Sales tax is an option, says state revenue commissioner

By Larry Persily

Originally published in the Wrangell Sentinel

The governor’s revenue commissioner presented lawmakers with several revenue-raising options so that the state could afford a much larger Permanent Fund dividend while balancing its budget.

A statewide sales tax is among the options the administration presented to the Legislative Assembly’s tax policy task force last Thursday.

Deciding on the amount of the annual dividend should come first, Senate Speaker Peter Micciche said at an Alaskan Mayors meeting last week. “We have to figure out what dividend we can afford” and then decide how to pay it.

Supporters of a larger dividend will have to come to terms with the need for new or additional taxes to foot the bill, Micciche said in a virtual presentation at the Alaska Conference of Mayors, meeting in Fairbanks on August 4.

While not explicitly endorsing a sales tax or any of the other options, Revenue Commissioner Lucinda Mahoney said the governor would support the tax measures “as long as there is support from the legislature.”

The goal, she said, “is to really start a conversation … to determine what the appetite is for these measures.”

Lawmakers have struggled to craft a long-term budget plan for the state for 25 years, reaching what could be a decision point this year as reserve funds have dwindled and Gov. Mike Dunleavy favors a higher dividend important, putting public pressure on lawmakers ahead of next year’s national election.

“Everyone is mad at each other,” Micciche said of legislative tax debates, adding that it will take political courage for lawmakers to decide on a dividend and then, if necessary, increase revenues to balance the budget.

“Let’s find a way to strike a deal that makes everyone unhappy,” he told mayors the day before the revenue commissioner’s presentation to lawmakers.

The question lawmakers face, the senator said, is how to pay a dividend, provide public services, not exceed the Permanent Fund and balance the budget every year.

Last year’s PFD was $ 992 and the annual payment has averaged around $ 1,300 over the past 10 years. The governor’s plan would take it to nearly $ 2,400 next year, rising to nearly $ 3,400 by 2030, according to Mahoney’s presentation.

“The PFD cannot wreak havoc on the future of the state,” said Micciche, who served as mayor of Soldotna on the Kenai Peninsula for five years, before his election to the Senate in 2012.

The state budget can afford a dividend of several hundred dollars, without the need for new revenue or further cuts to public services, he said. Nothing more than that creates a tax hole that should be closed.

Other options listed in the Revenue Commissioner’s August 5 presentation were an increase in the tax on state oil production; legalized gambling, including a state lottery and casinos; double the fuel tax to 16 cents per gallon; and change the state’s corporate tax structure so that Alaska receives many more digital companies like Netflix, Amazon, Apple Facebook, and Google.

Another option is to expand the state’s corporate tax structure to apply to Hilcorp, which bought out BP Alaska’s North Slope operations last year, but as a corporation private, it is not taxed in Alaska like publicly traded companies.

This tax widening option would only apply to oil and gas companies, not other sole proprietorships, partnerships or so-called S corporations, which are closed businesses with a limited number of shareholders.

Looking at sales tax options, Mahoney’s presentation exemplified a 2% and 4% state sales tax on goods and services, with income estimates depending on exemptions, such as food, and whether the tax would also apply to goods and services. used by companies as well as individuals.

State revenue for every 1% of tax could range from $ 150 million to $ 300 million per year, depending on the exemptions.

The commissioner did not list a state income tax as an option.

Lawmakers are expected to return to Juneau next week for their third special session of the year. Dunleavy called them back to work on a list of tax issues. He wants them to work out an amount for this year’s dividend; examine its proposal to divide the annual levy on the income of the Permanent Fund equally between the FPD and the public services, by including the new formula in the constitution; consider a constitutional amendment to impose a spending limit on the state; and consider new revenue measures.

Without new revenue, Dunleavy’s plan for bigger dividends could result in an average budget deficit this decade of nearly $ 1 billion a year, according to Legislative Finance Division calculations.

Micciche acknowledged in his discussion with mayors that cities and boroughs that have relied on their sales taxes for years will not like the idea of ​​a state tax added to the local rate. But a personal income tax could not be passed by the legislature, he said, so municipalities need to understand how bad the state budget could be without new revenue. and help work towards an acceptable sales tax.

Fairbanks Senator Scott Kawasaki, who was at the mayor’s meeting, agreed with Micciche’s political assessment. “There is a lot of support in general for a sales tax,” Kawasaki said of his colleagues, although he added that he personally supported an income tax rather than a sales tax.

Kawasaki, one of four senators on the eight-member House and Senate fiscal policy task force, warned mayors that while they don’t like a state sales tax, they need to understand that there are lawmakers who see spending cuts as a response, as extending the state moratorium on repayment to local communities of debt related to school construction.

“Lawmakers need to settle their differences,” Micciche said, while also criticizing Dunleavy. “The governor did some nonsense and populist,” the senator said, such as vetoing a smaller PFD appropriated by lawmakers in June to force debate on a larger dividend in the constitution.

No one should think they are guaranteed re-election by emptying the treasury, Micciche said.

He hopes, but is skeptical, that the governor and lawmakers can agree on a comprehensive budget plan during the special session, which is legally limited to 30 days.

“The people of Alaska are fed up with inaction,” said Micciche.

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