Sales tax gaining steam

Plan also includes 12-cent hike in fuel tax

Posted: Tuesday, May 13, 2003

The state could begin implementing its first year-round statewide sales tax under a bill that passed the House Ways and Means Committee Monday.

Exemptions to the state sales tax

• Child care services.

• Prescription drugs and health care services.

• Food stamps.

• Sales to schools.

• Sales to and by nonprofit organizations.

• Property rentals such as homes, apartments and office space.

• Occasional sales by an individual such as a used car or yard sale.

• Goods purchased for resale.

• Government agencies.

• All but the first $5,000 of any car, truck, boat, aircraft or mobile home.

The proposal would implement a 3 percent year-round sales tax that would phase in over the next six years. The tax would go into effect next January.

The state Department of Revenue said the tax will raise at least $300 million a year.

The proposal also rolls in another plan in the Legislature to increase the motor fuel tax from 8 cents to 20 cents. House Bill 293, introduced by the Ways and Means Committee, would send half of the motor fuel tax to the state and half to municipalities. The gasoline tax is expected to raise about $38 million a year.

Cities such as Juneau that have a local sales tax would phase in the state's tax plan through 2010. Exemptions to Juneau's local 5 percent sales tax would continue through 2004 and 2005. After that, only exemptions set out by the state would apply.

The state sales tax would exempt prescription drugs and health care services, food stamps, sales to schools, sales to government agencies and sales to and by non-profit corporations. Property rentals such as homes, apartments and office space also would be exempted.

The tax also does not apply to "occasional" sales by an individual. For instance, an individual who sells a used car or has a yard sale would not have to pay the tax. Goods purchased for resale also would be exempted.

The tax also would apply to only the first $5,000 of the cost of a car, truck, boat, aircraft or mobile home.

Lawmakers crafted the bill to allow communities that pay more than 5 percent in local taxes to phase in the statewide tax. The first four years the statewide tax is in place, those communities would not pay more than 8 percent in sales taxes.

A city like Wrangell, for instance, which pays a 7 percent local sales tax, would pay a 1 percent state sales tax through 2007. In 2008 and 2009, those cities would have to begin paying 2 percent to the state, and by 2010 they would be responsible to the state for the full 3 percent.

Gov. Frank Murkowski, in a March address to the Legislature, called on lawmakers to institute a $100 head tax or a seasonal statewide sales tax. The seasonal sales tax plan would have instituted a 4 percent sales tax from May to September and a 2 percent sales tax during the rest of the year.

The Ways and Means Committee debated the merits of the seasonal sales tax, but decided to focus on a year-round tax instead largely because it would be easier to administer.

In a Monday press conference, Murkowski said he would support the year-round sales tax plan.

"I think what we have here is a responsible effort to recognize that we have to increase revenues, and the Legislature chose to depart a little bit from my recommendation, but nevertheless it's a responsible revenue measure," Murkowski said.

Rep. Bruce Weyhrauch, a Juneau Republican who serves on the Ways and Means Committee, voted in favor of the bill, noting that the phase-in portion of the tax gives communities time to adjust.

"I saw this bill as it was introduced initially, and I couldn't believe it," Weyhrauch said. "I didn't like it and I didn't think I could work with it and therefore two days ago I moved to gut the entire thing and just make it a lot simpler. It didn't make it simple but it did allow the state to work with municipalities to develop a segue that would give a soft landing to communities that have to deal with this."

An amendment by Rep. Vic Kohring, a Wasilla Republican who opposes the bill, would have put a sunset on the tax in 2008, meaning that the tax automatically would end unless the Legislature decides to continue implementing it. The committee decided to extend the sunset date to 2012.

The Senate introduced companion legislation to the measure Monday. Both HB 293 and Senate Bill 220 will be heard in a joint House and Senate Finance meeting today at 8 a.m.

Timothy Inklebarger can be reached at

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