Sales Tax Changes Take Step Forward

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Category: ROOT

Created on Wednesday, 30 May 2012 09:49

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    The Assembly Tuesday took steps to generate more municipal revenue through changes to the sales tax code.
 

  During a special meeting, the Assembly gave preliminary approval to an ordinance that will change the senior sales tax exemption and appeared to coalesce around a proposal to raise the sales tax cap from $1,000 to $1,500.
    As proposed, the sales tax changes are expected to generate an estimated $1.1 million in additional annual revenue for the city, Finance Director Jay Sweeney said.
    The Assembly also passed its amended budget for the upcoming fiscal year on first reading. The budget ordinance and the two sales tax ordinances will be back before the Assembly next Tuesday night at another special meeting. Both sales tax ordinances require at least two more public hearings before being enacted.
    Over the opposition of several Sitkans who testified at the meeting, the Assembly gave the nod to changes in the senior sales tax exemption that raise the age to qualify and add an income requirement, among other things.
    The city believes the new system can generate about $400,000 a year in revenue and Mayor Cheryl Westover said the changes are needed to support local infrastructure.
    Members of the public testified that the new rules appeared cumbersome and would make it even more difficult for older residents to survive on a fixed income as other costs, like moorage and utility rates, continue to climb.
     Under the proposed changes, applicants  for the exemption will have to prove they are residents of Sitka and sign a form allowing the city to get IRS records to verify their income. The city will issue new photo identification cards as part of the senior exemption program if the ordinance is enacted. Eligible seniors will have to apply for a new card every year.
    Current sales-tax exemption card holders will not be subject to the new income-level test under an amendment passed Tuesday.
    The Assembly made a handful of other changes to the ordinance that was in front of them Tuesday, which will come back for another first reading next week.
    In addition to hiking the sales tax cap, the Assembly was considering various changes to the sales tax framework, including altering how invoices for services are submitted, in an effort to reduce perceived loopholes. But Assembly members decided to scrap those changes, and next week will take up an ordinance that leaves the current tax system in place while raising the cap for taxable sales by $500.
    The city Finance Department estimates the change will add about $700,000 a year to city coffers.
     The revenue-generating sales tax changes were first taken up by the Assembly this winter, as a $1.1 million budget shortfall loomed. The Assembly ultimately decided to wait until the budget had been approved before taking up the revenue measures.
    The city’s budget woes were eased a bit by an additional $643,000 in state revenue that materialized recently, and last week the Assembly voted to reverse some budget cuts that had been proposed by Administrator Jim Dinley.
    At the same time, the Assembly voted to set aside about $164,000 in the budget for a sinking fund to replace aging equipment and infrastructure.
    At Tuesday night’s meeting, Westover suggested that the additional sales tax revenue generated by the two proposals under consideration would buoy the new sinking fund. She said she “might not have said yes” to some of the budget changes approved last week if she didn’t think there would be money for the maintenance fund.
    In last week’s budget deliberations the Assembly preserved two staff positions that were on the chopping block; restored funding for the library, Sitka Convention and Visitors Bureau and Sitka Historical Museum; and added $264,000 to fund a 2 percent raise for unclassified city staff and members of two unions, the Alaska State Employees Association and the Public Safety Employees Association. The budget ordinance was back before the Assembly on first reading Tuesday night because of the changes made last week, and still faces at least one more vote before passage.
Senior Sales Tax Changes
    The controversial changes to the seniors sales tax exemption were again met with opposition Tuesday. Several residents testified against the proposal, and local business owner Shirley Robards told the Assembly she plans to gather signatures for a ballot initiative overturning the ordinance under consideration.
     There was particular concern from the public about the proposal to open up federal tax returns for city review.
    “To me, my accountant and the IRS are the only ones who should know,” said Mary Lou Vilandre.
    The new sales tax program will have an income-level eligibility requirement based on federal poverty guidelines.
    As proposed, the ordinance considered last night said seniors would be eligible for the sales tax exemption if they had an “unadjusted gross income for the prior tax year of less than twice the annual federal poverty guidelines for gross income for Sitka for the prior tax year.”
    The city has said that under that formula, and applying the current federal poverty guidelines, a senior in a single person household would have to have an income less than $28,918 to qualify. The income limit for a two-person household would be $39,164.
    Assembly member Thor Christianson said Tuesday that he wanted the income limit to be right around $50,000, but that he understood a “static” number wouldn’t work. He proposed an amendment to raise the income level to three times the federal poverty level. Those figures would be $43,377 for a single person household and $58,746 for a two-person household. The amendment passed on a 7-0 vote.
    The ordinance requires seniors to sign a release allowing the city to examine IRS tax returns.
    Another amendment passed Tuesday, this time on a 6-1 vote, with Christianson opposed, removed any references in the new ordinance to “publicizing” when seniors have their sales tax cards revoked. Christianson said he did not favor monetary fines for the misuse of a sales tax card and wanted the publicity provision as a deterrent.  
    Currently, the senior exemption is open to retired person who are 65 or older. Under the new program, seniors will have to show that they are eligible for full social security retirement benefits. The federal government is in the process of raising the retirement age to 67. The change is being implemented over a number of years.
    The Assembly also passed an amendment that will “grandfather” current cardholders into the sales tax exemption program. Westover voted against the amendment, which passed on a 6-1 vote. Current cardholders will still have to prove they are Sitka residents and apply for the tax exemption each year, but they will not be subject to the income test.
    Following the public testimony on the sales tax changes, Westover reacted strongly to what she called the “animosity” being shown by opponents of the proposed ordinance.
    During  testimony,  a handful of Sitkans praised the Juneau sales tax exemption program, which requires only a one-time $25 fee, and is much simpler to understand.
    “I don’t care what Juneau does because Juneau has all kinds of ways to bring money into the community,” Westover said, adding that Sitka “does a lot for seniors.”
    “I don’t like the bitterness that’s being shown,” she said.
    The senior sales tax exemption ordinance passed 5-2, with Pete Esquiro and Westover opposed.

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