North Pole’s City Council decided Monday to begin collecting its sales tax on products and services bought online or from sellers outside of the community.
All five council members present voted to adopt the so-called online sales tax ordinance, after little discussion and no public comments. Councilmembers Tom McGhee and Perry Walley were absent.
Mayor Mike Welch told council members before the vote that online sales are booming worldwide and in Alaska, as demonstrated by Amazon’s decision to open a shipping facility near Fairbanks International Airport.
“You see that even here, that Amazon, by the middle of the month, is going to have a distribution point at our airport,” he said. “So this is becoming more and more critical.”
Welch says Amazon and other online retailers don’t charge customers the sales taxes levied by municipalities like North Pole, unless the city requires the company to do so. The mayor said in a recent interview that many of the city’s businesses that do collect the 5.5 percent sales tax have seen their sales plunge, largely due consumers buying lower-cost products online.
“I’ve got businesses that were doing nearly 2 million dollars a year that have dropped to 800-thousand, 900-thousand a year – gross revenues, gross sales,” he said.
Alaska Municipal League Executive Director Nils Andreassen says that’s one of the main reasons that his organization has been helping cities and boroughs around the state collect the tax.
“That’s the whole point behind leveling the playing field,” he said. “Right now, you get an automatic discount for shopping online, which takes business away from local businesses.”
Welch said North Pole needs the additional sales tax revenue to help pay for services like police and fire protection. And Andreassen says that’s why nearly 40 Alaska municipalities that charge sales taxes have adopted similar measures over the past year to begin collecting revenue from online purchases and other so-called “remote sales.”
“Local governments have seen pretty significant decreasing support from the state, over the last five years especially,” he said. “They’ve seen increasing responsibilities. They’ve seen wear and tear on their infrastructure. And they still need to provide the services that locals depend on.”
Andreassen says those municipalities work with an organization called the Alaska Remote Sellers Sales Tax Commission to collect the revenues, which it then remits the revenue to the local governments. He says the commission is funded through charging municipalities about 17 percent of the amount it collects.
“We found the most affordable solution that didn’t require any upfront cost (for) communities,” he said.
Welch says North Pole’s tax is capped at $11, the amount levied for a sale of $200, so it doesn’t place a heavy burden on most consumers.
“Anything over 200 (dollars) – there is no tax,” he said. “So it’s a whole whopping 11 bucks.”
Welch says the municipal league predicts North Pole will earn about $180,000 in the first year of collecting from online and remote sellers. But he predicts it’ll probably be closer to $120,000, because it’ll take a while for the city to get accustomed to the new system.
North Pole’s online sales tax becomes effective today.