The Kodiak City Council on Thursday approved the first reading of an ordinance that would require online retailers to pay sales tax and would also automate tax collection.

If adopted, the ordinance would implement the Alaska remote sellers tax code, created by the Alaska Remote Sellers Sales Tax Commission under the Alaska Municipal League. 

The new sales tax code outlined in the ordinance would require online retailers to charge and remit the city’s 7% sales tax. Items picked up at the post office would also be taxed, even if the customer lives outside of the city limits. 

The city of Kodiak has had issues collecting online sales taxes from remote sellers, as not all online businesses currently remit sales tax, said Deputy City Manager Josie Bahnke.  

“Once our ordinance takes effect, all (remote sellers) will be required to,” Bahnke said. 

Residents living outside of the city limits would be exempt from paying the online sales tax. Other tax exemptions include religious or charitable organizations and school groups, among other products and entities. 

Senior citizens would also be tax exempt and would have to fill out a form and send it to their online vendors of choice before their exemption is finalized. 

Kodiak is one of 30 other municipalities that have joined the newly created Alaska Remote Sellers Sales Tax Commission and will vote on implementing the new online sales tax code. 

Remote sellers will have to collect and pay sales taxes if their statewide gross sales delivered into the state meet or exceed $100,000, or if they have conducted 200 separate transactions. 

The tax collection will be administered by the commission using tax collection software that will input addresses into a Geographic Information System map to identify the areas where residents are required to pay the online sales tax. 

The commission was created to help municipalities collect online sales taxes after the 2018 court decision in South Dakota v. Wayfair. The Supreme Court voted to allow states to require businesses without a physical presence in a state to collect and remit sales taxes on transactions in the state. 

One caveat of the ruling is the threat of putting undue burden on online retailers, which is an issue in states without a sales tax, like Alaska. 

Alaska has 106 taxing jurisdictions. If each jurisdiction has a different set of rules, online sellers could claim interstate commerce burden, or undue burden, said Kodiak Finance Director Kelly Mayes. 

According to the Alaska Municipal League, remote sellers have said they will not collect the sales taxes required by individual local governments in states without a centralized tax collection system. 

In addition, businesses have not necessarily been collecting the online sales taxes correctly, according to the league.  

“There have been isolated cases of collections, some of those businesses get it wrong, misapplying taxes and exemptions and shortchanging municipalities or overcharging residents,” stated a press release published by the league. 

According to Mayes, the city was receiving online sales taxes after the court decision. However, not all sellers were necessarily complying with the city’s tax rules and exemptions. 

City officials have supported joining the commission and passing the new code in the hope that  online retailers will more likely comply with the city’s tax regulations without claiming undue burden. 

The final code was passed by the commission on Jan. 6 following months of drafting the code, definitions and the group’s bylaws. 

After the Kodiak city council’s approval of the ordinance, it will move forward to a public hearing before being finalized by the council. During the hearing, the community will have an opportunity to give testimony on the ordinance. 

If the City Council passes the ordinance on the second reading, scheduled for the next council meeting on March 12, the code will be implemented one month following its final approval. 

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