A new ruling by the U.S. Supreme Court may put sales taxes on internet purchases across Alaska and bring millions of dollars to local coffers.
The decision is not likely to result in any quick changes, however. On Thursday, the court in Washington, D.C. ruled that an internet sales tax levied by South Dakota does not violate the Commerce Clause of the U.S. Constitution. The ruling, in Wayfair v. South Dakota, opens the door for similar taxes nationwide.
“It’s a big deal. It’s a big deal for online sales and local retailers,” said Pat Branson, president of the Alaska Muncipal League board of directors and mayor of Kodiak.
While Alaska doesn’t have a statewide sales tax, cities and boroughs rely heavily on sales taxes to fund local services. Branson doesn’t believe the ruling applies to municipalities.
“It will be interesting to see what the state does with this because it has to be a state sales tax,” Branson said.
Mike Barnhill, deputy commission of the Alaska Department of Revenue, isn’t so sure. In a phone call with the Empire on Thursday morning, he pointed to a dissent written by Chief Justice John Roberts, who noted that retailers will now be required to deal with different sales taxes applied in “over 10,000 jursidictions” nationwide.
“It may be some time until we figure it out,” he said.
Bob Bartholomew, finance director for the City and Borough of Juneau, said by email that “working hard, we are 1-2 years from being able to capitalize this. I expect federal legislation to also impact how the ruling gets implemented.”
He isn’t sure how much money the city could raise by extending its sales tax online; according to the city’s just-approved FY19-20 budget, it expects to earn about $47 million from existing physical sales taxes each year (excluding marijuana and alcohol). The city expects $338 million in revenue altogether each year.
Bartholomew said he had been expecting the ruling and has discussed it on a preliminary basis with the AML and Department of Revenue, but not in any depth.
He further said that he hopes “we can create a standardized local sales tax program centrally administered by the state (as a way to help local governments without costing the state money).”
If state involvement is necessary, Legislative approval would be required.
The last attempt at a statewide Alaska sales tax was in 2016, when Gov. Bill Walker proposed a 3 percent sales tax as a means to clear a legislative impasse that kept lawmakers in session through June. The idea was not seriously considered and never received a hearing.
The last major vote on a statewide sales tax was in 2004, when the Alaska Senate voted 7-12 against a 3 percent sales tax proposed by the Senate’s minority Republicans. A similar proposal in the House that year never reached a floor vote.
In South Dakota, which brought the lawsuit to the Supreme Court, legislators approved their sales tax in 2016 and devoted its proceeds toward teacher salaries. They also created a structure that reduces the sales tax for businesses with a physical presence inside the state. That reduction will be paid for with new money from businesses beyond its borders.
Until Thursday, states had been allowed to levy sales taxes only on internet companies with a physical presence, such as a warehouse, within the state. In those states, it is the responsibility of the seller to collect taxes and remit them to the state. The buyer might pay a slightly higher price, but it’s the responsibility of the seller to follow the law.
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