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.
While 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 The bill gained no traction and was eventually withdrawn.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.