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Does Alaska need a state sales tax?

  • Jun 6, 2017 | Gail Cole

 Think of the sales tax revenue one cruise ship could generate.

Summer is almost here. For Alaskans, that means midnight sun, cruise ships, and talk of a state sales tax.

Governor Bill Walker considered a statewide sales tax in 2015 but abandoned the idea because most municipalities in Alaska already impose a local sales tax; he was concerned they would find the additional cost burdensome, especially in remote areas where goods already tend to cost more. He then  urged the legislature to consider a state sales tax in the summer of 2016, and two measures seeking a 3 percent statewide sales tax were proposed during a fifth special session. Both failed.

Yet Alaska desperately needs a stable source of revenue. The state has no individual income tax or state sales tax, and it pays its citizens to live there. Its reliance on the oil industry for revenue may have filled its coffers for decades — in 2015, The Atlantic wrote, “This state has more money in the bank than most small countries” — but declining oil prices have revealed the downside of such a dependence. According to Randall Hoffbeck, Commissioner of the Alaska Department of Revenue, “for every $5 drop in oil prices, the state loses $120 million.”

Annual budget deficits are even more impressive. “Alaska is facing annual deficits of more than $3 billion — even after budget cuts of 44 percent in the past four years,” according to The New Sustainable Alaska Plan website. Change is therefore imperative, and change includes new broad-based taxes. The governor’s 10-year plan proposes overhauling the corporate income tax and gradually increasing the motor fuel tax, currently among the lowest in the nation. It does not mention a state sales tax. That’s a little surprising, given that more than half the population of Alaska supports a state sales tax and only 41 percent are in favor of a state income tax, according to a poll by Dittman Research.

At the start of the recent special session, Gov. Walker asked the legislature to consider “An act or acts to increase an existing tax or to establish a new broad-based tax for the purpose of generating new revenues for the State.” This could include a state sales tax. But, progress has been slow, and last Friday, the governor called the current legislative situation a “stalemate.” With less than two weeks left in the special session and the legislature no closer to solving the state’s fiscal problems, a government shutdown is looming. That, says Walker, “is unacceptable.”

But opinions on a state sales tax vary widely. Rep. Chuck Kopp urged the House and Senate to “stop the staring contest” and pass a budget. He wrote in the Juneau Empire, “A statewide sales tax should be considered, along with certain exemptions to protect seniors and retirees.” And retired economist Gunnar Knapp is adamant: “We need to move beyond the rhetoric that all taxes are bad for the private economy and bad for Alaska. … In every other state, people pay either state income taxes, state sales taxes or both. And unlike Alaska’s, almost every other state’s economy is growing.”

Conversely, Rep. Justin Parish said on KINY Radio that he has “real reservations” about state sales tax, “not only because it usurps the authority that municipalities have traditionally enjoyed to manage their own sales tax, but also because it would hit families about twice as hard as it would hit anyone else.” On the same show, Sen. Dennis Egan said a state sales tax would be “horrible for municipalities that already have a sales tax.”

Companies that do business in Alaska should keep a sharp eye on the current state of affairs. A state sales tax, if enacted, would likely come with plenty of warning. Nonetheless, it could complicate tax compliance.

For more information about sales and use tax in Alaska, see Alaska Sales Tax Rates.

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.