Businesses press city for tax break
Proposal would exempt most Juneau companies from personal property tax
Alaska Knifeworks owner David Summers and other business owners in Juneau would not have to pay any business personal property tax, under a proposal by the Juneau Chamber of Commerce.
"Every dollar counts when you're a small business and you're trying to grow," said Summers, who employs four people at his shop on South Franklin Street.
Chamber members offered a proposal Friday which would exempt business owners with equipment at an assessed value up to $100,000. That means 2,500 of the 2,700 businesses in Juneau would not pay business personal property taxes. The city would lose an estimated $471,000, under the plan.
Currently, the city exempts business personal property tax on equipment with an assessed value up to $2,000. For the city's current fiscal year, it will collect $2.1 million in business personal property taxes.
Business owners have been lobbying for a change to the business personal property tax since 2001 when the city changed the tax tables which resulted in some businesses paying higher taxes on equipment.
Before 2001, the city used one tax table that valued equipment up to seven years, City Finance Director Craig Duncan said. After that, businesses paid a cheaper "salvage value," he said. That benefited owners with equipment that had a long life span, such as telephone poles, wires or heavy equipment, he said. After 2001, the city created tax tables based on the expected longevity of equipment, and phased them in through 2003. The changes resulted in some business owners having to pay more tax on equipment.
Business advocates say the tax is "inequitable" and discourages people from owning a business or investing in more expensive, modern equipment.
The expected financial loss to the city could be made up from increased sales tax revenue, because more people would have incentive to start a business or expand a current enterprise. Further, when Coeur d'Alene opens the Kensington Mine 45 miles north of Juneau, those tax payments would offset some financial loss to the city, advocates say.
"I personally believe that if you give incentives to businesses ... it will come back even more than the cut in the business personal property taxes," said Linda Thomas, of the chamber's Government Affairs Committee.
The chamber may present the plan to Juneau Assembly members later this month, she said. It would be subject to a city ordinance change.
The city could reduce services or increase property taxes if the Assembly passed such a proposal, Duncan said.
If the city lost $471,000, that could amount to a tax hike of about $16 per $100,000 of assessed property value for homeowners, Duncan said. The city already raised the tax rate by $36 per $100,000 of assessed property value this fiscal year due to budget constraints, he said.
While Kensington Mine would help offset a reduction in the business personal property tax, the mine is only subject to paying about half the property tax as businesses inside "the roaded service area," Duncan said. Businesses closer to the city center pay more taxes because they receive more services.
Currently Juneau taxpayers pay $1,200 per $100,000 of assessed value. Kensington would pay about $661 per $100,000, Duncan said.
If the city exempted some of the business personal property taxes it would still have to pay the state-required minimum amount of funding to the school district. The state determines the city's funding to education based on what it can tax, not on what it chooses to tax, Duncan said. Even if the city collected more taxes from the mine, the state would require the city to allocate some of that money to education, he said. This year the city paid $10.8 million to education.
Juneau provides less money to education than the state, but the city's percentage has increased more in the past 15 years, Duncan said.
Business advocates say the city and taxpayers would save money from not having to process 2,500 business property tax returns each year.
If the chamber's plan can show "significant cost savings it may have some merit," Assembly member Randy Wanamaker said Friday.
"Some fees and taxes cost more to manage than they bring in," Wanamaker said.
Assembly member Merrill Sanford said the city would need to figure out where to make up the financial shortfall before approving a business tax exemption.
• Tara Sidor can be reached at tara.sidor@juneauempire.com