Kodiak's 7% sales tax collects 2.81%, city memo says

Kodiak businesses remitted $13.9 million in direct sales tax on $496.2 million in gross revenue in fiscal 2025, an effective rate of 2.81% against the 7% the city posts, according to a staff memorandum going before the Kodiak City Council at a work session Tuesday, Aug. 11. That figure excludes a separate $1.439 million in remote sales tax collected in fiscal 2025, up from $35,461 in fiscal 2020.

Exemptions account for $297 million of the gap between gross revenue and taxable sales, about 60% of all commerce in the city. The city issued 448 tax-exempt certificates in 2026.

Interim City Manager Tim Putney wrote that the shortfall is structural. Between fiscal 2020 and fiscal 2025, gross reported revenue grew 30.7% and exemptions grew 52%, while the taxable base that funds police, fire, streets, parks and the library grew only 8%, less than inflation. General Fund operating expenses rose from $14.87 million to $19.60 million over that span.

Contractor-exempt purchases grew 208%, from $9.3 million to $28.6 million, the fastest-growing exempt category. Sales above the $3,000 single-transaction cap, unchanged since January 2018, reached $69.5 million, up 56%. Senior exemption cards rose from about 1,200 in 2019 to 1,920 this year.

Staff recommends directing the city attorney to draft a replacement for Chapter 3.08, written in 1977. The proposal would raise and index the transaction cap, tighten senior exemption rules, and study repeal of the contractor exemption for private projects while keeping it for public ones. It would also narrow nonprofit exemptions and revise the $750 long-term rental cap. The memo does not recommend a rate increase.

Residents have raised the cost of the existing rate in other forums. "with the 7% sales tax rate, we have a really high tax rate here in our community," Brenda Schwantes told the Kodiak Island Borough Assembly at a special meeting in October 2025, urging elected officials to look at ways to reduce the local tax burden.

Tuesday's session continues a review the council opened in May. Staff proposed a three month work plan on July 21 that would have spread the review across separate July, August and September sessions. The council instead chose to consolidate that material, and the memorandum brings together what would have been presented across all three. No ordinance is before the council, and work sessions take no formal action.

A draft ordinance is proposed for October review, with a first reading in November and a second reading and public hearing in December 2026. The cap change and code rewrite would take effect Jan. 1, 2027. Any change to the contractor exemption would take effect July 1, 2027.