Nome Churches, Nonprofits Keep Sales Tax Exemption

Business owners, nonprofit workers, and residents (including Rep. Neal Foster, left) made for a full house in Nome City Council chambers Monday as the council debated contentious tax issues. (Photo: Matthew F. Smith, KNOM)
Business owners, nonprofit workers, and residents (including Rep. Neal Foster, left) made for a full house in Nome City Council chambers Monday as the council debated contentious tax issues. (Photo: Matthew F. Smith, KNOM)

Nome’s nonprofits and churches will remain exempt from city sales tax—and retailers won’t have their unsold inventories taxed—but at Monday night’s City Council meeting, efforts to charge property tax on airplanes moved forward.

Download Audio

The rejection of the proposals are just the latest in the city’s months-long struggle to find more revenue after disappearing state and federal funding left a roughly $800,000 dollar hole in the city’s budget.

A packed house gathered in City Council chambers to hear the introduction, or “first reading,” of three ordinances meant to bring in more revenue for the city. The council wasn’t able to debate the issues—that debate is only allowed on “second reading”—but that didn’t stop small businesses owners, nonprofits directors, and residents from telling the council their thoughts. And those thoughts were a chorus of rejection for all three proposals.

On the sales tax exemption issue, Danielle Slingsby with the Nome Community Center—which runs the town food bank, the Nome Children’s Home providing transitional youth housing, the XYZ Senior Center, and more—said ending the exemption would have a direct impact on services.

“All of our purchases are direct program purchases, so anything we purchase, we try to support local business as much as we can,” she said, addressing the council as well as the more than two dozen members of the public. “I think if you take [the sales tax exemption] away from nonprofits, you’re basically just taking away services from the people of Nome.”

Kawerak president Melanie Bahnke said services the regional nonprofit provides are usually performed by government agencies; agencies that she noted would remain exempt from sales tax with the proposal under consideration.

“Many of these programs exist because Kawerak assumed the functions of the federal government to deliver these services,” Bahnke said. “The federal government enjoys the benefit of the exemption. It would seem to penalize the tribal governments in this region for exerting self-governance by taxing these programs because they are not operated by the federal government.”

Though the sales tax exemption issue would have impacts on faith-based organizations like churches, no one from the roughly dozen churches in Nome spoke on the issue.

Levying tax on business inventories was characterized by many business owners as a “double tax” that would be collected both when items sit on the shelf and again when they are sold and subject to Nome’s 5 percent sales tax. Barb Nichols with the Nome Chamber of Commerce received a round of applause from members of the public after she spoke against taxing inventories.

“This additional cost can’t be shown on receipts, such as a retail sales tax,” Nichols argued. “The impact of these non-transparent taxes are hidden to most consumers, and an invisible issue to most voters.”

Nichols also spoke to the timing of the new tax, which would have gone in to effect Jan. 1, 2015. “Our business community has already ordered and received their goods to last through our long winters, to ensure the community has what it needs. Now, without any notice, this exemption could be removed this year.”

“This is not about business profit,” Nichols summarized. “Removing this exemption will dig even further into the ever-slimming wallets of all of our community members. These businesses should be celebrated, not double taxed.”

While dislike for the proposals was nearly unanimous, Rolland Trowbridge of Trinity Sails and Repair (and KNOM Chief Engineer) took the podium—without expressing support or opposition to any particular ordinance—to emphasize the need for organizations and individuals to be more willing to support a city that allows their nonprofits and businesses to exist.

“There’s a lot of business going on in Nome where sales tax isn’t being collected. A lot of people doing business on the side, repairs, the kind of stuff where they’re just taking cash money. And for those people doing that, you’re not helping yourself, you’re not helping anybody, because that is what it costs to run this town,” Trowbridge said.

“The reality is, I depend on this city to function correctly for my business to operate, and so do the nonprofits,” he added. “We all need to start saying, OK, where do we want the money to come from?”

Many speakers called on the city to get its own financial house in order before raising taxes, but City Manager Josie Bahnke said it wasn’t a ballooning city budget—but rather roughly $800,000 in shortfalls in state and federal funding—that has led to the current deficit. She said the new tax proposals were not considered on a whim.

“We did make cuts, we did get down to a bare-bones budget.This year our operating budget has gone down, we all continue to deal with healthcare costs rising … The discussion was around how we could make up for that approximately $800,000,” Bahnke said. “I think the idea of [sales tax] exemptions [as well as] meetings with the city attorney led us down that road.”

But fresh from attending last week’s Alaska Municipal League—a gathering of city administers from around the state—Bahnke said other Alaska cities, large and small, are facing similar budget shortfalls and identical scrambles for revenue, raising questions of just what jobs people expect their city to do.

“Some of the challenges, I think, are … the disconnect in what residents see, what they want, and what they’re willing to pay for. I think this is going to continue on here through the next several months … sometimes there’s disagreement on what the core functions of the city are, of what they should be.”

The room became quiet as the ordinance for the sales tax exemption went before the council, which required just one other council member to second the motion to move it forward. But the ordinance died on the table; not a single council member voted to even consider it for a first reading. The proposal to tax business inventories also failed to pass muster for first reading, failing in a vote of two in favor to three against.

That left just one proposal passing for a second reading, one that would assess property tax on aircraft. That brought Paul Costo, the Nome station manager for Alaska Airlines, to the podium to tell the council that taxing airplanes could send businesses to other hubs like Bethel, Kotzebue, or Unalakleet.

“There’s some real-life ramifications for the airline industry if you were to start taxing aircraft. Nome would lose not only aircraft, they would lose services and they would lose jobs.” Costo requested more information on how the city would assess any tax, “a formula, a tax plan, and quite frankly, what the aircraft owner is going to get in return for paying their tax dollars.”

Costo added that few other Alaska cities collect property tax on planes, and when they do, it’s usually on city-owned airports, whereas Nome’s airport is state-owned. Council member Jerald Brown said there are enough city services at the airport to merit the tax.

“I’ve see the fire trucks responding to issues at the airport, I’ve seen police responding to issues at the airport. I know there’s water and sewer provided out there, probably for a fee, so services are being provided,” he said.

Brown called for a list of other cities that assess property tax on airplanes—and a list of what entity owns the airport in those communities—when the proposal comes up for a second reading (and formal public comment) at the council’s next meeting on Dec. 8.

The only other item before the council was handled quickly, approving a $7 million bid for the port’s Middle Dock project to Orion Marine Contractors.