Story last updated at 3:11 p.m. Thursday, December 19, 2002

Assembly scraps sales tax revision

Controversial proposal affecting charter operations gets dumped

by Hal Spence
Morris News Service-Alaska

Charter operators got what they wanted last week when the Kenai Peninsula Borough Assembly tossed out proposed changes to the way fish guides charge their customers borough and city sales taxes.

Bending to weeks of pressure from the recreational sport-fishing industry, the assembly voted 5-4 to delete an amendment to the borough tax code that would have required charter operators to assess sales taxes on a per-day, per-person basis.

While that essentially is how individual anglers seeking a day on the water are charged now, the existing code allows charter operators to offer package deals that often lumped several clients over several days into one bill. Such packages almost always exceeded the borough's sales tax cap, which taxes only the first $500 of a transaction.

In Homer, for instance, that $500 cap makes the maximum tax revenue just $27.50. That revenue would be split between the borough and the city, with $10 going to the borough for its 2 percent tax and $17.50 going to the city for its 3.5 percent sales tax.

Assembly member Chris Moss of Homer, a member of a borough task force that worked for more than a year to revamp the borough's tax code, said charter operators had been enjoying the benefits of a loophole tax code drafters had not intended. The task force and borough finance officials argued that charter services should be treated more like hotel services, which do charge on a per-room, per-day basis.

Charter operators countered that their services were no different than goods bought at any store. One likened selling six clients a day on the sea to someone buying six sets of washers and dryers for an apartment complex all at one time and all on one invoice. The appliance buyer pays a tax limited by the sales tax cap. So should charter customers, charter operators argued.

The proposed amendment, one of several addressing various parts of the tax code, drew opposition on the day it was introduced in early October and at five subsequent public hearings, including Tuesday's.

Requiring a per-day, per-customer tax charge would amount to a bookkeeping nightmare and would drive business to areas of Alaska where there are no sales taxes, operators said. In addition, the revision appeared to single out their industry for special, unfair treatment, they said.

Assembly member Grace Merkes of Sterling moved to delete the amendment, saying the initial reason for the sales tax code review was to make the code simpler, more equitable and more progressive.

"I really don't see that happening, especially with this one section," she said.

Assembly member Ron Long of Seward said one could view the current system as a kind of loophole, but in other areas of the tax code the assembly has purposely created such loopholes by approving exemptions of one kind or another.

"Every time we do that we shift that tax burden around," he said. "When one group or individual is paying less, another group has to pay more to make up for it. It's OK right now when we are operating on a pretty healthy reserve, but at some point there is going to be a day of reckoning when we really have to take a hard look at all of those exemptions and inequities."

Long said the response from the charter industry was "pretty predictable," but he added that the litmus test for him was the reaction of his constituents who had no direct stake in the industry, who were not charter operators. He said they told him the proposed changes did appear to single out a particular industry. Long supported the deletion.

Moss said he did not believe the difference between a sales tax limited by the tax cap and a sales tax charged on a per-day, per-person basis would be enough to drive business away. He also pointed out that the borough sales tax goes directly to schools.

Dean Baugh, finance director for the city of Homer, testified that the borough's cities generally supported the change in the charter boat sales tax provision. The cities stood to see increased revenue as a result, he said.

The vote on the Merkes amendment was close. It passed by a 5-4 margin. Assembly members Betty Glick of Kenai, Pete Sprague of Soldotna, Gary Superman of Nikiski and Moss opposed the measure.

Other minor changes to the tax-code revisions also were made Tuesday.

A section that would have limited an existing exemption for fund-raising activities of nonprofits was tossed out entirely, leaving the current law unchanged.

The following are changes that were adopted:


* A provision allowing the mayor to determine the appropriate application of fees;


* An exemption for state-licensed medical and psychological service providers and their prescriptions, and providing a mechanism for adding new services as they are licensed by the state;


* An exemption for child care and adult day-care services;


* An exemption for services performed under warranties and service agreements;


* A provision allowing lodging and meals to be eligible for treatment as resales;


* A provision to reduce the cost of an owner-builder card and to include certain services;


* A provision removing references to an Intermediate Service Certificate and adding an approval and compliance requirement to the resale card process;


* A provision defining the taxability of vending machine sales on a per-transaction basis;


* A provision giving direction to the treatment of installment sales and vehicle leases that would comply with current and potential seasonal sales tax rates;


* A provision to tax services based on the invoicing practices of the provider;


* A provision making the point of sale of goods the retail outlet from which they are sold;


* A provision making quarterly tax returns the standard;


* A section adding or amending definitions of terms within the code meant to make the law more clear.

In other business, the assembly passed Ordinance 2002-19-25, accepting and appropriating $73,550 in state funds from the Alaska Department of Community and Economic Development for the Cook Inlet Salmon Branding Program.

The money represents completion of the salmon program's obligation to reimburse the borough for a $305,550 appropriation to the program. The program previously had made other reimbursement payments to the borough as other grants were received.

The assembly also introduced Ordinance 2002-19-26, authorizing acquisition of land from the University of Alaska for a new solid waste dump in Seldovia. The ordinance is scheduled for a public hearing Jan. 7.

Hal Spence is a reporter for the Peninsula Clarion.

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