Have you ever noticed that your bill in Skagway is never a round number, despite the fact that Alaska is famously sales-tax free?
It’s because our wily Skagwegian friends have organized a borough sales tax for themselves. How, you ask, do feisty Alaskan voters permit their borough government to charge them a sales tax?
It’s because the borough sales tax is part of a clever stratagem to shift the tax burden from Skagwegians onto unsuspecting tourists.
Basically, the tax raises millions of dollars for Skagway public services, with a big part of that coming from cruise ship tourists and, yes, you. Yukoners visiting the “Gateway to the Klondike” also make a substantial contribution to ploughing the roads and fixing those rustic wooden sidewalks.
Then, when the tourists are gone for the season, the sales tax rate goes down for the winter. Sometimes they even have winter “tax holidays.” Skagwegian families reverse the usual northern rhythm of stocking up in the summer and then trying to last through the winter. Instead, they stock up during the winter tax holiday and try to avoid paying the higher summer sales tax.
The Skagway Chamber of Commerce says the sales tax rate is five per cent from April to September, and three per cent in the winter (or zero per cent if the summer take was good enough for the city to declare a winter tax holiday). The hotel tax, mostly paid by visitors of course, is eight per cent.
According to the Skagway News, the summer sales tax raised $6.4 million in 2012, more than the planned $6 million. Assemblyman Gary Hanson pointed out that the tax had allowed “a very generous lowering of the mill rates for the property owners.”
Whitehorse taxpayers will be green with jealousy after seeing their property taxes go up steadily over the last decade.
Yukoners did get some benefits from the Skagway tax. Council put a big part of that year’s extra tax revenue into the small boat harbour, where many Yukoners berth their boats, and the municipal library, which is a good place to meet Yukoners looking for free Wi-Fi.
Skagway runs a fine line with a tax like this. It wants to maximize revenues from visitors to benefit its local citizens, but without extracting so much that it scares off visitors or cruise ship marketing departments by getting a reputation for gouging tourists.
Soapy Smith went too far in this regard, and we all know what happened to him (especially visitors to Skagway’s spruced up historical cemetery).
Keeping the tax relatively low at five per cent seems to have kept it under the radar of most visitors so far. Yukoners pay five per cent at home, and other Canadians are used to paying double or more. Cruise ship passengers may be annoyed, but they are used to far more aggressive attempts to part them from their money than the Skagway borough sales tax (although paying an extra five per cent does add insult to injury if you let yourself get talked into buying some cubic zirconia jewelry at one of Skagway’s cruise ship jewelry shops).
Nor is Skagway alone. I visited Prince Edward Island a few years ago, where they also had a sales tax aimed right at the tourist wallet. The headline rate was a whopping 10 per cent, but many goods used primarily by local residents were exempt. These included home heating oil, gym memberships and funeral services, which are generally not top tourist purchases.
As of 2012, however, P.E.I. switched to a Harmonized Sales Tax based on the federal GST. Harmonized sales tax regulations reduce the scope for Skagway-style shenanigans, presumably because allowing provinces to skim each other’s tourists is not high on the federal government’s list of tax policy objectives. However, in negotiations with the feds the province was still able to retain local-friendly exemptions for home heating oil and a few other items.
The N.W.T. has taken a slightly different tack. Instead of targeting tourists, they have a payroll tax so that Outside workers have to pay taxes to Yellowknife. Fly-in workers in the Yukon pay income taxes in their province or country of residence (and don’t pay any local sales tax, of course, since we don’t have one).
Here in the Yukon, we don’t indulge in any of these games. In fact, the opposite is the case. The only part of the tax system that has been getting heavier lately is municipal property taxes. These, of course, are paid by locals not by tourists. Our income tax rates have been stable for years, with the last budget’s modest cut in small business taxes one of the few notable changes in the last few years. Our gas taxes, which Skagway politicians would be tempted to put up in the summer when the tourists drive through, are relatively low by Canadian standards.
The latest Yukon budget estimates that tax revenue will be just $128 million out of total revenue of $1.2 billion, with most of that coming from our massive transfer payments. In fact, the expected increase in federal money in 2014-15 is $39 million. To put this in perspective, if all of this increase were used to pay for tax reductions, Yukon income tax could be cut in half (although the feds have designed the formula to discourage this sort of thing).
We probably don’t want to attract the attention of Ottawa with Skagway-style tax schemes. However, at the margin, I think our politicians have space to be a lot more creative in reducing the property and income tax burden on Yukoners. For all the talk in Whitehorse about affordable housing and helping lower-income Yukoners, it is remarkable how seldom tax policy comes up. Higher property taxes and high marginal tax rates on rental income inevitably push rents up.
The small business tax reduction in the last Yukon budget was a sign this is changing. I suspect all three parties will be bidding for your vote with some clever tax wheezes in the next election.
Keith Halliday is a Yukon economist and author of the MacBride Museum’s Aurore of the Yukon series of historical children’s adventure novels. You can follow him on Channel 9’s “Yukonomist” show or Twitter @hallidaykeith