Haines sales tax dispute with Tlingit & Haida heads to court

The Haines Borough Administration Building, March 3, 2025. (Will Steinfeld/Chilkat Valley News)

By Will Steinfeld

Chilkat Valley News

Mayor Tom Morphet will meet with Central Council of Tlingit & Haida Indian Tribes of Alaska President Chalyee Éesh Richard Peterson this week about a dispute that has the borough and tribe headed to a hearing in Alaska Small Claims Court. 

The stakes, at least in court, are relatively small: roughly $7,500 in sales tax that the Haines Borough says was collected at a Tlingit & Haida short-term rental business on Lutak Road, but not paid to the borough.

But at the heart of the conflict is a broader question, of whether the federally recognized tribal government should be required to collect sales tax at all, in a borough where federal, state and foreign governments — and non-profits as well — are not required to. 

The tribe says that question is easy to answer. In a recent letter to Morphet, Peterson presented an exemption as a straightforward path toward basic fairness and respect for the tribe’s contributions to services in the borough. 

But borough officials and staff have shown little indication they might move on the issue, arguing the entire question of sales-tax exemptions is anything but straightforward.

The issue has come up most recently in Haines with respect to local non-profits, which are largely exempt from collecting the tax. 

To many in town, that has a coherent logic: “Everything we raise has to go back either into maintaining the legion, or into the community, and it does,” American Legion vice-commander Brandon Wilks said last week, speaking specifically about the organization’s Friday burger feed. Taxing volunteer-driven, community-service oriented efforts, Wilks argued, would decrease the amount spent by customers, cutting into the impact of the fundraising. 

That’s part of the argument Tlingit & Haida has made, that the borough should avoid dipping into funds that are being passed from sales back into community services. 

With his letter to Morphet, Peterson laid out a long list of services, potentially funded in part by the tribe’s businesses, that benefit Haines residents, including childcare development, job placement and training, temporary assistance for needy families and emergency support and management.

As it stands, non-profits are largely exempt from sales tax in Haines, while the tribe is not, even though both provide community services.

But even if Tlingit & Haida was taxed like a non-profit, it’s not clear that a short-term rental business would be exempt. In borough code, the non-profit exemption applies only to income that would also be exempted by the federal Internal Revenue Service, or IRS. 

According to IRS regulations, otherwise-exempt organizations are taxed on income that is not “substantially related” to the core purpose of the organization. 

What, exactly, the boundaries of that category are can be a “gray area,” borough finance director Jila Stuart said. 

Just because a sale produces funds for an organization doesn’t mean it’s “substantially related” to the core purpose of the organization. 

For instance, burger feed sales would not qualify for an IRS exemption just because they go to the legion, which then uses them for the benefit of the community. 

But the weekly event “promotes fellowship and community,” as Wilks put it, which he described as a core part of the legion’s mission. That aspect could qualify the sales for an exemption. 

Digging through the IRS regulations behind borough code reveal an arcane maze of nested exemptions, and exemptions to the exemptions. 

Even written in is a “statutory bingo exclusion,” shielding bingo proceeds from taxation so long as the game meets the official government definition of bingo. 

But the upshot, or at least the original purpose of the arcane IRS code, is more simple: the regulations were introduced in 1950 specifically to prevent non-profits from competing with for-profit businesses. 

In other words, it’s meant to avoid a tax-exempt organization providing the same service as a for-profit business, but with the competitive advantage of a tax-exemption. 

The idea that the type of sale — a competitive sale — is relevant in addition to the type of seller, is a position borough officials have pointed to in discussions about the Tlingit & Haida issue. 

At a commerce committee meeting earlier this month, Stuart and manager Alekka Fullerton used the Haines Sheldon Museum as a reference point for taxing the tribe’s rental business. 

The museum pays sales tax on gift shop sales, Stuart and Fullerton said, because some of their gift shop items compete with items sold in other Main Street shops. 

According to borough code, items in the gift shop that are directly related to the museum’s collection could be exempted, Stuart said. But items water bottles, general Haines items and souvenirs, could not be. 

By the same token, Fullerton argued, Tlingit & Haida’s vacation rental should collect tax, to even the playing field with AirBnB’s elsewhere in town. 

“There is really no reason Tlingit & Haida is not paying taxes on their vacation rental,” Fullerton said. “It has nothing to do with their mission. On the other hand, if it was something that was directly related to their mission, maybe they wouldn’t have to pay sales tax.”

Borough officials also say assessing the tax shouldn’t be seen as a slight against organizations, their volunteers, or their services. 

That’s because sales tax, the borough’s staff argues, is a tax on the buyer, not the seller. 

“The sales tax is designed to be a consumer tax,” Stuart said. “The seller has to collect it and remit it, so there’s an administrative burden on the seller, but it’s not a tax on the seller.”

Morphet delivered the same message. His statements did come with a caveat, that he sees sales taxes in general as “terrible,” describing them as “bad for business and bad for working-class people.” 

But in the absence of other revenue streams for the borough, or raising property taxes, he argued taxes have to be collected, and collected fairly; to him, that means it should be collected on Tlingit & Haida’s rentals, the legion’s burger feed, and all sales in competition with other businesses. 

While discussion among borough officials has thus far centered largely around non-profits, Tlingit & Haida is definitively not a non-profit. The tribe is a sovereign governmental entity, and tribal governments are the only type of government entity not currently exempt in borough code. 

That’s significant, because while Morphet and others have argued the type of sale is most relevant for determining exemptions, the exemptions in code for governments don’t distinguish between different types of sales — only the government status of the seller.

Changing code to include tribal governments in the list would “properly place tribal governments on equal footing with virtually all other government entities under the Code,” Tlingit & Haida president Peterson wrote in his letter.

Peterson has argued for a pause to litigation while discussions about that code change take place. 

Assembly members, who hold the power to make the code change, have been hesitant to take action. They first sent the topic to the commerce committee for further discussion. Once it went to the commerce committee, assembly members Cheryl Stickler and Richard Clement said the topic would be more appropriate for Morphet to first negotiate with the tribe, rather than assembly members. Stickler called it “a conversation that needs to happen at the executive level.” 

Borough staff have simultaneously chosen not to pause the court proceedings, saying they are following borough code for collecting unpaid sales tax. According to that code, court claims are filed only after three months’ delinquency.

The two parties are currently waiting on a court date, which borough sales tax specialist Jessie Badger says will likely only be decided about  a month from now. 

The tribe plans to fight the court claim, with Peterson writing that “Tlingit & Haida is fully prepared to defend against Haines’ purported authority to tax a tribal business on an Alaska Native allotment.”

Meanwhile, Morphet says he’s keeping an open mind going into this week’s meeting. 

“I’ll be interested to know what they have to say,” Morphet said. “They do a lot of development in our community. And the community is the beneficiary of the money it brings to its tribal members.” 

But still, he’s inclined to reduce the number of exemptions, not increase them. 

And by all indications, borough staff and elected officials are on board with continuing to tax the tribe’s businesses. 

• This article was originally published by the Chilkat Valley News.