Alaska lawmakers consider state sales tax
- Jul 14, 2016 | Gail Cole
An urgent need for a stable source of revenue in the wake of declining oil prices prompted the governor of Alaska to take dramatic action: he asked legislators to consider a state sales tax during the fifth special session. And on the first day of the session, which commenced July 11, 2016, legislation proposing just that was introduced in both the House and Senate.
Both versions (Senate Bill 5004 and House Bill 5004) seek to levy sales and use tax at a rate of 3% on sales and rents of tangible personal property and on sales of services beginning January 1, 2018. According to the fiscal note, it is expected to bring in $500 million annually. The state tax would be:
- Administered and overseen by the Alaska Department of Revenue (which would take over administration of local sales tax by 2022)
- Stated separately for all sales, except for the following:
- Admission fees
- Games of chance
- Sales of drinks in a bar
- Sales from street vending carts
- Taxi fares
- Vending machine sales
Advertising or suggesting to the public or a person that the tax absorbed will be absorbed or refunded would be prohibited. In addition, any buyer liable for use tax on tangible personal property or services would be “entitled to a full credit for the amount of sales or use tax paid on the same tangible personal property or same services to another state.”
It’s worth highlighting that the bills include a provision on nexus, which reads,
“To the fullest extent permitted under the Constitution of the United States, a person who has nexus with the State of Alaska and whose sales are not subject to the sales tax shall collect the use tax from the purchaser and pay the tax collected to the department.”
In other words, before it even has a state sales tax, Alaska is preparing to join other states in challenging the precedent set by the 1992 Supreme Court rule in Quill Corp. vs. North Dakota. The reasoning undoubtedly being: if we’re going to impose a state sales tax, we should at least be able to tax remote sales. There have got to be a good number of remote sales in Alaska.
If enacted, certain sales would be exempt. These include, but are not limited to:
- Child care services
- Health care services
- Isolated or occasional sale or lease of property or services
- Personal effects
- Sales for resale
Exempt sales would have to be documented with an exemption certificate.
Streamlined Sales and Use Tax Agreement
The bills also authorize the Department of Revenue to enter into the Streamlined Sales and Use Tax Agreement, which suggests that, if enacted, Alaska state sales tax would be here to stay.
It will be interesting to see what happens in The Last Frontier. Until we know more, businesses would be wise to prepare for any eventuality by implementing sales tax software-as-a-service. Learn more.