Questions and Answers about City of Kodiak Sales Tax Discussions
- Current City finances are sufficient and why is the City over taxing?
Answer- In July 1993 the city increased its sales tax rate from 5% to 6%. The City’s sales tax increased from 6% to 7% in October 2012. Sales tax revenues were lower in FY 17 compared to FY 16 by $1,425,000. The City was able to reduce that debt burden, by savings through bond refinancing (Government Obligation Bond for Kodiak Police Station) and budgeted but unfilled City positions. Specifically there were 55 vacancies that remained unfilled for 6 months or greater. The Kodiak Fire Department required the use of contracted personnel to meet the staffing requirements. The past three years the budget has been reduced by 23%, all without cutting of services to the community. We have deferred city wide maintenance.
- Why can’t the City charge for online sales tax?
Sales tax systems are facing significant pressure for a number of reasons,including the recent growth in online and other remote transactions that take place between in-state buyers and out-of-state sellers. The Courts have ruled that businesses must have nexus—typically physical presence—in a state before they can be taxed by a state or required to collect and remit the state’s taxes.
The Marketplace Fairness Act of 2013 would permit states to require online and other remote vendors to collect the sales tax for the destination state in the same manner done by brick-and-mortar firms today. The bill requires states to simplify their tax structure before they can require firms to comply, and it applies only to firms with gross annual U.S. online sales during the preceding year of at least $1 million.
If an online retailer has a physical presence in a particular state, such as a store, business office, or warehouse, it must collect sales tax from customers in that state. If a business does not have a physical presence in a state, it is not required to collect sales tax for sales into that state. This rule is derived from a 1992 Supreme Court decision which held that mail-order merchants did not need to collect sales taxes for sales into states where they did not have a physical presence.
- City employee wages are affecting the need to raise taxes?
The City has an aging infrastructure which must be addressed immediately. Roads, water system, wastewater treatment, harbor upgrades, fire station, are just a few of the needs. The current FY2018 budget has a $2.8 M operating deficit, which is completely unsustainable. This FY2018 deficit budget does not include those needed capital projects.
- Why doesn’t the City enact a tobacco tax?
The City has researched a tobacco tax and the guidance from our municipalattorneywould allow the City to enact such a tax. City Council will be discussing a tobacco tax during the October 10th Work Session at the Kodiak Public Library Multi-purpose room beginning at 7:30 PM.
Not so for alcohol…to increase a tax rate higher than existing sales tax rate would violate Alaska statute.
AS 04.21.010(c)(2), interpreting the statute “to prohibit the imposition of discriminatory sales taxes, whether in the form of sales tax rate differentials or a sales tax imposed solely on the sale of alcoholic beverages
- What is the difference between a sales tax cap and sales tax?
Sales tax is imposed on the sale of eligible products sold within a municipal jurisdiction. In Kodiak the rate is 7% of the product price or service price.
The sales tax cap limits that taxable product amount to a ceiling. For instance a product costing $4000.00 would only be taxable up to $750.00 at the City’s current sales tax cap rate.The sales tax cap was last increased from $ 500 to the current $750 in September 2004. What is proposed before City Council during the September 26th and 28th meetings are three ordinances;
- an increase in the tax cap to $3000.00
- eliminating the 2% discount option to vendors filing sales tax returns
- maintaining the $750.00 sales tax cap for commercial and residential property rental
These Ordinances, effective January 1, 2018 are expected to increase the operating budget by $4.8 M, bringing FY18 to a $2M net revenue increase. This is going to allow for a very limited capital project list.
- What are other Alaskan communities doing about revenue with State and Federal sources shrinking?
Many communities are looking at alternative revenue sources and implementing new taxes or raising current tax rates are among those options considered. The Finance Department has been contacted by other communities asking questions about our finance solutions; including Anchorage, Juneau, Kenai, Homer, Soldotna, Unalaska and Port Lions.
- Raising taxes will cause the local population to decrease?
The State of Alaska publishes a population count which recently listed Kodiak’s 2016 city population at 6,124. The overall change from census year April 2010 –July 2016 is a loss of 6 people. The Borough was listed at 13,563 which included the City, Kodiak City (Coast Guard) and outlying communities. The population has not changed significantly over the past six years.