Kenai Assembly passes sales tax changes

The Kenai Peninsula Borough Assembly passed a number of revisions to update and clarify the borough’s sales tax code Tuesday night.

Borough Mayor Mike Navarre’s administration has been working on a comprehensive rewrite to the sales and property tax code for approximately a year, clarifying language, updating some provisions and adding others. From the rewrite came four ordinances, all of which have now been reviewed and passed by the assembly.

Two of the ordinances require voter approval before they go into effect and will appear as ballot propositions in the Oct. 4 municipal regular election — Ballot Proposition 3, an increase of the maximum amount of a sale subject to sales tax from $500 to $1,000 with the exception of residential rentals; and Ballot Proposition 4, a gradual reduction of the borough’s optional senior property tax exemption.

The assembly passed the third, an ordinance containing a number of updates and revisions to the property tax code, at its Aug. 23 meeting. It reviewed and passed the fourth, a similar set of revisions to the sales tax code, at its Tuesday meeting.

“The intent of this ordinance is to improve the clarity of the sales tax code, make administration of the code more efficient for the sellers and the borough, and make appropriate policy changes in the code as to what is and is not taxable,” wrote Larry Persily, special assistant to the mayor, in a July 28 memo to the assembly. “Some of the exemptions and definitions have not been revisited in years and should be updated to reflect today’s commerce, which is more about services and less about goods.”

Among the changes are an exemption for businesses that report less than $2,500 in annual sales; a clause allowing businesses exempt from sales taxes to not file tax returns; a requirement for businesses that don’t accept food stamps to charge sales tax on food items, capturing sales tax from snack foods, candy and soda; a requirement for nonprofits that operate an ongoing business location like a gift shop to charge sales tax; the removal of an exemption for moving freight; and a requirement for out-of-state and out-of-borough businesses operating in the borough to collect and remit sales tax to the extent possible.

After review, assembly members proposed a number of amendments to the proposed ordinance. One of the major items of contention was a provision adding sales tax to flightseeing tours. In the past, flightseeing has been exempt from the same tax that applies to sightseeing tours by boat or car.

Dozens of charter businesses on the Kenai Peninsula offer flightseeing tours but don’t have to pay the tourism tax that those who purchase trips on charter boats or ferries do. As the peninsula’s oil and gas fields age, the local economy may become more reliant on the visitor industry, and flightseeing tours are part of that, Navarre said at the meeting.

“This is something that at least a couple of our communities would like to see and have the opportunity to collect the revenues on this in lieu of passing the tax on to someone else,” Navarre said.

A question of legality arose, though. The borough’s legal department recommended removing the flightseeing tours from the ordinance, concerned about the potential for lawsuits. Assembly member Dale Bagley proposed an amendment to the ordinance to do so. He said at the meeting the legal department concerns were legitimate and he would like to see the flightseeing tax removed.

“If I was a betting person, I would say there’s going to be a lawsuit over this, and I don’t think the money that would come in from this is worth the headaches of dealing with this, so I guess I’m going to err on the side of not taxing the air charters,” Bagley said.

However, other assembly members disagreed, as did the mayor. Navarre said other municipalities in the state, such as Wasilla and Kodiak, tax flightseeing tours that take off and land on the same day within city limits, and if a lawsuit does come forward, the borough could win.

“So I think that it’s worth the risk … the reality is that this particular type of case, I think hasn’t ever been brought up, and this particular one needs to be tested in the courts to determine whether or not we can assess this tax on flightseeing,” Navarre said. “And I think we ought to try it.”

The assembly was split four to three on Bagley’s amendment, with assembly members Brandii Holmdahl abstaining because of a conflict of interest and Stan Welles absent. Although four voted yes, the amendment needed five votes to pass.

Assembly member Willy Dunne proposed an amendment on the same section, this time revising it to exempt air charters and air taxi sales but include “ground-based wildlife viewing, sportfishing, hunting or other goods or services provided in combination with such air charter and air taxi sales.” Dunne’s ordinance did pass with seven yes votes, with Holmdahl again abstaining and Welles absent.

Two other amendments from assembly member Kelly Cooper clarified language in two sections of the ordinance. The entire ordinance passed seven to one, with Holmdahl again abstaining and Welles absent.

Elizabeth Earl can be reached at [email protected].

Updated: 
09/08/2016 - 1:48pm

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