Legislature(2015 - 2016)CAPITOL 120
02/02/2016 10:00 AM House FISHERIES
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| Audio | Topic |
|---|---|
| Start | |
| HB251 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 251 | TELECONFERENCED | |
HB 251-ELECTRONIC TAX RETURNS & FISHERIES TAXES
CHAIR STUTES announced that the only order of business would be
HOUSE BILL NO. 251, "An Act requiring the electronic submission
of a tax return or report with the Department of Revenue;
relating to fisheries business tax and fishery resource landing
tax; relating to refunds to local governments; and providing for
an effective date."
10:02:54 AM
KEVIN BROOKS, Deputy Commissioner, Alaska Department of Fish &
Game (ADF&G), Juneau, Alaska, introduced HB 251 and explained
that it increases fish tax revenues and also requires returns to
be submitted electronically. Two taxes have historically been
imposed on the fishing industry, he pointed out, a fish business
tax and a landing tax. The business tax is paid by entities
processing fish in, or exporting fish from, Alaska. The basis
for the tax is the raw resource or the fair market value.
Development of the tax began in 1913, with the territorial
salmon pack tax, and was expanded over the years to include
other species. The first fish business license was required in
1951, and in 1962 revenue distribution practices saw the
inception of municipal sharing, which has increased over the
years from the original 10 percent to today's 50 percent.
10:05:25 AM
REPRESENTATIVE ORTIZ asked for a definition of fish processor,
and the scope of the term, noting that many levels of processing
exist.
MR. BROOKS offered to provide further information.
10:06:14 AM
MR. BROOKS continued to explain the current tax structure,
adopted and in place since 2004. Provisions include: shore-
based facilities pay 1 percent for developing fisheries and 3
percent for established species; floating facilities pay 3
percent for developing species and 5 percent for established
species; and salmon canneries pay 4.5 percent. The department
utilizes specific criteria to designate a fishery as developing
or established, and shares pertinent information with the
Department of Revenue (DOR) for taxation purposes.
REPRESENTATIVE KREISS-TOMKINS asked for the origin of the
differential rate levied on canned versus other salmon
processing, and whether taxes are exclusive to floating
facilities operating in state waters, or also include processors
located in federal waters.
MR. BROOKS deferred.
10:08:05 AM
TOM SUTTON, Fish Group Manager, Tax Division, Department of
Revenue (DOR), offered to provide further information on the
origin of the cannery tax rate. Regarding the floating
facilities, the bill relates to operations within the three mile
limit; Alaskan waters. He acknowledged that other floating
facilities exist, and said any products brought to shore would
have a landing tax imposed.
10:10:11 AM
REPRESENTATIVE KREISS-TOMKINS queried whether processors in
federal waters tend to bring their products to Alaskan shores,
or by-pass the state entirely. Also, he asked, how many
floating facilities exist and the amount of tax revenue they
generate.
MR. SUTTON estimated 30-40 facilities exist in Alaskan waters,
and the tax is imposed based on the species landed. He pointed
out that pollock processors are an exception. Pollock are
pursued in U.S. waters [Exclusive Economic Zone (EEZ)], which
extend to 200 miles off-shore. A tax is imposed on pollock
regardless of where the landing occurs. To a follow-up
question, he said the tax received on the fishery resource
landing receipts totaled $12.5, in 2014. Approximately $5.4
million of that was distributed to municipalities, leaving about
$7 million in Alaska's general fund.
REPRESENTATIVE KREISS-TOMKINS focused on the pollock return, and
noted that it represents a one to two billion dollar industry.
The value of the pollock fishery to Alaska, he estimated, is
about $30-50 million per year.
MR. SUTTON said pollock represents one of the largest resources
in the state, is currently returning about $.15 per pound, and
he offered to provide further information.
MR. BROOKS added that floating processors pay a slightly higher
tax rate as an enticement to use shore based facilities, which
boosts local employment. The direct marketing license holders
pay shore-based tax rates.
10:14:07 AM
MR. BROOKS turned to the fish landing tax, and said it's levied
on the unprocessed value of a fishery resource first landed in
Alaska, but processed outside of state waters. The value is
calculated by using the statewide average price (SWAP), as
compiled by ADF&G. The tax applies primarily to factory
trawlers and floating processors and 50 percent of the revenue
is shared with municipalities. He provided a brief history of
the fish landing tax, stating that it was first applied in 1994,
with an initial assessment of 3.3 percent of the unprocessed
value of the catch. Today it's set at 1 percent for developing
species and 3 percent for established species. Federal statute
provides an exception for pollock, which is subject to the
landing tax even if not landed in Alaska, as per the 1999
American Fisheries Act (AFA).
MR. BROOKS pointed out that, although it is considered a 50/50
share with communities, any tax credits are extracted from the
50 percent that the state receives, reducing the general fund
contribution.
10:16:44 AM
REPRESENTATIVE ORTIZ asked if the community shares are handled
through the revenue sharing fund structure, or via a different
distribution process.
MR. BROOKS responded that a similar but different process is
used, not the traditional revenue sharing program, and requires
a separate calculation. Share breakouts are also made at the
city/organized borough level, by the Department of Commerce,
Community & Economic Development (DCCED), depending on where the
processing or landing takes place.
MR. BROOKS directed attention to the department's 22 page,
committee handout, titled "New Sustainable Alaska Plan," pages
9-10, to review the three year history of the fish business and
fish landing tax revenues, respectively. He pointed out that
the state's share of the business tax revenue is normally
smaller than the municipal share due to the previously mentioned
tax credit reductions. Turning to pages 11-12 of the handout,
he described the proposed 1 percent increase versus current tax
rates, using a side-by-side illustration for the established and
developing floating, cannery, and shore-based operations, which
will be further reviewed in the sectional analysis.
10:20:19 AM
REPRESENTATIVE KREISS-TOMKINS asked how ADF&G/DOR determine
whether a fishery is established or developing.
MR. BROOKS answered that specific criteria is used to make the
determination. In January, ADF&G provides DOR with a letter
identifying those fisheries that are developing. Considerations
include: established markets, size of the fishery, and the
number of years a fishery has been harvested. He offered to
provide further information.
10:21:28 AM
CHAIR STUTES asked why the charter boat industry is not included
in the proposal, considering that many utilize shore-based
processors in order to prepare their catch for home delivery
outside of Alaska.
MR. BROOKS opined that charter boats are considered to be
carrying recreational anglers, and he offered to provide further
information.
MR. BROOKS pointed out that the proposed 1 percent increase
provides state revenue only and will not be shared with
municipalities. The municipal sharing would continue for the
remaining revenue. Also, the tax would be handled via an
electronic filing method.
10:23:19 AM
REPRESENTATIVE FOSTER questioned the requirement to use
electronic filing, given the technical challenges it could
represent to rural Alaskans.
MR. BROOKS deferred.
MR. SUTTON said DOR expects to provide waivers on request, and
will accept handwritten returns.
10:24:45 AM
MR. BROOKS restated the distribution of the proposed tax, and
added that Washington is the only other state with a tax
specific to fish. The Department of Revenue estimates an
additional $18 million per year will be generated for the
general fund, as a result of adopting the tax.
10:26:04 AM
REPRESENTATIVE KREISS-TOMKINS questioned the equitability of
raising $18 million and asked for a breakdown of who will carry
the burden.
MR. BROOKS responded that the fisheries business tax carries the
highest amount, at 3 percent, and a comprehensive revenue share
list is available for review from DOR.
10:27:00 AM
MR. BROOKS reviewed the implementation costs, which include
updates to the tax revenue management system (TRMS) and the
revenue online (ROL) program. An estimated one time cost of
$100,000 will be needed to develop new tax forms, complete the
reprograming, and test the new system. After the initial
investment, further administrative costs are not anticipated.
He highlighted the role the proposed tax plays in closing the
$5.2 billion budget gap Actions also include a $140 million
spending reduction within ADF&G.
10:28:52 AM
REPRESENTATIVE MILLETT asked for specifics regarding the
programs and activities ADF&G plans to cut, in FY 17, to meet
the $140 million reduction requirement.
MR. BROOKS offered to provide detailed information.
10:30:04 AM
MR. BROOKS continued to review the budget scenario and pointed
out how the increased $18 million, in revenue from ADF&G, ranks
with taxes proposed in other state departments.
REPRESENTATIVE MILLETT maintained her interest in understanding
the specific cuts being made to ADF&G programs.
CHAIR STUTES asked for the complete departmental list that will
be presented to the finance subcommittee.
MR. BROOKS said it includes weirs, counting tours, and a number
of projects throughout every region and he agreed to provide a
list to the committee.
10:35:53 AM
REPRESENTATIVE MILLETT inquired about personnel cuts,
particularly with regard to the offices of the commissioner and
administration.
MR. BROOKS said the legislative liaison position has already
been cut, as has the public relations officer. Other
administrative cuts are being considered, and consolidation is
being underway.
10:38:11 AM
REPRESENTATIVE ORTIZ noted that the department has been
subjected to reductions in previous fiscal years. He said,
given the projection for this year, are the goals of the
department's mission statement still viable and able to be met;
noting that legislative mandates exist.
MR. BROOKS explained how the budget has been reduced over the
course of two budget cycles, from $80 million down to $57
million.
REPRESENTATIVE ORTIZ asked whether the reductions impact the
ability of the department to fulfill its mission statement.
MR. BROOKS responded: "Quite possibly." He said attempts are
being taken to first do no harm; however, without appropriate
data collection the precision for in-season management will be
compromised. Additionally, all field projects are under
scrutiny. Finished the overview, he stated that the buyer will
not be effected by the tax proposal.
10:42:58 AM
MR. BROOKS provided a sectional analysis of HB 251, paraphrasing
from a prepared statement, which read [original punctuation
provided]:
Sec. 1. Adds a $25 or 1% tax penalty for failure to
file electronically unless an exemption is received by
the taxpayer
Sec. 2. Requires electronic submission of tax returns,
license applications, and other documents submitted to
the Department of Revenue. This changes the general
tax statutes, AS 43.05, and will apply to all tax
types administered by the department. Provides a
process to request an exemption if a taxpayer does not
have the technological capability to do so.
Sec. 3. Increases three different tax rates within the
Fisheries Business Tax by one percent. The current
rates range from three to five percent.
Sec. 4. Increases tax rate within the Fisheries
Business Tax for developing fish species processed by
a floating processor from 3 to 4 percent. Rate
remains at 1 percent for developing fish species
processed by a shore-based business.
10:44:57 AM
REPRESENTATIVE KREISS-TOMKINS referred to Sec. 4, noting the
proposal for imposing a flat rate tax on shore-based processors
while increasing the rate by one percent for floating
processors, and asked how that policy was decided.
MR. BROOKS stated that he did not participate in the meetings to
set the taxes, and conjectured that social impacts for
employment may come into play as shore-based businesses effect
the local economies.
REPRESENTATIVE KREISS-TOMKINS maintained his question for why
the decision was made to shift the tax burden to floating
processors.
MR. BROOKS deferred.
MR. SUTTON deferred.
10:47:51 AM
KEN ALPER, Director, Tax Division, said a number of variables
were considered in the process, but the final decision was a
judgement call.
10:49:58 AM
MR. BROOKS continued with the analysis:
Sec. 5. Increases tax rate within the Fisheries
Business Tax for direct marketers from 3 to 4 percent.
Rate remains at 1 percent for developing fish species
sold by direct marketers.
Sec. 6. Conforming language related to the requirement
to submit returns or reports electronically. This
section deletes the requirement for taxpayers to
submit their returns to the department in Juneau.
Sec. 7. Establishes that the revenue from the one
percent tax increase is deposited in the general fund.
The remaining revenue shall be shared with
municipalities per the currently existing formula.
Sec. 8. Increases tax rate within the Fisheries
Landing Tax for fish species other than developing
fish species from 3 to 4 percent. Rate remains at 1
percent for developing fish species.
Sec. 9. Establishes that the revenue from the one
percent tax increase is deposited in the general fund.
The remaining revenue shall be shared with
municipalities per the currently existing formula.
10:51:27 AM
CHAIR STUTES confirmed that usage of the term "developing fish
species" will be specifically defined under Sec. 8.
10:51:47 AM
MR. BROOKS continued with the analysis:
Sec.10. Establishes that the revenue from the one
percent tax increase is deposited in the general fund.
The remaining revenue shall be shared with boroughs
per the currently existing formula.
Sec. 11. Transitional language allowing for
regulations
Sec. 12. Section 11 above takes effect immediately.
Sec. 13. Effective date of 7/1/16 for the rest of the
bill including the tax rate change.
CHAIR STUTES opened public testimony.
10:52:58 AM
REPRESENTATIVE KREISS-TOMKINS requested information regarding
the specific companies that pay the landing tax, as well as the
economic character and foot print that each company holds.
10:53:58 AM
REPRESENTATIVE FOSTER requested a streamlined, one page summary,
or pie chart illustration, differentiating the companies which
are and aren't, being taxed.
10:54:17 AM
REPRESENTATIVE ORTIZ voiced interest in having a definition of
certain entities: taxed processor, untaxed processor, and other
processors.
10:55:07 AM
WES HUMBYRD, expressed concern for the proposed 1 percent tax.
The rate actually becomes a 3 percent tax, given the other areas
also being proposed for increases, such as fuel. A solution to
the issue might be to incorporate a business model for the
stakeholders, he suggested, and paraphrased from a prepared
statement, which read: [original punctuation provided]:
The greatest value to the State from its' fishery
resources will not be realized until the Alaska
Department of Fish & Game (ADF&G) and the Board of
Fisheries (BOF) incorporate a business model approach
to every management policy and plan. Fisheries
management needs to be focused on fully utilizing
these renewable resources with the understanding that
allocation and daily management decisions have direct
economic consequences to the welfare of the State.
Taxes, licenses and permit fees should be adjusted so
that all resource users share in the necessary cost of
management.
To illustrate these concepts, this analysis examines
the results of changing taxation revenue, license fees
and monetizing unharvested surplus salmon. A
retrospective analysis based on the fully documented
2014 UCI [Upper Cook Inlet] salmon fishery was chosen
over projecting into an uncertain future. The 2014
UCI salmon fishery is the latest year for which
harvest data is complete. This retrospective analysis
will provide the reader an estimate of State revenues
resulting from applying a series of revenue options to
the 2014 UCI salmon fisheries. There are several
options for additional revenue under consideration.
First, a review of unharvested salmon stocks,
monetizing the economic value they represent and
increasing the commercial fishery business tax to 4%;
second, increasing the sport fishing license by $5 for
resident and $10 for non-resident anglers; third,
implementing a new $30 fee for each original dipnet
permit.
In this analysis, the effects on direct State tax and
license revenue from UCI salmon fisheries would be:
Harvesting surplus salmon for an additional $1,505,000
at the current tax rate;
Applying a 1% increase to the Commercial Fishery
Business Tax Rate for an additional $350,000 in
commercial revenue and $1,715,000 in revenue from the
unharvested salmon, totaling $2,065,000 in new
revenues;
Applying a $5 resident and a $10 non-resident sport
fishing license fee increase for $900,000 in new
revenue;
Applying a $30.00 fee to the original personal use
permit for $900,000 in new revenue.
Total of potential new tax and license revenue is
$3,865,000 from UCI salmon alone.
MR. HUMBYRD opined that ADF&G allows resource waste, and
estimated that 80 percent of the 2014, UCI fish runs were
unharvested.
10:58:15 AM
REPRESENTATIVE ORTIZ questioned the ability to tax unharvested
salmon.
MR. HUMBYRD said an analysis has been made of the up-river
waste; salmon that are not captured on the open fishing grounds.
An estimated $60 million was lost in 2014 due to unrealized
harvest, he maintained, and mentioned the availability of a
comprehensive analysis ["Analysis of State Revenue from
Fisheries, Upper Cook Inlet, 2014," United Cook Inlet Drift
Association (UCIDA), 2015, 14 pages].
10:59:48 AM
RHONDA HUBBARD stated concern for HB 251, and said the small
business she owns and operates focusses on processing bottom
fish and direct marketing of the products. The
catcher/processors, outside of three miles, are being charged a
3 percent tax, and fishermen in Alaskan waters pay 5 percent.
She suggested that a 4 percent, across the board tax be imposed.
Also, introduction of a bill to tax sport caught fish would be a
reasonable action, she opined. The electronic filing
requirement could be combined with the e-landing report already
in use, she suggested. Finishing, she directed attention to the
committee packet and her three-page memorandum, with
attachments, addressed to the committee chair, further detailing
these comments [undated, unnumbered pages]. She finished,
stating that reforming the tax is appropriate and necessary.
11:04:32 AM
REPRESENTATIVE KREISS-TOMKINS asked for elaboration on Ms.
Hubbard's recommendation to eliminate the distinction between
developing and mature fisheries.
MS. HUBBARD answered that the developing fisheries tax
represents an insignificant amount and is strategically
unnecessary. In response to a request from Representative
Millett, she advised that further information could be found in
the aforementioned memorandum. She further encouraged the
committee to consider that if there is going to be an increase
in taxes, then there needs to be a dedicated portion for stock
assessment needs.
CHAIR STUTES, after ascertaining no one further wished to
testify, closed public testimony on HB 251.
[HB 251 was held over.]
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB251 Sponsor Statement - Governor's Transmittal Letter.pdf |
HFSH 2/2/2016 10:00:00 AM |
HB 251 |
| HB251 Sectional.pdf |
HFSH 2/2/2016 10:00:00 AM |
HB 251 |
| HB251 ver A.pdf |
HFSH 2/2/2016 10:00:00 AM |
HB 251 |
| HB251 Fiscal Note DOR.pdf |
HFSH 2/2/2016 10:00:00 AM |
HB 251 |
| HB251 Supporting Document-DOR Hearing Request Letter 1-20-2016.pdf |
HFSH 2/2/2016 10:00:00 AM |
HB 251 |
| HB251 Support Tax Presentation.pdf |
HFSH 2/2/2016 10:00:00 AM |
HB 251 |
| HB251 Backup Kruzoff letter.pdf |
HFSH 2/2/2016 10:00:00 AM |
HB 251 |
| HB251 Backup Kruzoff Amends.jpg |
HFSH 2/2/2016 10:00:00 AM |
HB 251 |
| HB251 Backup Kruzoff Alaska-Seafood-Industry-Taxes-2013.pdf |
HFSH 2/2/2016 10:00:00 AM |
HB 251 |
| HB251 Backup Kruzoff NMFS AK Raw fish values-2014.pdf |
HFSH 2/2/2016 10:00:00 AM |
HB 251 |
| HB251 Backup Kruzoff price list.pdf |
HFSH 2/2/2016 10:00:00 AM |
HB 251 |