Starting Aug. 1 the city of Bethel will begin enforcing sales taxes on nonprofits unless the nonprofit gets an exemption. But no one can get an exemption, because one of the legal requirements is impossible to fulfill.
By city law, nonprofits were supposed to be paying sales taxes since 2001. But the trend didn’t catch on for everyone, and the city didn’t enforce the change. Until now.
“Just because we’ve done something wrong for 20 years does not mean we should continue to be doing it wrong,” Bethel City Manager Ann Capela said.
This month the city sent a letter to all Bethel businesses telling them nonprofits are not exempt from city sales taxes. And any business not paying taxes will be held liable starting Aug. 1.
LaTesia Guinn is the executive director of the nonprofit Bethel Family Clinic. She said instead of collecting, the taxes the city council should change the law and look elsewhere for revenue.
“It’s not a right way for people, when they’re looking for extra funds to pay bills and to meet the budget of the city, to be focusing on nonprofits,” Guinn said.
Eileen Arnold is the executive director of the nonprofit Tundra Women’s Coalition, a shelter and resource center for survivors of domestic violence and sexual assault. Arnold said the tax would cost the nonprofit between $15,000 and $16,000 a year and affect services.
“That would make us have to chose between fixing something in our building versus providing travel for somebody to leave a domestic violence situation or food for the pantry,” Arnold said. “We’d have to make really difficult decisions.”
Under city law, nonprofits can be exempt from city sales taxes if they meet three criteria:
- be a 501(c) with the IRS,
- use what it purchases for its organization, and
- receive Alaska Revenue Sharing.
That last part — about having to receive Alaska Revenue Sharing — that bars all nonprofits from exemption because Alaska Revenue Sharing, by that name, doesn’t exist.
Danielle Lindoff is with the Alaska Department of Commerce, Community, and Economic Development. In an email, she said that the state has had many revenue sharing programs, but none by the name Alaska Revenue Sharing. And even if the program did exist, Lindoff said Bethel nonprofits don’t qualify for state revenue sharing.
City Manager Capela said even if the city’s law doesn’t make sense, her job is to enforce it as written.
“Whether this is outdated or there are different intentions or meaning, I don’t know,” Calepla said. “But so far we’ve determined legally and factually that indeed in order to be exempt there are three conditions that must be present. And it doesn’t state one of the conditions or two of the conditions must be present. It states all the conditions must be present.”
Capela said the city has no estimates on how much revenue it expects to collect from nonprofit sales taxes. Several nonprofits have asked Bethel City Council to amend the law before enforcement begins.