Here in Homer we are voting to increase our sales tax by half of a percent. From the Kenai Peninsula Borough sales tax study of 2001, a sales tax loophole has allowed $72,322 to drive up the road from Homer and off the peninsula. For the whole peninsula in 2001, $390,321 drove away and we were not able to use it to help our communities. In the last 15 years this has amounted to $1.08 million lost in Homer and $5.9 million for the entire borough. So, you ask, how can this be?
The borough sales tax code, 5.18.430, states, tax shall be applied to the first $500 of each separate sale, rent or service transaction, except for items A, B, C, and D. Exception in item C. reads: "Each night's rental of each individual room shall be considered a separate transaction and therefore maximum tax computation shall be calculated on a per room per night basis.
Explanation on the tax loophole: In Homer, if you stay at a motel for several nights and it costs $1,200, your tax is $66. On a charter boat example, if a six-pack operator charges $200 per person and three couples charter, the total charge would be $1,200 and a tax of $66, if each couple pays separately.
But if one person pays the total amount and collects from the others, it is then treated as a one item sale and only the tax on the first $500 is collected, $27.50. The $38.50 is a savings to the tourists. On the big party boats of 14 to 18 people, the "discount" given back to the tourists in sales tax savings can be more than $100. Over the course of a summer, with as many charters we have in Homer, it doesn't take long to total up to the $72,000.
Three points are very absurd here.
From the sales taxes collected by the city, the city funds the Homer Chamber of Commerce $25,000 in 2002 and $20,000 in 2003 to advertise and promote the City of Homer. There is a lot of advertising that promotes the charter industry. Yet, the charter industry has been allowed, legally, by the sales tax code to short our community to the tune of $72,000 in uncollected sales tax (in 2001) by collecting sales tax on only the first $500 of sale. (Seward lost out on $64,363 and the borough nearly $400,000 by 2001 figures. The amounts for this past summer, three years later, are much higher.)
The major stress on this community's infrastructure comes in the summer from the tourists. The city maintains the harbor for these very businesses to thrive, yet they do not feel compelled to collect sales tax on a per person per day basis. Restrooms on the Spit and Pioneer Avenue would make visiting Homer a more quality experience, but do we fully tax the people that would need them or use them? No, the rest of the community ends up picking up the tab.
The state of Alaska in its last legislative session looked closely at a seasonal sales tax to primarily tax the tourists in the summer as a means to find funds to pay for state finances. Seldovia has done this very thing to help their community meet their financial difficulties. Yet, here in Homer and on the Kenai Peninsula, we give tourists tax discounts through the maximum tax loophole at the expense to our communities and schools.
The whole idea of the maximum sales tax on the first $500 was set in place for local residents to purchase locally instead of buying in Anchorage. Are tourists going to go to Anchorage to fish halibut to avoid the tax? I don't think so. Are these people that are getting the discount local people?
Furthermore, if I vacation to Hawaii, or California, or New York, do I get a break on the sales tax if I purchase something for more than $500? No way, and their tax rates are way more than our 5 percent or 5.5 percent. They think we are lucky.
Another thing that gripes me about this is, as soon as the tourist season ends, many of the charter businesses close the door and the owners head for the Lower 48. That leaves us to support the infrastructure through our taxes only to see them return next summer to do it again.
Last spring the peninsula voted on whether to increase taxes to collect more money to support the shortage in the school budget. The $400,000 we allow to drive off the peninsula this summer would sure go a long way in paying some of the sport and activities expenses that our students need.
If we correct this loophole in the sales tax code it will benefit our communities. I would suggest one of the following changes:
1. Each day rental per individual on a charter boat shall be considered a separate transaction and therefore the maximum tax computation shall be calculated on a per person per day basis.
2. Any tourist-orientated business shall collect tax on the full sale except for a person showing proof of residency.
It just amazes me that we are voting on increasing sales tax on ourselves and at the same time we are giving the tourists a tax break. In the last 15 years $1.08 million has left the Homer community; $5.9 million has left the peninsula. Is this really smart?
Please contact your borough assembly representative to get this changed.
Merlin Cordes has lived in Homer for 15 years. He has been a small business owner and a commercial fisherman. He currently is a teacher.
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