Legislature(2013 - 2014)HOUSE FINANCE 519

02/27/2014 01:30 PM FINANCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Recessed to a Call of the Chair on 2/28/14 --
Heard & Held
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
Moved HCS SSSB 49(FIN) Out of Committee
HOUSE BILL NO. 204                                                                                                            
     "An Act relating to a product development tax credit                                                                       
     for certain salmon and herring products; and providing                                                                     
     for an effective date."                                                                                                    
Representative   Costello  MOVED   to  ADOPT   the  proposed                                                                    
committee  substitute for  HB  204,  Work Draft  28-LS0463\P                                                                    
(Bullard, 2/24/14).                                                                                                             
Co-Chair Stoltze OBJECTED for discussion.                                                                                       
DANIEL   GEORGE,   STAFF,   REPRESENTATIVE   BILL   STOLTZE,                                                                    
discussed the two  changes included in the CS.  Prior to the                                                                    
word "herring" on  pages 1 and 2, line 12  the word "or" was                                                                    
replaced with "and."                                                                                                            
There being NO further OBJECTION, the CS was ADOPTED.                                                                           
2:26:36 PM                                                                                                                    
REPRESENTATIVE ALAN  AUSTERMAN, SPONSOR, discussed  that the                                                                    
credit for  salmon would  sunset in 2015.  He stated  that a                                                                    
number  of  changes  within the  industry  had  precipitated                                                                    
action in the current year;  an issue related to herring was                                                                    
a part of  the change. The tax credit had  been in place for                                                                    
10 years and  had enabled the salmon industry  to market new                                                                    
products to  compete in the  marketplace. He shared  that 10                                                                    
years  earlier the  cost of  pink  salmon had  been dire  at                                                                    
prices  of $0.05  to $0.07  per pound.  The tax  credits had                                                                    
done  their  job  and prices  had  improved  for  fishermen;                                                                    
markets  had   increased  providing  more  places   to  sell                                                                    
product.  Additionally,  there  were different  products  to                                                                    
sell.  He detailed  that to  expand  the commercial  seafood                                                                    
industry in Alaska the bill  would add herring and would add                                                                    
value-added products  that could  be created from  the waste                                                                    
stream currently going  into the ocean, dumps  or other. The                                                                    
concept was that  by adding the two items  new markets would                                                                    
be created.                                                                                                                     
Co-Chair Austerman explained that  the bill would expand the                                                                    
salmon  credit  to  include herring  and  the  underutilized                                                                    
fisheries  where significant  waste  occurred. He  discussed                                                                    
that in  the past couple  of years  there had been  money in                                                                    
the state budget for the  Alaska Seafood Marketing Institute                                                                    
(ASMI) to  market herring.  He pointed to  a can  of herring                                                                    
canned by ASMI. The organization  had been able to show that                                                                    
the world  food aid  market was buying  protein in  the U.S.                                                                    
for  global  distribution. When  efforts  began  in 2004  to                                                                    
determine how new  markets could be created,  the tax credit                                                                    
was one step and the other  had been to hire someone to look                                                                    
at  the  different  marketplaces where  no  salmon  existed.                                                                    
There had  been zero cases of  salmon in the world  food aid                                                                    
2:30:00 PM                                                                                                                    
Co-Chair  Austerman   continued  that  the  U.S.   had  been                                                                    
purchasing soy and  corn [back in 2004], but  no protein had                                                                    
been included.  He shared  that in  recent years  there were                                                                    
over  400,000  cases  of  salmon going  into  the  food  aid                                                                    
marketplace, which  created a place  for pricing  salmon and                                                                    
improved things  for the fishermen and  processors involved.                                                                    
He believed the same could  be done for herring. He detailed                                                                    
that  in  the past  couple  of  years  ASMI staff  had  been                                                                    
selling the  product. The reception  had been strong  and it                                                                    
looked   like  the   demand   existed.   He  addressed   the                                                                    
underutilized waste  of salmon and herring.  He communicated                                                                    
that  ASMI  had  been  purchasing wasted  fish  product  and                                                                    
turning it into a high  grade food protein powder that could                                                                    
be used to  mix with rice, soybeans, and  other. The product                                                                    
could help around shipping cost issues.                                                                                         
Co-Chair Austerman  addressed other reasons to  get into the                                                                    
dried protein  powder business. He anticipated  that at some                                                                    
point  100 percent  of retention  would be  required of  all                                                                    
fisheries in  Alaska (similar to  the current  occurrence in                                                                    
the European Union). He detailed  that it would be necessary                                                                    
to have a way of handling  the waste stream that came ashore                                                                    
instead of throwing the product  away or turning it into pet                                                                    
food; a  higher value  to the  product was  anticipated that                                                                    
could  allow  the industry  to  grow.  He had  learned  that                                                                    
within  the  next  few years  the  Environmental  Protection                                                                    
Agency (EPA) would  no longer allow grinding  of product and                                                                    
dumping into  the ocean. He  detailed that given  the change                                                                    
it would  become expensive  for the  industry to  handle the                                                                    
waste product;  if a higher  value for the product  could be                                                                    
determined it would become less costly to the industry.                                                                         
2:33:07 PM                                                                                                                    
Representative Edgmon asked to hear public testimony.                                                                           
Co-Chair Stoltze asked for a definition of cans.                                                                                
Co-Chair Austerman  deferred the question to  the department                                                                    
for detail  on a  definition. The bill  would also  give the                                                                    
industry the option  to change the size of its  cans. In the                                                                    
past  the  legislation had  allowed  the  industry to  begin                                                                    
using pop-tops; however, the industry  did not like pop-tops                                                                    
due to  the shelf-life. The  goal was to allow  the industry                                                                    
to be able to change the size of the can.                                                                                       
2:34:39 PM                                                                                                                    
JEFF  BACKLUND,  VICE  PRESIDENT,  NORTH  PACIFIC  SEAFOODS,                                                                    
spoke in  support of  the bill. He  shared that  the company                                                                    
had  five facilities  in salmon  producing  areas in  Alaska                                                                    
including  Alaska Pacific  Seafoods in  Kodiak; Sitka  Sound                                                                    
Seafoods; and  three plants in Bristol  Bay including Togiak                                                                    
Fisheries,  Peterson  Point,  and  Red  Salmon  Cannery.  He                                                                    
discussed that  in 2013  the company  had processed  over 50                                                                    
million pounds  of salmon. Since the  program's inception it                                                                    
had used the  salmon tax credit for  production changes that                                                                    
had allowed the  business to reach new  markets and increase                                                                    
the quality  of the  salmon items  it produced.  The company                                                                    
had added  vacuum packed fillet  capacity to  two operations                                                                    
and  was  in  the  process  of adding  it  to  a  third.  He                                                                    
communicated  that  ice-making  capacity  was  an  important                                                                    
component  to  maintain product  quality  and  was a  needed                                                                    
addition  to the  past reauthorization  of  the program.  He                                                                    
relayed that  the tax  credits had  helped the  company meet                                                                    
changing market demands and  to maintain high-quality salmon                                                                    
products  to  benefit  all  segments   of  the  value  chain                                                                    
including harvesters,  processors, and  coastal communities.                                                                    
He shared that the continuation  of the program provided the                                                                    
company  with  the  certainty   needed  for  planning  major                                                                    
projects and  the flexibility to respond  to market changes.                                                                    
The company  planned to utilize  the worthwhile  program. He                                                                    
urged  the   legislature  to   extend  the   salmon  product                                                                    
development tax credit.                                                                                                         
Representative  Gara wondered  why pre-spiced  frozen salmon                                                                    
products  were not  available in  stores. He  believed there                                                                    
would be  a demand for  the products. Mr.  Backlund answered                                                                    
that there  were many changes  occurring in  the marketplace                                                                    
pertaining to  how companies were approaching  the issue. He                                                                    
noted  that there  had  been  a big  shift  from headed  and                                                                    
gutted and some  canned to fillet production.  He thought it                                                                    
may be the next shift.                                                                                                          
Representative Gara offered it as a suggestion.                                                                                 
Vice-Chair Neuman asked  if the company used  the credits to                                                                    
reduce its corporate tax credits  to the state. Mr. Backlund                                                                    
responded  that the  credits  offset  capital investment  in                                                                    
changing product  forms. For example,  part of the  tax paid                                                                    
by a company  could be used as a credit  toward investing in                                                                    
processing fish beyond headed and gutted in a fillet line.                                                                      
2:39:00 PM                                                                                                                    
Vice-Chair Neuman  pointed to Section  5 of  the legislation                                                                    
and  wondered how  the credits  were claimed  each year.  He                                                                    
observed  that the  credits changed  from year  to year.  He                                                                    
discussed  claiming  credits  for  capital  investments  and                                                                    
noted   that  the   bill  offered   incentive  to   purchase                                                                    
equipment. He wondered whether there  would be a point where                                                                    
doubling up  could occur. For  example, new  equipment could                                                                    
be used for  processing herring and other items  as well. He                                                                    
asked about paying revenue.                                                                                                     
Mr.  Backlund replied  that the  administration  of the  tax                                                                    
credit went through the  company's accounting department. He                                                                    
understood  that there  was a  pre-application process  with                                                                    
the Department of Revenue (DOR);  the department provided an                                                                    
indication  of  which  items  would  qualify  based  on  the                                                                    
submitted project.  He believed  it was for  new production,                                                                    
not for replacement of existing equipment.                                                                                      
Co-Chair  Stoltze  asked  if the  company  was  involved  in                                                                    
financially supporting a law suit  involving the United Cook                                                                    
Inlet  Drift  Association  and the  Cook  Inlet  Fishermen's                                                                    
Mr. Backlund did not know.                                                                                                      
2:41:25 PM                                                                                                                    
SINCLAIR  WILT,   VICE  PRESIDENT,  WESTWARD   SEAFOODS  and                                                                    
GENERAL MANAGER,  ALYESKA SEAFOODS, spoke in  support of the                                                                    
legislation. The  companies had  two plants in  Dutch Harbor                                                                    
and one in Kodiak; the Kodiak  plant was the one involved in                                                                    
the  salmon  business. He  shared  that  the companies  were                                                                    
members of  the Pacific Seafood Processors'  Association. He                                                                    
referred  to a  letter of  support  he had  provided to  the                                                                    
committee (copy  on file). He  communicated that  the Kodiak                                                                    
plant had been a beneficiary  of the program in prior years.                                                                    
He  relayed that  the program  was a  valuable incentive  to                                                                    
encourage innovation  and new  product opportunities  and in                                                                    
dealing  with waste  products.  He shared  that  one of  the                                                                    
Dutch  Harbor plants  had been  working with  an alternative                                                                    
use of Pollock skins by converting it into collagen.                                                                            
Co-Chair  Stoltze  asked  if the  company  was  involved  in                                                                    
financially supporting a law suit  involving the United Cook                                                                    
Inlet  Drift  Association  and the  Cook  Inlet  Fishermen's                                                                    
Fund. Mr.  Wilt replied  that the  company had  not provided                                                                    
any funds to the organizations.                                                                                                 
Representative Gara  asked about the law  suit referenced by                                                                    
Co-Chair Stoltze.  Co-Chair Stoltze  explained that  the law                                                                    
suit was seeking  to bring federal management  into the Cook                                                                    
Inlet  region. The  suit  had been  brought  forward by  the                                                                    
United  Cook  Inlet Drift  Association  and  the Cook  Inlet                                                                    
Fishermen's Fund.  He stated that the  groups had previously                                                                    
attempted to eliminate dip net fisheries.                                                                                       
Representative  Gara  asked  if   the  company  sold  canned                                                                    
salmon. Mr. Wilt replied in the negative.                                                                                       
2:45:07 PM                                                                                                                    
VINCE  O'SHEA, VICE  PRESIDENT,  PACIFIC SEAFOOD  PROCESSORS                                                                    
ASSOCIATION (PSPA), spoke in support  of the legislation. He                                                                    
shared that  PSPA members operated 18  plants that processed                                                                    
salmon throughout  the state from Ketchikan  to Bristol Bay.                                                                    
He  believed  the   bill  had  a  proven   track  record  of                                                                    
increasing  the  value of  the  salmon  pack in  Alaska.  He                                                                    
remarked that great  progress had been made  since the early                                                                    
2000s when salmon  prices had been in the  single digits. He                                                                    
communicated  that the  program had  evolved over  time; the                                                                    
current bill added provisions for  centrifuges to make food-                                                                    
grade fish  oil, which was  currently a  significant market.                                                                    
Ice  machines had  been added  to the  legislation in  2010,                                                                    
which  had  gone far  to  improve  the  quality of  fish  in                                                                    
Bristol Bay.  He believed the program  benefited harvesters,                                                                    
processors,   fishermen,   communities,  and   Alaskans   in                                                                    
general.  The  program expired  in  2015,  but it  would  be                                                                    
beneficial  to renew  it in  the current  year to  allow for                                                                    
budget planning.  He believed the five-year  period provided                                                                    
assurance  that the  state was  encouraging the  industry to                                                                    
respond quickly  to market and technology  developments that                                                                    
may evolve.                                                                                                                     
2:48:04 PM                                                                                                                    
Co-Chair  Stoltze  asked  if the  company  was  involved  in                                                                    
financially supporting a law suit  involving the United Cook                                                                    
Inlet  Drift  Association  and the  Cook  Inlet  Fishermen's                                                                    
Fund. Mr.  O'Shea replied that  the company did  not provide                                                                    
any funds to the law suit.                                                                                                      
Representative Gara  wanted to  see Alaska's salmon  make as                                                                    
much  money  for  the  state's  fishermen  as  possible.  He                                                                    
remarked that fresh pink salmon  was less expensive than red                                                                    
or  king;  he  wondered  why  it  was  not  sold  in  Alaska                                                                    
supermarkets. He asked  why salmon was not  marketed as pre-                                                                    
spiced.  He discussed  that New  Zealand sold  a variety  of                                                                    
spiced tuna (e.g. curry, lemon,  garlic, and other) that was                                                                    
easy  and  convenient  to  eat.   He  wondered  about  doing                                                                    
something  similar with  canned salmon.  He wondered  if the                                                                    
issues were  worth looking into.  He noted that  canned pink                                                                    
and red salmon would bring in a limited amount of money.                                                                        
Mr.  O'Shea  answered  that  he   was  not  a  marketing  or                                                                    
promotional  person. He  pointed  to  frozen salmon  burgers                                                                    
sold  at a  local retail  store that  were made  with spiced                                                                    
pink and  keta salmon. He  believed the product  was cheaper                                                                    
than  hamburgers. He  would be  happy to  get back  with the                                                                    
committee about  the food ready  pouch products  the company                                                                    
was making. He stated that  an overall trend existed to move                                                                    
from  canned products  to fresh/frozen  fillets. The  shelf-                                                                    
life of canned  salmon was terrific. He  believed the advice                                                                    
to look for a variety of product forms was good.                                                                                
2:51:20 PM                                                                                                                    
Representative Guttenberg had traveled  to Japan in the past                                                                    
and had  visited a  fish market in  Tokyo. He  recalled that                                                                    
all parts of  the fish were marketed there. He  asked if the                                                                    
association  was  receiving  any  pushback  on  wild  Alaska                                                                    
salmon  related  to  the  Fukushima  nuclear  disaster.  Mr.                                                                    
O'Shea replied  in the negative.  He believed the  issue was                                                                    
on ASMI's radar  related to protecting the  Alaska brand. He                                                                    
remarked  on  the  difficulty of  the  question  because  it                                                                    
related to  how hard to  push back  or how much  to continue                                                                    
the story depending on credibility.  He detailed that from a                                                                    
science standpoint the evidence  was clear that the disaster                                                                    
did  not  have  an  effect   on  Alaskan  products.  He  was                                                                    
confident that ASMI was watching  Japanese and other foreign                                                                    
markets to  ensure the Alaska  brand remained  respected for                                                                    
its high quality.                                                                                                               
2:53:17 PM                                                                                                                    
Co-Chair  Austerman  believed  some Alaskan  salmon  fishing                                                                    
industry 101 was  needed to ensure everyone was  on the same                                                                    
page.  He discussed  various ways  salmon  had been  handled                                                                    
historically.  He  detailed  that   in  2003  and  2004  the                                                                    
industry had been bleak in  Alaska; the state had been doing                                                                    
nothing  but cans  due to  the marketplace.  He stated  that                                                                    
many  different  products  existed.  There  was  significant                                                                    
research  underway by  major processors  to  find the  right                                                                    
niche  for  salmon  products.  He  listed  various  products                                                                    
including salmon  burgers, pouched spiced salmon,  and dried                                                                    
TOM SUNDERLAND,  VICE PRESIDENT  OF MARKETING,  OCEAN BEAUTY                                                                    
SEAFOODS   (via    teleconference),   provided    a   market                                                                    
perspective  on  the  legislation.   He  believed  the  most                                                                    
important  measure  was  the   gauge  of  effectiveness.  He                                                                    
discussed the success of the  tax credit program and pointed                                                                    
to testimony related to the  much improved price of fish. He                                                                    
discussed  that the  fishing industry  in  Alaska needed  to                                                                    
determine a way to defend  its gains. Currently the industry                                                                    
products  were  facing  severe market  price  pressure.  The                                                                    
pressure  was distressing  because maximum  value should  be                                                                    
returned to  Alaska; however,  some customers  were relaying                                                                    
that  the  product price  points  were  not sustainable.  He                                                                    
addressed  different  ways  to  approach  the  problem.  For                                                                    
example, the  bill gave  the ability to  reduce the  size of                                                                    
the can.  He noted that  other industries used  the strategy                                                                    
when  prices  rose.  He   continued  that  consumers  bought                                                                    
packaged goods by shelf price, not  by the pound as they did                                                                    
a side  of salmon or  other commodities. He  provided cereal                                                                    
boxes as an example. He  detailed that the tuna industry had                                                                    
reduced the  size of  cans almost  exclusively to  5 ounces;                                                                    
other locations  such as  Australia sold  tuna in  3.3 ounce                                                                    
cans. He  continued that  it was  more difficult  for Alaska                                                                    
fisheries  due to  the  seasonal and  remote  nature of  the                                                                    
Mr.  Sunderland continued  that  the reduction  in can  size                                                                    
would  enable  the  industry  to respond  to  the  issue  of                                                                    
absolute  price.  He  stated that  it  was  unreasonable  to                                                                    
expect  consumers to  always  accept a  higher  price for  a                                                                    
product.  He shared  that  a tall  Bumblebee  tuna can  cost                                                                    
$10.39  in a  Seattle,  Washington  supermarket ($11.28  per                                                                    
pound). He  believed a can  of tuna  that size for  the cost                                                                    
would not sell easily. He  stressed that without the ability                                                                    
to reduce can  size the company would have  a severe problem                                                                    
maintaining the  value of its product.  He discussed fishery                                                                    
byproduct utilization. Currently when  product was canned or                                                                    
filleted  much of  the fish  was  ground and  dumped for  no                                                                    
2:59:18 PM                                                                                                                    
Mr.  Sunderland communicated  that value  would increase  by                                                                    
turning  the portion  of the  fish  that was  not used  into                                                                    
saleable product.  There were  some small operations running                                                                    
related  to  fish  oil;  however,  there  was  a  tremendous                                                                    
untapped resource. Both of the  items [reduction in can size                                                                    
and  byproduct  usage]  had  a  significant  impact  on  the                                                                    
ability to  protect gains  made over the  past 10  years. He                                                                    
discussed the  EPA's plan to  change regulations  related to                                                                    
remote  discharge of  fish waste.  He believed  it could  be                                                                    
beneficial to show  the EPA that the industry  in Alaska was                                                                    
working to  eliminate waste. He summarized  that the company                                                                    
was facing  severe market  pressure to act  on the  items he                                                                    
had discussed.  He relayed  that the  bill would  enable the                                                                    
company to  act on the  items in ways that  were responsible                                                                    
to  the fishermen  and coastal  communities of  Alaska while                                                                    
maintaining product value.                                                                                                      
Co-Chair Stoltze  recognized that Ocean Beauty  Seafoods was                                                                    
a great Alaskan company.                                                                                                        
3:00:53 PM                                                                                                                    
Representative Edgmon  thanked Mr. Sunderland for  hosting a                                                                    
seafood event in  Juneau over recent years.  He believed the                                                                    
event  helped  to  educate  legislators  on  the  commercial                                                                    
fishing  industry  and  its contributions.  He  asked  about                                                                    
value-added products including sauces, spices, and other.                                                                       
Mr.  Sunderland answered  that there  had been  considerable                                                                    
growth of  the sauces and  spices product type. Most  of the                                                                    
products  were done  by retailers  under  their own  private                                                                    
label products.  He listed various retailers  with their own                                                                    
brand including Whole Foods,  Trader Joe's, Kroger, Safeway,                                                                    
and other. He added that  Ocean Beauty Seafoods made many of                                                                    
the products.  However, plain portioned product  always sold                                                                    
better than flavored product.  He communicated that globally                                                                    
the bestselling  products tended  to include  sauces, pasta,                                                                    
or  vegetables;  however,  the products  almost  universally                                                                    
failed to succeed  in the U.S. He noted that  there had been                                                                    
some successes  including a  pouched product  from Thailand.                                                                    
He pointed  to more success  related to flavored  and sauced                                                                    
frozen products.                                                                                                                
Co-Chair  Stoltze  asked  if the  company  was  involved  in                                                                    
financially supporting a law suit  involving the United Cook                                                                    
Inlet  Drift  Association  and the  Cook  Inlet  Fishermen's                                                                    
Fund. Mr.  Sunderland did  not believe  so but  would double                                                                    
3:04:06 PM                                                                                                                    
Vice-Chair Neuman  rephrased his prior question.  He pointed                                                                    
to  Section  5  of  the legislation  and  wondered  how  the                                                                    
credits  were  claimed  each  year.  He  observed  that  the                                                                    
credits decreased  from year  to year.  He thought  the bill                                                                    
would enable a processing facility  to replace almost all of                                                                    
its  equipment. He  mentioned the  inclusion of  both salmon                                                                    
and herring.                                                                                                                    
TIM  COTTONGIM,  FISH  GROUP, TAX  DIVISION,  DEPARTMENT  OF                                                                    
REVENUE, replied that  the credit would allow  a facility to                                                                    
replace  old equipment  as long  as the  qualifications were                                                                    
Vice-Chair  Neuman asked  if the  state would  pay up  to 50                                                                    
percent of the  costs or 100 percent in the  first year. Mr.                                                                    
Cottongim  explained  that  50   percent  of  an  investment                                                                    
qualified  for a  credit. Under  the legislation  the credit                                                                    
was limited annually to 50 percent  of the tax on salmon and                                                                    
herring.  The  remaining  credit could  be  carried  forward                                                                    
three additional  years to  be offset  against the  taxes on                                                                    
salmon and herring.                                                                                                             
Vice-Chair Neuman  asked for  verification that  the credits                                                                    
were  not  transferrable.  Mr.   Cottongim  replied  in  the                                                                    
3:08:03 PM                                                                                                                    
Representative Gara  was supportive  of the concept.  He was                                                                    
interested in the  state's total gross tax on  fish and what                                                                    
the state was  left with after tax credits  were factored in                                                                    
for  the  prior  fiscal  year. He  surmised  that  if  every                                                                    
industry  got to  use its  industry  tax there  would be  no                                                                    
funding left for education and other state services.                                                                            
Co-Chair Stoltze  asked for  the FY 14  and FY  15 fisheries                                                                    
business and fisheries resource landing taxes.                                                                                  
Co-Chair   Austerman  remarked   that   the  Department   of                                                                    
Commerce, Community  and Economic Development  could provide                                                                    
the answers.                                                                                                                    
Co-Chair Stoltze  communicated that for FY  14 the fisheries                                                                    
business and fisheries resource  landing taxes totaled $27.4                                                                    
million.  He remarked  that  there was  a  better chance  of                                                                    
receiving  revenue   from  tobacco  taxes,   insurance,  and                                                                    
mining;  the  items  were substantially  bigger  than  money                                                                    
available  for items  mentioned by  Representative Gara.  He                                                                    
believed there was a façade  that fisheries fueled the state                                                                    
treasury. He stressed that the  amount was de minimis in the                                                                    
state's  budget.  He  stated  that far  more  was  spent  on                                                                    
commercial  fisheries research;  the state  was funding  $30                                                                    
million over the  next three years for  salmon research. The                                                                    
industry  did provide  jobs,  but  commercial fishing  taxes                                                                    
were not a part of the state's economic future.                                                                                 
3:11:12 PM                                                                                                                    
Representative  Thompson referred  to  the bill's  provision                                                                    
that  would   enable  eligible  parties  to   replace  their                                                                    
freezers and  equipment. He  shared that  he had  received a                                                                    
new business tax credit to  purchase a $96,000 crank grinder                                                                    
for his  machine shop  business. He  was expected  to profit                                                                    
from the crank  grinder so he could purchase one  on his own                                                                    
in 10 years' time.  He believed profitable businesses should                                                                    
have  a replacement  plan for  aging equipment.  He wondered                                                                    
why the  state would  buy the company  replacement equipment                                                                    
if the business was profitable.                                                                                                 
Mr. Cottongim replied that he  did not have the expertise to                                                                    
answer the question.                                                                                                            
Co-Chair Austerman  asked for  verification that  there were                                                                    
certain criteria a business had  to meet in order to replace                                                                    
equipment.  He pointed  to a  recent  Ocean Beauty  Seafoods                                                                    
can;  less than  50 percent  of its  new equipment  had been                                                                    
used  to  produce cans  and  had  not met  the  department's                                                                    
criteria. He  explained that  the credit  did not  provide a                                                                    
blank check to businesses; a set of criteria existed.                                                                           
ANNA KIM, TAX DIVISION, DEPARTMENT OF REVENUE, agreed.                                                                          
JOHANNA BALES, DEPUTY DIRECTOR,  TAX DIVISION, DEPARTMENT OF                                                                    
REVENUE   (via   teleconference),   agreed   with   Co-Chair                                                                    
Austerman's  statement.   She  explained  that   the  salmon                                                                    
product development tax credit  was for equipment that would                                                                    
produce value added salmon or  herring. The concept was that                                                                    
the credit  would enable the  production of  potentially new                                                                    
types  of products  to allow  Alaska's  seafood industry  to                                                                    
compete  worldwide.  She  noted   that  the  credit  was  50                                                                    
percent; therefore businesses were  required to come up with                                                                    
money  for the  equipment as  well. The  intent was  to make                                                                    
Alaskan seafood  products (specifically salmon  and herring)                                                                    
more marketable.                                                                                                                
3:15:41 PM                                                                                                                    
Vice-Chair  Neuman asked  for verification  that the  credit                                                                    
only  applied to  production  of new  product  that was  not                                                                    
currently on the market. Ms.  Bales answered that the credit                                                                    
was directed at new products  in addition to existing value-                                                                    
added product.  She detailed that the  processing would need                                                                    
to enhance  the product value.  Over time there had  been an                                                                    
increase in the price of Alaskan  salmon due to the types of                                                                    
activities undertaken  by the seafood industry  and in which                                                                    
the state had offered a credit to assist.                                                                                       
Vice-Chair Neuman surmised that  filleting or canning salmon                                                                    
alone added value. Ms. Bales  replied that the bill was more                                                                    
specific;  in  order  to  qualify  for  the  credit  further                                                                    
processing was required beyond heading or gutting a salmon.                                                                     
Vice-Chair  Neuman asked  about the  creation of  a powdered                                                                    
product. He  asked whether a  company could continue  to get                                                                    
credit  for equipment  used on  an unsuccessful  product. He                                                                    
provided  an  example  about  deboning  equipment  that  had                                                                    
Ms. Bales answered  that it would be  possible; however, she                                                                    
found it hard to imagine that  a company would be willing to                                                                    
pay  50  percent  of  the   equipment  price  if  there  was                                                                    
absolutely no market for the product.                                                                                           
3:18:32 PM                                                                                                                    
Vice-Chair  Neuman  clarified  that   he  was  referring  to                                                                    
unsuccessful equipment, not unsuccessful product.                                                                               
Ms.  Bales   answered  that  he  was   correct;  however,  a                                                                    
provision included on page 2  (lines 24 through 31) required                                                                    
that a  company recapture the  credit. She explained  that a                                                                    
business would be required to  repay the state if it stopped                                                                    
using the new  equipment; if the equipment was  taken out of                                                                    
service  in the  first year  the company  would have  to pay                                                                    
back the  entire credit; if  the equipment was used  for two                                                                    
years the company  would be required to repay  75 percent of                                                                    
the credit;  and if the  equipment was used for  three years                                                                    
it would be required to  repay 50 percent. The company would                                                                    
be required to  keep the equipment in service  for a minimum                                                                    
of three years to receive the credit in its entirety.                                                                           
Co-Chair Austerman  directed attention  to Section 8  of the                                                                    
legislation that  included a program definition.  He pointed                                                                    
to  a  list of  qualified  and  disqualified equipment  from                                                                    
Department  of  Revenue  titled "SPDC  Equipment"  (copy  on                                                                    
Representative   Guttenberg  asked   if  the   credits  were                                                                    
stackable with  any other incentive  or tax  credit program.                                                                    
Mr.  Cottongim replied  in  the  affirmative. He  elaborated                                                                    
that other  credits could be  claimed against  the fisheries                                                                    
business tax including education  credits (e.g. Winn Brindle                                                                    
Representative Guttenberg asked for  a list of the available                                                                    
credits and  asked if credits were  currently stackable. Mr.                                                                    
Cottongim replied in the affirmative.                                                                                           
Ms.   Bales   asked    for   clarification   on   stackable.                                                                    
Representative Guttenberg wondered  if there were additional                                                                    
tax credits that could be used for one piece of equipment.                                                                      
Ms. Bales  replied in  the negative.  She expounded  that it                                                                    
was not possible to use  expenses for the equipment to claim                                                                    
a credit in any other tax program.                                                                                              
HB  204  was  HEARD  and   HELD  in  committee  for  further                                                                    
consideration.   [Note:  This meeting  was recessed  at 3:30                                                                    
p.m. until 9:30  a.m. on February 28,  2014; CSSSHB 204(FIN)                                                                    
reported out  of committee  at that  time. See  February 28,                                                                    
2014, 9:26 a.m. minutes for detail.]                                                                                            
3:23:13 PM                                                                                                                    
AT EASE                                                                                                                         
3:24:31 PM                                                                                                                    

Document Name Date/Time Subjects
HB 306 Sectional Analysis- Legal.pdf HFIN 2/27/2014 1:30:00 PM
HB 306
HB 306 Sponsor Statement.pdf HFIN 2/27/2014 1:30:00 PM
HRLS 4/13/2014 2:00:00 PM
HB 306
Indirect Expenditures Report - Legislative Research.pdf HFIN 2/27/2014 1:30:00 PM
HB 306
Alaskan-Seafood-Processing-Effluent-Guidelines-Notice-of-Data-Availability-Factsheet.pdf HFIN 2/27/2014 1:30:00 PM
HB 204
DOR 2013 Annual Report Page 19.pdf HFIN 2/27/2014 1:30:00 PM
HB 204
HB 204 Summary of Ocean Beauty Testimony.pdf HFIN 2/27/2014 1:30:00 PM
HB 204
HB 204 Support product development tax credit 2.5.14.pdf HFIN 2/27/2014 1:30:00 PM
HB 204
SPD Overview for HFISH.pdf HFIN 2/27/2014 1:30:00 PM
HB 204
HB 204 Sponsor Statement HFIN Committee.pdf HFIN 2/27/2014 1:30:00 PM
HB 204
SSHB204-SPDC qualified vs non qualified equipment.pdf HFIN 2/27/2014 1:30:00 PM
HB 204
Letter of Support HB 204 021714.pdf HFIN 2/27/2014 1:30:00 PM
HB 204
HB 240 Support.pdf HFIN 2/27/2014 1:30:00 PM
HB 240
HB 204 Support - LCF.pdf HFIN 2/27/2014 1:30:00 PM
HB 204
HB 204 Presentation HFIN.pdf HFIN 2/27/2014 1:30:00 PM
HB 204
HB 204 CS WORKDRAFT P version.pdf HFIN 2/27/2014 1:30:00 PM
HB 204
SB 49 - DHSS Support Document.pdf HFIN 2/27/2014 1:30:00 PM
SB 49
HB 306 NEW FISCAL NOTES.pdf HFIN 2/27/2014 1:30:00 PM
HB 306
HJR 10 - Version C - HFIN CS.pdf HFIN 2/27/2014 1:30:00 PM
HJR 10
DOR HB 204 data on Fishery Business Tax Credits 2004-2014.pdf HFIN 2/27/2014 1:30:00 PM
HB 204