Alaska automates tax collection from out-of-state sales

Forty-five of the 165 members of the Alaska Municipal League (AML) are using a single online portal to manage sales tax collection, helping them save time and resources.

The move is in response to a 2018 Supreme Court decision known as the Wayfair ruling that said that states may charge sales tax on purchases made from out-of-state sellers. Although Alaska doesn’t levy a sales tax, 106 municipalities and boroughs do, and after Wayfair they all needed to use one tax code.

“Our members were really kind of stuck without a state to respond to the implications and outcomes from that decision,” said Nils Andreassen, AML’s executive director. They needed “a uniform code of some sort, which at the state level, is just the state sales tax code or laws. For Alaska, with 100-plus different sales tax codes, it meant we had to come to one.”

The Alaska Remote Sellers Sales Tax Commission produced that uniform code in 2019 for all members to use and put in place the associated governance. Then AML contracted with GovOS, a government digital transformation company, to use automated tax collection technology developed by MUNIRevs/LODGINGRevs, which GovOS acquired in August 2021.

The technology serves as a system of record that a municipality can use for businesses to remit taxes. “In [AML’s] case, we have a single filing interface on top of that technology, so when a business goes to file – in the case of Alaska with 100 different jurisdictions individually – they can do a single upload and remit and declare their gross sales and all their exemptions,” said Erin Neer, chief strategy officer at GovOS and founder of MUNIRevs/LODGINGRevs. “Then we calculate how much is due to each one of those jurisdictions, and then they can make a single payment,” she said.  “It really takes it from the business needing to do those multiple filings into truly a single filing experience.”

The software uses GIS coordinates to determine a buyer’s address. If they are within an AML member jurisdiction, it then correlates to a tax rate, if the item is not exempt. Next, the commission’s unified code finds the rate, the buyer pays the sales tax at checkout, the seller collects it and then reports to the commission each month how much it collected.

Initially only 14 jurisdictions signed on to use the portal. Today, 45 use it and about 2,400 sellers are registered. This last fiscal year, the commission collected “around $17 million, and we might be on track for gross tax revenue of $20 million in this next,” Andreassen said.

The system is particularly useful to smaller jurisdictions that may have limited staff resources.

“It’s an equitable way to do sales tax collection,” Andreassen said. “For as sophisticated a system as we have, we’ve made it really easy for local government and officials, for staff, to utilize it and know that it has some confidence in it being right and knowing that that revenue is coming in on a regular basis.”

“We’re constantly evaluating how efficiently and effectively the system is working not just for our members and jurisdictions, but for sellers,” Neer added. “We do have a review process to establish the criteria to make any changes or enhancements that we want to make to the system, and then obviously there’s development time, but we also have a user acceptance process, too…. We want to make sure that we are all involved together from start to acceptance and actually pushing it live for the users.”

Updates since the system went live in March 2020 include reporting changes as more data becomes available and an amendment module that lets businesses make corrections after realizing they made a mistake. Currently, GovOS is reviewing audit functionality for AML to ensure that businesses are in compliance.

The timing of the implementation was fortuitous, Andreassen said. AML members reported that they couldn’t have gotten through the economic crisis associated with the pandemic without this additional layer of revenue. “While everything was shut down, remote sales were still occurring, and this meant that municipal government could keep functioning without really dramatic cuts,” he said. 

Although Alaska’s sales tax structure is unique, other government entities are using similar technology. For instance, Colorado’s Department of Revenue uses it, and GovOS is reaching out to other states. 

Last month, Boone County, Kentucky, announced the launch of a joint occupational tax filing and business licensing portal, powered by GovOS. With self-service functions, businesses have round-the-clock access to complete tax filings, and the system automatically calculates the amount due. Those taxes represent more than half of the county’s general fund budget.

In Alaska, AML is looking next at how to expand the system to lodging taxes, which Neer said is really a national opportunity because more than 2,000 jurisdictions administer a lodging tax. Several places – Utah, Vermont and Salida, Colorado – are using GovOS’ Short-Term Rental solution, which includes identification, registration and tax collection services.

Stephanie Kanowitz is a freelance writer based in northern Virginia.

Editor's note: This story was changed Sept. 15 to clarify GovOS customers.