Governor’s proposed state sales tax would hike city taxes in Mat-Su

Gov. Mike Dunleavy’s proposed state sales tax introduced in the Legislature Monday would be piled on top of existing sales taxes in Palmer, Wasilla and Houston. The governor’s bill would also have the state Department of Revenue take over collection of sales taxes from municipalities and also limit local exemptions and “caps”on taxes.

Dunleavy’s tax would be seasonal, at 4% in the summer and 2% for the rest of the year. Palmer has a 3% sales tax, so the combined state and city taxes would total 7% in Palmer during the summer and 5% for the rest of the year. Wasilla and Houston have 2.5% and 2% sales taxes, so the summer tax rate would be 6.5% in the summer and 4.5% for the rest of the year, while Houston’s combined tax would be 6% in the summer and 4% for the rest of the year.

The governor’s bill is still being reviewed by the Alaska Municipal League as well as municipal officials around the state but one area of concern are the limits on local exemptions which will vary among municipalities. Palmer, for example, imposes its tax on the first $1,000 of a purchase price, but not on a price above that. The governor’s bill has no “cap” on the state tax.

Palmer, in addition, exempts nonprofits from sales tax. This may not be allowed under the governor’s bill.

However, Dunleavy’s proposal will go through a lot of changes before it becomes law, if it even passes the Legislature.

In general, municipalities are expected to push back against parts of the governor’s bill, particularly having the state take over collection and administration of sales taxes and limitations of exemptions allowed now by municipalities. Alaska has a strong tradition of maximum local government authority, and preemption and centralization of local tax powers cuts against that.