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HomeMy WebLinkAboutRESOLUTION 2003-20Suggested by: City Council CITY OF KENAI RESOLUTION NO. 2003-20 A RESOLUTION OF THE COUNCIL OF THE CITY OF KENAI, ALASKA, OBJECTING TO KENAI PENINSULA BOROUGH ORDINANCE NO. 2003-11TO AMEND THE BOROUGH SALES TAX CODE TO EXEMPT A PORTION OF GASOLINE AND DIESEL FUELS FROM SALES TAX. WHEREAS, the Kenai Peninsula Borough Assembly is considering their Ordinance No. 2003- 11, to amend the Borough Sales Tax Code to exempt a portion of gasoline and diesel fuels from sales tax; and, WHEREAS, estimated revenue impacts associated with exempting that portion of the retail cost of oil and gas generated by State and Federal taxes will result in a reduction of approximately $329,163 or 18% of the sales tax revenues generated from the retail sale of oil and gas products on the Kenai Peninsula; and, WHEREAS, analysis by the Borough of sales tax data for FY 2002 indicates the following impacts to the revenues of the cities of the Kenai Peninsula: KPB Ordinance Municipality 2003-11 Impacts City of Kenai $21,947 City of Soldotna 30,598 City of Seward 16,174 City of Seldovia 1,749 City of Homer 27,698 ; and, WHEREAS, during a distressing economic recession when cities are struggling to meet their fiscal responsibilities, maintain programs, and cope with continuous unfunded mandates, it is bad public policy to further hamper them by instituting another exemption and thereby pressuring municipalities to incorporate the exemption into their municipal codes, knowing the financial impacts the exemption will have on their revenues, programs, and citizenry; and, WHEREAS, adoption of Kenai Peninsula Borough Ordinance No. 2003-11 will force some cities to cut needed city services or increase taxes or other sources to make up the lost revenue. NOW, THEREFORE, BE IT RESOLVED BY THE COUNCIL OF THE CITY OF KENAI, ALASKA, opposes Kenai Peninsula Borough Ordinance No. 2003-11. PASSED BY THE COUNCIL OF THE CITY OF KENAI, ALASKA, this seventh day of May, 2003. ATTEST: C~'c}l L.' Freas~ ~ity Clerk J~Es~ ~. BOOKEY, I~-I, VICE MA~~ ~ clf April 18, 2003 MEMORANDUM To; Jeff Sinz, Finance Director From: Troy Tankersley, Supervisor KPB Sales Tax Division Re.' Estimated Revenue Impact of Ordinance 2003-11 The following is an estimate of the revenue impacts associated with exempting that portion of the retail cost of oil and gas generated by State and Federal taxes. It results in a reduction of approximately $329,163 or 18%, of the sales tax revenues generated from the retail sale of oil and gas products. The estimate was based on a series of estimates starting with the revenue impact study that was done for Ordinance 99-04. Estimates were updated using the borough sales tax records for 2002. Retail outlets not included in the analysis for Ordinance 99-04 or were included, but had been estimated, were contacted and asked to provide an estimate of oil and gas sales as a percentage of their total taxable sales. The resulting adjusted taxable sales figure was further adjusted to reflect the exemption of State and Federal taxes. The results in total and by municipality are as follows: 2002 Taxable Sales by Retail Outlet: $60,142,248 Taxable Fuel Sales Only Sales Tax Under Current Code $47,928,295 $1,869,181 Taxable Fuel Sales Less State and Federal Taxes $39,488,122 Sales Tax Under Ordinance 2003-11 $1,540,018 Reduction in Sales Tax Revenue Under Ordinance 2003-11 $329,163 Distribution of Reduction by Municipality: Kenai Peninsula Borough City of Kenai City of Soldotna City of Seward City of Seldovia City of Homer Total: $168,801 $35,853 $49,985 $26,421 $2,856 $45,247 $329,163 Ord 2003-11 Impact Statement Page 1 of 5 Currently, there are proposed changes with both the Federal and State tax rates. The State of Alaska rate, currently at $.08 per gallon (diesel or gas) is proposed to increase to $.20 per gallon effective July 1, 2003, HB 156. The Federal rate, currently $. 184 per gallon for gasoline and $.244 per gallon for diesel are proposed to increase in 2004 to $.2375 per gallon and $.3154 per gallon for gasoline and diesel, respectively. By 2009, these rates are to be increased to $.2651 per gallon and $.352 per gallon for gasoline and diesel, respectively. (AGFOA Newsletter, March 28, 2003 pg. 2 & 3). Using the same taxable sales data provided by the borough sales tax records for 2002, further analysis was done to determine the impacts of the Federal and State tax increases as they relate to a decrease in sales tax revenue from Ordinance 2003-11. It results in a reduction of approximately $530,660 or 25.63%, of the sales tax revenues generated from the retail sale of oil and gas products. The results in total and by municipality are as follows: 2002 Taxable Fuel Sales Adjusted due to Increase in State and Federal Taxes $53,094,965 Sales Tax Derived Under Current Code if Federal and State Tax Increased $2,070,678 Taxable Fuel Sales Less State and Federal Taxes $39,488,122 Sales Tax Under Ordinance 2003-11 Reduction in Sales Tax Revenue Under Ordinance 2003-11 Plus an Increase in State & Federal Taxes $1,540,018 $530,660 Distribution of Reduction by Municipality: Kenai Peninsula Borough City of Kenai City of Soldotna City of Seward City of Seldovia City of Homer Total: $272,133 $57,800 $80,583 $42,595 $4,605 $72,944 $530,661 The summary table below reflects the revenue reduction impacts associated to, Ordinance 2003- 11 and the proposed Federal and State tax. rate increases' Fed/State and Ord.2003-11 Ord.2003-11 Increased Municipality Impacts Impacts Reduction Kenai Peninsula Borough: $272,133 $168,801 $103,332 City of Kenai: $57,800 $35,853 $21,947 City Soldoma: $80,583 $49,985 $30,598 City of Seward: $42,595 $26,421 $16,174 City of Seldovia: $4,605 $2,856 $1,749 City of Homer: $72,944 $45,247 $27,698 Total: $530,661 $329,163 $201,498 Ord 2003-11 Impact Statement Page 2 of 5 Table (1) reflects the current,tax structure on a price per gallon of gasoline and diesel. Table (2) reflects the proposed tax structure defined in Ordinance 2003-11. Below Table (2) reflects the price per gallon reduction between Table (1), the current tax structure and Table (2). Table (1) Current Tax Structure Gasoline ($1.817 Retail Price) Diesel ($1.69 Retail Price) Sales Tax (~) 4.95% Sales Tax (1) 4.73% State Tax 4.39% Federal Tax 9.89% Base Price (2) 80.77% State Tax 4.73% Federal Tax 14.20% Base Price (2) 76.34% (1) "Sales Tax" assumes a 5% jurisdiction. (2) "Base Price" includes costs such as distribution & marketing, refining & crude oil. Table (2) Ordinance 2003-11 Tax Structure Gasoline ($1.804 Retail Price) State Tax 4.45% Federal Tax 10.00% Sales Tax (~) 3.89% Base Price (2) 81.66% Diesel ($1.675 Retail Price) State Tax 4.78% ~ ___ Federal Tax 14.33% Sales Tax (~) 3.88% Base Price (2) 77.01% (1) "Sales Tax" assumes a 5% jurisdiction. (2) "Base Price" includes costs such as distribution & marketing, refining & crude oil. Price Per Gallon Reduction Between Current Tax Structure and Ord.2003-11 -$0.013 -0.72% -$0.015 -0.89% Ord 2003-11 Impact Statement Page 3 of 5 Table (3) reflects the price per gallon tax structure should Ordinance 2003-11 be adopted along with the proposed State and Federal Tax increases. Below Table (3) reflects the price per gallon increase between Table (1), the current tax structure and Table (3). Table (3) Ordinance 2003-11 plus increase to State & Federal Tax Gasoline ($1.984 Retail Price) Diesel ($1.875 Retail Price) State Tax 10.08% State Tax 10.66% Federal Tax 12.10% Sales Tax O) 3.73% Base Price (2) 74.09% Federal Tax 17.07% Sales Tax (1) 3.47% Base Price (2) 68.80% (2) "Sales Tax" assumes a 5% jurisdiction. (2) "Base Price" includes costs such as distribution & marketing, refining & crude oil. Price Per Gallon Increase Between Current Tax Structure & Ord.2003-11 Plus Proposed State & Federal Increases. $0.167 9.19% $0.185 10.95% Ord 2003-11 Impact Statement Page 4 of 5 Other issues: What is the administrative cost estimate to implement Ordinance 2003-11 ? There are no anticipated changes to either the administration of sales tax or the sales tax system. However, a cost estimate of $1,000 would be incurred to notify business owners to implement Ordinance 2003-11. Ordinance 2003-11 would require business owners who sell oil and gas products to restructure the way sales tax is calculated when determining the price per gallon. After several conversations with owners, it is their feeling the calculations are not unbearable and could be achieved. Ordinance 2003-11 would require business owners to remove the Federal and State tax from their gross sales prior to remitting their Sales Tax Returns. Business owners believe that this will be the most difficult part of Ordinance 2003-11 and potentially may cause further errors in their returns. Are there other instances where the perceived "taxing a tax" is applied? Yes. Sales tax is the last tax charged on any retail sale, rent or service. This said, sales tax is charged as "the last tax" on items such as propane, alcohol, tobacco, firearms and ammunition, which also include a federal and/or state tax that is ultimately passed through to the consumer. In addition, wholesale costs of goods recovers a variety of tax costs incurred bY a manufacturer, wholesaler or retailer. Various tax costs are paid by the manufacturer, distributor or retailer and passed directly to the consumer as part of a base price before markup. The retailer of goods must recover these taxes to stay in business and are paid directly to a taxing entity without regard to the consumer other than the recovery of taxes the retailer has incurred. The sum of these costs is typically known as the "Cost of Goods Sold';. To a consumer, it may give the false notion of being "taxed on a tax". Sales tax is different, because the business owner does not pay the tax but rather charges the sales tax at the time of each individual sale and remits that tax collected on behalf of the consumer to the taxing entity. Ord 2003-11 Impact Statement Page 5 of 5 Introduced by: Date: Hearing: Action: Vote: Fischer 04/01/03 05/20/03 KENAI PENINSULA BOROUGH ORDINANCE 2003-11 AN ORDINANCE AMENDING THE SALES TAX CODE TO EXEMPT A PORTION OF GASOLINE AND DIESEL FUELS FROM SALES TAX WHEREAS, retail gasoline prices include amounts paid by distributors for state and federal excise taxes, which amounts are passed on to the retailer and ultimately to the consumer; and WHEREAS, exempting from the sales price subject to the borough sales tax such amounts would provide some relief from taxes for the consuming public; NOW, THEREFORE, BE IT ORDAINED BY THE ASSEMBLY OF THE KENAI PENINSULA BOROUGH: SECTION 1. That KPB 5.18.200(A)(19) is hereby enacted as follows: 19. That portion of the final retail sale price of taxable gasoline and diesel fuels equal to the amount of state and federal excise taxes paid by the retailer for such fuels is exempt from this chapter. SECTION 2. That this ordinance shall take effect thirty days after its enactment. ENACTED BY THE ASSEMBLY OF THE KENAI PENINSULA BOROUGH THIS * DAY OF * 2003.