Alaska communities establish new plan to collect sales tax from online vendors

Mayors and representatives from 15 Alaska communities sign an agreement establishing a statewide commission to coordinate online sales tax collection. The ceremony took place at the annual Alaska Municipal League conference in Anchorage on Nov. 21, 2019. (Photo courtesy Michelle Hale via KTOO)

In a few months, Alaskans are likely to notice more sales tax charges when they shop online.

The Alaska Municipal League is in Anchorage this week, putting the finishing touches on a plan that will standardize sales tax collection from online retailers who do business throughout the state.

The goal is to eliminate a major disadvantage brick-and-mortar businesses face when competing with online stores.

Since the 1970s, Juneau residents have depended on Western Auto Marine for everything from fishing gear to pet supplies.

General Manager John Weedman said the department store has managed to survive the rise of internet sales over the years, despite the fact that customers can find many of the same products online at a lower price.

“Part of that is because there’s no sales tax imposed on the online sales,” Weedman said. “So we’re kind of at a disadvantage there.”

Last year, the U.S. Supreme Court decided that online retailers are subject to state sales taxes, even if they have no physical presence in a state.

Many see the decision as an opportunity to level the playing field for brick-and-mortar stores.

But Alaska doesn’t have a statewide sales tax. What it does have is 106 municipal sales tax jurisdictions, each with different rates, caps and exemptions.

That’s a lot to keep track of, so the Alaska Municipal League spent this year working on a plan to simplify collection. They announced it last month.

On Thursday, representatives from 15 municipalities signed an agreement at the AML conference in Anchorage. It sets up a new system for collecting online sales tax.

The municipalities that have signed on so far are Adak, Haines, Homer, Juneau, the city of Kenai, the Kenai Peninsula Borough, Kodiak, Ketchikan, Palmer, Seldovia, Seward, Soldotna, Toksook Bay, Wasilla and Wrangell.

Juneau’s city Finance Director Jeff Rogers said more communities are expected to join.

“I hope that people’s perspective is that we’re creating a system of equity, where local businesses are on the same footing as remote businesses,” Rogers said.

Rogers will head up the new Alaska Remote Sellers Sales Tax Commission that oversees the system. He was elected president on Monday.

He said low estimates see Juneau collecting more than $1 million annually from online sales tax. Other communities could see even more than that.

“Obviously, very rural communities that get a lot of their goods shipped in from the Lower 48 or from other states or from other communities … they’re going to see a much higher number than an urban community that has less of that,” Rogers said.

He said the commission plans to contract with AML to run the program. AML will hire staff and contract with two companies — one to collect sales tax from vendors, and another to tell them which sales tax rates and rules they’re subject to based on where the purchase is made.

Any online seller that does more than $100,000 in sales in Alaska or makes more than 100 transactions in the state will be subject to local sales taxes. That also applies to phone or catalog orders.

AML and its contractors estimate that there are more than 3,000 online vendors who will be subject to the new collection system.

While that helps out businesses like Western Auto Marine, it will change things for local businesses that sell products online to other parts of Alaska.

Alaska Robotics Gallery co-owner Pat Race in his downtown Juneau shop in 2014. (Photo by Lisa Phu/KTOO)

Pat Race is the co-owner of Alaska Robotics Gallery. It sells comic books and art out of its shop in downtown Juneau and on its website.

Race said the new plan is a move in the right direction.

“But I think it’s going to be a little bit messy for some small business owners like myself, who do sell things online,” Race said.

He points out that the threshold for online sellers that will have to pay sales tax isn’t exactly proportional.

Selling $100,000 worth of products and selling 100 things could mean very different things for a company’s bottom line.

Most other states are now collecting online sales taxes too. Race is worried about having to navigate a different system for every state.

“I think we can get there. It’s just going to be a little bit uncomfortable in the process,” he said.

In Alaska, that process is still going to take some time to roll out.

Each municipality that signs up for the new sales tax collection system will have to pass an ordinance amending their municipal code.

After that, AML’s contractors will begin notifying online vendors about the new rules.

Back at Western Auto Marine, Weedman said he expects the change will be gradual. When online sales first started to take off, it took a while for their sales to drop.

“It wasn’t a sudden, really noticeable thing, and I think the reverse is going to be true here,” he said. “It’s not going to be you know, a sudden boon to our business. But I certainly hope that we’ll see some positive influence from it.”

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