tax could hurt business; local sales tax exemptions would be eliminated

Posted: Friday, May 02, 2003

State and local officials are opposing plans to institute a statewide sales tax because of concerns it would hurt consumer spending, prevent voter approval of local sales-tax-funded projects and eliminate local tax exemptions.

House Bill 293 would eliminate all local sales tax exemptions, allowing only exemptions set by the state. One of the exemptions left out of the bill could add hundreds of dollars to the cost of big-ticket purchases such as cars and trucks.

Fairbanks Republican Rep. Jim Whitaker, co-chairman of the House Ways and Means Committee, said the proposal is still in the early stages of the committee process and that lawmakers would work to address municipalities' concerns.

Whitaker noted that with the dwindling Constitutional Budget Reserve, an account used in recent years to balance the state budget, and opposition from the House, Senate and Gov. Frank Murkowski to an income tax, a statewide sales tax is the only viable solution.

The proposal introduced Thursday by the House Ways and Means Committee would institute a 3 percent statewide sales tax, raising about $330 million annually. The tax would not include the sale of a home, according to the state Department of Revenue.

"I am very, very concerned about it," said Juneau City Manager Rod Swope. "I think for this community it would be a very bad thing."

Swope said the tax would dissuade voters in Juneau from approving local sales taxes. Only 1 percent of Juneau's 5 percent sales tax is a permanent fixture in the city's budget and is used to pay for government services.

The other 4 percent was approved in two separate ballot propositions in 2000.

Three percent is used for capital improvement projects, youth activities and Juneau's rainy day fund. It expires on July 1, 2007. The remaining 1 percent of the sales tax has been used for other city projects such as the Treadwell Arena ice rink, expansion of Bartlett Regional Hospital and school renovations. That 1 percent tax expires July 1, 2005.

"If we have (an additional) 3 percent sales tax, our voters are going to be less likely to reauthorize those other local taxes," Swope said.

Larry Persily, deputy commissioner for the Department of Revenue, said the state would collect about $110 million for every 1 percent of the tax. That number would drop to about $75 million if food, medical goods and services are exempted.

If approved by the Legislature, the tax would go into effect Jan. 1, 2004. For the remainder of that fiscal year, which ends in June 2004, the tax would collect about $135 million, according to the state Department of Revenue.

Under the proposal, Juneau residents would pay 8 percent: a 3 percent state sales tax and a 5 percent local sales tax.

An 8 percent tax on a $3.99 gallon of milk would cost 32 cents, up from the 20 cents residents pay now. The 8 percent tax on a $25,000 car would be about $2,000. Juneau's local sales tax on the same car would cost $375 because the local tax applies only to the first $7,500 of any purchase. The statewide tax plan would eliminate the limit.

The Alaska Municipal League, which represents city and village governments, has opposed a statewide sales tax, noting 62 communities with a local sales tax would face sales tax rates between 6 percent and 10 percent. Fairbanks and Anchorage, Alaska's two largest cities, do not have a local sales tax.

Kevin Ritchie, executive director of the league, said the bill could persuade consumers to turn to the Internet to avoid state and local taxes. Ritchie also warned that exemptions to the tax set out by the state might not work for every community.

Juneau has 37 exemptions to its local sales tax. Among those are prescription drugs, drug and alcohol counseling, items purchased by senior citizens, burial-related items, lobbyists services, child care and nonprofit organizations.

"Juneau has spent 20 years debating what are the best exemptions for the community," Ritchie said. "You're getting whatever the state gets, which might not be the best thing for Juneau."

Exemptions in HB 293 include:

• purchases by government agencies.

• food stamps.

• wages and salaries.

• insurance premiums for corporations.

• sale or resale of property.

• sale of property to a buyer engaged in mining or manufacturing.

• the lease of property.

• Reach Timothy Inklebarger at timothyi@juneauempire.com.

State sales tax

At a glance

How much: 3 percent.

When it would go into effect: Jan. 1, 2004.

How much it could raise annually: $330 million.

What would be exempt: Home sales, food stamps, insurance premiums, purchases by government agencies.

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