Story last updated at 1:31 p.m. Thursday, November 14, 2002

Borough sales tax code changes need to be rethought
The sales tax code for the Kenai Peninsula Borough is pretty straightforward, but with a bunch of exceptions, exemptions, caps, exclusions and interpretations. KPB Ordinance 2002-39 will re-tune the sales tax rules. It will affect those who collect and pay the tax, as well as those who don't.

The sales tax committee considered lots of different ideas to improve the sales tax code, including raising the tax cap from $500 to $2,000. In the final proposal, the committee has come up with 15 proposed changes to the code. Three of them deserve special mention.

Nonprofit organizations (as defined as 501c by the IRS) are allowed exemption from collecting and paying borough sales tax on their transactions. This means you don't have to pay a tax on goods and services provided by the nonprofit. Covered items include everything from theater tickets for Pier One, to bake sales, fund-raising auctions, benefit events, Girl Scout cookies and everything imaginable in between.

Proposed change No. 5 would alter that.

Instead of the blanket exemption nonprofits are currently offered, each organization would have to apply for a specific exemption for each individual activity or event. This issue grew out of the case where a Seward nonprofit was selling T-shirts and not charging sales tax. Across the street, a local for-profit gift shop was selling the same T-shirt and was required to charge sales tax.

Is it fair? It seems the real issue is where the proceeds of the T-shirt sales were going.

Were they going to further the causes of a charitable nonprofit entity, or were they used to meet the needs of an independent for-profit business?

The proposed section 5.18.200C would "limit tax seller status of 501c corporations when competing with for-profit entities." Does that mean a nonprofit would have to charge sales tax on coffee mugs because a coffee mug can be bought in town, but could sell a thermal laser spectrometer because one can't be bought in town? And what happens when a store in town starts to carry them?

It seems that, in deciding what will be taxed for the nonprofit, the proposed change is responding to what may or may not be available in the local market. And we all know that stores, shops and product lines come and go like good and bad weather.

Aside from that debate is the issue of the sheer volume of new paperwork and application process that will now fall on the nonprofits in applying for consideration for each of their activities or products. Is that a burden we want to place on them, and have our borough tax officials deal with in reviewing them? We don't think so.

Another recommendation of the committee suggests per person, per day taxing on recreational packages. You could no longer rent a boat, pay the maximum tax, and bring along as many friends as you want. You would have to rent the boat by the head and pay by the person, by the day, and pay tax on each one.

The net effect results in more tax collected, since the tax cap is not reached as quickly. Does this mean renting a car or motel room by the person, by the day?

This proposed change would affect everyone doing business in the tourism industry, especially those who create package deals.

The current tax code details the specific exemptions, exceptions and applications of the tax code. This helps to ensure that due process is followed in setting up these rules. It requires action by the borough assembly to change them. Borough administration is bound by the code.

Change No. 1 in the committee recommendations proposes changing that and giving the borough mayor "the authority to determine appropriate application of fees." This is a perilous opening in the path to political favoritism. It has "danger" written all over it.

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