A proposal to tax some fundraising activities of Sitka’s non-profits was voted down by the assembly Tuesday night (8-11-15).

But the city will be looking for ways to shore up compliance with municipal code for those non-profit organizations who should be paying taxes — but don’t.

Downloadable audio.

The most confusing aspect of the proposed non-profit sales tax ordinance is that it’s not a new law at all. It’s been on the books for years, but as the city’s chief administrative officer Jay Sweeney put it,

“Right now, there is a checkerboard of compliance by non-profit entities.”

That’s compliance with existing sales tax code.

In other words, the sale of goods or services — even by non-profits — has never been exempt from sales tax. Sweeney noted that many non-profits toe the line and pay sales taxes on admission fees and gift shop sales, and other transactions that you typically expect to pay sales tax on. But there are some non-profits selling things like concert tickets or auction items, which they believe are exempt from sales tax, but aren’t.

So the ordinance before the assembly was intended to tighten up the interpretation of what’s taxable, and create a special revenue fund on the city’s books to hold 95-percent of what’s collected, and then redistribute it to non-profit organizations through an annual grant process that’s already in place.

“I haven’t met anyone who thinks this is a good idea,” said Lisa Busch, the director of the Sitka Sound Science Center. “I’ve discussed this with the Foraker Group which helps non-profits around the state. They don’t think it’s a good idea. And I consulted the National Council on Non-Profits, which has numerous examples of how this can hurt non-profits.”

Busch said the Science Center collects sales tax on admissions and retail sales, but imposing a tax on fund raising activities would “discourage philanthropy” by causing donors to feel a loss of control over their contributions. And then giving the money back, she said, would be “like robbing Peter to pay Peter.”

Anne Wilkinson, a board member of the Sitka Seafood Festival, concurred. She thought collecting sales taxes at events like dessert auctions, when the value of the donation typically far exceeded the value of the goods, would just be a mess. Especially since contributors often pooled money, and some of them might be seniors and exempt from paying tax.

But the real problem, in Wilkinson’s view, came later.

“Sooner or later the assembly is going to be faced with some tough decisions about who gets grants and who doesn’t. And the organizations that have been paying a lot into this fund are naturally going to have an advantage. And the organizations that raise money other ways are going to be at a disadvantage.”

Wilkinson pointed out that the Seafood Festival spends thousands of dollars locally to buy food for its events, and pays sales tax. To charge sales tax at its banquet, it would have to obtain an exemption as a reseller, and that would deprive the city of the sales tax it’s already receiving on the food.

Wilkinson thought that there were many similar, unintended consequences of the proposal that hadn’t been well thought out.

Erika Knox has been involved with the Mt. Edgecumbe Pre-School and other non-profits. She thought taxing fundraising activity was counterintuitive.

“I think it’s a really bad idea when a knee-jerk reaction is to tax organizations who give the biggest benefit to our society for the least cost.”

At the assembly table, most members agreed. Mayor Mim McConnell, who works as the paid director of the non-profit Sitka Community Development Corporation, and member Michelle Putz, who does contract work for a non-profit, recused themselves. Tristan Guevin was employed by Brave Heart Volunteers until a week ago. He opposed the proposal outright, and defended Sitka’s current scheme of providing annual grants to non-profits in a public process. Last year, for example, the assembly doled out $75,000 to 17 non-profits. Guevin said it was a small price for the critical services and jobs provided by the organizations, the additional revenues to the city they generate, and their contribution to Sitka’s quality of life.

Member Ben Miyasato agreed. He just didn’t want to see all these benefits disappear on the whim of a future assembly — he wanted to enact the special revenue fund.

“The part that I look at in doing this is that in its own way, it kind of assembly-proofs. One of the suggestions put out there this year was that the non-profits receive zero.”

But circulating non-profit funding through city hall just didn’t add up for the other members.

“Why are we taxing in the first place, if we’re just going to give it all back to these entities,” said Deputy Mayor Matt Hunter, who nevertheless thought it was important to try and enforce the intent of the existing ordinance, particularly around ticket sales. He suggested that the city’s recently-appointed citizen task force look into the idea further.

The assembly agreed, and voted down the proposal 1-4, with Ben Miyasato, the ordinance co-sponsor, in the affirmative.