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HomeMy WebLinkAboutCommunity Center - Correspondence (2)CITY OF I „C~~ C' ~ a~ ~4 a„ 210 FIOALGO KENAI, ALASKA 99611 TELEPHONE 283-7535 MEMORANDUM ERO Tir~ P,ogers, City Attorney ~' ~Ci,ty of Kenai Councilmembers City of Kenai DATE: April 23, 1986 RE: Preliminary Findings:. .Bed Tax ESTION PRESENTED - May the City of Kenai enact a bed tax? Short Answer - Yes, if certain:; procedures are. followed. A review has been taken relevant to Alaska Statutes and appropriate cases to determine whether the City of Kenai could validly enact a hotel/motel (":bed tex"'}. One Alaska case ..deals specifically with the issue of bed taxes within the contekt of the Alaska statutes. In Cit~of Homer v. Gangl, 650 P.2d 396 (Alaska 19:82), the Alaska Supreme Court struck down Homer's bed t ax. The case originated in 1979 when the Homer City Council adopted Ordinance No. 79-19. The ordinance provided for a levy bf`a tax on transient hotels/motel room rents, equal to five-percent: (S°b) of the room rent;al for the first. seven days of occupancy4 Yn and of itself, the Homer hotel/motel room tax mirrored many hotel/motel room taxes presently in effect in the Lower 48. At the time the ordinance was adopted, the City of Homer was a first-class general law city. At the time, the Borough had a two percent (20} sales tax for areawide Borough functions on sales, services and rents, including hotel/motel rents in the City of Homer. 1 The Superior Court, in a summary judgment action, permanently enjoined the tax and the monies collected under the ordinance were ordered returned to those who had paid the tax. An appeal and cross appeals to the Supreme Court followed. The Supreme Court upheld the Superior Court and concluded that the bed tax imposed by the City of Homer was in fact a sales tax and therefore subject to statutory requirements and limitations on sales taxes. In the opinion, there is a considerably long discussion of why the Supreme Court felt that this was a sales tax as opposed to a general tax. The reason is not too important at this juncture, the important fact being that the Court did conclude that it was a sales tax and therefore subject to certain requirements and limitations. Because the Court concluded that the Homer tax was a sales tax, the Court noted that the tax would therefore be subject to AS 29.53.440 (now AS 29.45.700. This statute requires the City to levy a sales tax on every source already taxed by the Borough or none at all. As the Court pointed out: "The City can°t pick and choose. If the Borough levies sales tax on Items 1 through 10, the City can't say, well we're only going to choose Item 7 and levy a sales tax on that. The City must levy on Items 1 through 10, or not at all." The Court found further support for this proposition in the legislative history of AS 29.53.440 and through standard rules of statutory construction. The Court also suggested that under the statute, it is impermissible for the City to tax one item that the Borough is taxing at a rate different from the City's taxation of other items. It should be noted that to date the Gity of Homer has not enacted a new bed tax to replace the one which the Supreme Court struck down. However, in the City of Kenai's case, there is much to differentiate this city from Homer. Unlike the City of Homer, the City of Kenai is a home-rule city and has home-rule powers. In this respect then, the Gangl case is not applicable to the City of Kenai because under the Alaska Statutes governing home-rule limitations, AS 29.13.100 (limitation of home-rule powers), a home-rule city like Kenai is not required to comply with AS 29.53.440 [now AS 29.45.700(a)]. This is the statute that requires the City to levy a sales tax on every source already taxed by the Borough or none at all. 2 Absent any other Kenai Municipal Code provisions, Alaska Statutes, or Kenai Peninsula Borough ordinances, the City would be able to enact such a sales tax as has been suggested. There are, however, code provisions which the City has enacted which place limitations on our home-rule powers not imposed by any Alaska statutes. KMC 7.10.050 provides that: "Incorporated by reference in this code as though each code prgviSinn wag gat forth verh atim harein ara gtati~t egg consisting of ordinances and/or code provisions of the Kenai Peninsula Borough or such portions thereof, which provides for the sales taxes, including but not limited to their levy, collection, and administration." The effect of KMC 7.10.050 is to give back to the Borough some of our home-rule powers, which we were not prohibited from exercising under the Alaska Statutes. Accordingly, any attempt to enact a bed tax would necessarily require some rearrangment of this Kenai Municipal Code provision. Once this provision has been modified, the City could proceed to enact a bed tax. One of the initial points of contention will be whether the City can exceed a six percent (6°b} limitation on its sales tax. At least one source (The Alaska Blue Book), concurs that a home-rule city may enact sales taxes in excess of the six percent limitation. The reason for this is simple. AS 29.45.700 provides the power for the cities to levy a sales tax. Subparagraph (a) of that statute provides that: 11A city in a borough that levies and collects area-wide sales and use taxes, may levy sales and use taxes on all sources taxed by the borough, in the manner provided (emphasis added) for the boroughs except that the assembly may by ordinance authorize the city to levy and collect sales and use taxes on other sources." The key wards in that statute are "in the manner provided for boroughs.'° This provision forces a city considering a levy to refer to the borough .sales and use tax procedures under AS 29.45.650. Both of these two statutes are the statutes which were discussed in Gangl and are now .in recodified forms. Under AS 29.45.650 (formerly AS 29.53.415), a borough may levy and collect sales taxes not exceeding six percent. Because the Borough cannot exceed six percent (6°d), the City cannot either. The reason neither of these statutes apply to the City of Kenai is because the City is a home-rule city, and as previously explained, under AS 29.13.100, the City is not prohibited from acting in a manner outside these statutes. Accordingly, I would conclude that the City may levy and collect a sales tax on beds. 3 It is important to note however, that through preliminary discussions with the Borough, should the City of Kenai enact a bed tax, the City will have to collect the tax itself. It does not appear at this time that collection of such a tax would be very difficult. The question has also been raised whether the City would require a special election to enact a bed tax. For the same reasons expressed above in regard to home-rule powers, AS 29.53.420 which requires referendums for increasing borough sales taxes, would not apply to the C1tV ahsent any other provision in the KBnei Municipal Code. If KMC 7.10.050 were modified, there would be no need to have a special election on the matter. Finally, it is important to point out that if the City enacts a bed tax, it will likely be challenged in Court. This memorandum only address the home-rule issue which appears to allow a bed tax in excess of six percent. The law in this area is far from settled and this preliminary opinion should be considered subject to revision if further developments are brought to light. TR/clf 4