Alaska Gov. Mike Dunleavy is reportedly preparing to introduce a sales tax as part of a long-term budget plan for the state.

Five states don’t have a statewide sales tax: New Hampshire, Oregon, Montana, Alaska and Delaware (aka the “NOMAD” states). Vermont was the last state to adopt a sales tax, in 1969.

Alaska is furthest along of the five in instituting a statewide sale tax. Four years ago, local jurisdictions there formed the Alaska Remote Seller Sales Tax Commission to streamline sales tax collection and remittance.

Of Alaska’s 162 municipal governments, approximately 110 already levy some form of sales tax (including some seasonal ones) of 1% to 7%, according to numbers cited from the state Department of Commerce. As of last summer, 43 municipalities had joined the Commission, representing 85% of all Alaskans who live in a tax jurisdiction.

Coffers running dry

Alaska residents receive annual dividend payments from the state’s Permanent Fund; the 2022 payout for individual was $3,284, one of the largest in history. But Alaska – the only state with neither a sales nor an income tax – faces a deficit of as much as $800 million.

Dunleavy has said for months that he’d support the first statewide sales tax if it’s approved by Juneau lawmakers as part of a plan to pay larger Permanent Funds dividends to residents. His latest announcement echoed more-recent comments that he is no longer demanding that such a tax be first approved by voters; one of his representatives said the state must do something to reduce dependency on volatile oil revenue.

Proponents have studied many models for a sales tax, including a year-round rate of 2%. News reports say Dunleavy supports that; one state representative told news outlets he believed that any Alaska sales tax would have exemptions but might also apply to services.

A 2020 analysis by Jared Walczak, a researcher with the Tax Foundation, found that a 2.3 % tax on most goods and services could earn the state up to $850 million.

Debate not over

Walczak also told news outlets that taxing services like manicures, gym memberships and oil changes, not just goods, could make a sales tax less regressive.

Opponents have claimed that a sales tax would be “detrimental” to rural Alaska – where prices for groceries and other items tend to be the highest – and that to ask Alaskans to pay sales tax and then continue to send them Permanent Fund dividends would create an unnecessary bureaucracy. Counterproposals have included a state income tax and closing loopholes in taxation of oil companies.

“Imposing a sales tax would be another drag on a state economy that’s already ‘at or near the bottom’ in key economic indicators, and which has had the weakest post-pandemic economic recovery of any U.S. state,” an editorial in the Anchorage Daily News recently read.

Juneau lawmakers added that Dunleavy’s proposal is coming late in the legislative session to have a strong hope of passing.

Whether Alaska becomes the first state in more than a half a century to add a sales tax remains to be seen – but the idea is gaining momentum.

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Robert Dumas

Written by Robert Dumas

Accountant, consultant and entrepreneur, Robert Dumas began his public accounting career on the tax staff at Arthur Young & Co., followed by a brief stint at Grant Thornton. In 1998, Robert founded Tax Partners, which became the largest sales tax compliance service bureau in the country, and later sold it to Thomson Corporation. Robert founded TaxConnex in 2006 on the principle that the sales tax industry needed more than automation to truly help clients, thus building within TaxConnex a proprietary platform and network of sales tax experts to truly take sales tax off client’s plates.