By SHANNON HAUGLAND
Sentinel Staff Writer
The city collected close to $1 million in sales tax revenue through online vendors in fiscal year 2022, and is on track to far exceed that this year, city finance staff said.
Finance Director Melissa Haley estimated online vendors, such as Amazon, Walmart, Target, Home Depot and Apple, remitted $1.2 million in sales tax revenue collected from purchases by Sitka buyers in the fiscal year that ended June 30, 2022, the most recent year for which full year figures are available.
The city paid fees for participating in the remote seller tax program, leaving net collections of $990,000 for the Sitka general fund.
Sales tax in Sitka is the single biggest source of revenue for the general fund, comprising $16.4 million out of the $32.5 million in sales and property taxes, and other revenue sources, that are needed to cover general fund expenses. Those include the local contribution to schools and the general costs of local government such as police and fire departments, the library, public works and other services.
Online sales tax collections in the last full fiscal year made up 7 percent of all sales tax collected.
Looking at collections for the first four months of the current fiscal year, Haley said she is estimating a 34 percent increase over the same time period last year. From July through November in fiscal year 2022, $434,000 was collected; compared to $576,000 for the same four months in the current fiscal year.
A number of factors are contributing to that, such as an increase in sales after the pandemic. But probably the biggest factor, Haley said, is a big increase in the number of online sellers participating.
About 830 new out-of-town sellers started remitting sales tax to the remote sales tax commission in fiscal year 2021, and the number of sellers grew by another 850 in fiscal year 2022.
Sitka is one of dozens of Alaska municipalities that participate in the Remote Sellers Sales Tax Commission, which was established through the Alaska Municipal League to create a “single-level, statewide administration of online sales tax collection and administration.”
Formerly, only a few vendors in a limited number of states collected sales tax on behalf of the cities and states where the sales originated. The volume of interstate sales via the internet had been growing rapidly since the early 1990s, and in 2017 the Government Accountability Office estimated that online sales were costing states and local governments over $13 billion in taxes they could not collect.
Sitka signed on to participate in December 2019 with a resolution passed by the Assembly. Sitka’s chief finance and administrative officer at the time, Jay Sweeney, said then that Sitka stood to lose hundreds of thousands of dollars in sales tax revenue if the city did not participate.
Haley said joining the commission has had benefits for local residents as well as the city government.
“One of the most significant pros is that it creates more equity for local sellers, so remote sellers don’t automatically offer a discount to local people,” by failing to collect the sales tax that local merchants must charge on their sales, she said.
The other benefit to the city is stemming the loss of tax revenue as online sales increase.
“Our revenue structure relies really heavily on sales tax,” Haley said. “Just with the way the world economies are changing and so many sales are going remote. And it was getting harder to keep up.”
She noted that the losses would have been particularly heavy during the pandemic when online sales skyrocketed, and many local stores closed or had limited hours. The loss of revenue from reduced summer tourism also hurt.
“When we were not having many visitors it really helped offset some of those losses. It didn’t completely cover the difference but it made an impact,” Haley said.
One of the obvious downsides of the new system is Sitkans now have to pay sales tax on purchases that used to be tax-free.
“That was in some ways a break for the community, so that’s gone,” Haley said.
As to why the figures for Sitka are going up, Haley pointed to an increasing number of online vendors collecting and remitting sales tax. In the most recent month, some 625 vendors remitted sales tax collected on purchases by Sitkans.
“There’s lots and lots of vendors in a given month, we have hundreds of pages of them,” the finance director said.
City code says sales tax is charged based on the “point of delivery,” which means “the location at which property or a product is delivered or service is rendered.”
“It’s also important that it can’t be overly onerous to the vendor,” Haley said. “That’s why the sales tax commission formed so that there was one point so that a vendor - Apple for example - isn’t remitting 200 or however many municipalities buy from Apple in a given month.”
Participating municipalities pay a percentage of the tax they collect to the commission to cover the cost of administering the program. Sitka paid close to $150,000 last year, based on the $1.2 million collected in city sales tax.
Assembly member Thor Christianson spoke in favor of the resolution at the time it passed, and said he thinks that overall it was a good decision.
“I would still say it doesn’t go all the way in leveling the field of local vendors versus online, but it definitely helps,” he said. “I don’t know how you can look local vendors in the face and not support this. If we hadn’t done this we’d be losing a lot of money to online sales, if they weren’t paying sales tax. They should be paying their fair share like everyone else.”
Sweeney, still a Sitka resident, remembers the establishment of the commission, which started with discussions following a meeting of the Alaska Municipal League. He was one of five to participate in the informal meeting which eventually led to the establishment of the commission under AML. He remembers one of the key questions was related to a software program capable of handling the thousands of vendors, and multitude of sales tax rates and policies at localities around the state. Another hurdle was coming up with a resolution for communities to adopt with a standard set of exemptions, he said.
