The Sitka Assembly last night advanced a plan to raise the cap on sales taxes. Right now, Sitkans only pay sales tax on the first $1,000 of any purchase. The new cap will be set at $1,500 and would go into effect earlier than originally planned. But it won’t apply to reservations people have already booked for charter fishing and other big-ticket tours.
In its current form, the ordinance will move the tax cap to $1,500 on July 1. It’s a far cry from the $5,000 proposed cap – an amount that was roundly criticized Tuesday night by business owners.
The other big criticism of the plan was the July 1 effective date. Charter owners and officials from Allen Marine argued that putting the change smack in the middle of the tourism season complicates reservations that have already been booked. With many customers’ prices set in stone, businesses said the additional tax would come out of their profit margin.
The Assembly toyed with moving the date to September or October. But Mim McConnell said delaying the hike would defeat the purpose of raising the cap in the first place.
“The city needs to raise revenue. We need to raise it now,” McConnell said. “Not next fall, not Jan. 1. We need to be raising it as soon as possible. It’s irresponsible of us to not take advantage of that this summer.”
So July 1 stayed on the books, with a compromise: Reservations made before April 1st would be grandfathered in.
Assembly member Thor Christianson says reservation-based sales are different than other vendors in town.
“They’ve already sold it,” he said. “The price is set, they’ve sold it, they’ve taken a deposit, whereas (with) other vendors, the sale is all taking place on that date. So I think there’s a fundamental difference there. What we would be doing is taxing something on the new rate on a sale that was taken on the old date. I don’t think that’s right.”
The grandfather clause won approval from the Assembly on a 4-2 vote. Terry Blake and Cheryl Westover opposed the change.
Assembly members had more questions, and more changes to the tax cap ordinance. They agreed that families booking a trip together should be considered a single sale. They rejected a plan to increase the cap incrementally over the next several years. In the end, Terry Blake was the lone vote against the ordinance. Earlier in the debate, he said he was concerned about the effect on merchants.
“I’m very pleased we’re making accommodations for the fishing industry and their charters. I think we worked hard at the table last night,” Blake said. “But it seems a bit capricious to me to make accommodations for this industry and not our local businesses.”
Owners of some businesses, including the Sitka Rose Gallery and Stereo North, said Tuesday night that the tax cap hike will hurt sales.
Because the measure underwent substantial changes last night, it will take two more readings before becoming law. The same goes for changes to the senior citizens’ sales tax exemption made on Tuesday night.
