Legislature(2001 - 2002)
02/25/2002 03:37 PM Senate RES
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SB 277-DEFINITIONS OF FISHERIES BUSINESSES
CHAIRMAN TORGERSON announced SB 277 to be up for consideration.
MR. IAN FISK, staff to Senator Austerman, sponsor, said that both
the original and the committee substitute address an inequity in
state taxation for the Bering Sea pollock fishery. He said:
This bill seeks to ensure that all pollock processors
are assessed at the same rate. The American Fisheries
Act (AFA), which was passed by Congress in 1998 to
rationalize the Bering Sea pollock industry, divided
the industry into three sectors, those being the
factory trawlers, which both harvest and process their
catch at sea, mother ships, which process catches
harvested by other vessels at sea and the inshore
sector. The AFA limits participation in the pollock
industry to these sectors and specifically leaves out
entities, which are allowed to process pollock.
The tax inequity that we have here in the industry is
that floating processors were included with the inshore
sector in AFA, but [is] the only sector of the industry
to be taxed at 5% by the state, whereas the other
sectors are taxed at 3%.
The first draft of this bill intended to accomplish tax
equity by changing the definition of 'shore based
processor' in order to accommodate pollock floating
processors. This approach created a fiscal note that
was somewhat larger than anticipated and it also raised
some concern that floating processors and other
fisheries could be affected and that is certainly not
the intent of the sponsor.
MR. FISK said that the committee substitute reduces the fiscal
note and focuses the bill specifically on the pollock fishery by
specifying a 3% rate for floating processors, which would level
the tax situation, thus providing equity for all sectors of the
Bering Sea pollock industry. He explained that the fiscal note
before the committee actually applies to the first version of the
bill. The estimated fiscal note for the committee substitute will
be even less. He said:
It is important to note that the general fund impact in
this case will actually be half of the fiscal note that
the department presents to you, because half of the
income is shared back with municipalities.
CHAIRMAN TORGERSON asked which municipalities.
MR. FISK replied a number of municipalities in the Aleutian's
east borough and southwestern Alaska. Unalaska would be affected.
SENATOR TAYLOR moved to adopt the proposed committee substitute
to SB 277, labeled Version F, as the working document of the
committee. There were no objections and it was so ordered.
SENATOR LINCOLN referred to a letter from the City of Unalaska
saying they were concerned about the language in the bill, "due
to the loss of business, fish tax, and revenues" and asked him
how much that amounts to. She said, "The fiscal note that you
allude to suggests that the communities could lose approximately
50% of their share of the state revenue loss, which they are
saying is $217,000."
She wanted to know if he was cutting the $217,000 in half again
and asked him to comment on the loss of revenue to the
communities.
MR. FISK replied that in terms of revenue sharing, the Department
of Revenue said that data is confidential. He explained:
As far as loss of income to the communities, on a
community by community basis, it will not be a very
large number, especially in light of the revenue that's
already generated by this industry and is shared back
to these communities…As far as the $217,000, it will
actually be slightly less than that, because as I
indicated we had some confusion with the department
over the fiscal note [which will be less].
SENATOR HALFORD asked what level factory trawlers are presently
taxed at.
MR. FISK replied that they are taxed at 3% under the Fisheries
Resource Landing Tax; but, under AFA, the pollock industry is
taxed at 5%.
SENATOR HALFORD asked about mother ships.
MR. FISK replied that they are taxed at 3%.
SENATOR HALFORD asked, "Why, if we're going to take floating
processors down to 3% from 5%, why don't we put factory trawlers
and mother ships up to the 5% and regain the revenue?"
MR. FISK replied that the industry is already paying a
significant amount of tax, and because of the general state of
the industry, higher taxes would not be warranted.
SENATOR HALFORD commented, "Factory trawlers' total contribution
to the state is 3% and the mother ships are the same thing?"
MR. FISK said that is correct.
SENATOR HALFORD explained that the principal was to try and help
on-shore and Alaska-based operations.
And yet you have those two categories that have the
most preferential of any tax treatment available, the
same as if they were essentially based onshore in
Alaska. I wonder why you don't make both adjustments at
the same time and [indisc] your goal with a positive
fiscal note instead of a negative one?
MR. FISK replied that he thought taxation through the AFA is
another issue that would have to be addressed through
modification to the American Fisheries Act, which is a much more
complicated process than what is before them today.
SENATOR HALFORD said he thought that was set at the state level.
MR. FISK replied that he was less familiar with the American
Fisheries Act.
MR. KRIS NORRIS, Manager, Icicle Seafood, said Icicle is a U.S.
corporation started in Petersburg in 1965. She supported CSSB 277
(RES) because the intention of this bill is to seek a level
playing field. She reminded the committee that twice in the last
eight years the State of Alaska has argued that both the onshore
and offshore sectors should be treated the same with regard to
taxation. She maintained:
When the Fisheries Resource Landing Tax was originally
enacted in 1994 and contested by the offshore sector,
it was settled in '96 and the argument that the state
used was that those two sectors should be treated the
same. That reasoning was used again in 1998, when the
state was negotiating in Washington D.C. with the
passage of the American Fisheries Act. It was our U.S.
Senator Stevens' desire to help the State of Alaska and
ensure that everyone that's doing business with the
resources in our water and near them would contribute
to the state's economy. That's why the mother ships
were also brought under the Fishery Resource Landing
Tax. The argument made was that the offshore and the
onshore sectors needed to be treated the same.
What's happened under state statute enacted several
decades ago is that the floating processors were
assessed at a different rate and I don't have a problem
with that when it comes to species like salmon and
herring and some of our traditional species, because
anyone can get into the processing end of that
business. But what the American Fisheries Act did when
it was passed in 1998, is it limited who was qualified
to process pollock. Under current state statute coupled
with the American Fisheries Act, we're in a situation
where not everyone is treated equal, yet we're all
competing with each other in the same market place. So,
what we have is a situation where we have two qualified
floating processors that are assessed at a rate of 5%
while all their competitors, regardless of what sector
they're in or how they operate, are assessed at a 3%
rate.[END OF TAPE]
TAPE 02-3, SIDE A
MS. NORRIS continued:
The only thing they do on board is to process the fish.
They don't catch it. They have other boats bring the
fish to them and then they process it. The difference
is where they operate. One is considered part of the
onshore sector, which operates within three miles in
state waters. The mother ship sector operates outside
of that three miles. But operationally speaking they're
the same. I think because of that, all the sectors need
to be treated the same when it comes to taxation.
SENATOR HALFORD said Ms. Norris wants to change the system that
was the rule until now, but she is not willing to change the rule
to go in reverse. He asked if this bill passed, would anyone be
left paying the 5% rate.
MS. NORRIS replied that this would equalize the rate paid on
pollock only. For other species, floating processors would still
pay the 5% rate and she didn't have a problem with that.
SENATOR HALFORD noted that the differentials would still be
there.
MS. NORRIS replied yes.
SENATOR HALFORD asked if they had the authority to apply the
differential in reverse under the American Fisheries Act.
MS. NORRIS replied, "The American Fisheries Act isn't tying the
hands of the State of Alaska in how they can apply a taxation
rate. What it's doing is determining who is included to be
subject to a tax."
MR. CHUCK HARLAMERT, Department of Revenue, said he would answer
questions.
CHAIRMAN TORGERSON asked what the committee substitute did to the
fiscal note.
MR. HARLAMERT replied that they did a fiscal note on the same law
last year based on 2000 data. They had to estimate a range
because the taxpayer population is so low, they had to guard
confidentiality. He remembered that the fiscal note said they
would lose $333,000 to $400,000 to bring pollock down from 5% to
3% for floaters.
SENATOR ELTON explained that loss would be shared equally between
local communities and the State of Alaska. Mr. Harlamert agreed.
SENATOR HALFORD asked him if they reverse the tax with regard to
mother ships and factory trawlers, what income that would
generate.
MR. HARLAMERT responded with some background on the Fisheries
Land Tax:
When we adopted it, we had a choice between assessing
it at 5% or 3% and that's within the state's
prerogative. The Department of Revenue recommended
using 3% because 5% would put them too much at risk of
discriminating against interstate commerce. Essentially
we have free reign to tax any activity that occurs
within Alaska within our waters and we have no ability
to tax on our own activities that occurs outside our
waters. If we were to impose a discriminatory tax rate
on fishing agencies who merely landed fish in the
state, there's a possibility that it might not stand.
It is our recommendation at the time to not move to 5%
as we do with instate floating processors, but to stay
with the base 3%. The 5% rate is in part aimed at
drawing a form of equity between floating processors
and onshore processors based upon local taxation…
MR. HARLAMERT said if they were to move ahead and tax the
offshore pollock fleet at 5% on their landings, the entire tax
base would need to change to tax everybody at 5%, even shore
based processors, and allow a credit against the state tax for
local taxes paid.
SENATOR HALFORD said that would achieve the same differential.
MR. HARLAMERT agreed with that.
SENATOR LINCOLN said the City of Unalaska was concerned about the
loss of the fish tax and revenue to their community. She asked if
he knew how many communities would be affected by this and what
the range of the impact would be to a given community.
MR. HARLAMERT said he couldn't do that because the population of
taxpayers they are talking about is so small that if they were to
go further into detail and talk about the communities, their
department's confidentiality requirements would be violated.
SENATOR LINCOLN said she didn't have any idea if they were
talking about $10,000 or $100,000 and that makes it hard for her
to know what the impacts would be.
CHAIRMAN TORGERSON said he thought since they only got one letter
and the area was so small that it couldn't be disclosed, so
Unalaska is taking the brunt of this.
SENATOR WILKEN asked if he understood correctly that the
proximity of the processor to the municipality was the
determinant as to whether the tax is 3% or 5%.
MR. HARLAMERT said that outside of three miles the state doesn't
have taxing jurisdiction. The state can only tax the offshore
fleet when it lands fish in the state or, under the American
Fisheries Act, the "feds" do it for us.
SENATOR WILKEN asked if he had a floating offshore ship he would
pay 5% but if he brought it in and hooked it up to the dock, he
would pay 3%.
MR. HARLAMERT replied yes, if it is hooked up permanently.
SENATOR WILKEN said this bill takes the ship that's three miles
offshore and can move from fishery to fishery and makes it a 3%.
MR. HARLAMERT said it does that for one species - pollock.
SENATOR ELTON asked if he could tell them the total revenues that
would be lost for pollock.
MR. HARLAMERT replied that he wasn't prepared for the committee
substitute, but he could get that data.
SENATOR HALFORD asked how much the 3% tax generates annually on
the factory trawlers and mother ships.
MR. HARLAMERT replied about $7 million and this figure is
published under the fisheries landing tax in their annual report.
SENATOR TAYLOR moved to pass CSSB 277(RES) from committee with
individual recommendations. There were no objections and it was
so ordered.
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