The North Pole City Council is scheduled to vote on an increase to the city’s property and sales taxes tonight.
The city does not look likely to make the near $3.9 million projected for sales tax in 2019, according to Mayor Mike Welch, who noted the city will know for certain what it gathered in December come February. The 2020 budget relies largely on sales and property taxes as sources of revenue.
The council unanimously advanced an ordinance raising the sales tax rate and the cap on the tax after lengthy testimony and an amendment on Jan. 6. However, there was an immediate written request for reconsideration from Councilman Thomas McGhee, and the ordinance has yet to pass.
Ordinance 19-23 raises the sales tax rate to 5.5% from 5% and, originally, sets the maximum tax on any single transaction at $16.50. Following an amendment at the Jan. 6 meeting, however, the maximum tax on any single transaction was lowered to $11, which is $1 more than it is currently.
During citizens’ comments, Paul Brown, co-owner and operations manager of Santa Claus House, had a prolonged discussion with the council regarding the increase.
“I’ve been before this City Council every single time the rate was raised saying the same thing over and over again. We’ve never been opposed to a sales tax. Sales tax is a good way to capture revenue from those who are using the services provided by the city but may not live in the city. We don’t argue that,” Brown said. “However, as I’ve said every time a sales tax has been raised, the sales tax as it’s currently structured puts the bulk of the city’s tax burden squarely on a handful of retailers.”
According to Brown, the tax puts all other North Pole restaurants and retailers at a competitive disadvantage when people can shop in Fairbanks where there is more choice and no sales tax.
Brown further noted that the general sales, alcohol and tobacco taxes provide 71% of the city’s 2020 budget. He suggested looking at spreading the tax burden through raising the property tax to make it more equitable.
Councilman Perry Walley noted that removing the sales tax would cause the city to increase the property tax almost 1 mill, which would put an extra burden on Brown as a business owner.
“Would you be OK with that?” Walley asked.
Brown said he would be because he considers the tax burden to be more equitably spread out with a property tax increase.
A question of procedure
Brown’s concerns were not limited to the increase in sales tax, however. In an email sent to council members prior to the meeting and provided to the Daily News-Miner by Brown, he noted a procedural concern regarding how the proposed tax increase was originally introduced as an amendment to a budget motion during discussion on raising the mill rate and adopting the budget.
The first mention of the increase in sales tax percentage to 5.5% in 2020 comes from Ordinance 19-20, which established the 2020 operating and capital budget, as well as the mill rate, and which was adopted on Dec. 2. Ordinance 19-23, the sales tax ordinance, was written later.
“I would think that would be a violation of city fiscal policy, to use a hypothetical sales tax increase to balance the budget. Chapter 4.03.030 of the North Pole Municipal Code says ‘Revenues expected to be received cannot include taxes, fees or other sources that do not already exist in the code.’ Until a sales tax increase legally passes, that revenue does not exist,” Brown wrote.
Welch, who met with City Attorney Zane Wilson on the matter, said the process was legal.
To satisfy city code, Welch said, the council had to come up with a separate ordinance, Ordinance 19-23.
Welch outlined a few steps moving forward.
Ordinance 19-23 will be reconsidered, as per McGhee’s written request, in order to discuss when the new sales tax rate will become effective.
The council intends to keep the 5.5% and keep the maximum tax on any single transaction at $11, according to Welch, and to make up for that reduction will increase the property tax rate one-half a mill.
Welch said he would like to start a business roundtable that would meet a few times a year so that business leaders can come together and be aware of what’s going on.
In the meantime, while the sales tax changes have not yet officially gone into effect, local businesses continue to operate as though they have.
When Brown was initially notified of the increase on Dec. 20, other businesses were receiving the notice as well.
Brown told the News-Miner in an interview after the Jan. 6 meeting that the Santa Claus House would not be collecting the new rate “until we’re confident it’s gone through the legal process to legitimately be passed.”
Some businesses, however, started charging based on the $16.50 maximum tax rate based on the council’s notice, sent before the amendment.
“They remit it to us, and until we meet again and change it and put it into effect some time in February, probably mid-February … until such a time it is what we put into code. It was already done,” Welch said.
Contact staff writer Kyrie Long at 459-7510. Follow her on Twitter at twitter.com/FDNMlocal