Legislature(2001 - 2002)
04/25/2001 09:17 AM House RLS
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 154-COLLECTION OF FISHERY BUSINESS TAXES Number 0038 CHAIR KOTT announced that the committee would continue the hearing on HOUSE BILL NO. 154, "An Act relating to security for the payment of fishery business taxes and to payment of estimated fisheries resource landing taxes and penalties." [Before the committee is CSHB 154(FSH).] CHAIR KOTT informed the committee that at the last hearing the committee took up CSHB 154(FSH), which failed to move from committee. Then the committee adopted CSHB 154, version 22- LS0638\O, Utermohle, 4/20/01, as a work draft. Chair Kott asked if there was further discussion on version O. REPRESENTATIVE KOHRING noted his belief that the less taxes on the industry the better. He suggested reviewing the possibility of a user fee for those that use the local services. Number 0198 REPRESENTATIVE KOHRING moved to report CSHB 154, version 22- LS0638\O, Utermohle, 4/20/01, out of committee with individual recommendations and the accompanying fiscal notes. REPRESENTATIVE BERKOWITZ objected. REPRESENTATIVE MORGAN inquired as to the sponsor's view of version O. Number 0261 REPRESENTATIVE DREW SCALZI, Alaska State Legislature, testified as the sponsor. Representative Scalzi emphasized that [version O] was not his and that the intent of the original bill was to achieve a fair and equitable [tax regime] for fresh fish processors. Representative Scalzi emphasized the importance of the bill [the original version] getting through by February 2002, which is the due date for the fish buyers to be able to operate. If version O is adopted, Representative Scalzi said that he would have to vote against it because that version would have to return to the House Finance Committee due to the large fiscal note. Representative Scalzi said that he made his presentation at the April 20, 2001, hearing in a manner so that the committee could "make that recommendation" and see the merits of this bill. The committee could, if it so chooses, obtain a fiscal note and move the bill to the House Finance Committee and move it out again. However, he didn't believe there was enough time to move it through the process this year. He noted that earlier this session he offered to offer [version O] as a separate bill, which he believes to be the proper manner in which to address the issue. Representative Scalzi reiterated the importance of passing HB 154 in its original version. If the committee doesn't unanimously support the bill, he recommended that the committee entertain a motion to [rescind] the committee's previous action and separate version O from the original bill. Number 0471 CHAIR KOTT related his understanding that Representative Scalzi doesn't support version O primarily because of the fiscal ramifications, which would result in returning the bill to the House Finance Committee. REPRESENTATIVE SCALZI answered that he believes that to be the proper procedure. Although there is not a fiscal note attached, he thought that a $250,000 to $400,000 change in revenue to the state and municipalities would need to be addressed in the House Finance Committee. If the bill was returned the House Finance Committee, it would delay the original portion of HB 154. CHAIR KOTT noted that the committee didn't receive anything from the Department of Revenue. He wasn't sure that the department would be able to produce an exact number or whether the fiscal note would have to be indeterminate. REPRESENTATIVE MORGAN recalled that at the prior hearing the committee requested that the Department of Revenue determine how much this would cost the state and the municipalities. REPRESENTATIVE SCALZI related his belief that the fiscal impact to both the processor and the coastal communities is something that has to be fleshed out. He reiterated the importance of the original intent of HB 154 passing [before] the season that begins on February 15, 2002. Number 0658 REPRESENTATIVE KOHRING highlighted that [processors] would not be in compliance if the original version of the legislation isn't passed. He inquired as to the negative ramifications that the industry would face if the original legislation didn't pass. REPRESENTATIVE SCALZI reminded the committee that the original legislation was to eliminate the requirement for small fresh fish buyers to post a bond equal to the amount of revenue the buyer generated through the business tax in the prior year. State law says that one must have a bond equal to the amount of revenue generated through the business tax in the prior year or have three times the lienable property that can be bonded to the state. A fresh fish buyer may generate revenue to the state in the amount of $250,000 to $500,000. However, that fresh fish buyer doesn't have the revenue for a $500,000 bond nor do they have $1.5 million in lienable property. Therefore, these fresh fish buyers are not in compliance. The Department of Revenue has been working with these fresh fish buyers in order to allow them to operate. This legislation would allow the fresh fish buyers to pay on a monthly basis and only post a $50,000 bond. Representative Scalzi pointed out that these are small operators that don't have many assets and thus it is advantageous to both the state and the operator to obtain the raw fish tax on a monthly basis. Without this measure, these fresh fish buyers will not be in compliance next year. REPRESENTATIVE KOHRING asked if the legislation could be modified to lower the bonding requirements [in order to address this issue]. REPRESENTATIVE SCALZI noted that this bill was drafted by the Department of Revenue after he had sought a solution from the department. Therefore, Representative Scalzi hesitated to speak on behalf of the department. Number 0839 CHUCK HARLAMERT, Juneau Section Chief, Tax Division, Department of Revenue, acknowledged that the bonding requirements for these smaller operators could be modified. However, he wasn't sure that he would recommend such action nor was he sure that the operators would accept that. Mr. Harlamert pointed out that the monthly payment is an option in lieu of the traditional requirements. Furthermore, the monthly payment option would not be the option of choice for most taxpayers because it doesn't benefit them greatly. The department estimated that if the monthly payment plan was available to other licensees, the majority would not elect to use it because overall costs aren't reduced. The monthly payment plan is merely a cash flow issue. Mr. Harlamert said that the Department of Revenue would have some concerns with the expansion of [the monthly payment plan] because there would be security issues and the department doesn't want to be the bank for troubled businesses. REPRESENTATIVE McGUIRE related her understanding that the desire is to have a certain amount of securitization, which is why there is a bond threshold. Yet, the department is trying to provide these [small operators] with a break in the form of something that the department can count on month to month. MR. HARLAMERT explained that the hope is that the $50,000 bond requirement in the bill would be enough to provide the department with a month's coverage. If the tax is paid within the month, the state and the municipalities should be whole. He pointed out that the bill also [includes] other taxes, such as salmon enhancement taxes and salmon marketing taxes, that aren't traditionally secured. MR. HARLAMERT, in response to Chair Kott, said that he could address the potential fiscal note on the new version [version O], but he would have to do so in an obscure manner because there is such a limited pool of taxpayers. Based upon 2000 returns, the fiscal impact of version O would be between $300,000 and $400,000 per year, assuming that the same value of pollock was produced each year. Number 1068 REPRESENTATIVE McGUIRE recalled the last hearing's overview of the various categories of vessels. From that it seemed clear to her that the on-shore processors are being assessed at 2 percent property tax above and beyond the 3 percent. Although she understood that the off-shore catcher processors and mother ships are being taxed at 3 percent, she inquired as to whether there is a 2 percent tax being levied against them as well. MR. HARLAMERT pointed out that this is a complicated area because the question addresses four different levies and if property taxes are included, there would be five different levies. He explained that fish processors in the state, whether it is a floating or [on-shore] processor, pay a fisheries business tax, which is commonly known as the raw fish tax. If [a fish processor] isn't processing in the state but [the fish processor] catches fish outside the state's territorial limits and lands that processed fish in the state, that [fish processor] pays a landing tax. If [a fish processor] does neither but is part of the pollock allocation under the federal law, [the fish processor] has a contractual obligation to pay an amount equivalent to the landing tax. However, the state doesn't have the power to impose that fee itself. Therefore, Mr. Harlamert said, "So, you have to, I guess, choose which basket of taxes or fees you're talking about." He related his understanding that some municipalities, particularly Unalaska, have a 2 percent raw fish tax as well as property taxes. REPRESENTATIVE McGUIRE recalled the argument that there is an inequitable situation; that competitors are being pitted against each other and one is paying a higher percent. She inquired as to what the off-shore catcher processor is making. On its face, it seems inequitable because floating processors pay [taxes that sum] 5 percent while off-shore catcher processors pay a 3 percent tax. She inquired as to the reasoning behind that difference. MR. HARLAMERT answered that those are two different taxes and thus one would have to determine whether all taxes should be counted or whether only the raw fish tax would be counted. The out of state [floating] processors don't pay any raw fish tax, although they do pay the 3 percent landing tax. The landing tax is intended to be a complimentary tax to the raw fish tax. However, a floating processor within the state jurisdiction would pay the 5 percent raw fish tax. Number 1283 CHAIR KOTT recalled that prior testimony referred to the in- shore processors ability to stay tied to a dock for a year, which would result in a reduction in their tax rate from 5 percent to 3 percent. He asked whether that is accurate. MR. HARLAMERT replied that Chair Kott was correct because there is a differential rate within the raw fish tax. Land-based facilities pay a 3 percent tax while floating facilities pay a 5 percent tax. However, if a floating processor is permanently affixed to the shore, it becomes a shore-based processor and thus faces the lower rate of 3 percent tax. Administrative rules determine when a floating processor becomes a shore-based processor. He specified that in order for a floating processor to be considered a shore-based processor it must be docked for a year. CHAIR KOTT inquired as to whether a [floating processor] has ever become a [shore-based processor]. He also inquired, "What would be the parameters that the department would work under, understanding that if they were reduced to 3 percent, you would still have the same reduction in revenue that was spoke of in the bill, if this bill were to pass." MR. HARLAMERT answered that yes, [floating processors] do become [shore-based processors]. He did believe that there is one pollock processor that is in the process of establishing itself as a shore-based processor by remaining affixed to the shore. Therefore, after meeting the year threshold, that processor would be subject to a 3 percent tax rate under the current law. CHAIR KOTT asked if this has ever occurred before. MR. HARLAMERT replied that he didn't know of a specific incident, but he was confident that it does occur. CHAIR KOTT returned to Mr. Harlamert's earlier testimony regarding the fiscal ramifications to the state general fund. He inquired as to the department's role in notifying the [House] Finance Committee that there would be this reduction and it could plan on receiving $300,000 to $400,000 less in the general fund. MR. HARLAMERT explained, "Typically, we just get asked for a fiscal note and then we tell you and you make the decision." Although he wasn't aware of a notification requirement, he noted that he is fairly new at the job. Number 1425 REPRESENTATIVE BERKOWITZ remarked that the pollock tax in this legislation is not merely under the purview of the House Finance Committee, but also falls under the purview of the House Special Committee on Fisheries and the House Resources Standing Committee. Therefore, he expressed the need for this legislation to return to the process because he didn't believe it is proper for the House Rules Standing Committee to adjust the balance in the pollock fishery. Furthermore, Representative Berkowitz expressed concern with the retroactivity clause included in the proposed CS. CHAIR KOTT asked if deletion of the retroactivity clause would make Representative Berkowitz happier. Chair Kott related his understanding that if the department takes no action to notify the House Finance Committee that there would be a $300,000 to $400,000 reduction and this was not retroactive, then this would "kick-in" in next year's season and the House Finance Committee would adjust its numbers accordingly or make a decision on that. Chair Kott said that from the perspective of the House Finance Committee, there wouldn't be anything to do if there is no money coming in. REPRESENTATIVE BERKOWITZ said that he has other problems with the proposed CS that wouldn't be resolved by eliminating the retroactivity clause. Number 1544 CHAIR KOTT requested that the Department of Revenue forward the committee a fiscal note based on the proposed CS. Chair Kott announced his intention to hold HB 154. He also announced that he would meet with the Chair of the House Finance Committee regarding whether this legislation should be returned to them. REPRESENTATIVE BERKOWITZ reiterated his suggestion that the proposed CS also be returned to the House Special Committee on Fisheries and the House Resources Standing Committee. CHAIR KOTT announced that HB 154 would be held. With that, Chair Kott adjourned the previously recessed hearing of April 20, 2001, at 9:45 a.m. on April 25, 2001.
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