Court hears tax challenge

April 16, 2006

By DARRELL L. BREESE

Frontiersman

PALMER -Challengers of the Mat-Su Borough's tax on tobacco and cigarettes waited six months for their case to be heard in Superior Court, and were told last week that it could be another six months before Judge Bev Cutler issues her decision in the case, as she wants additional information.

Wasilla resident Nola Bragg and Houston's Link Fannon, who originally filed their lawsuit challenging the borough's ability to enact a tax on tobacco products, presented their case during the hearing with the assistance of attorney Ken Jacobus.

The borough assembly approved the $1-per-pack tax on cigarettes and other tobacco products in June, and began collecting the tax in July.

During the first six months, nearly $2 million in taxes was collected on tobacco products.

&#8220Our position is that the borough does not have the authority to enact a tax without approval from the voters,” Bragg said. &#8220The state statute that grants the borough it's second-class status limits the taxes which can be implemented to only collect property, sales and use taxes.

&#8220They called the tobacco tax an excise tax, which is beyond the scope of taxes they collect according to state law. Even if they argue that it is a sales tax, it would still need approval from the voters.”

Borough attorney Nicholas Spiropoulos defended the legality of the tax, because state law grants the borough power to levy taxes.

&#8220His argument was that, by the state granting the authority to levy taxes, that the tobacco tax is legal,” Jacobus said. &#8220But the state law he used to support his position also says that the tax implementation must meet other provisions of law, and the tobacco tax does not do this.”

The statute referred to by the borough attorney gives general powers, including the implementation of property, sales and use taxes, which is not disputed by the petitioners in the case. Their objection to the tobacco tax is based on the state law (Alaska Statute 29.45.670) requiring a new sales and use tax, or an increase in the rate of levy of a sales tax approved by ordinance to be ratified by a majority of the voters at an election before it can take effect.

&#8220They never put the tax on tobacco before the voters,” Bragg said. &#8220That is in clear violation with how the statute reads.”

Cutler requested information on how tobacco taxes in other communities throughout Alaska are written, and why they haven't been challenged.

Four other communities in the state have a tobacco tax in effect, Anchorage (the model for the Valley tax), Fairbanks, Juneau and Sitka.

&#8220The difference between those communities and the Mat-Su Borough is that they are either home-rule or first-class cities,” Jacobus argued. &#8220The state statute allows home-rule and first-class communities to enact excise taxes differently from a second-class community. There is a different set of rule and regulations for the operation of government.”

Jacobus said Fannon was collecting the information requested by Judge Cutler, and should have it to her by the end of the week. &#8220Then it's just a matter of waiting,” Jacobus said. &#8220It could take up to six months, but I imagine we will have a decision within a month or two.”

Contact Darrell L. Breese at 352-2267 or at darrell.breese@ frontiersman.com.