CBJ Assembly needs to start preparing now
CBJ Assembly needs to start preparing now
Submitted by: Win Gruening
While the current CBJ budget document for FY 2021 reflects a balanced budget, it is based on some fairly optimistic assumptions. And if those assumptions don’t pan out, we are facing large deficits this year and next.
In short, CBJ’s current budget path will become unsustainable.
During budget deliberations last year, on the revenue side, options presented primarily centered around some variation of increasing sales taxes or property taxes. Thanks to CARES Act funding, neither was required. In past years, each contributed approximately half of the total $100 million collected in city taxes annually.
There’s no guarantee that municipalities will be getting the kind of Federal support (CARES Act funding through State grants) that we received this year.
One of the other options explored then was removing some of the 37 different sales tax exemptions currently in place – an action that would increase tax revenues – with minimal impact on most residents. This has the advantage, unlike property taxes, of shifting some of the burden to summertime visitors without actually raising the sales tax rate.
Some of the exemptions are not significant enough to warrant much consideration but one of the most striking is the one that exempts sales to or from certain non-profit entities.
On its face, this exemption doesn’t make sense. Strangely, it was never even mentioned in an extensive report by an Assembly subcommittee reviewing tax exemptions in January 2015.
While one can argue that exempting certain non-profits from paying sales taxes helps them and, thereby, benefits society generally, no such argument can be made to justify exempting retail purchases by Juneau residents and visitors when they shop at non-profit retail establishments.
Indeed, some non-profits operate businesses in Juneau that sell goods and services in direct competition with private sector businesses that have no such advantage.
The Sealaska Heritage Store, Discovery Southeast Glacier Gift Shop, Juneau Arts and Humanities Council, the state museum store, and DIPAC are examples of non-profit sellers that are not required to collect sales taxes on retail sales such as art, books, jewelry, souvenirs, tours and other tourism related goods.
A separate exemption that needs similar scrutiny also allows tribal entities, such as Tlingit-Haida Central Council, to avoid collecting sales taxes on retail sales and tourism related activities.
This is especially relevant as the CBJ Assembly considers a $1.5 million grant request from Sealaska Heritage Institute, the operator of the aforementioned for-profit store and soon-to-be constructed $14 million arts plaza in downtown Juneau. If this subsidy request is granted, a reasonable condition would be that their retail operations collect Juneau sales taxes.
Past estimates by CBJ of non-taxable sales by non-profit entities exceed $27 million annually. This exemption, then, essentially forfeits up to $1.35 million in sales tax each year if the bulk of sales are by 501(c)3 and 501(c)4 organizations currently exempted under the code. This is more than the estimated tax revenue gained when the Senior Sales Tax Exemption was removed by the Assembly several years ago.
Why are we exempting retail purchases by customers who expect to pay local sales tax?
Further, why would non-profits object to collecting the tax? It doesn’t impact their profit and would enhance the well-being of the community they serve.
Most cities and states do not have a similar exemption and have crafted ways to carve out exceptions for organizations like the Salvation Army, Girl Scouts, community sports leagues, etc.
It’s never easy for elected officials to argue that programs or exemptions are not essential.
But, given our current economic challenges, now is the time.
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