Alaska governor debuts fiscal plan, including statewide sales tax and guaranteed PFD

Gov. Mike Dunleavy has proposed a 4% statewide summer sales tax, effective through 2034, as part of his plan to bring Alaska’s state revenue and expenses in line for the long term.

If adopted, the sales tax would be Alaska’s first statewide, general-purpose levy since state legislators abolished Alaska’s income tax in 1980.

Alongside the tax bill, the governor has proposed a tighter state spending cap and a constitutional amendment that would guarantee a Permanent Fund dividend lower than scheduled by current law but above what legislators have approved in recent years.

“This comprehensive plan is designed to bridge the next seven years by stabilizing state finances, limiting spending growth, restoring a rules-based PFD, and sharing responsibility through targeted, time-limited revenue measures that support investment and predictability,” the governor wrote in a letter to state lawmakers.

Senate Bill 227, containing the bulk of the governor’s plan, was introduced on Monday and referred to the Senate Finance Committee for further discussion. An identical version will be introduced in the House on Wednesday.

The most fiscally consequential item in the bill is the sales tax, which would peak during the summer tourist season and drop to 2% between October and March.

That tax is expected to raise as much as $815 million per year for state services and the Permanent Fund dividend by Fiscal Year 2032.

Dunleavy’s proposed budget for the fiscal year that begins July 1 — fiscal year 2027 — is about $7.75 billion and has a deficit of almost $1.5 billion.

The Dunleavy administration expects that revenue from oil production and a proposed trans-Alaska natural gas pipeline will compensate for the phase-out of all the taxes in the long term.

Under SB 227, the state’s corporate income tax would fall to zero in 2031; the sales tax wouldn’t expire until 2034, leaving individual Alaskans paying higher tax rates than corporations for a period.

“Normally, sales tax is left to local governments. So I know it was a hot issue in Anchorage when the Mayor proposed that, so I think it is going to hit a lot of households,” said Sen. Lyman Hoffman, D-Bethel and co-chair of the Senate Finance Committee.

Sen. Bill Wielechowski, D-Anchorage, applauded Dunleavy for putting forward a fiscal proposal, even if he disagrees with some of the components.

“The governor’s putting out a bill. I commend him for that. He’s putting out, you know, he’s throwing out ideas. I give him credit for that,” he said.

Wielechowski and other legislators said they want to fully analyze what the governor is proposing before opining on it.

“There are a lot of parts to this bill, and the No. 1 thing for me — without a complete analysis — is it’s really unclear on how this is going to affect hard-working Alaskans,” said House Minority Leader DeLena Johnson, R-Palmer. “It is my No. 1 priority to make sure everyday Alaskans aren’t on the losing end of this.”

Local exemptions and sales tax caps could vanish in the process, with the state instead determining what is taxed and not.

In addition to the sales tax, SB 227 temporarily raises the state’s minimum oil tax, adds a surcharge of 15 cents per barrel of oil produced on the North Slope and adds part of the corporate sales tax update that Dunleavy vetoed last year.

The governor’s plan for the Permanent Fund dividend, enclosed in a constitutional amendment proposal separate to SB 227, is similar to one he proposed in 2021.

The “50-50 dividend” proposed by the governor would reserve half of that transfer for dividends, or about $2 billion, if it were in place this year.

That amounts to roughly $3,200 per PFD recipient, based on the number of recipients in 2025.

Putting a dividend formula in the constitution would bind future governors and legislatures, and put the dividend atop the annual budgetary priority list, alongside education and other constitutionally mandated functions.

Adopting a constitutional amendment requires two-thirds of the House, two-thirds of the Senate, and approval by voters in the next general election.