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HomeMy WebLinkAboutResolution No. 2019-72thecityo(, KENAI , ALASKA "'\/' CITY OF KENAI RESOLU TION NO. 20 19-72 Sponsored by: Administration A RESOLUTION OF THE COUNCIL OF THE CITY OF KENAI, ALASKA, AUTHORIZING THE CITY TO JOIN THE ALASKA REMOTE SELLER SALES TAX COMMISSION FOR THE PURPOSE OF DEVELOPING, IMPLEMENTING, AND ENFORCING A REMOTE SELLER SALES TAX CODE AND DES IGNATING A COMMISSION REPRESENTATIVE. WHEREAS, the inability to effectively collect sales tax on sales of personal property, products or services transferred or delivered into Alaska by a remote seller in response to orders placed electronically by local consumers is eroding the sales tax base of Alaska communities and resulting in revenue losses that is causing imminent harm to residents through the loss of critical funding for local education and other services ; and, WHEREAS, the harm from the loss of revenue is especially problematic in Alaska because the state has no broad-based tax, and sales tax revenues are essential in funding the provision of services by local governments; and, WHEREAS, the failure to collect tax on remote sales creates artificial market distortions and competitive advantages for remote sellers by perpetuating tax shelters for businesses that limit their physical presence in the state or its municipalities but still sell goods and services to local consumers , something that becomes easier and more prevalent as technology continues to advance ; and , WHEREAS, the structural advantages for remote sellers , including the absence of point-of-sale tax collection , combined with the general growth of online retail, means that the erosion of the sales tax base is a growing problem that will only worsen in the near future if municipalities in the State are not able to legally collect remote seller sales tax within the framework of current United States Supreme Court case law; and, WHEREAS, the recent decision by the United States Supreme Court in South Dakota v. Wayfair allows for the amendment of sales tax codes to account for remote sellers who do not have a physical presence in either the State of Alaska, Kenai Peninsula Borough , or City of Kenai but do have a taxable connection with these jurisdictions ; and, WHEREAS, the decision in South Dakota v. Wayfair provides guidance that includes the defensibility of a single-level statewide administration of remote sales tax collection and remittance; and , WHEREAS, remote sellers who make a substantial number of deliv eries into or have large gross revenues from Alaska benefit extensively from the Alaska market, affecting the economy generally, as well as local infrastructure; and, Resolution No. 2019-72 Page 2 of 3 WHEREAS, modern computing and software options ensure that it is neither unusually difficult nor a substantial burden for remote sellers to collect and remit sales taxes associated with sales into Alaska taxing jurisdictions similar to traditional brick and mortar stores; and , WHEREAS in order to implement a single-level statewide sales tax administration, it is the intent of numerous local taxing jurisdictions within Alaska to establish an intergovernmental entity known as the Alaska Remote Seller Sales Tax Commission (the "Commission"); and , WHEREAS, the function and powers of the Commission will be set forth in the Alaska Intergovernmental Remote Seller Sales Tax Agreement (the "Agreement"), a cooperative agreement between Commission members; and, WHEREAS, under the terms of the Agreement, in order to maintain membership in the Commission, the City through the Kenai Peninsula Borough will be required to adopt certain uniform code provisions for the collection and remittance of municipal sales tax applicable to sales made by remote sellers; and , WHEREAS, the uniform remote sales tax code will be presented to the Borough Assembly for consideration once adopted by the Commission to comply with guidance found in the Wayfair decision; and, WHEREAS , the City has adopted the Borough 's sales tax code except where specifically denoted, and no further code changes will be required by the City; and, WHEREAS, if adopted, the administration of remote sales tax collection and remittance will be delegated to the Commission ; and, WHEREAS, the intent of the Agreement is to enable Alaska's taxing jurisdictions to levy their municipal sales tax to the maximum limit of federal and state constitutional doctrines; and, WHEREAS, Article X, Section 13 of the Alaska Constitution authorizes local governments to enter into agreements for the cooperative or joint administration of any function or power, unless otherwise prohibited by law or charter; and, WHEREAS, the purpose of being an early member of the Commission is to have a voice during the formation process while not committing to any future obligation or action; and, WHEREAS, a member will be able to withdraw from the Commission if the adopted bylaws, uniform code, or fees are not acceptable to the member municipality. NOW, THEREFORE, BE IT RESOLVED BY THE COUNCIL OF THE CITY OF KENAI, ALASKA: Section 1. The City Manager is authorized to negotiate, execute , and submit all necessary documents to obtain and maintain membership in the Alaska Remote Seller Sales Tax Commission, including the Alaska Intergovernmental Remote Seller Sales Tax Agreement included as Attachment A. Section 2. The City Manager and City Attorney are authorized to appoint themselves, or other City employees as the City's representative on the Commission . Section 3. That this resolution takes effect immediately upon passage . Resolution No . 2019-72 Page 3 of 3 PASSED BY THE COUNCIL OF THE CITY OF KENAI, ALASKA, this 5th day of November, 2019. BRIAN GABRIEL, SR., MAYOR ATTEST: Alaska Intergovernmental Remote Seller Sales Tax Agreement FINAL October 11 , 2019 Alaska Intergovernmental Remote Seller Sales Tax Agreement This Agreement is made and entered into by the signatories representing Alaska's cities and boroughs to enable them to implement single-level , statewide administration ofremote sales tax collection and remittance. The provisions of the Agreement do not apply to administration and collection of sales taxes for the sales of goods and services originating from within the boundaries of a member municipality nor does this Agreement restrict how a member municipality administers and collects sales tax on such sales, nor on sales made by those retailers with a physical presence in the municipality. The authority to set rates and exemptions is maintained by the member municipality. Article I. Background Principles. 1. The signatories wish to enable local governments to benefit from opportunities for collection of existing sales tax on sales made by remote sellers . Remote sellers are sellers who sell , often through the internet, products or services in a taxing jurisdiction without having a physical presence in the taxing jurisdiction. 2. The collection of remote sales tax provides a level playing field for local businesses and strengthens the ability oflocal governments to provide public services and infrastructure. 3. The signatories are particularly mindful of the specific holding in, and implications of, the Supreme Court's South Dakota v. Wayfair decision, which provides guidance relative to nexus and the legal defensibility of a single-level statewide administration that reduces or removes potential burdens to interstate commerce. 4 . Alaska's local governments have the authority to enter into intergovernmental agreements and applicable taxing authority has been delegated to organized boroughs and cities. 5. The signatories desire to establish an intergovernmental entity to enable cooperative centralized administration of sales tax collection, remittance, and enforcement on sales made by remote sellers. Article II. Purpose. The purpose of this Agreement is to: 1. Enable cooperative centralized administration of sales tax collection, remittance, and enforcement on sales made by remote sellers using a single statewide intergovernmental entity; 2. Provide for and promote reasonable uniformity and compatibility in significant components oflocal sales tax levy and collection on sales made by remote sellers and marketplace facilitators in order to facilitate streamlined joint administration; and 3 . Facilitate taxpayer and tax collector convenience and compliance in the filing of tax returns , the payment of tax, and in other phases of tax administration of sales made and services provided by remote sellers and marketplace facilitators. Article III. Definitions. As used in this Agreement: 1. "Commission" means the Alaska Remote Seller Sales Tax Commission established pursuant to this Agreement. 2. "Local Government" means any home rule, first class, or second class borough, or any home rule, first class, or second class city, or unified municipality in Alaska. 3. "Member" means a Local Government signatory to this Agreement. 4. "Remote seller" means any corporation, partnership, firm , association, governmental unit or agency, or person acting as a business entity that sells property or products or performs services in the State of Alaska or a taxing municipality in the state, using the internet, mail order, or telephone, without having a physical presence in the state or taxing municipality. 5. "Sales tax" means a tax imposed with respect to the transfer for a consideration of ownership, possession, or custody of property or the rendering of services measured by the price of the property transferred or services provided. 6. "Marketplace facilitator" means a person that provides for sellers a platform to facilitate for consideration, regardless of whether deducted as fees from the transaction, the sale of the seller's products or services (excluding lodging and rentals) through a physical or electronic marketplace operated by the person, and engages: a. Directly or indirectly, through one or more affiliated persons in any of the following: L Transmitting or otherwise communicating the offer or acceptance between the buyer and seller; IL Owning or operating the infrastructure, electronic or physical, or technology that brings buyers and sellers together; 111. Providing a virtual currency that buyers are allowed or required to use to purchase products from the seller; or 1v . Software development or research and development activities related to any of the activities described in (b) of this subsection (3), if such activities are directly related to a physical or electronic marketplace operated by the person or an affiliated person; b. In any of the following activities with respect to the seller's products: i . Payment processing services; Page 3 o f I () 11. Fulfillment or storage services ; m . Listing products for sale; iv. Setting prices; v . Branding sales as those of the marketplace facilitator; vi. Order taking; vu. Advertising or promotion; or v111. Providing customer service or accepting or assisting with returns or exchanges. Article IV. The Commission. 1. Organization and Management. a. The Alaska Remote Seller Sales Tax Commission (the "Commission") is hereby established as an intergovernmental entity in the state of Alaska. It will be comprised of one designated representative from each Member, who shall have the authority to act on the Member's behalf. b. Each Member will be entitled to one vote. c. To assist conducting business when the full Commission is not meeting, the Commission will annually elect a Board of Directors of seven members, including officers. The Board of Directors will act subject to the provisions of this Agreement and as provided in the bylaws of the Commission, as ratified by the members. d. No action will be binding unless approved by a majority of the Directors present at a meeting. e. The Commission will adopt an official logo . f. The Commission will hold an annual meeting rotating the location of the meeting each year, with telephonic participation provided for, in addition to scheduled regular meetings and special meetings as provided by its bylaws. Notices of special meetings must include the reasons for the meeting and the items to be considered. g. The Commission will elect annually, from among its members, a Chairman, a Vice Chairman, and a Secretary/Treasurer. The bylaws of the Commission shall provide for nomination and election of officers. h . The Commission will contract at formation for support and administrative Page -+ o f l(l functions with the Alaska Municipal League (AML). The Executive Director of the AML will serve as a liaison between the Commission and AML and may appoint necessary staff support. This provision will be revisited within three years oflegal formation of the Commission. 1. The Commission may contract for supplies and professional services, and delegates to AML the same ability on its behalf. J. To carry out any purpose or function, the Commission may accept and utilize donations and grants of money, equipment, supplies, materials and services, conditional or otherwise, from any Member or governmental entity. k. The Commission may establish one or more offices for the transacting of its business. Upon formation, its registered office and place of business will be the Alaska Municipal League at One Sealaska Plaza, Suite 200, Juneau, AK 99801. 1. The Members will adopt the initial bylaws of the Commission. The Commission will make its bylaws easily accessible for Members and prospective members . The power to adopt, alter, amend or repeal bylaws is vested in the Board of Directors unless it is reserved to the Members per the bylaws. The bylaws shall contain provisions for the regulation and management of the affairs of the Commission not inconsistent with this Agreement. m . The Commission will provide annual reports to its members covering its activities for the preceding fiscal year. The Commission may make additional reports. 2. Committees. a. In furtherance of its activities, the Commission may establish advisory and technical committees by a majority vote of the membership body. Membership on a technical committee, may include private persons and public officials. Committees may consider any matter of concern to the Commission, including issues of special interest to any member and issues pertaining to collection of sales tax on behalf of members. b. The Commission may establish additional committees by a majority vote of the membership or Board of Directors as its bylaws may provide. c. Committees may not take any action but may recommend action to the Board of Directors for consideration. 3. Powers. In addition to powers conferred elsewhere in this Agreement and in the bylaws, the Commission may: a. Study federal , state and local sales tax systems, and particular types of state and local taxes. Page 5 of I() b. Develop and recommend proposals to promote uniformity and compatibility of local sales tax laws with a view toward encouraging the simplification and improvement of local tax law and administration. c. Compile and publish information to support and assist members in implementing the Agreement or assist taxpayers in complying with local government sales tax laws . d. Do all things necessary and incidental to the administration of its functions pursuant to this Agreement, including: 1. Sue and be sued. 11. Administer provisions of uniform sales tax ordinances pursuant to authority delegated by Members f. The Commission may create and adopt policies and procedures for any phase of the administration of sales tax collection and remittance in accordance with this Agreement and the Commission's bylaws, including delegated authority to administer taxation or prescribing uniform tax forms. Prior to the adoption of any policy, the Commission will: 1. As provided in its bylaws, hold at least one meeting after due notice to all affected members and to all taxpayers and other persons who have made timely requests to the Commission for advance notice of its policy-making proceedings. 2. Afford all affected members and interested persons an opportunity to submit relevant written comments, which will be considered fully by the Commission. g. The Commission will submit any policy adopted by it to the designated representative of all Members to which they might apply. Each such Member will in turn consider any such policy for adoption in accordance with its own laws and procedures. h . Amend this Agreement by majority vote of the Members . 4. Finance. a. At least 90 days prior to the start of a new fiscal year, the Board of Directors will adopt a budget of its estimated expenditures for the upcoming fiscal year and submit to Members. b . The Commission will follow a July 1 to June 30 fiscal year. c . The Commission's budgets must contain specific recommendations for service fees built into statewide administration . Service fees will account for direct staff and software costs, and indirect costs, as justifiable to the Board of Directors. Page 6 of 10 d. The Commission will not pledge the credit of any member. The Commission may meet any of its obligations in whole or in part with funds available to it, provided that it takes specific action to set aside such funds prior to incurring any obligation to be met in whole or in part in such manner. Except where the Commission makes use of funds available to it, the Commission may not incur any obligation prior to the allocation and commitment of funds adequate to meet the same. e. The Commission must keep accurate a ccounts of all receipts and disbursements. The receipts and disbursements of the Commission will be subject to the audit and accounting procedures established under its bylaws. All receipts and disbursements of funds handled by the Commission will be audited annually by a certified public accountant and the report of the audit will be included in and become part of the annual report of the Commission to Members. f. The accounts of the Commission will be open at any reasonab le time for inspection by duly constituted officers of the Members, the State of Alaska, and by any persons authorized by the Commission. g. Nothing contained in this Article may be construed to prevent Commission compliance with laws relating to audit or inspection of accounts by or on behalf of any government contributing to the support of the Commission. Article V. Membership Requirements; Remote Seller Sales Tax Code. 1. To obtain and retain full membership, the Local Government must submit either an Ordinance or Resolution authorizing entry into the Agreement, including to: a. Designate the individual at the municipality that may execute initial binding documents on behalf of the municipality and who will be the Member's representative on the Commission. 2. Once the Commission adopts its bylaws and adopts a uniform Remote Sellers Sales Tax Code, members must submit an Ordinance or Resolution that: a. Delegates remote seller sales tax registration, exemption certification, collection, remittance, and audit authority to the Commission. b. Within one hundred twenty (120) days, adopts, by reference or otherwise, the Remote Seller Sales Tax Code in its entirety as it pertains to collection of sales tax from remote sellers and marketplace facilitators. The Remote Seller Sales Tax Code is provided as "Addendum A". 3 . To retain full membership status, changes made to the Agreement or Code should be ratified by the Member within one hundred twenty (120) days of the date the Commission adopts the change. 4. The Member must provide notice of ta x or boundary changes to the Commission and must Page 7 o f I ll assure the Commission of the accuracy of rates and exemptions. Rate and exemption changes will take effect within thirty (30) days of the date the Commission receives notice of the tax or boundary change. Article VI. Sales Tax Collection and Administration. 1. Collection; Registration; Remittance. a. Every remote seller and marketplace facilitator meeting the Threshold Criteria of one hundred thousand ($100 ,000) in annual sales or 100 annual transactions occurring in Alaska during the current or previous calendar year, shall collect sales taxes from the buyer at the time of sale or service and shall transmit the sales taxes collected to the Commission on a monthly or quarterly basis . b. The Commission will remit and report to Members by the last business day of the month. c. A remote seller or marketplace facilitator meeting the Threshold Criteria shall apply for a certificate of sales tax registration within thirty (30) calendar days of the adoption of this Remote Seller Sales Tax Code and/or within thirty (30) calendar days of meeting the threshold, whichever occurs later. Registration shall be to the Commission on forms prescribed by the Commission as set out in the remote seller sales tax code. d. Upon receipt of a properly executed application , the Commission shall issue the applicant a certificate of registration, stating the legal name of the seller, the primary address, and the primary sales tax contact name and corresponding title. A list of registered sellers in good standing shall be distributed to Members , made public and available on the Commission's webpage. 2. Returns; Confidentiality. a. The Commission will provide all sales tax return information to the taxing jurisdiction, consistent with local tax codes. b. All returns, reports and information required to be filed with the Commission under this Code, and all information contained therein, shall be kept confidential and shall be subject to inspection only by: 1. Employees and agents of the Commission and taxing jurisdiction whose job responsibilities are directly related to such returns, reports and information; u. The person supplying such returns , reports and information; or u1. Persons authorized in writing by the person supplying such returns , reports and information. P age 8 of IO 3. Title; Penalty and Interest; Overpayment. a. Upon collection by the seller, title to the sales tax vests in the Commission and the member on whose behalf the original tax arose. The Commission shall act as a third-party trustee and remit taxes collected on behalf of the member no later than thirty (30) days after each filing deadline. b . The Remote Sellers Sales Tax Code shall establish the per annum interest rate and any applicable penalties for late or non-compliant remote sellers . c. Upon request from a buyer or remote seller the Commission shall provide a determination of correct tax rate and amount applicable to the transaction. In the case of an overpayment of taxes , the remote seller shall process the refund and amend any returns accordingly. 4. Audit; Compliance and Enforcement. a. The Commission shall have sole audit authority and will make final determinations regarding: (1) whether a remote seller or marketplace facilitator meets Threshold criteria; (2) the accuracy of returns filed by a remote seller or marketplace facilitator with the Commission; and (3) whether a remote seller or marketplace facilitator filing returns with the Commission is in compliance with collection and remittance obligations. b. The Commission shall have authority to enforce issues relating to the Remote Sellers Sales Tax Code including, but not limited to, the collection of late fees and penalties, and filing of civil suits and injunctions. Article VII. Entry into Force and Withdrawal. 1. This Agreement will be in force and effective when formally approved by any seven signatories and will terminate if membership falls below seven. 2. Any Member may withdraw from this Agreement through ordinance or resolution rescinding signatory action and giving notice to the Commission of the effective date of the ordinance, with a minimum of 30 days' notice. Withdrawal will not affect any liability already incurred by or chargeable to a Member prior to the effective date of such withdrawal. The obligations of the Commission to remit and report remain until no longer necessary. Article VIII. Effect on Other Laws and Jurisdiction. Nothing in this Agreement may be construed to: 1. Affect the power of any local government to fix rates or tax exemptions, except that all members must adopt and implement the Commission's common definitions and tax code Page 9 o f 10 changes or demonstrate parity or non-applicability. 2. Withdraw or limit the authority oflocal government with respect to any person, corporation, or other entity or subject matter, except to the extent that such authority is expressly conferred by or pursuant to this Agreement upon another agency or body. 3. Supersede or limit the jurisdiction of any court of the State of Alaska. Article IX. Construction and Severability. This Agreement shall be liberally construed so as to effectuate its purposes. The provisions of this Agreement shall be severable and if any phrase, clause, sentence, or provision is declared or held invalid by a court of competent jurisdiction, the validity of the remainder of this Agreement and its applicability to any government, agency, person or circumstance will not be affected. If any provision of this Agreement is held contrary to the charter of any member, the Agreement will remain in full force and effect as to the remaining members and in full force and effect as to the Member affected in all other provisions not contrary to charter. Page lO o f Io ''(tiff~ «1/th a Pa~~ tt't; «1/th a Fu.t~" 210 F idalgo Ave , Kenai , Alaska 9961 1-7794 Telep hon e : (907) 283-753 5 I Fax: (907) 283-301 4 w ww . kenai . city ME MORANDU M TO: FROM: DATE: SUBJECT: Mayor Brian Gabriel and Kenai City Council Scott Bloom , City Attorney March 12, 2019 Resolution No. 2019-72 -Alaska Intergovernment al Remote Seller Sales Tax Agreement This resolution authorizes the City administration to execute the Alaska Intergovernmental Remote Seller Sales Tax Agreement (the "Agreement") and become a member municipality of the Alaska Remote Seller Sales Tax Commission (the "Commission"). The formation of and membership on the Commission is the first step toward implementing a single-level administrator for the collection and remittance of remote seller sales taxes. A single-level administrator of remote seller sales taxes is a necessary long-term solution if the City through the Kenai Peninsula Borough wants to collect remote seller, or "e-commerce", sales tax. The inability to effectively collect sales tax on sales of personal property, products , or services transferred or delivered into the City by a remote seller in response to orders placed electronically by local consumers is eroding the sales tax base of Alaska 's communities . The resulting revenue losses is causing imminent harm to residents through the loss of critical funding for City Services and Borough education. The failure to collect tax on remote sales results in artificial market d istortions and competitive advantages for remote sellers through perpetuating tax shelters for businesses that limit their physical presence but still sell goods and services to local consumers , which gains more and more prevalence as technology continues to advance. The recent decision by the United States Supreme Court in South Dakota v. Wayfair allows for the amendment of the Borough's sales tax code to account for remote sellers who do not have a physical presence in either the state of Alaska , Kenai Peninsula Borough or City but do have a taxable connection with those jurisdictions. The C ity has adopted the Borough 's sales tax, and changes made to the Borough 's sales tax code will not require any further action by the City. The decision in South Dakota v. Wayfair provided guidance that included the defensibility of a single- level statewide administration of remote sales ta x collect ion and remittance . Remote sellers who make a substantial number of deliveries into or have large gross revenues in Alaska benefit extensively from the Alaska market, affecting the economy generally, as well as local infrastructure. Modern computing and software options ensure that it is ne ither unusually ~ Page 2 of 2 Resolution 2019-72 difficult nor a substantial burden for remote sellers to collect and remit sales ta xes associated with sales into Alaska ta xi ng jurisdictions. In the absence of state legislative action , in order to implement a single-level statewide sales ta x administration, it is the intent of local ta xing jurisdictions within Alaska to establish an intergovernmental entity (the "Commission "). The function and powers of the Commission will be set forth in the Agreement. Under the terms of the Agreement, in order to maintain membership in the Commission , the City through its existing adoption of the Borough's sales t ax code will be required to adopt certain uniform code provisions for the collection and remittance of municipal sales tax applicable to sales made by remote sellers. Article X , Section 13 of the Alaska Constitution authorizes local government to enter into agreements for the cooperative or joint administration of any function or power, unless otherwise prohibited by law or charter. The intent of the Agreement is to enable Alaska's taxing jurisdictions to levy their municipal sales tax as now allowed by federal constitutional doctrines. The uniform remote sales tax code will be presented to the Kenai Peninsula Borough Assembly for consideration once adopted by the Commission. The sales tax code will also be presented to the City Council for review and consideration of whether the City would like to make any changes. If the uniform code is adopted by the Assembly, the administration of remote sales tax collection and remittance will be delegated to the Commission . To be clear, this resolution only authorizes entry into the Commission and a "seat at the table" during the formation process . As an initial Commission member, the City will have a voice in adopting Commission bylaws, adopting a uniform remote seller sales tax code , and in the e lection of the Commission's Board of Directors. Once the Commission is formed and bylaws are adopted, and before collections may begin, subsequent legislation will come before the Assembly and City Council that would adopt the uniform code, address questions of fees for participation, and delegate remote seller sales tax admin istration, collection, aud it, and enforcement authority to the Commission .