Group recommends tax reform

Posted: Sunday, July 13, 2003

Does an iBook get old faster than a dump truck? How much longer does a dump truck take to get old? Should business people who use only computers pay less tax than business people who use dump trucks?

For the last year, a committee of business people and city tax officials has been pondering such questions as it looks at ways to restructure Juneau's business personal property tax.

At a meeting of the Juneau Chamber of Commerce on Friday, committee member Bruce Abel summarized the group's findings.

"You can't polish up a cow pie, you can't make this thing right, there's always going to be a disproportionate impact on certain segments of the economy," Abel said.

All businesses in Juneau pay taxes on tangible property, from Post-it notes to front-end loaders. The city assesses the fair market value of the property, and business owners pay a percentage of that value in taxes, depending on the mill rate, which is $11.47 per $1,000 of value. As property ages, its value depreciates, and with that decrease in value, taxes decrease.

There are roughly 3,400 businesses in Juneau that pay collectively about $2.2 million in property taxes every year, Abel said. Alaska Electric Light & Power and Greens Creek Mine pay the most in business personal property tax.

Abel is president of Don Abel Building Supplies in the Mendenhall Valley. Abel's business, which includes delivery trucks and rental equipment, is among 178 businesses in Juneau that pay taxes on more than $100,000 in personal property.

Abel objects to the tax because he says it unfairly targets businesses that have a lot of capital, such as delivery trucks, while other businesses that don't have so much capital but may pull in more revenue have to pay less.

"Let's say you are an attorney and you have a desk, a chair and a computer," Abel told the Chamber members. "You are going to pay a lot less than a guy out there driving a dump truck."

Another problem is that depreciation is hard to standardize. For many years, depreciation for all business property was assessed over a seven-year period. At the end of the seven years, business people paid taxes on 20 percent of the original assessed value of the property.

In 2001, the city adjusted how it looks at depreciation in an effort to more accurately reflect how different items depreciate and to better comply with state law, Abel said.

The city created different schedules for different types of property. Computers and software, for example, depreciate over four years, while heavy equipment depreciates over 15 years. The new depreciation schedule adversely affects business people in Abel's position because the longer it takes for items to depreciate, the more taxes they must pay.

"The net effect of (Juneau's business personal property tax depreciation schedule) is a significant tax increase, especially for capital-intensive industries, without any input from the public," Abel said. "In some areas we have found the marginal tax increase was as much as 800 percent."

The committee came up with several suggestions for the city to help make the tax more equitable. It suggested the city eliminate the tax for businesses with less than $100,000 of property.

"That wipes out a lot of work for a lot of mom-and-pop operations out there," Abel said.

The committee also suggested exempting property owners from paying business personal property tax for the first year if they bought their property in Juneau.

"That avoids the problem of double taxation, paying both sales tax and business personal property tax," Abel said. "That creates disincentive to buying locally - why would you buy something here when you could buy the same thing in Seattle and pay no taxes at all?"

Another suggestion was for the city to return to the original 7-year standard depreciation schedule. To do that, the city would have to exempt businesses from the state statute, Abel said. Abel also stressed that the city should do a better job informing business people of the state statute, and their options under state and city laws.

It would be hard to get rid of the tax altogether in this tight budget climate, unless it could be replaced with something else, he said.

"I don't mind paying a fair tax, I don't mind paying the dollars, but this is a bad tax, it's not equitable" Abel said.

The recommendations from the committee have been forwarded to the Juneau Assembly.

Julia O'Malley can be reached at jomalley@juneauempire.com.



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