Online retailers to collect and pay City of Nome sales tax
Carl Emmons ordered auto parts from an online retailer based in Wisconsin like he’s done for the past ten years. But this time Emmons got a reply stating: “We cannot ship to this address because it requires sales tax paid separately to state and city governments.”
The retailer’s understanding of Alaska sales tax collection is not correct. There is no state sales tax and the city sales tax is collected by a single statewide entity. But is the situation confusing enough that online merchants are going to red line Alaska? Alaskans are already dealing with merchants who refuse to ship to Alaska for various reasons, most of them invalid.
Last November the Alaska Municipal League, AML for short, created the Alaska Intergovernmental Remote Sellers Sales Tax Commission. The purpose of the commission is to have one entity representing Alaska’s multitude of municipalities, each with its own sales tax structure, to the increasingly important world of online retailing. Despite the retailers having no presence in the state a 2018 U.S. Supreme Court decision, South Dakota vs. Wayfair, Inc., has made it possible for states and municipalities to collect sales tax on remote sales.
Alaska is one of five states in the union that does not have a statewide sales tax. The other four do not have local sales taxes. That makes Alaska unique: There is no statewide tax but hundreds of different local tax districts.
The local governments, represented by AML, set up a system for collection of remote sales tax. The system will rely on software, which will avoid a heavy burden on the retailers to document, compute and pay local sales taxes. Alaskans themselves are paying the tax, but the tax is collected by the remote retailer, then submitted to the newly established commission. That commission sends it on to the particular municipality.
“Make no mistake, taking this step benefits Alaska,” writes AML’s Executive Director Nils Andreassen in a recent op-ed published by sources statewide. “Most importantly, it benefits Alaska’s businesses. For years, Alaska retailers have been penalized relative to online retailers. Online sales have had an automatic discount – a competitive advantage – over buying locally. The growth of online sales, too, has meant that Alaska’s businesses are facing an uphill battle. By leveling the playing field, local businesses can now compete on cost as well as quality.”
A large percentage of the goods sold online are unavailable from retailers in rural Alaska. If the remote sellers decide selling to Alaskans is too much trouble what will the customer do?
“This is interesting,” said Andreassen when told of the auto parts online store’s refusal to sell to Carl Emmons. “Technically, they don’t have to sell into Nome, so he’s correct on that front.”
Nome has joined the Commission and the first reading of an ordinance to pass the Uniform Code will be introduced on the Feb 17 Nome Common Council meeting. Nome City Clerk Bryant Hammond confirmed that Nome has joined the commission. “We joined a little bit after the original 15. The sales tax commission should make that easier. It simplifies things," he said.
The commission is a delegated tax collection authority. It serves as a centralized administrator for remote sales tax collection, remittance, reporting and compliance. Software will manage all transactions and ensure that member municipalities have full accountability. Perhaps most significantly, this represents a new revenue stream for local governments.
E-commerce sales totaled about $500 billion in 2018. A visit to the Nome post office around 3 p.m. finds a long line of people waiting to pick up packages, most with the Amazon smile graphic on the box. AML estimates that Alaska municipalities are losing $20 million in sales tax receipts because up until now the remote sellers have not been forced to collect sales tax.
Clarification: This story reflects a correction that Nome has not yet passed the Uniform Code ordinance.