Borough wins fight over tobacco tax

PALMER — The Supreme Court of Alaska has upheld the Matanuska-Susitna Borough’s tobacco tax.

The ruling, which came down Aug. 29, relates to a tax the Borough levies on tobacco imported into or manufactured in the Borough and has been in litigation since six months after it passed in May 2005.

According to a Borough press statement, the tax amounts to a nickel per cigarette and generates roughly $5 million annually. Other tobacco products are taxed at 45 percent of their wholesale value, court documents show. Borough Attorney Nick Spiropoulos said the money goes into the Borough’s general fund and that legally there is no proscription on where the money must be spent.  The borough collected the tax during the litigation. One of the plaintiffs in the case, Nola Bragg of Wasilla, on Monday sounded a note of resignation about the ruling, saying lawyers are expensive and she likely won’t exercise her final appeal, which would be to try and get the U.S. Supreme Court to take up the case.

“I’m just some little old lady that’s fighting city hall and lost,” Bragg said. “I tried. I still don’t think it’s right.”

Spiropoulos said he was pleased with the ruling and, “Happy that they upheld the Borough’s authority to enact the tax.”

Bragg and her co-plaintiff Link Fannon challenged the tax as beyond the Borough’s taxation powers. They also said that the Borough has to put tax issues to a vote, which wasn’t done with the tobacco tax.

“I’m sure that if it had been it would have passed anyway,” Bragg said, adding her issue was one of principle.

As to whether the tax needed to be put to a vote, the court ruled that law only applies to sales taxes and this tax is not, as Fannon and Bragg claimed, a sales tax; rather, it’s an excise tax. The tax is levied on the producer or importer of the tobacco, which may then choose whether to pass that cost along to consumers.

The court, in siding with the Borough, pointed out that to say that the Borough is not allowed to levy this kind of tax would be to ask the justices to reopen a settled portion of the law dealing with the powers of second-class boroughs.

“Here, Bragg and Fannon ask us to resurrect that bygone common law rule. We decline,” the justices wrote in their opinion.

Spiropoulos, in unpacking the legalities of that statement, said that basically the law allows boroughs to enact taxes on products not explicitly forbidden in state law.  For instance, there is a rule saying that an entity cannot tax alcohol except as a sales tax or an inventory tax. There are also rules against taxing oil coming out of the ground.

Any new taxes the Borough considers would have to first be vetted to make sure there is no proscription against it, Spiropoulos said.

“If there’s nothing in there that says you can’t, then you can,” Spiropoulos said, stating the rule plainly.

Bragg, for her part, said this is part of what worried her about the tax in the first place.

“Now that they’ve got approval to put on an excise tax without voters’ approval, then what’s going to be next?” she said.