MEMORANDUM

TO: Timothy Navarre, Assembly President

Members of the Kenai Peninsula Borough Assembly

THRU: Dale Bagley, Mayor

FROM: Jeffrey Sinz, Finance Director

DATE: July 9, 2002

SUBJECT: Ordinance 2002-34, Creating A Sales Tax Exemption For Rents On Senior Housing

KPB 5.18 provides for the collection and remittance of sales tax on all retail sales, rents and services made or rendered within the Kenai Peninsula Borough. This includes the collection of sales tax on all senior citizen housing rent payments not otherwise exempted.

The Mayor of Soldotna has proposed that the city exempt senior citizens from the payment of sales tax on housing rent payments. The rationale for the proposal is based primarily on equity. KPB 5.12.105 provides that a single parcel of real property owned and occupied as the primary residence and permanent place of abode by a resident 65 years of age or older be exempt from property tax. In addition, the purchase of a residence through either a lump sum payment or a series of time payments is exempt from sales tax. However, senior citizens who do not own, but instead rent their permanent place of abode, are subject to the payment of sales tax on their periodic rent payments. In addition, the property they rent may also be subject to property tax, which they might indirectly pay through the rent payments. Arguably, senior citizens who rent their permanent place of abode could be subject to the payment of both sales and property taxes associated with their housing costs, whereas senior citizens that own their permanent place of abode are exempt from both. The attached ordinance if approved would exempt senior citizens from the payment of sales tax on certain housing rent payments and as a result help reduce this inequity.

Currently, an accurate estimate of the lost tax revenue associated with the proposed exemption cannot be calculated. The dollar value of rental payments subject to the proposed exemption are not currently captured or reported. In an attempt to identify a portion of the financial impacts, an analysis of sales tax revenue generated by senior housing complexes has been compiled. These complexes generated the following sales tax revenue during calendar year 2001:

Borough $8,089

City of Soldotna $7,739

City of Kenai $4,394

The Cities of Homer and Seward have senior housing complexes, but do not generate any sales tax revenue due to their exempt status. The City of Seldovia does not have any senior housing complexes within its jurisdiction. The actual impact of the proposed ordinance includes not only the amounts identified above, but also some unknown amount associated with senior rental housing provided outside of senior housing complexes.

An effective date of October 1, 2002 is requested in order for the borough administration to properly notify and publish the change and develop the necessary affidavit for landlords to comply with the exemption.