Establishing an Economic Nexus in Alaska with Nils Andreassen
Nils Andreassen is the current executive director of the Alaska Municipal League. He's also the former executive director of the Institute of the North.
Nils has a degree in peace and development from the University of Bradford in England. His background in rural and international development and in Alaskan and Arctic policy, fits very well within AML's mission which is to support and strengthen local governments.
Alaska has historically been known as one of those states without state level general sales tax. However, changes have been taking place following the Wayfair ruling with regards to the collection of sales tax on remote sales. Some local jurisdictions have already committed to establishing an economic nexus while others are yet to register. And as for Alaska, they’ve just established their economic nexus and sellers are in the process of understanding how this impacts their businesses.
Nils Andreassen, Executive Director of the Alaska Municipal League gets interviewed by Michael and Ellie on this episode of Sales Tax and More where they talk about the changing tax landscape within the state of Alaska. Nils talks about the establishment of an economic nexus in Alaska, what the Alaska Municipal League does, and how the economy of Alaska is holding up against the global drop of oil prices and the spread of the coronavirus. Stay tuned.
Here’s a glimpse of what you’ll learn:
What is the Alaska Municipal League and the current situation of sales tax in Alaska?
How the Alaska Municipal League established an economic nexus in Alaska
Are there penalties for sellers who do not comply with the changes in sales tax?
Why some local jurisdictions in Alaska are not willing to participate in tax collection
Are marketplaces going to be required to facilitate collection?
Effects of the current oil prices and coronavirus on Alaska's economy
Where to learn more about the Alaska Municipal League
Resources Mentioned in This Episode
Connect with Michael
Sponsor for This Episode
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Episode Transcript - Audio Version
[0:10] Intro: Welcome to Sales Tax and More, your go-to resource for all things state tax-related. Now, here's your host, Michael Fleming.
[0:26] Mike: Hi everyone, Mike Fleming here, founder of Sales Tax and More, and today's co-host of the Sales Tax and More Podcast, where we talk about everyone's favorite topic, which is of course sales tax. And today we're going to be discussing Alaska's economic nexus, brand new. And the Alaska Municipal League with now, Nils Anderson. But before we introduce you to today's guest, I want to introduce you to my co-host, Ellie Moffat. Ellie, you want to say hi?
[0:53] Ellie: Absolutely. Hi, everyone. It's great to be here. As always. I'll do a quick introduction for Sales Tax and More, and then we'll get started. It's gonna be a really great episode today. So Sales Tax and More. We are a full-service consulting and solutions firm. We have a really great team here of experienced tax professionals who are very dedicated to fulfilling your state tax and related needs. So we do a lot of returns, registrations, consultations, research and like our name states more. So if you have questions, please don't hesitate to reach out. We're happy to answer those for you. So, Mike, you want to take it from here?
[1:29] Mike: Sure. As I mentioned, today's guest is Nils Anderson, and Nils is the current executive director of the Alaska Municipal League. He's also the former executive director of the Institute of the North. He's got a degree in Peace and Development from the University of Bradford in England, and his background in rural and international development, Alaskan and Arctic policy fits very well within a AML's mission, which is to support and strengthen local governments. Nils currently lives in Juneau with his family, and Nils, we appreciate you sharing your knowledge today, you know , about what's happening in Alaska. And before we jump in, you want to say hi?
[2:09] Nils: Hi, good morning from Alaska. We're based here in Juneau. We've had either rain or snow for 53 days straight. So, glad to be talking about folks who are outside.
[2:22] Mike: Yeah, we, it's currently raining today, but not 53 days straight. We get a lot of sun here in Texas. So I don't know what I would do if I had 53 days, but I guess you get used to it after a while.
[2:36] Nils: We do, yep.
[2:38] Mike: Okay, so a lot going on in Alaska right now. You want to give us a brief overview of what's been happening and what exactly the AML is.
[2:49] Nils: Sure. So the Alaska Municipal League is similar to the city or county association found in other states. And so every other state has both, either a league of cities, or an association of city, and county association. And in Alaska, because we're different, we're, we're unique and having one organization that serves the needs both of cities and counties or, in Alaska's case, burrows. We have, we predate statehood, we’re more than 50 years old. Almost 70 at this point, but we have 165 members, so local governments across Alaska who belong to AML, and we respond to their needs.
[3:43] Mike: Okay. So, historically, you know, we think of Alaska is one of the Nomad states, those states that don't have a state-level general sales tax, and a is the, Alaska is the A in Nomad, but it's really Nomad no more at this point because the AML is come up with an economic nexus. You want to tell us a little bit about the economic nexus and in Alaska.
[4:15] Nils: And maybe I'll just preface it by saying that, you know, this has been forefront of local governments attention since Wayfair. We spent a year or more in negotiation with members about how to respond. And when it comes to nexus, our understanding of Wayfair is that once economic nexus is established in a state, it's a statewide test. Once that's been established, then local governments should be able to apply their taxing authority. At the same time, Wayfair called for streamlined, single-level, statewide administration, which means that 106 different taxing jurisdictions need to work together, and basically establish centralized administration. So with those kinds of principles in place, AMLs members came together, established a governance committee, and have basically set up a centralized administration for the collection of remote sales tax in Alaska. There's an intergovernmental agreement that commits them to cooperation. There's a commission that's formed through that agreement with a board of directors that sets the rules of the road for how to approach sales tax collection, and who passed a uniform code. So a single remote sales tax code that will apply to all jurisdictions who adopt it.
[5:54] Mike: Okay. And, if memory serves me correct, you're following South Dakota, with the hundred thousand dollars and 200, or 200 transaction threshold?
[6:06] Nils: Yeah. And clearly other states have approached it differently. Alaska, we felt comfortable with that criteria threshold for 100,000 in annual statewide gross sales, or 200 statewide transactions annually.
[6:26] Ellie: Nils, what about. . . oh, go ahead. Mike, did you have something you want to ask?
[6:29] Mike: No, no, no, by all means, Ellie.
[6:31] Ellie: Yeah, Nils, so you're talking a lot about what people need to do, what's changing., so what about the people who are not in compliance? Are there penalties?
[6:43] Nils: In terms of sellers who are non-compliant?
[6:46] Ellie: Yeah
[6:48] Nils: I think, so right now, this is a new process for Alaska. And I think not only are sellers coming to grips with this new reality of “Nomad no more,” but so are local jurisdictions. And so I think, you know, right now we're looking at, we passed the Uniform Code, January 6, the first jurisdiction adopted it February 3. We've had roughly 10 more since then and expect 30 in the next couple of months. So we're just gaining momentum here in Alaska in terms of local jurisdictions adopting the code. I think, right now, we have basically jurisdiction to represent the majority of sales tax collected in the state. Both passed the code. So we're just now in a place where we're ramping up communication out to seller saying - Hey, if you met this threshold last year, you should be registering and, and basically, the effective date for compliance should be April 1, with a 30-day effective period plus a grace period up to the next first of the month. So we're really want to be responsive to sellers who, for whom this is a new reality, and we want to work with them to become compliant. And when it comes to compliance, the Commission has audit authority and we're basically, you know, begin working to ensure compliance for those jurisdictions who have passed the code.
[8:24] Ellie: You know what jurisdictions are participating and which aren’t?
[8:29] Nils: Yeah right now, so out of 106, there's extensive in the numbers, who could be those first 30 are going to represent 87% of all sales tax collected on the state. And everybody else I think, it will take a lot more time. But the big ones I think for sellers to know about or are the top 10 Juneau, Kenai and Kenai cities, La Silla, Ketchikan is coming, Kodiak is coming, so there's kind of a top 10 in terms of who's collecting generally. We’ll have adopted the code. And we'll see when the compliance by April 1,
[9:14] Ellie: You’re really letting us grill you here and all of this information off the top of your head. I really appreciate it Nill. So okay, another question here. So recently Wasilla voted, they had two dissenting votes and it doesn't look like some of the other smaller jurisdictions will join right away. I can't imagine that there are companies voluntarily registering. What do you think local jurisdictions do not want to, why, I'm so sorry. Why do you think local jurisdictions do not want to participate or members of the council vote against it?
[9:51] Nils: Yeah, so I think there's a couple of things at work. So, one, there are communities that currently receive remote sales tax. That they're remote sellers who are collecting either voluntarily or who believe they have a physical nexus in the state. So there's definitely a group of municipalities who believe, you know, does this disturb, you know, what we're currently getting? How does this change what we're currently getting and does it negatively impact us in some way? Because there are fees associated with the Commission’s centralized administration. So they, they're weighing those, those costs and benefits. And I think overwhelmingly, we've seen communities understand that they're greater benefits to participation than not. I think for a lot of the smaller communities, it's a capacity issue. So one, it's, it's updating their current physical sales tax code, to be able to mirror and come to alignment with the uniform code. So there's a lot of work there, where those smaller communities just need to spend more time and updating their code and then adopting the uniform code. And then finally, there's, there are certainly members of councils and assemblies who see this as an additional tax or at least an increased level of taxation on residents. And while generally speaking, those who have adopted the code are doing so because it levels the playing field for businesses in their communities, Alaska is expensive, is an expensive place to live. And so, you know, for any additional tax that's collected, it's not remote sellers who are paying that tax. It's residents who are paying that tax. And I think council members are really cognizant of wanting to keep costs and keep goods and services affordable in Alaska.
[11:53] Mike: Okay, well, Nils, the, got a question about marketplaces. A lot of these states that have implemented economic nexus have also implemented, you know marketplace facilitative collection. Is that on the board here, are marketplaces going to be required to apply these economic nexus thresholds and begin collecting on behalf of third parties?
[12:19] Nils: Yeah, so the uniform code that's been adopted, treats marketplace facilitators as sellers and calls out specifically, both sellers and marketplace facilitators. So we've combined our approach in terms of remote sales and marketplaces and requiring that both register and begin collection. And we've had good discussions already with some of those marketplace facilitators, are encouraged by their intent to comply.
[12:54] Mike: Okay. Once a marketplace does comply, thresholds, a lot of states are excluding marketplace, sales from their thresholds. Other states are including that, any idea what Alaska is going to be doing, you're going to, you know, include those or exclude those once the marketplaces do start collecting?
[13:19] Nils: Yeah. So I think that I can check on this, but right now we include them and treat them similarly to a remote seller.
[13:28] Mike: Gotcha. All right. So what about registrations? A lot of states are saying, you know if you don't have any taxable sales in Alaska, or in their state, for example, if 100% of your sales are on a marketplace, and now that marketplace is collecting and remitting the tax on your behalf, do you still need to be registered in the state, or since you don't have any taxable sales is that okay not to register right?
[14:01] Nils: Good question. I think that for those, I think it's the marketplace that's registering. And so I can check, though and follow up with a better a cleaner answer for you, though.
[14:19] Mike: Great. Yeah, most states, you know, are not requiring registration. But there is a handful out there that still require registration, even though the marketplace is responsible for those sales.
[14:31] Nils: Right. And it just seems, I mean, one of the things that have been ever-present for the Commission is how do we reduce the undue burden on interstate commerce and on remote sellers and marketplaces. So it does seem like the, you know, the less cumbersome we can make this in terms of registration, the more simplified it can be, the cleaner and easier it'll be for sellers to participate. So that's the important piece for us.
[15:00] Mike: Yeah, absolutely. So Nils, is there anything that we haven't talked about that you think is important for our listeners to know about what's happening in Alaska right now?
[15:17] Nils: Yeah. I think that given, I don't know that everybody's familiar with the current fiscal condition within the state, certainly the state of Alaska, while it doesn't have a broad-based tax, it's struggling financially. And with current crises in place, both with oil prices dropping 25% and coronavirus, the state's really cognizant of how we're really asking ourselves - What do we need to do to move forward as a government. So broad-based taxes are out there, sales tax, I think statewide sales tax is for the easier for the legislature to pass than an income tax. And so there's that as a potential kind of big question mark for us, but for sellers and the state, generally. So there are ways that that works out just fine for us. Basically, the state could join the Commission and we could collect remote sales tax for it. But we're hopeful to be able to negotiate that pretty closely with the state and ensure that there's mutual benefit for both sides.
[16:32] Mike: Okay, well, thanks for sharing that and, you know, the coronavirus, everyone's been trying to get their arms around that, but this, this break-in oil prices that just came out of left field. So Nebraska, probably one of the hardest-hit states when it comes, to oil prices so understandable on all of that. Alright, so other than contacting us, we're going to be staying in close contact with you and gather information, you know, as it becomes available, but can listeners find out directly from you? Can they contact you directly? Or is there a website out there where they can get more information?
[17:15] Nils: Yeah, and so we've launched a website for the Commission, arsstc.org. And you'll find all the background information in terms of how we got to this point. There you'll find information for local governments, who were standing up and adopting the code and part of the Commission now, and I think most importantly, you'll find two additional websites, one where you can register and it can accommodate all the returns and remittance, and then a second is the tax lookup map. So this will be for as jurisdiction adopt a code, we’ll make sure that their rates, their exemptions are all correct. That sellers have access to that API code if they need that to plug into their software, basically everything sellers will need to comply is right now on that website.
[18:14] Mike: That’s great, and, you know, with your permission, when we release this podcast, we'd like to make those links available when we put it out there.
[18:24] Nils: Perfect. Yeah. And do feel free to contact us. Our team is answering a ton of questions right now. And really, that's what we're here for. We do this as a partnership. We want to make sure that sellers can make this work, and we want to make sure it works for local governments. So contact us and let us know if you have questions or need us to troubleshoot anything.
[18:45] Mike: And we'll have to think up a new saying for the Nomad states, because it's not Nomad, it's Nomad no more. So we'll have to
[18:56] Nils: The only thing I can think of is Monde or something, but that doesn't sound very, very . . .
[19:01] Mike: Not very pleasant at all. Well, Nils, it's been great, thank you very much for sharing the information. This is something that is very new. April first is going to be the effective date based upon what you're saying, and we're going to be talking to our clients into our listeners about this on a going-forward basis. So thank you again for showing up, and always remember if you have any other sales tax needs any other questions, you know, our website is a great source. And we offer a lot of services that you can access through the website also. And thanks for listening to this episode of the Sales Tax and More podcasts. We hope to see you next week.
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