City may tax some junk food

In a meeting with an 8-page agenda and 26 items, the Homer City Council on Monday met until 10:10 p.m. — “my longest city council meeting yet,” first-term member Catriona Reynolds described it.

With such a weighty agenda, it seemed appropriate that at the top of the list was a proposal to redefine as taxable fatty foods such as potato chips, candy, sugary sodas and ice cream. The council at its June 29 meeting had voted down 3-2 Ordinance 15-19(A), introduced by council member David Lewis, but on reconsideration put the ordinance back on the table. In a 5-1 vote, with council member Bryan Zak voting no, the council passed the ordinance. It would take effect Jan. 1, 2016.

Under a Kenai Peninsula Borough citizen initiative and Homer law, there is a sales tax holiday from Sept. 1 to May 31 on nonprepared foods. The definition of nonprepared foods follows that of U.S. Department of Agriculture food stamp guidelines.

At the last meeting, Lewis said he introduced the ordinance to address what he saw as a contradiction between how prepared and nonprepared foods are defined. A sandwich bought at a food counter would be taxed, but if it was packaged a day later, wouldn’t be taxed.

“You can walk into Safeway, buy a doughnut from the deli section, and will pay a sales tax,” he said. “The Hostess package (of doughnuts), you don’t pay a sales tax.”

Lewis’ ordinance would change how some nonprepared and prepared foods are defined. It stipulates that these foods would be taxed year round:

• Beverages containing less than 50 percent fruit or vegetable juice, including soft drinks, energy drinks and sports drinks, but excluding dairy and dairy substitute beverages;

• Candy;

• Potato and corn chips, pretzels, crackers and other ready-to-eat snack foods;

• Ready-to-eat baked foods, including cookies, cake, doughnuts and muffins, but excluding bread;

• Ice cream, sherbet and other frozen desserts;

• Prepackaged or made-to-order sandwiches, wraps and salads.

Lewis said he didn’t know how much sales tax revenues would increase with the change. The ordinance would apply only to the city’s 4.5 percent portion of the sales tax. The ordinance would mainly affect Homer’s three large grocery stores. Lewis said an official at Save-U-More told him changing product tax codes would require about four hours of work.

On an amendment by council member Beau Burgess, the council changed the ordinance’s title from “repealing the seasonal sales tax exemption as applied to certain categories of nonprepared food” to “defining items as prepared food.”

One glitch in the ordinance taking effect is Proposition 1, to be considered on the Kenai Peninsula Borough Oct. 6 ballot. If voters pass Prop 1, it would repeal borough Ordinance 2008-28 which allowed general law cities like Homer to opt out of the seasonal sales tax exemption. In 2008, Homer voters in an advisory vote chose not to tax food year round. If Prop 1 passes, a general law city like Homer couldn’t opt out.

But could it still redefine prepared foods? Lewis raised that question at the council meeting with city attorney Thomas Klinkner. Klinkner said if the city can’t opt out of the seasonal tax exemption, the city can only tax item-by-item what the borough taxes. If Prop 1 passes, Ordinance 15-19(A) would be moot.

Tara Kain, co-sponsor of Prop 1 with Alaskans for Grocery Tax Relief, said that’s how she sees Prop 1 affecting the new Homer ordinance.

“My understanding is whatever the borough taxes, the city can tax, and whatever the borough doesn’t tax, the city cannot tax,” she said.

Kain said she didn’t understand why the council passed the redefinition of some nonprepared foods.

“In my opinion, Prop 1 has a very likely chance of passing,” she said.

Lewis acknowledged that possibility, which is why he set an effective date of Jan. 1, after the fall elections.

Kain also said she had some concerns with the idea of the Homer city council redefining some nonprepared foods. She noted how initially the ordinance changed the definition of  frozen pizza and other packaged foods from nonprepared to prepared. At the June 29 meeting the ordinance was amended to keep frozen packaged foods as nonprepared foods.

“If they start getting into defining or not defining what is junk food and all that, it can be kind of a slippery slope,” Kain said. “That would be my biggest issue. Where it could potentially lead to depends on whose definition of junk food and create a much broader base of groceries that can be taxe