Home Statewide Politics Nome Tax Proposal Unorthodox, but Constitutional

Nome Tax Proposal Unorthodox, but Constitutional

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Photo by Craig Tuten
Photo by Craig Tuten

The Nome City Council is considering ending a sales tax exemption for local non-profit organizations, including religious institutions.

As first reported by KNOM, the end of the exemption is one method the council is debating to address a projected budget deficit. 44 organizations currently enjoy an exemption from Nome’s sales tax, including 11 religious institutions. Eliminating the exemption is estimated to bring in an additional $300,000 per year.

nome01While the idea of taxing non-profits, particularly churches, is unorthodox, it is not unconstitutional. The Internal Revenue Service (IRS) determines whether an organization qualifies as a 501(c)(3) non-profit eligible for tax exemption under the Internal Revenue Code. However, that exemption is specific to federal income tax.

The Alaska Constitution specifies that “All, or any portion of, property used exclusively for nonprofit religious, charitable, cemetery, or educational purposes, as defined by law, shall be exempt from taxation” (emphasis added). There is no provision addressing municipal sales tax.

Alaska does not have a state sales tax.

Taxing churches may evoke a knee jerk reaction in some, but the state has allowed levies on non-profits, including churches, for local improvements deemed “special assessments” since 1966, according to “Alaska’s Constitution: A Citizen’s Guide.”

Until 2006, city governments in Alaska were also allowed to collect property taxes on homes owned by churches and occupied by religious school teachers. Anchorage Baptist Temple lobbied for the change to state law to support exemptions it was already claiming on these homes.

Then-Representative Berta Gardner (D-Anchorage) introduced HB 305 in 2012 to undo the 2006 religious school teacher exemption. The bill gained no traction and was eventually withdrawn.

Regarding their own debate over taxing non-profits, Nome City Council member Matt Culley told KNOM, “You get rid of the sales tax exemption, most of the time these other exemptions aren’t given—we’re a very nice city [to do] it. When we sit down at budget time, [with] the numbers to look at, if we want to donate that [money back to nonprofits], the money can go all back in … but we have control over it now, as opposed to it going whatever direction that we have it going now.”

The proposed ordinance is subject to more debate in council, as well as public testimony. Nome’s next City Council meeting is on November 24.

5 COMMENTS

  1. How will a sales tax affect churches? What are they selling (in the literal sense, not the philosophical one)? This was vague in the original knom write up and I was hoping for some detail here. Do churches really sell enough in Nome to generate $300k in sales tax? That seems superficially dubious.

    Also, what does the city mean when they suggest they may give money back too the churches if there is enough? Would that even be legal?

      • Thanks for the clarification.

        But this brings me back to the claim that this would net the city $300K. With a bit of searching on Nome’s city website, it appears that they have a 5% sales tax on goods and services, with exceptions for food, medical, the value of purchases in excess of $1500, and rent (long term in excess of 27 days).

        For the city to net $300K, the churches and 33 other organizations need to be spending $6M in non-food, non-medical, non-rent, non-bit-ticket-item local purchases. That’s $136K per organization, or nearly $1600 per resident of Nome. That seems like a lot.

        I’m a member of a small church with an annual budget of about $60K, and I’m sure the vast majority of that would be exempt (mostly because the vast majority is salary and benefits with out pastor, which he in turn uses as the rest of us do for food, housing, and medical expenses).

        Either I’m still missing something, or something doesn’t add up.

  2. Also the IRS rules allow a donation to a c 3 to be written off against income at tax time. Nonprofits pay payroll taxes.

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