New taxes on radar

May 10, 2005

DARRELL L. BREESE/Frontiersman reporter

PALMER - Mat-Su Borough Assembly members are primed to introduce a plan to raise about $10.8 million annually through three new taxes - one a natural resources depletion tax, another on cigarettes and other tobacco products and the third a boroughwide sales tax - to help ease the burden borne by property-tax payers.

Diversification of the borough's tax base, while providing some relief to property-tax payers, is at the heart of each of the three proposed taxes.

"Taxes, taxes, taxes," Assembly Member Jim Colver said. "People need to realize that as the state funds dry up because they are not sharing oil revenues, there is a lot of pressure on our limited tax base to provide necessary services like schools, police and fire services."

Each of the three taxes promises to be used to lower the real property mill levy and in turn reduce homeowners' property-tax bills.

The new tax plans are in the early stages. The proposed cigarette tax was introduced during the last assembly meeting and a public hearing scheduled for the May 17 assembly meeting. The proposed sales and natural resources depletion taxes are scheduled for formal introduction June 7, after the 2005-06 borough budget is adopted.

"We are trying to diversify the revenue base," Colver gave as a reason for the new taxes. "Right now the burden rests on the shoulders of the property owners."

Borough officials estimate that if the three new taxes are approved, they will result in a savings of $220 a year for the average home owner.

What are the new taxes and how will they affect residents?

1 percent sales tax

The idea of a boroughwide sales tax returns after being rejected by voters in the 2002 and 2004 elections.

Borough Manager John Duffy wrote the proposed ordinance calling for a 1-percent boroughwide sales tax on all sales, rental and services of $500 or less.

If assembly members decide to present this item to the voters for consideration during the October regular election, it will generate an estimated $5.5 million and reduce the property-tax mill levy by about 1.05 mills. Revenue from this tax will go toward repayment of school bonds. There is $13.7 million in bond payment due in 2006.

"There hasn't been much support for this idea in the past," Colver said. "But we're facing a need for more schools as the wave of growth continues. Additional sources are needed to pay for the bonds necessary to build them. Maybe the people will be more receptive to the tax if they know the money is going to something they want, schools."

All purchases of prescription drugs, food and beverages that are made with food stamps or other approved certificates are exempt from the tax. The oddest item on the list of exemptions includes the sale, rental or services provided involving space vehicles or orbital

facilities.

Tobacco tax

The excise tax on cigarettes on tobacco products is a mirror image of a similar one passed by the Municipality of Anchorage last fall.

Plans call for the borough to adopt a cigarette tax of $1 per pack of cigarettes and 45 percent of the wholesale price levied on other tobacco products. Cigarette and tobacco taxes are levied on the wholesale sale of the products and therefore the consumer can expect an increase in price at the register.

Anchorage officials estimate they will collect approximately $16 million this year alone from their cigarette/tobacco tax.

Based on the same calculation process, borough officials offer a more conservative estimate for the revenue generated- $4 million from cigarettes and $570,000 from other tobacco products.

The ordinance for the tax was introduced during the May 3 assembly meeting and public hearings are scheduled for the May 17 meeting. Following the public hearing, majority approval by the assembly would make the tax effective starting Jan. 1, 2006.

Currently at Up N Smoke 2.0, a Wasilla discount smoke shop, a pack of Marlboro cigarettes sells for $4.19 a pack; under the proposed tax that price would increase to $5.19 or about $50 per carton.

Combine the $1-per-pack increase with the existing local sales taxes from either Palmer of Wasilla and the proposed 1-percent tax from the borough and consumers will be paying approximately $1.55 in taxes locally on a pack of cigarettes, or 29.8 percent of the total price.

In addition to the increased revenue, borough officials also point to the health benefits that could result, claiming there would be a decrease in youth smoking, a reduction in the number of adult smokers and fewer smoking-related heart attacks and strokes. However they were unable to site any studies to support their positions.

Severance tax

Duffy is also bringing forward legislation to tax the extraction, exportation and sale of natural resources within the borough.

The severance tax would be on natural resources taken from land or water bottoms, including all forms of timber and forest products such as turpentine, minerals such as coal, salt, lignite, ore, gravel, stone, sand, peat and other natural deposits.

The rate of taxation proposed will be 25 cents per cubic yard for gravel and other similar materials, 25 cents a ton for coal and $2.50 per acre for timber.

Gravel, sand and similar materials are expected to be the largest revenue source under the proposed tax. Borough officials estimate that 3 million tons of gravel are currently taken from lands within the borough on an annual basis. The 25-cent-per-ton tax would generate $730,000 in net revenue. Typically a dump truck hauls between 10-12 cubic yards of gravel, which would result in an increased price to the consumer of $2.50 - $3 per load.

Sale of timber will only be taxed when taken from a single locality greater in area than 40 acres or from two or more locations with a combined acreage per calendar year.

As drafted, the receipts from a voter-approved severance tax would only be used to fund transportation projects or help retire voter-approved transportation bonded indebtedness.

Similar to the sales tax, voters will have the final say on this tax during the October election.

Colver said he and other assembly members are reluctant to add new taxes, but explained that sometimes they are necessary to broaden the revenue base and ease the burden placed on home owners.

"There are only few options available for local governments to diversify revenues," Colver said. "Taxes just happen to be the avenue that we are looking into. Everyone wants a diverse revenue base and we are taking the time to examine all the possibilities."

Darrell Breese may be reached at 352-2267 or darrell.breese @frontiersman.com.