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The Kenai Peninsula’s Controversial Grocery Exemption


 Homer, Alaska.

Although Alaska doesn’t have a state sales tax, state law permits the imposition of local sales and use tax if approved by a majority of voters. More than 100 municipalities currently levy a general sales tax.

Aside from the handful of items exempted at the state level, boroughs and municipalities have the authority to determine what is taxable, at what rate. Local sales tax rates typically range from 1% to 7%, although there is no maximum rate.

In the Kenai Peninsula Borough, sales tax is based on the location of the retail outlet (for goods) and the location where a service is rendered. Only the first $500.00 of the sale price of an individual sale is subject to tax. The borough rate is 3%. The rates listed below are the combined city/borough rate:

  • Homer: 7.5% year-round
  • Kenai: 6% year-round
  • Seldovia: 5% October – February; 7.5% April - September
  • Seward: 7% year-round
  • Soldotna: 6% year-round

Non-prepared food exemption

Under Kenai Peninsula Borough Ordinance 2008-28, non-prepared foods (fruits, vegetables, uncooked pasta and rice, etc.) are exempt from the 3% borough sales tax for nine months of the year, September 1 to May 31.

The ordinance permits the general law cities (Soldotna, Homer and Seldovia) “to levy and collect sales tax on non-prepared food items.” It also makes clear that home rule cities (Seward and Kenai) “are exempt from the statutory requirement to tax the same sources as the borough.”

Homer has decided to redefine certain non-prepared foods, such as candy, cakes, and soda. These will become subject to Homer’s city sales tax (4.5%) year-round beginning January 1, 2016.

The following cities levy sales tax on groceries year-round:

This is a controversial issue. Many argue that the exemption is depriving communities of sorely needed sales tax revenue; for example, revenue generated by Soldotna’s grocery tax is said to be “a significant portion of the borough sales tax.” On the other side is the argument that a borough tax on groceries will be a financial strain for many, particularly those on a fixed income (Homer News).

This fall, borough voters will decide the fate of the exemption: to keep it as is or to shorten it by 3 months. If the shorter time period is adopted, the sales tax exemption for non-prepared will be in effect October 1 to March 31 (Peninsula Clarion).

Additional information on local sales tax in Alaska is available through the Office of the State Assessor.

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Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.