Sales Tax: How Real Families Would Be Affected

I have written before in this blog about various aspects of the proposed Anchorage sales tax, however I was struck by the lack of serious analysis and projects considering the importance of the subject. I was forced to rely on various studies that were done earlier in Alaska, or were done elsewhere. However, I just obtained some very interesting material from Assembly Member Allan Tesche that begins to provide some of the missing local, contemporary analysis.

First, Tesche’s brief historical introduction to the issue…

For almost one year Assemblyman Coffey has been working on a ballot measure which would impose a general 3% tax on the retail sale of most goods within the municipality. He presented several versions of his ordinance to the Assembly along with two others drafted by Assemblyman Dan Sullivan. On February 13, 2006 Mr. Coffey announced he would urge fellow assembly members to delay a public vote on the sales tax until 2007 in order to iron out the details and to build more public support for the measure. Under the home rule charter, any new sales tax requires a 60% vote of the people.

On February 14 the Assembly rejected Dan’s proposal to delay a public vote until 2007. Assembly Chair Anna Fairclough was the swing vote and, with five other members, voted to place the sales tax issue on the April 4, 2006 ballot. The measure is now called Proposition 13.

Here, briefly, are the highlights of Proposition 13…

The details are contained in a 20 page ordinance known as AO 2006-34(am). Specifics can be changed only by another vote of the people.

3% tax applies generally to all goods (tangible personal property) sold to consumers within the municipality. A “use tax” also applies to goods purchased outside of Anchorage and brought into the city, with an offset for taxes paid on those goods where purchased.

Exemptions include food, prescription drugs, newspapers, non commercial sales by the government, non profits, rental of personal property, rental or sale of real estate. Sales from vending machines and charges for telephone, television, or internet services, and insurance are also exempt. The sales tax does not apply to hotel-motel room rentals, rental cars, or tobacco which are already taxed by the municipality.

The maximum tax on any single purchase is $200. This means that a sales tax of $200 is payable on an item sold for $6,666.00 and for all other purchases costing more than that amount.

Except for costs of collection (several dozen new city tax collectors) all proceeds are “under the cap” in order to reduce taxes on real property used for residential or business purposes.

The sales tax will raise about $90M a year. All property owners, including homeowners and businesses, will save about 25% on their property taxes if the new sales tax is approved by the voters. That savings is, of course, offset by what property owners will pay out in the new sales tax.

If approved by 60% of the voters on April 4, the sales tax becomes effective on January 1, 2007.

The most interesting piece of the materials I have received from Tesche is subtitled “How different taxpayers are affected.” It consists of a series of analyses and projections based on hypothetical but plausible Alaskan families…

Renters and Seniors

Renters of all ages and seniors who do not own any real property will receive no benefit whatsoever from the new sales tax. They will pay the new sales tax of 3% on all taxable goods they purchase in Anchorage, financing the tax break homeowners and businesses will receive.

A senior whose family home is assessed at $300,000 is entitled to take senior exemption of $150,000 and standard property exemption of $20,000 of making his taxable property worth $130,000. On that reduced value, he will pay $2,080 in real property taxes. Because most of the proceeds of the new sales tax will apply to reduce real property taxes, his property tax bill is 25% lower, saving him $520. If he spends about one half of his retirement income of $38,000/year on taxable goods in Anchorage, he will pay sales taxes of 3% of $19,000 or $570. Deducting his property tax savings of $520 from the what he will pay in sales taxes ($570), this senior will still pay $50/year more in taxes for the same city services he received last year.

A modest condo in Eagle River

A woman who owns a condo in Eagle River assessed at $167,000 will owe about $2,672 in real property taxes for 2006. If the sales tax passes, her property tax bill will go down by 25% , saving her $668 in taxes for the year. With her salary of $80,000/year, we can estimate she will spend about $20,000 for taxable purchases in Anchorage and will pay $600 in sales taxes on those items during 2006. Considering what she saves in real property taxes ($688) and what she will pay out in the new sales tax ($600), she will save $68 in taxes for the year. City services she receives in Eagle River are unchanged.

A well to do homeowner in Midtown

A wealthier homeowner who owns a home in Midtown assessed at $810,000 will pay about $12,960 in real property taxes in 2006. If the sales tax passes, his property tax bill will be reduced about 25%, saving him $3,240 for the year. If he earns $180,000/year, we can estimate he will spend about $40,000 in taxable purchases and pay $1,200 in sales taxes. Considering what this saves in real property taxes and what his family will pay out in sales taxes, his family will save $2,040 in taxes for the year. City services this family receives will not change.


The 25% savings in real property taxes apply equally to business property–land, improvements, and business inventory–just as it applies to residential property. Actual tax savings some of Anchorage’s largest businesses will realize in one year include:

Fred Meyer Stores . . . . . . . . $516,088
WEC 2000A-Alaska LLC . . .$332,553
Anchorage Fueling & Svc . . .$314,267
BP Exploration . . . . . . . . . . .$271,398
Alyeska Pipeline . . . . . . . . . .$236,840

These savings are offset by what these businesses purchase in taxable goods within the municipality. That data is not yet available.

The $200 cap

The $200.00 cap clearly places the burden of the new tax on goods costing less than $6,666, the ceiling for the 3% tax. A single mom buying a ten year old Suburu for $6,666 pays the same $200 in taxes as her more affluent neighbor who can afford to buy a new Suburban for about $45,000.

Want to figure out what would happen to your family? Tesche provides the basic information you need to do that…

How the sales tax is calculated:

After reviewing the exemptions listed in AO 2006-34(an), estimate the total cost of goods purchased in Anchorage subject to the new sales tax. Multiply that total by 3% or .03 to calculate how much you will pay every year. For example, a resident who buys $10,000 in goods in Anchorage will pay an additional $300.00 in sales tax to the municipality.

How property tax savings are determined:

Find your home’s assessed valuation on the city’s web site, deduct $20,000 from that value for the residential exemption voters approved last year, and then multiply the result by .016 (an average mill rate in Anchorage) to give you a rough estimate for your 2006 tax bill. Multiply that amount by .25 to calculate your property tax break if the new sales tax passes. For example, a home assessed at $270,000 with the $20,000 deduction will be taxed as though it were worth $250,000. An average mill rate of .016 applied to $250,000 yields a 2006 property tax bill of $4,000. Passage of the new sales tax will reduce property taxes on that home by about 25%, saving the homeowner $1,000.

What it means to your family?

Subtract what you will pay in sales taxes from the savings in property taxes to find out what the new sales tax will mean for your family. Using the previous calculations, a family will save $1,000 in property taxes, but because the family must pay $600 in new sales taxes, its tax savings is reduced to $400 for the year.

What does this all mean? Assembly Member Tesche puts it this way…

Prop. 13: Look before you leap

Assembly Sponsor says wait: Dan Coffey did not support Assembly action and said community needs more time to work out the details and to build community support.
Assembly version is still unclear and needs more work: definitions, coverage and exemptions need more study.

Little community support at this time: about 8 people testified before the Assembly, most were opposed to the ordinance as drafted. It’s behind in the polls and requires a 60% vote to pass.

Public is uninformed and confused: abrupt decision to put tax on April ballot has a lot of voters confused; we do not know details of ordinance.

Like all other sales taxes, this one is regressive: Particularly for seniors and renters, as well as homeowners with modestly priced homes, the burden of the new tax falls on them much more than the more affluent homeowners who will see a reduction in all taxes they will pay to the city.

Windfall tax cut benefits corporate landowners: Consumers will finance property tax breaks worth millions to largest corporate property owners. Seniors, renters, and the poor pay the tab: property tax break comes at the expense of those least able to pay a new tax.

New tax will be expensive to collect: Consumers will pay millions to hire new city staff to collect and administer the ordinance. Is it really worth it?

New tax brings no new services: We could use more police, fire, protection, not dozens of new tax collectors.


Posted on February 28, 2006, in Tax Policy. Bookmark the permalink. 1 Comment.

  1. While there may be all kinds of logical and reasonable reasons to expect the people of Anchorage to finally bite the bullet and allow themselves to be taxed on consumer purchases, there is an emotional component to this issue that will have to be addressed to convince a majority of voters to support it.

    As Alaskans we pride ourselves in the fact Alaska is “different,” and each new person who arrives in Anchorage–whether for a day or for the rest of their life–is impressed with the novelty of no sales tax. It encourages transient population.

    Having lived in Anchorage since 1962, except for 20 years in Juneau, I have seen a lot of people come to Alaska and leave. They may be here for a designated short time (military) or they may just not be sure if they are going to stay until after a few years. Until they own real property many “Cheechakos” don’t want to spend one penny more than they have to.

    Juneau does have a sales tax, and a base of “long-time Alaskans” who celebrate the community and its historic past. But Anchorage is a service center for the state, and even the Fur Rendezvous has lost its luster. Additionally, many residents I’ve talked to feel the “tax cap” that was passed 23 years ago has been violated by Mayor Begich and the Assembly.

    It is popular to distrust politicians, so until there is a trustworthy base of community leaders who can convince voters who owns property that local government can show some discipline (and a sales tax won’t just be added onto the already excessive property taxes) it won’t fly. Politicians who have suggested a sales tax over the decades since I came here as a boy have never convinced the voters that it is necessary, and I don’t think they will now. It will take somebody other than elected officials to make it happen.

    Donn Liston
    3000 Princeton Way
    Anchorage, AK 99508
    ph: 332-1332

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