WASILLA — Though online retailers have been collecting and remitting online sales tax to Alaskan communities since the 5-4 Wayfair vs. South Dakota decision in the United States Supreme Court, not all of them have been following the rules. The 165 communities that organize the Alaska Municipal League have been studying the Wayfair decision and how that affects Alaskan communities.
“[Allowing online sellers to avoid collecting sales tax] has come to serve as a judicially created tax shelter for businesses that decide to limit their physical presence and still sell their goods and services to a states consumers,” states the Supreme Court decision.
Alaska is the only state that allows municipal taxes without a blanket set of state sales tax rules, making it unique in the country in that regard. AML has facilitated study of online sales tax since 2018, forming a Remote Seller Sales Tax commission of 15 communities that signed on to be a part of the commission. Though both Palmer and Wasilla signed on with Wasilla’s Finance Director Troy Tankersly representing the Valley on the Board of Directors, the final code still has yet to come before the city councils. Each city will have an opportunity to reject or adopt the final version of the Alaska Intergovernmental Remote Seller Sales Tax Agreement.
“The main thing with the code is it does preserve rates and exemptions but it does set out how things are collected and specifically what vendors have to do to comply, so compliance registration, and remittance,” AML Executive Director Nils Andreassen said.
Andreassen said that the commission and board of directors hope to have the code finalized in December with test run in January prior to full implementation. The AML Conference in Anchorage last week saw the formation of the seven-member board of directors to oversee the commission. The Streamlined Sales Tax and Use Agreement project began in March of 2000 and 24 states have adopted the agreement to aid in sales tax collection. The AML working group that facilitated the research on remote seller sales taxes adopted a large extent of SSTUA definitions. The code defines commission, remote seller, sales tax, and features twelve sub definitions for marketplace. While massive online retailer Amazon has already begun collecting online sales tax in several Alaskan communities, they are only collecting tax on goods from Amazon and not on third party sales.
“Spreading out that administration between all the different members so you actually see a lot of savings in having centralized administration versus every single municipality having to purchase their own software and stand up extra staff support to administer the program, so this is the most affordable option that there is out there,” Andreassen said.
Andreassen said that a company based in Colorado has been active in discussions around online sales taxes after having stood up for 70 home rule governments in Colorado. Municipal staff from Kenai and Ketchikan also offered expertise, and both Palmer’s Manager Nathan Wallace and Tankersly were active in separate research committees prior to the formation of the board of directors. Andreassen said that the amount of online sales taxes collected will depend on each community. Estimates for the amount of online sales tax revenues were as low as $12 million and as high as $40 million, and Andreassen said that the amount of revenue generated will depend on the community’s percentage of goods purchased online. The commission is responsible for collecting and distributing the online sales tax to each of the 15 communities that joined the commission with operational costs withheld. With much of the administrative duties being performed by the municipal staff that make up the board of directors, the main cost for collecting the sales tax is the software that must be implemented to interact with over 3,500 online retailers. A separate feature Andreassen emphasized was the sales tax lookup map integrated into the software to manage the boundaries and exemptions from each community, keeping consumers outside the boundaries of a community collecting sales tax from being effected when they purchase goods online.
“That’s going to protect folks who are beyond the sales tax boundary who shouldn’t have sales tax collected right now and we’ve made every effort to preserve the ability for local government to retain their decision making but also make sure that we’re protecting Alaskans,” Andreassen said. “Somebody outside of Palmer or outside a community that might otherwise be caught up in sales tax being applied to them, that won’t occur with this system being in place.”
The AML research reported that Amazon is also misapplying local taxes on some sales that should be tax exempt and explained that rather than each of the 106 sales tax collecting communities attempting to sort these issues out on their own, the communities would be better served with a centralized administration that manages shortcomings. Cities signing the intergovernmental agreement is voluntary, but governments that do not sign are less likely to see remote seller comply with their own individual taxation codes. The system must not provide undue burden on interstate commerce or retroactive taxation, but a standardized system of tax rules to reduce costs for remote merchants.