Alaska would implement a 2% state sales tax next year under a bill before lawmakers meeting in special session to address fiscal policy.
Alaska would join 45 other states plus the District of Columbia in levying and collecting state sales taxes to generate revenue for operations. Only four other states besides Alaska currently have no statewide sales taxes. They are Delaware, Montana, New Hampshire and Oregon.
Democrat Rep. Geran Tarr of Anchorage introduced HB3006, which will have a hearing Friday in the House Ways and Means committee.
Tarr’s legislation authorizes the Alaska Department of Revenue to develop and implement a “streamlined sales and use tax agreement,” which would take effect on July 1, 2022.
Under the terms of the bill, many essential items for Alaskans would be exempted, including groceries, medication, feminine hygiene products and heating oil.
Tarr said that a statewide sales tax means that “the 20% of workers who come from out-of-state” and more than 2 million visitors who vacation in Alaska will “help support the services they enjoy while in Alaska.”
Tarr said she supports a 2% statewide sales tax coupled with the so-called 50/50 dividend payout that Gov. Dunleavy is proposing to guarantee in the state Constitution.
Under the governor’s plan, there would be a 50/50 split between funding the Permanent Fund dividend for residents and paying for state services.
“I can support a 2% sales tax, given that it is coupled with a 50/50 dividend payout and important exemptions for essential purchases, like food, medicine and heating oil,” Tarr said. “This will ensure that no Alaskan is disproportionately burdened by these policies.”
Local sales taxes would continue
The plan for a 2% state sales tax would be in addition to local sales taxes already levied in many Alaska cities and boroughs.
Municipalities would be able to continue levying local taxes. But the state would collect all of the taxes, both local and state, and then remit amounts owed to communities.
While Alaska currently does not have a statewide sales tax, cities and boroughs are authorized to levy a local sales and use tax on sales, rentals or services within the communities. Local exemptions are granted by ordinance.
Anchorage and Fairbanks are among Alaska’s larger municipalities without local sales taxes. But there are more than 100 cities and boroughs that levy general sales taxes to help fund services. Communities with local sales taxes include Homer, North Pole and Seward.
Local sales taxes in Alaska typically range from 2% to 5%, according to the national Sales Tax Institute.
Other examples of taxes in Alaska are raw fish taxes, restaurant meal taxes and gaming taxes on pull tabs.
Increased oil production tax?
Many U.S. communities impose their own taxes. Local sales taxes are collected in 38 states, which includes Alaska, according to the nonprofit Tax Foundation. Local taxes often rival or exceed state rates, the foundation reports.
In addition to the bill for a statewide sales tax, Tarr also introduced legislation to increase the minimum tax on oil and gas production from 4% to 6%.
“I would prefer an income tax, but there have been two income tax bills introduced since the beginning of session which have seen little to no movement at all,” Tarr said.
Rep. Harriet Drummond, a co-sponsor of the bill, said: “It’s very clear that new revenue is required if the state is to be able to continue to pay for the needs of Alaskans such as education, health and public safety, in addition to granting the large dividends that the governor appears to be insisting on.”
Drummond, a Democrat, said she too believes “that income tax is the better way to go. But I am willing to explore the use of a sales tax. And Rep. Tarr is very aware of the needs of low income Alaskans and has shaped this bill to respect that.”