January 29, 2017; Peninsula Clarion (Kenai, AK)

What’s fair in the taxation of nonprofits by local municipalities? NPQ has covered the issue of payments in lieu of taxes issue extensively; it mostly affects universities and hospitals—the eds and the meds. But there’s another realm of charges—fees and taxes—that hits smaller and larger operations alike. For more background on this, read “Death by a Thousand City Fees.”

Recently in Alaska, the Kenai Peninsula Borough Assembly passed a set of tax reforms that included several new sources of revenue. One of them removed the exemption from collecting sales tax by nonprofits operating regular storefronts, like the Salvation Army. This is an interesting choice. “The intent is to eliminate an inequitable sales advantage over other businesses,” a memo attached to the original ordinance stated. Some nonprofits, like the local food bank, however, won’t be affected.

According to the Peninsula Clarion, the change was part of a number of other changes, after the borough spent approximately a year reviewing the sales and property tax codes. Some of the changes were largely administrative, but the one requiring nonprofits with ongoing business locations to charge sales taxes generated controversy.The paper reports that local nonprofit leaders were “taken by surprise when they got notices from the borough in the fall that they might be required to charge sales taxes. Some got the notice and were unclear on whether they’d be subject to sales taxes [themselves].”

The executive director for the Kenai Peninsula Fair told the Clarion that if the fair were required to charge sales taxes on its ticket sales and parking, “it would destroy the event.” However, the fair and other festivals are exempt because they are occasional special events, although they will be required to charge sales tax when renting out their facilities to other groups and causes.

Nonprofit leaders complained to the paper that the change was not adequately communicated to them before the assembly passed it with little public comment. One executive director told the paper that she understood the “strategy to help cover some of the budget shortfalls common around the state at the moment, but it seemed to contravene the mission of nonprofits, to provide low cost services for the good of the community.”

The borough could not estimate the revenue the new rules will bring, but justified the change in the name of fairness.—Larry Kaplan