Alaska Debates First State Sales Tax to Plug Big Budget Hole

Alaska is now considering a statewide sales tax, a move that would mark a significant shift in its approach to revenue generation.

The state stands apart from its peers—not just in geography, but in fiscal structure and economic realities. With a vast territory, much of it designated as national or public lands, Alaska faces challenges and opportunities that are distinct from other states.

The state is heavily reliant on oil and gas production and related taxes, which are inherently volatile. Tourism is its primary other significant economic sector. This leaves Alaska with limited options for achieving revenue stability and generating additional resources if desired.

Alaska has also ceded much of the taxation of alcohol, tobacco, and general sales taxes to local governments, further narrowing the state’s fiscal toolkit.

Close Deficit

Gov. Mike Dunleavy’s recent proposal for a variable, seasonal statewide sales tax—introduced as part of the 2027 budget—aims to address a projected $1.5 billion deficit for fiscal year 2026.

The plan would impose a 2% levy on most retail purchases year-round, increasing to 4% during peak tourism season. Designed as a targeted, time-limited measure, the tax would expire after seven years, with the expectation that state finances will stabilize in the interim.

The proposal also includes revisions to corporate income and oil production taxes, underscoring Alaska’s search for greater fiscal stability.

Significant hurdles remain before any final adoption. Alaska is the only no-sales-tax state that permits local governments to levy general sales taxes, and the governor’s plan would shift collection duties from local jurisdictions to the state Department of Revenue.

Local officials, including the Alaska Municipal League and the Alaska Remote Seller Sales Tax Commission, have expressed support for the concept of a statewide tax, but insist that local control over collections is essential. Other objections are also likely to arise as debate continues.

NOMAD States

While Alaska’s deliberations have prompted discussion, the states that don’t collect sales tax are unlikely to follow suit.

Most of the so-called NOMAD group—New Hampshire, Oregon, Montana, Alaska, and Delaware—are fiscally conservative and resistant to significant changes in their tax structures.

Several of them have expressed their distaste for a sales tax at the ballot box on one or more occasions.

Nevertheless, in Montana, where interest in substantial property tax reform runs high, the topic of a sales tax has also been broached. The University of Montana’s Bureau of Business and Economic Research, along with certain taxpayer groups, has initiated a statewide dialogue on a sales tax as a revenue option to aid property tax reform, but the conversation is exploratory rather than definitive.

The goal is to lay the groundwork for future discussions rather than to produce immediate policy shifts.

Underlying these debates are broader pressures, including reduced federal resources as well as continually rising property tax pressures.

In Montana, recent reforms have redistributed tax burdens, prompting calls for a comprehensive evaluation of the state’s tax structure. Yet any move toward a general sales tax would likely face strong opposition, particularly from groups concerned about regressivity of the tax system and the impact on lower-income residents.

For Alaska, the options are particularly constrained. With much of its territory unavailable for traditional development and taxation, an economy dominated by oil and natural gas production, and local governments already utilizing key revenue sources, the state has few alternatives.

Incremental measures—such as targeted tourism taxes, excise taxes, environmental fees, or expanded user charges—may offer some relief, but would likely be unable to provide the stability and predictability that policy makers seek.

When viewed more broadly, the question isn’t whether other NOMAD states will adopt new taxes, but how they, and other states, will respond to evolving fiscal pressures and competing demands for revenue.

Fiscal Stress

A number of other states are beginning to experience fiscal stress as continued modest economic growth, earlier state income tax reductions, and reduced federal funding for health care, food assistance and other services begin to become more visible.

Alaska’s proposal may serve as a catalyst for innovation or as a cautionary example. Montana’s ongoing dialogue may lead to further analysis of tax distribution and economic competitiveness. Ultimately, states are likely to continue seeking creative solutions within the constraints of their unique circumstances.

As Alaska, its fellow NOMADs, and states generally navigate these fiscal challenges, it will be instructive to observe how they balance tax policy, economic development, service provision, and administrative efficiency. The conversation is ongoing, and the outcomes remain uncertain—but the exploration itself is a valuable step toward more resilient fiscal strategies.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Aaron Balken is senior manager for state and local tax at KPMG in New York.

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