Assembly considers end to senior sales tax exemption, raising cap

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More Sitkans could be paying sales taxes in the next few months. That’s after a long and wide-ranging discussion at last night’s Assembly meeting about reforming the city’s tax code.

There are a lot of details to hammer out before the Assembly takes up the matter in two weeks. But last night, discussion centered on two items: eliminating the senior citizen sales tax exemption, and raising the sales tax cap on large purchases.

City officials say there are lots of reasons for wanting to do away with particular sales tax exemptions. They say the city could use the money it would generate. And that they’re looking for a way to cut back on abuse of the exemption for people 65 and older.

“I’m convinced abuse is much worse than you’re aware,” said Municipal Administrator Jim Dinley.

As an example, Dinley told the Assembly that when he was at the grocery store Monday night, the clerk offered three times to take sales tax off his bill, even though he said he didn’t take the tax exemption, and didn’t have a tax-exempt number to give. Dinley also says retailers have no way to verify that the number they’re getting belongs to the person giving it.

“You could give them any four digit number you can think of, and it goes through,” he said. “You say education, education, education. The person ringing the register, or the manager, is not going to lose the sale, or embarrass somebody, saying ‘You need a tax card.’”

The proposal before the Assembly would do away with the exemption for senior citizens and replace it with a $300 rebate.

“I’m really not at all in favor of a rebate system in any way,” said Assembly member Phyllis Hackett.

She says instead, she’d raise the age for the exemption to 70, because people are working longer nowadays. Hackett suggested issuing photo IDs to those who get the tax exemption, and limiting the exemption to necessities, like unprepared foods from the grocery store, and utilities.

“What I’m trying to aim at is really hitting the necessities that seniors need to pay for, and keep those necessities exempt, and take it off everything else,” Hackett said.

Assembly member Mim McConnell, on the other hand, would prefer to keep things simple.

“Doing anything other than a rebate for seniors gets really complicated,” McConnell said. “I’m looking over my notes from the committee meetings we had. For example, the photo ID thing – well, do you charge to get a card done, and how often do you renew it? All this program stuff would have to get figured out.”

Mayor Cheryl Westover said once upon a time the exemption made sense.

“This was established by a wise body sitting here when they were trying to capture the first group of retirees from the mill, and they were hoping to keep them here,” she said. “And at that time we had lots of money, and we had lots of blue collar jobs.”

Not the case anymore, Westover said, adding that she likes the simplicity of a rebate. Assembly member Mike Reif proposed splitting the rebate to two distributions every year, to make sure that seasonal residents don’t take the entire rebate if they’re not paying taxes yearround.

The other major discussion last night centered on the city’s tax cap. Right now, sales tax is only charged on the first $1,000 of any purchase. Assembly member Thor Christianson is in favor of raising that limit.

“I know that I talked to Ben Grussendorf who helped put it in, in the first place, in 1967,” Christianson said. “The idea behind the tax cap then was you could buy a good used car with it.”

City staff has proposed raising the cap to $3,000, which would put Sitka in the middle of the pack in Southeast Alaska. In Haines, the cap is $5,000 for personal property and twice that for services. It’s a flat $7,500 in Juneau. Petersburg and Wrangell put their caps at $1,200, and Ketchikan’s is set at $1,000.

Some at the table proposed raising it even higher than proposed, to $5,000, a number city finance director Jay Sweeney said would probably capture most of the sales that are slipping under the radar right now. But Reif cautioned against doing anything too quickly.

“I’d rather take the pain slowly, because we’re putting these on our residents, we’re putting it on our businesses,” Reif said. “If we find out we still don’t have enough we can raise it a second time, but I don’t want to jump it way up.”

The Assembly didn’t vote on any proposals. That will come later. But members did hear from one member of the public: Shirley Robards, who owns the StereoNorth store downtown and who has been a vocal opponent of doing away with or changing the sales tax exemptions and caps.

She says before the city looks at bringing in more money, it should consider cutting back inside city hall.

“I know you have to raise money,” she said, “but I don’t think you have to keep hiring people at $104,000 a year, and give them $15,000 to move here, and lots of times their wives don’t like it here, and then give them a raise in six months if you’re happy with their work, when we’ve never had somebody in that position before.”

City budgets saw cuts last year, and will likely see reductions this year, too. And the debate over how to make the money coming in balance with the money going out will likely continue, regardless of what the Assembly does to sales taxes.