NEO Newly Elected Officials 2016 Local Tax Policy in Alaska. Marty McGee State Assessor; Department of Commerce, Community & Economic Development

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1 NEO Newly Elected Officials 2016 Local Tax Policy in Alaska Marty McGee State Assessor; Department of Commerce, Community & Economic Development

2 WHAT TAXES PROVIDE Public Safety Public Works Schools A MEANS FOR LOCAL GOVERNMENT TO PAY FOR PUBLIC SERVICES 2

3 THRIVE AND SURVIVE Public services support and encourage commerce Public safety protects investments and reduces operating costs. Schools attract and retain residents. Roads and transportation support commerce. Public works support LIVE, WORK AND PLAY. Tax Revenue allows the community to meet the needs of both residents and business. 3

4 What is Public Policy & Tax Policy? In simple terms, policies are courses of action adopted by a group to help guide decision making toward those actions that are most likely to achieve a desired outcome. When these policies are governmentally established and address public issues, they are called public polices. There are three parts to public policy-making: - 1) issues, 2) players, and 3) the policy The issues are things the whole community is aware of and need to be addressed by government. The players are the groups that are influential in forming a plan to address the issue. The policy is the finalized course of action decided upon by the government. When such policies provide direction with respect to methods and systems for funding government programs, they generally will include a tax policy. 4

5 How Does Your Tax Policy Affect the General Public? Your Tax Policy may well dictate what people can or cannot afford to do with their money. In other words, your tax policy may change their spending habits! For example, I appreciate a good steak dinner, but.. If you impose high sales taxes at the local steakhouse, I may not be able to afford to visit as often If I can t afford more than one dinner a month, what might happen to the local steakhouse, the owner and the staff? If you decide to levy a property tax on real & personal property the price of my steak dinner may rise some more and I may not be able to afford one. 5

6 What Happens to the Public with Your Tax Policy? Tax Policy can affect more than just where the city/borough may obtain revenue Who pays the tax? Who is exempt from taxation? Reliability of tax revenue? Cost of collecting the tax? Impact of tax on individuals and businesses? 6

7 Who Do We Tax? Don t tax me. Don t tax thee. Tax the guy behind the tree! People only accept change in necessity and see necessity only in crisis. - Jean Monnet, Political Economist

8 Tax Policy, Cont. Tax policy also includes deciding what taxes, IF ANY, may be best suited for your community Many communities may not want a tax system, but the wants and needs for services of the community have to be paid for somehow. Taxes are the primary method there is to pay for those services A properly designed tax system should spread the cost of supporting government in a way that is widely perceived as fair, it should be compatible with private ownership of property and it should be stable enough that consumers and producers can plan their activities without fearing drastic changes in the taxes they will be called upon to pay! 8

9 A Budget is defined as: Budgets and Taxes How They Work - A statement of estimated revenues and expenses for a specified period of time, typically one year. - A budget is a financial document of all municipal services including associated costs and an estimate of revenue streams necessary to cover those costs - Budgets are set either on a calendar year; January 1 thru December 31 or on a fiscal year; something other than a calendar year. - In Alaska most municipalities use a fiscal year of July 1 thru June 30 9

10 Budgets and Taxes (Cont.) Balanced Budget A budget in which revenues equals or exceeds expenditures (How nice!!) Capital Budget A budget of expenditure for the acquisition of long term assets (such as buildings & equipment) showing planned expenditures and revenue sources Revenue sources include all taxes, sales, property, excise, other fees and other income, (games of chance, parking fines, building permits, etc.), to the municipality 10

11 Tax Revenue Collected by Local Governments in 2015 Sales Tax $233,498,080 (13.9%) Special Taxes $108,039, %) Local Property Tax $923,874,097 (55.1%) Oil & Gas Property Tax $411,071,603 (24.5%) Total Tax Revenues $1,676,482,922 PROPERTY TAXES MAKE UP OVER 79% OF ALL LOCAL TAX REVENUE FOR LOCAL GOVERNMENTS 11

12 Sales Tax Types of Taxes Levied by Local Governments in Alaska 96* cities and boroughs Special Taxes 58* cities and boroughs Property Taxes 15 boroughs 12** cities in org. boroughs 10** cities in un-org boroughs * Municipalities that reported in 2015 **Eagle and Wasilla have not levied a property tax in several years, but an assessment is still completed 12

13 !! Taxes!! The assessment of taxes; excise, sales, property or any other type; is a method by which the local governments distribute the cost of providing services to the public. 13

14 Tax Alternatives A wide variety of revenue alternatives are available for consideration by municipalities. Some of these include: - Sales Tax - Excise Tax - Property Tax - Motor Vehicle Registration Tax - Bed Tax - Fuel Transfer Tax (some restrictions apply-should be called Fuel Sale Transfer Tax ) - Gross Receipts Tax For a more detailed look at revenue alternatives, the Division of Community & Regional Affairs does conduct a Revenue Alternative workshop 14

15 Allowed by AS Does not apply to food stamps Sales Taxes Does not apply to storage, use, services, etc. of orbital space facilities Does not apply to refined fuels unless transfer is in connection to a sale Does not apply to wholesale sales or transfers of refined fuels Does not apply to a construction contract or sub-contract on a state construction project A city or borough may provide for a real or personal property lien for nonpayment of sales taxes 15

16 Sales Tax (cont.) No longer a statutory limit on amount of sales tax May have seasonal sales taxes (higher rate during summer vs. lower rate in winter) May be multi-dimensional Higher bed tax rate, tobacco tax rate etc., than a general sales tax rate Alcohol tax does not have to match general sales tax rate ( but you do have to have a sales tax of some kind) Exemptions may be granted by local ordinance 16

17 What is a tax exemption? 17

18 An exemption is a forgiveness of taxes It DOES NOT do away with the need for the revenue- In other words, someone else will end up paying more! But, I don t want to pay!! But, I don t want to have to pay your taxes too! 18

19 Here s How Exemptions Work Dinner for 10 people costs $500 or $50 each If we exempt 4 people from having to pay their share, the remaining 6 of us still have to pay the $500, HOWEVER, our share is now $500/6 or $83.33 instead of $50 each. The need for the revenue is still there but our individual costs have now risen $33.33 or 67%!!! 19

20 Exemptions (cont.) Sales taxes - other than what has been discussed, other exemptions are totally up to local discretion (be careful of other state and federa laws though) Property taxes two types of exemptions - Mandatory Specific exemptions required by law - Optional List of exemptions municipality may authorize by local ordinances, some require voter approval 20

21 Required Property Tax Exemptions AS Municipal, state property Property Used EXCLUSIVELY for Non-Profit : - Religious purposes - Charitable purposes - Cemetery purposes - Hospital purposes - Educational purposes Homes of Senior Citizens and Disabled Veterans up to $150,000- Cost over $62M in 2014 for about 33,600 participants 21

22 YOUR LOGO 22

23 Required Property Tax Exemptions (Cont.) Household furniture and personal items Money on deposit ANCSA property (Alaska Native Claims Settlement Act) - Unless developed or leased to third parties Natural resources in place Residences of ministers, priests, etc. Residences of teachers of a parochial schools if owned by the religious organization 23

24 Optional Property Tax Exemptions AS Up to $50K residential exemption Historic sites & monuments All of or any category of personal property Profit of a non-profit organization used for community purposes The value that exceeds $150,000 of assessed value of homes of senior citizens & disabled veterans homes Certain economic development property Certain deteriorated property; so designated by the governing body 24

25 The Property Tax - Cons Property taxes ARE NOT a penalty for owning property!! They are an allocation of the cost of public services allocated based on the value of the property owned. Property taxes are based upon the principle that property is a measurement of wealth and that measurement is used for the basis of the tax. Consequently, property taxes are levied without regard to ability to pay. The property tax in Alaska is generally a tax on the market value of tangible assets, which is not related to the income of the property owner. 25

26 The Property Tax - Pros It is a stable a reliable source of revenue. - Property value can go up or down and still generate the same amount of revenue. Property tax systems are generally more open and visible than administrative systems for other taxes. - (based on public records and recorded title) Offers an appeal system unlike most other tax systems. Taxes secured by property, therefore, taxes are difficult to evade. 26

27 The Property Tax Pros Collection costs are less expensive than other types of taxes Property data collected used for more than taxes; for example, public safety and disaster recovery. Generally, people have an understanding of the system and property value. 27

28 Requirements for A Fair & Equitable Property Tax Accurate descriptions of property (at least once every 6 years) Market Data Assessment System - Staff, records, procedures - Cost per parcel or - 2% to 3% of tax revenue 28

29 Property Tax Mill Rates Mill Rates are determined by dividing the Budget by the TOTAL Taxable Assessed Value If the budget stays the same and the Assessed Values increase, the mill rate should decrease. A mill is 1/1000 of $1 A 10 mill tax equals a 10 cent tax for every $100 of assessed value or $1 for every $1,000 of assessed value a mill is

30 ere s What it Looks Like Budget Amount $150,000 Divided by Total Assessed Value $15,000,000 =.01 or 10 mills Taxes on a $150,000 house = $1,500 ($150,000 X.01) 31

31 Increase ONLY the Assessed Value, and. Budget Amount $150,000 Divided by Total Assessed Value $25,000,000 =.006 or 6 mills Taxes on a $150,000 house = $900 ($150,000 X.006) Increasing the assessed value caused the mill rate to decrease and the tax on this house decreased $600!!! 32

32 Property Tax Relief (cont.) - Assessment Limitation- These are artificial limits placed upon on how much assessments may increase on an annual basis. These type programs actually create many inequities in regards to property tax. The most widely known is the California Proposition 13 which passed in Homestead Programs Homestead exemptions are reductions in the amount of assessed value of an individuals home subject to taxation. In some states homestead credits are income tax credits for property taxes owed. 33

33 Conclusion: As a local elected official, it is your job to set local tax policy or decide not to and attempt to find other ways to pay for services While there are several revenue alternatives (taxes) available, few are rarely embraced by the public But the fact remains that you need to make a choice, not an easy one, but one made based upon the economics of your municipality and the ability of your constituents to pay for the services they want While it would be nice to have someone else pay for all our services, the fact is, they won t!!! But, we must pay for them, somehow, and you are one of those who are in charge of finding a way! 34

34 A Closing Thought. Change is the law of life. And those who look only to the past or the present are certain to miss the future. - John F. Kennedy, American President ( ) 35