Legislature(2015 - 2016)BILL RAY CENTER 208

05/27/2016 03:00 PM FINANCE



* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
*+ HB4005 MINING: LICENSE,TAX, FEES; EXPLOR. CREDIT TELECONFERENCED
Heard & Held
-- Open Public Testimony --
*+ HB4003 MOTOR FUEL TAX TELECONFERENCED
Heard & Held
-- Open Public Testimony --
*+ HB4006 FISHERIES: TAXES; PERMITS TELECONFERENCED
Heard & Held
-- Open Public Testimony --
+ Bills Previously Heard/Scheduled TELECONFERENCED
                  HOUSE FINANCE COMMITTEE                                                                                       
                  FOURTH SPECIAL SESSION                                                                                        
                       May 27, 2016                                                                                             
                         3:12 p.m.                                                                                              
                                                                                                                                
                                                                                                                                
3:12:26 PM                                                                                                                    
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair  Thompson   called  the  House   Finance  Committee                                                                    
meeting to order at 3:12 p.m.                                                                                                   
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Mark Neuman, Co-Chair                                                                                            
Representative Steve Thompson, Co-Chair                                                                                         
Representative Dan Saddler, Vice-Chair                                                                                          
Representative Bryce Edgmon                                                                                                     
Representative Les Gara                                                                                                         
Representative Lynn Gattis                                                                                                      
Representative David Guttenberg                                                                                                 
Representative Scott Kawasaki                                                                                                   
Representative Cathy Munoz                                                                                                      
Representative Lance Pruitt                                                                                                     
Representative Tammie Wilson                                                                                                    
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
None                                                                                                                            
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
Jerry  Burnett,  Deputy   Commissioner,  Treasury  Division,                                                                    
Department  of Revenue;  Fred  Parady, Deputy  Commissioner,                                                                    
Department    of   Commerce,    Community,   and    Economic                                                                    
Development;  Forrest Bowers,  Deputy Director,  Division of                                                                    
Commercial   Fisheries,  Department   of   Fish  and   Game;                                                                    
Representative Liz Vasquez; Representative Lora Reinbold.                                                                       
                                                                                                                                
PRESENT VIA TELECONFERENCE                                                                                                    
                                                                                                                                
John    Binder,   Deputy    Commissioner,   Department    of                                                                    
Transportation  and Public  Facilities;  Brandon S.  Spanos,                                                                    
Deputy Director, Tax Division,  Department of Revenue; Brent                                                                    
Goodrum,  Director,  Division  of Mining,  Land  and  Water,                                                                    
Department of Natural Resources.                                                                                                
                                                                                                                                
SUMMARY                                                                                                                       
                                                                                                                                
HB 4003   MOTOR FUEL TAX                                                                                                        
                                                                                                                                
          HB 4003 was HEARD and HELD in committee for                                                                           
          further consideration.                                                                                                
                                                                                                                                
HB 4005   MINING: LICENSE,TAX, FEES; EXPLOR. CREDIT                                                                             
                                                                                                                                
          HB 4005 was HEARD and HELD in committee for                                                                           
          further consideration.                                                                                                
                                                                                                                                
HB 4006   FISHERIES: TAXES; PERMITS                                                                                             
                                                                                                                                
          HB 4006 was HEARD and HELD in committee for                                                                           
          further consideration.                                                                                                
                                                                                                                                
Co-Chair Thompson addressed the meeting agenda.                                                                                 
                                                                                                                                
HOUSE BILL NO. 4003                                                                                                           
                                                                                                                                
     "An Act relating  to the motor fuel  tax; and providing                                                                    
     for an effective date."                                                                                                    
                                                                                                                                
3:13:56 PM                                                                                                                    
                                                                                                                                
JERRY  BURNETT,  DEPUTY   COMMISSIONER,  TREASURY  DIVISION,                                                                    
DEPARTMENT OF  REVENUE, explained that the  provisions in HB
4003 were identical  to provisions in HB  4001 pertaining to                                                                    
motor fuel tax.  He relayed the bill  would increase current                                                                    
tax rates  for highway fuel  from 8  cents to 16  cents; for                                                                    
marine fuel from 5 cents to  10 cents; for aviation gas from                                                                    
4.7 cents  to 7  cents; and  for jet fuel  3.2 cents  to 6.5                                                                    
cents. He reviewed the sectional analysis (copy on file):                                                                       
                                                                                                                                
   · Section 1: Amends AS 43.40.010(a) Changing the tax                                                                         
     rate  from  eight cents  to  16  cents per  gallon  for                                                                    
     highway  fuel, from  four and  seven  tenths cents  per                                                                    
     gallon  to   seven  cents   per  gallon   for  aviation                                                                    
     gasoline, from  five cents to  10 cents per  gallon for                                                                    
     fuel used in watercraft,  and from three and two-tenths                                                                    
     cents per gallon  to six and one-half  cents per gallon                                                                    
     for aviation fuel other than gasoline.                                                                                     
   · Section 2: Amends AS 43.40.010(b) to conform with                                                                          
     changes made in Section 1.                                                                                                 
   · Section 3: Increases the credit against the motor fuel                                                                     
     tax from six cents to 12 cents for fuel used for non-                                                                      
     highway uses.                                                                                                              
   · Section 4: Makes the change in sections 1, 2, and 3                                                                        
     applicable to fuel sold after the effective date of                                                                        
     those section.                                                                                                             
   · Section 5: Allows the Department of Revenue to adopt                                                                       
     regulations to implement the provisions of this Act.                                                                       
   · Section 6: Is an immediate effective date for Section                                                                      
     5.                                                                                                                         
   · Section 7: Provides for a July 1 effective date for                                                                        
     the changes to the motor fuel tax.                                                                                         
                                                                                                                                
3:16:08 PM                                                                                                                    
                                                                                                                                
Representative Wilson  asked how  the bill would  impact the                                                                    
mining and  fishing industries.  She spoke  to jet  fuel and                                                                    
relayed the  international airports currently took  over $32                                                                    
million in excess,  which would not be used  in Anchorage or                                                                    
Fairbanks and went  to smaller airports. She  asked if there                                                                    
had  been any  determination  on why  "this  is better  than                                                                    
landing fees on those  small airports" versus increasing the                                                                    
jet fuel tax.                                                                                                                   
                                                                                                                                
Mr. Burnett  responded that the aviation  advisory committee                                                                    
had recommended (after the  Department of Transportation and                                                                    
Public   Facilities'  (DOT)   recommendation  to   implement                                                                    
landing   fees  in   airports  other   than  Anchorage   and                                                                    
Fairbanks) an increase in the  aviation fuel tax rather than                                                                    
landing fees.                                                                                                                   
                                                                                                                                
Co-Chair  Thompson   relayed  that  there   were  testifiers                                                                    
available from DOT.                                                                                                             
                                                                                                                                
Representative  Wilson   noted  that  a  group   had  gotten                                                                    
together and  had decided  they still  did not  want landing                                                                    
fees; therefore,  they recommended increasing jet  fuel. She                                                                    
explained increasing  jet fuel  [tax] increased cost  at the                                                                    
two airports  that already had  landing fees  [Anchorage and                                                                    
Fairbanks]. She wondered how it  was fair to put more stress                                                                    
on  the international  airports  that were  self-sustainable                                                                    
versus  implementing landing  fees  at  smaller airports  or                                                                    
exempting the international airports.                                                                                           
                                                                                                                                
                                                                                                                                
JOHN    BINDER,   DEPUTY    COMMISSIONER,   DEPARTMENT    OF                                                                    
TRANSPORTATION AND  PUBLIC FACILITIES  (via teleconference),                                                                    
clarified his understanding that  the question was about why                                                                    
DOT preferred a fuel tax over a landing tax.                                                                                    
                                                                                                                                
Representative Wilson asked if  the department supported the                                                                    
legislation.                                                                                                                    
                                                                                                                                
Mr. Binder  answered that the  governor had tasked  DOT with                                                                    
investigating  ways to  reduce  the amount  of General  Fund                                                                    
(GF)  subsidies to  the rural  airport  system. He  detailed                                                                    
that  the rural  airport system  cost about  $39 million  to                                                                    
operate annually and  brought in $5 million  in revenue. The                                                                    
conversation had begun approximately  1.5 years ago when the                                                                    
legislature  had asked  DOT to  subsidize or  fund personnel                                                                    
increases  (at the  time operations  had  been increasing  -                                                                    
significant  overtime had  been occurring  and carriers  had                                                                    
been  requesting  extended  hours  at  the  airports,  which                                                                    
required  personnel) with  landing fees.  He furthered  that                                                                    
the  aviation  advisory  board had  asked  the  governor  to                                                                    
engage with  DOT on other  available options  for generating                                                                    
revenue.  He detailed  the conversation  had built  over the                                                                    
past year  about what options  were available and  what made                                                                    
sense. He  continued that board members  had raised concerns                                                                    
about  equitability and  fairness  across  the state  rather                                                                    
than at a  specific airport. The board felt that  due to the                                                                    
impact on the state, since  aviation fuel taxes were already                                                                    
in place  and were some  of the  lowest in the  country, the                                                                    
board  believed  it  would  be  the  best  way  to  generate                                                                    
additional revenue on the rural  system to close the subsidy                                                                    
gap. The board recommended an  increase up to 7 cents [note:                                                                    
some  audio indecipherable],  which was  the foundation  for                                                                    
the governor's inclusion of the  tax increase in the current                                                                    
bill.                                                                                                                           
                                                                                                                                
Co-Chair Thompson  shared that about  2.5 years back  he had                                                                    
chaired  the  finance  transportation subcommittee  and  had                                                                    
requested the  department come  back with  some way  to help                                                                    
cover  the  exorbitant cost  of  keeping  249 airports  open                                                                    
without any money to offset.                                                                                                    
                                                                                                                                
Representative  Wilson relayed  she had  found it  upsetting                                                                    
when  she  had called  DOT  to  try  to determine  how  much                                                                    
general  funds were  used at  every airport  - she  had been                                                                    
unable  to get  an answer.  For example,  she had  been told                                                                    
that a  lump sum of  money was  sent to the  northern region                                                                    
and there  was no way of  tracking what went to  the highway                                                                    
and the  airports. She  opined that it  was pretty  scary if                                                                    
that was  the way the  state handled business. She  asked if                                                                    
the  department   would  be  in   favor  of   excluding  the                                                                    
international  airports  from  the   tax,  given  they  were                                                                    
already  self-sufficient. She  did not  have a  problem with                                                                    
the option  for other airports.  She was concerned  that the                                                                    
bill  would  put  more  stress on  the  larger  airports  to                                                                    
subsidize the smaller airports.                                                                                                 
                                                                                                                                
Mr.  Binder   responded  that  domestic  traffic   would  be                                                                    
impacted by  the aviation fuel  tax since  the international                                                                    
traffic was exempt  already - it was  about three-fourths of                                                                    
the  total  figure  and  impacted   the  amount  of  revenue                                                                    
generated   [note:  poor   audio  quality,   some  testimony                                                                    
indecipherable].  He  pointed  out  that  the  international                                                                    
airports  were directly  benefiting  from  rural Alaska.  He                                                                    
stated  that  while the  fuel  tax  was being  collected  in                                                                    
Anchorage and Fairbanks  and then flowing back  to the rural                                                                    
system,   the    international   airports    were   directly                                                                    
benefitting  from  the  operations  even  if  they  did  not                                                                    
actually weigh in.                                                                                                              
                                                                                                                                
3:24:01 PM                                                                                                                    
                                                                                                                                
Representative Wilson  was concerned about  actually looking                                                                    
at  the  users  being  able to  support  the  industry.  She                                                                    
clarified she  was not  speaking to  the benefit.  She noted                                                                    
she  would offer  an amendment  to exempt  the international                                                                    
airports from  the tax. She  furthered that the  landing fee                                                                    
paid   for  capital   projects   at  present   on  the   two                                                                    
international airports (the  airports also operated domestic                                                                    
flights). She asked  if the department had  modeling to show                                                                    
how the  proposed increases would affect  the average person                                                                    
in  the  mining,  fishing,   and  other  related  industries                                                                    
throughout the state.                                                                                                           
                                                                                                                                
Mr. Burnett responded that the  modeling primarily looked at                                                                    
the amount of  revenue each of the  particular tax increases                                                                    
would raise (on  the existing taxes). He  explained that the                                                                    
subject  matter  experts and  economists  in  DOR and  other                                                                    
departments  believed  the   increases  would  have  minimal                                                                    
impact on the business.                                                                                                         
                                                                                                                                
Co-Chair Thompson remarked that  some modeling had been done                                                                    
pertaining  to a  commuter driving  into Anchorage  from the                                                                    
valley. The scenario  had assumed a certain  gas mileage and                                                                    
a  five-day  per  week  commute. He  did  not  remember  the                                                                    
precise numbers,  but it had  determined the motor  fuel tax                                                                    
increase would cost someone about $48 per year.                                                                                 
                                                                                                                                
Representative Wilson stated that it  was not just about the                                                                    
tax. She  stated the committee  had heard how low  its taxes                                                                    
were, but that  Alaska paid some of the  highest gas prices.                                                                    
She  continued  there  were  impacts   to  everyone  and  as                                                                    
investors she  believed they should  know how  the increases                                                                    
would  impact individuals.  She stated  the addition  may be                                                                    
minimal, but it was necessary to  factor in the cost of gas,                                                                    
the  income  people  brought  in, and  what  else  would  be                                                                    
utilized.                                                                                                                       
                                                                                                                                
3:26:35 PM                                                                                                                    
                                                                                                                                
Representative  Gara  referred  to  the  committee's  recent                                                                    
debate  about  whether  there  should be  a  big  bill  that                                                                    
included numerous  taxes or separate  bills for each  of the                                                                    
taxes.  He remarked  that the  administration  had tried  to                                                                    
submit individual bills [during  regular session], which had                                                                    
not worked. Subsequently,  the administration had introduced                                                                    
a large  bill that  included all of  the taxes.  He believed                                                                    
the administration  was just trying  to get  something done.                                                                    
He apologized  to Commissioner Hoffbeck  that he  had become                                                                    
animated  in  the  previous  discussion.  He  emphasized  he                                                                    
merely wanted to  see a bill move forward.  He addressed the                                                                    
fuel tax and  relayed the committee had been  told that with                                                                    
the increase in  the legislation the state's  fuel tax would                                                                    
still be the lowest in the  nation. He asked if the same was                                                                    
true for aviation fuel.                                                                                                         
                                                                                                                                
Mr. Binder responded in the affirmative.                                                                                        
                                                                                                                                
Representative Gara remarked that the  high price of fuel in                                                                    
Alaska  had   more  to  do  with   refineries;  however,  he                                                                    
acknowledged  it was  not the  appropriate  time to  address                                                                    
that issue.  He added  that he and  others had  introduced a                                                                    
bill that would  have dealt with refinery  charges. He asked                                                                    
for verification  that the aviation fuel  tax increase would                                                                    
apply equally to all domestic  flights including small plane                                                                    
flights in rural Alaska or flights at larger airports.                                                                          
                                                                                                                                
Mr.  Binder replied  in the  affirmative.  He detailed  that                                                                    
most of  the [air]  traffic in Alaska  used jet  fuel [note:                                                                    
poor  audio  quality,  some  testimony  indecipherable].  As                                                                    
written,  the bill  would  apply to  everyone  in the  state                                                                    
except for  international traffic originating  or ultimately                                                                    
landing in a foreign country.                                                                                                   
                                                                                                                                
3:30:17 PM                                                                                                                    
                                                                                                                                
Representative  Gara remarked  that  whether  or not  people                                                                    
wanted  to agree,  the  state needed  to  raise revenue.  He                                                                    
stated the question  was about how to raise  the revenue and                                                                    
about how fair  it was to everyone. He was  leaning in favor                                                                    
of  the legislation.  He was  concerned  that a  significant                                                                    
portion  of  the  burden was  falling  on  individuals  with                                                                    
little  money.  He  wanted   to  see  wealthier  individuals                                                                    
contribute in a  commensurate way. Overall he  wanted to see                                                                    
a package that was fair to everyone and more balanced.                                                                          
                                                                                                                                
Co-Chair  Thompson referred  to a  prior presentation  on HB
4001,  which had  demonstrated how  the proposed  motor fuel                                                                    
tax increase  would impact Alaskans. For  example, a typical                                                                    
person driving  12,000 miles per  year in a  vehicle getting                                                                    
roughly 20  miles per  gallon, would  pay an  additional $48                                                                    
per year in taxes.                                                                                                              
                                                                                                                                
Representative Gara referred to  a fiscal policy caucus that                                                                    
had existed  before he  had served as  a legislator.  At the                                                                    
time he had  recommended that at high prices  when there was                                                                    
less of a need for money and  the price of gas was much more                                                                    
expensive, the  gas tax would  roll back. He noted  a former                                                                    
version of the  bill had rolled back the gas  tax. He wanted                                                                    
the  committee to  spend some  time considering  whether the                                                                    
approach was fair.                                                                                                              
                                                                                                                                
Co-Chair  Thompson noted  the committee  would consider  the                                                                    
bill the following day as well.                                                                                                 
                                                                                                                                
3:32:17 PM                                                                                                                    
                                                                                                                                
Representative  Guttenberg acknowledged  the state's  budget                                                                    
crisis and noted  that the price of motor  and aviation fuel                                                                    
was fairly low. He recognized  the bill's goal of increasing                                                                    
revenue.  He  mentioned  the estimated  $48  per  driver  in                                                                    
additional  taxes per  year for  motor fuel.  He spoke  to a                                                                    
time  when the  price of  gas  increased to  over $4.00  per                                                                    
gallon and  was concerned  the impacts on  individuals would                                                                    
be significantly  higher, but the state's  needs for raising                                                                    
revenue  would  be  greatly  diminished.  He  asked  if  the                                                                    
administration   had  considered   rolling  back   taxes  at                                                                    
different stages if the oil  price increased to $80, $90, or                                                                    
$110.  He had  heard  questions about  how  the state  would                                                                    
account for  the price  difference between  Southcentral and                                                                    
Northern Alaska  regions. He contended it  was not difficult                                                                    
to draw a line around  Paxson or Trapper Creek and Cantwell.                                                                    
He detailed  rural Alaska would  be paying the same  hit two                                                                    
or three times the amount impacting the road system.                                                                            
                                                                                                                                
Mr.   Burnett   answered   that   the   House   and   Senate                                                                    
Transportation Committees had both  included a price trigger                                                                    
in the legislation; however,  the governor's legislation had                                                                    
never included  a price  trigger. He  detailed that  in 2008                                                                    
when the price  of oil hit its record  high, the legislature                                                                    
acted to suspend the gas tax  for one year, which was always                                                                    
an option in periods of  excess prices. He relayed the issue                                                                    
was  not  a  concern   included  in  DOR's  10-year  revenue                                                                    
forecast.                                                                                                                       
                                                                                                                                
Representative  Guttenberg  thought  the  best  time  to  do                                                                    
something was  when there  was no pressure  on it.  He would                                                                    
look at bringing some of the things back.                                                                                       
                                                                                                                                
3:35:13 PM                                                                                                                    
                                                                                                                                
Representative Wilson  asked how  the increase  would impact                                                                    
the trucking industry  in Alaska. She remarked  that most of                                                                    
the goods were trucked into Fairbanks.                                                                                          
                                                                                                                                
Mr. Burnett responded that he  did not have any estimates on                                                                    
hand related  to shipping rates.  The department  had looked                                                                    
at  how  much fuel  someone  may  use  and what  that  would                                                                    
affect. He  detailed the change  in taxes was less  than the                                                                    
change  in the  last month  in fuel  prices in  most of  the                                                                    
state's communities.  He remarked there were  not changes in                                                                    
shipping rates  every time gasoline  or diesel  increased or                                                                    
decreased 8 cents.  He stated it was very  difficult to tell                                                                    
what  the impact  would be  over time.  He continued  it was                                                                    
possible to  identify the costs  to a specific  company, but                                                                    
it was not possible to know how it would impact prices.                                                                         
                                                                                                                                
Representative Wilson  hoped to  hear about the  impact from                                                                    
the  trucking industry,  which had  pulled its  support from                                                                    
the  bill. She  believed the  administration was  asking the                                                                    
legislature  to   make  a  decision   without  all   of  the                                                                    
information. She  wanted to  know how  the motor  fuel, jet,                                                                    
and other taxes would  impact her constituents. She remarked                                                                    
that  many  goods  were  either flown  or  trucked  in  from                                                                    
Anchorage. She opined the impact  would be very different in                                                                    
communities  across  the  state. She  believed  the  answers                                                                    
should be known.                                                                                                                
                                                                                                                                
Representative Edgmon spoke to the  art of raising taxes. He                                                                    
wondered  if there  was any  way to  quantify the  cause and                                                                    
effect  of raising  taxes on  industry, private  sector, and                                                                    
consumer  behavior.  He  assumed  the answer  was  "no."  He                                                                    
surmised  there were  ways for  industry representatives  to                                                                    
provide numbers about what increases  to their costs mean in                                                                    
terms of  their economic  behavior (their ability  to invest                                                                    
and  to  go forward  to  private  sector entities).  He  was                                                                    
frustrated that levying  taxes was inevitable. Additionally,                                                                    
he  was frustrated  that the  cause and  effect relationship                                                                    
was indeterminate  and that the  legislature had to  rely on                                                                    
others to  tell them. He  furthered that even DOR,  with its                                                                    
best  quantitative  tools,  could  only give  some  kind  of                                                                    
extrapolation  or  estimate  about what  the  tax  increases                                                                    
would mean. He  asked if the department had been  able to do                                                                    
the analysis. Alternatively, he  wondered if the legislature                                                                    
would  have to  rely on  others to  come forward  to specify                                                                    
what the increases would truly mean.                                                                                            
                                                                                                                                
3:39:02 PM                                                                                                                    
                                                                                                                                
Mr. Burnett replied  that DOR could determine  what the cost                                                                    
would be to  an individual or company for any  of the taxes.                                                                    
However, DOR could not determine  how people would behave or                                                                    
change  their behavior  as a  result of  the tax.  He shared                                                                    
that he  had been  a university  business instructor  in the                                                                    
past.  He relayed  there were  numerous academic  studies on                                                                    
the  topic,  but they  were  not  conclusive and  would  not                                                                    
provide an  answer about  what would  occur when  taxes were                                                                    
raised.                                                                                                                         
                                                                                                                                
Representative  Gattis  referred  to  the  study  of  Mat-Su                                                                    
commuters driving  an average of  12,000 per year  who would                                                                    
pay  an average  of $48  more per  year [under  the proposed                                                                    
motor  fuel tax  increase].  She shared  that  she lived  in                                                                    
downtown  Wasilla, which  was 55  miles from  Anchorage. She                                                                    
rounded  the  distance  to  50 miles  and  stressed  that  a                                                                    
commute  to  Anchorage five  days  per  week was  more  than                                                                    
12,000. She  stated the actual  mileage would  range between                                                                    
27,000  and  30,000  not  counting  any  other  travel.  She                                                                    
emphasized that the  increase would have a  bigger impact on                                                                    
Mat-Su than $48 per year.                                                                                                       
                                                                                                                                
Co-Chair  Thompson clarified  that he  had received  a sheet                                                                    
from  a  former  presentation  showing that  a  car  driving                                                                    
12,000 miles per  year at 20 miles per gallon,  would pay an                                                                    
additional $48. He explained 12,000  per year was considered                                                                    
to be  the national average for  miles put on a  vehicle. He                                                                    
shared that his vehicle was a 2001 and it only had 92,000.                                                                      
                                                                                                                                
3:41:14 PM                                                                                                                    
                                                                                                                                
Representative Gattis  replied that  she had a  2003 vehicle                                                                    
with  over 150,000  miles.  She stressed  that  most of  the                                                                    
miles  were   not  commuter   miles.  She   detailed  Mat-Su                                                                    
residents spent a significant amount  of time traveling back                                                                    
and  forth to  Anchorage; therefore,  there would  be a  big                                                                    
impact.                                                                                                                         
                                                                                                                                
Representative   Guttenberg   referred   to   his   personal                                                                    
vehicles.   He    believed   the   appropriate    term   was                                                                    
"elasticity." He relayed he had  recently read an article on                                                                    
the  elasticity  in  the  economy  on  men's  underwear.  He                                                                    
provided further detail about  the article. He remarked that                                                                    
elasticity  was  a  common  economic  concept.  He  did  not                                                                    
believe  there was  no way  of measuring  the impact  of the                                                                    
proposed  tax  increases  on  Alaska.  He  surmised  it  was                                                                    
possible  to  Google  the  question   and  come  up  with  a                                                                    
multitude of papers. He asked  about the effect of the taxes                                                                    
on  the economy.  He  surmised that  at  present the  impact                                                                    
would probably  be minimal,  but if the  price ever  went to                                                                    
$100, he believed  it would be severe. He stated  it was not                                                                    
rocket  science.  He  underscored  that  the  committee  was                                                                    
asking questions,  but was not  getting the answers.  He was                                                                    
disinclined to support the bill  and had never been inclined                                                                    
to support it.                                                                                                                  
                                                                                                                                
Mr.  Burnett responded  that the  elasticity  of demand  for                                                                    
motor fuels  was very, very  low within any  relevant range.                                                                    
The change  from 8 cents  to 16  cents was unlikely  to make                                                                    
any  reasonable  change  in  people's  behavior.  The  price                                                                    
change  from   $2.00  to  $4.00  was   a  separate  question                                                                    
entirely. He emphasized the price  change as a result of the                                                                    
legislation would be very low.                                                                                                  
                                                                                                                                
Representative  Guttenberg  responded   that  he  "certainly                                                                    
recognized that,  but you get to  a dollar a lot  faster and                                                                    
that's the  impact." He furthered  that when the  price went                                                                    
to  $1.00 because  of the  increase in  the legislation,  it                                                                    
would impact "it faster than  it would otherwise." He stated                                                                    
it made a  difference when fuel would be $4.00  or $5.00 per                                                                    
gallon. He  believed the increase  in the bill would  get to                                                                    
the higher price faster.                                                                                                        
                                                                                                                                
Co-Chair Thompson  summarized that  the bill  would increase                                                                    
motor fuel tax from 8 cents  to 16 cents and the state would                                                                    
still  have the  second lowest  gas  tax in  the nation.  He                                                                    
shared he  had recently been  in California, which had  a 52                                                                    
cent tax; gas  in California had been $3.15  per gallon when                                                                    
it had been $2.30 per gallon in Fairbanks.                                                                                      
                                                                                                                                
HB  4003  was  HEARD  and  HELD  in  committee  for  further                                                                    
consideration.                                                                                                                  
                                                                                                                                
HOUSE BILL NO. 4005                                                                                                           
                                                                                                                                
     "An Act  relating to the  mining license  tax; relating                                                                    
     to  the  exploration   incentive  credit;  relating  to                                                                    
     mining  license  application,  renewal, and  fees;  and                                                                    
     providing for an effective date."                                                                                          
                                                                                                                                
3:46:21 PM                                                                                                                    
                                                                                                                                
Mr. Burnett explained HB 4005  was an increase in the mining                                                                    
license tax rate.  The bill would increase the  top tax rate                                                                    
on  net  profits  greater  than $100,000  per  year  from  7                                                                    
percent to  9 percent.  Additionally, the bill  would reduce                                                                    
the tax  holiday for new  mines from  3.5 years to  2 years,                                                                    
prevent the mining exploration  incentive credits from being                                                                    
used to  reduce royalties  (limiting them  to the  tax), and                                                                    
added a  $50 annual  license fee. He  noted the  license fee                                                                    
was  reasonable  because  miners   were  exempted  from  the                                                                    
business license  fee. He read the  sectional analysis (copy                                                                    
on file):                                                                                                                       
                                                                                                                                
   · Section 1: Eliminates the ability to take the mining                                                                       
     exploration tax credit against royalty payments                                                                            
   · Section 2: Removes references to royalties in the                                                                          
     mining exploration tax credit provisions in AS                                                                             
     27.30.030(a)                                                                                                               
   · Section 3: Removes references to royalties in the                                                                          
     mining exploration tax credit provisions in AS                                                                             
     27.30.040                                                                                                                  
   · Section 4: Removes references to royalties in the                                                                          
     mining exploration tax credit provisions in AS                                                                             
     27.30.050.                                                                                                                 
   · Section  5: Changes  the existing  tax holiday  for new                                                                    
     mining operations  from three  and one-half years  to 2                                                                    
     years.                                                                                                                     
   · Section 6:  Changes the  tax rate  on mining  income in                                                                    
     excess of $100,000 from 7 percent to 9 percent.                                                                            
   · Section  7: Provides  for a  $50 annual  mining license                                                                    
     fee.                                                                                                                       
   · Section  8: Provides  that changes  to the  exploration                                                                    
     tax  credit are  applicable to  royalty payments  after                                                                    
     the effective date of section  1. Provides that the two                                                                    
     year  tax holiday  applies  to  mining operations  that                                                                    
     begin production  after the  effective date  of section                                                                    
     6. Provides that the new  tax rate begins the first tax                                                                    
     year after the effective date of section 6.                                                                                
   · Section   9:  Provides   the  exploration   tax  credit                                                                    
     accounting  in   current  law   applies  to   a  mining                                                                    
     operation which  began mining  production prior  to the                                                                    
     effective date of this act.                                                                                                
   · Section  10: Allows  for the  Department of  Revenue to                                                                    
     adopt regulations to administer this act.                                                                                  
   · Section 11:  Provides for  an immediate  effective date                                                                    
     for section 10.                                                                                                            
   · Section  12: Provides  that  the rest  of  the bill  is                                                                    
     effective July 1, 2016.                                                                                                    
                                                                                                                                
Mr.  Burnett  elaborated that  the  new  tax would  go  into                                                                    
effect in January 1, 2017.                                                                                                      
                                                                                                                                
Representative  Gara  noted the  bill  had  briefly been  in                                                                    
front of  the committee several  weeks earlier. He  had been                                                                    
surprised to learn that a  company would continue to receive                                                                    
a tax  holiday if  they were making  profits (for  3.5 years                                                                    
under current  law and  2 years  under the  legislation). He                                                                    
understood the  justification of not having  a profits based                                                                    
tax  if  a  company  was not  making  profits;  however,  he                                                                    
wondered about the justification for  giving a company a tax                                                                    
holiday when it was making profits.                                                                                             
                                                                                                                                
Mr. Burnett responded that mining  operations tended to have                                                                    
very large  capital costs prior  to the start  of operations                                                                    
and the  tax holiday  allowed a company  to recover  some of                                                                    
those capital costs at the  very beginning of production. He                                                                    
detailed there was no cash out  to the companies as a result                                                                    
of the  tax holiday. He  furthered that companies  tended to                                                                    
not be  as profitable in  the first two years  of production                                                                    
as they became once production reached full swing.                                                                              
                                                                                                                                
Co-Chair Thompson  referred to the International  Tower Hill                                                                    
Mines Livengood  project that had  300 people working  on it                                                                    
two  years back.  He  detailed  the mine  was  still in  the                                                                    
permitting  process  and  it had  tremendous  upfront  costs                                                                    
already. He  reasoned the tax  holiday would allow  the mine                                                                    
to  recover  some of  the  startup  costs  - it  would  take                                                                    
several  years  before  the  company  would  actually  begin                                                                    
mining.                                                                                                                         
                                                                                                                                
3:50:55 PM                                                                                                                    
                                                                                                                                
Representative Gara  conjectured that two-year  holiday made                                                                    
more  sense   under  some   circumstances.  He   provided  a                                                                    
hypothetical scenario  where a company invested  $10 million                                                                    
to prepare  a mine  for operation  and became  profitable in                                                                    
year one. He  asked if the company would deduct  part of the                                                                    
$10 million  from year  one so  they were  truly profitable.                                                                    
Alternatively, he wondered  if a company was  not allowed to                                                                    
deduct the prior costs from the first year of profits.                                                                          
                                                                                                                                
Mr.  Burnett responded  that a  company was  not allowed  to                                                                    
directly  deduct prior  cost. There  was an  exploration tax                                                                    
credit a company may be  able to take part of. Additionally,                                                                    
there was a depletion allowance,  which allowed a company to                                                                    
take a  certain percentage of  a prior cost. He  explained a                                                                    
company did not take a deduction  for prior cost in one lump                                                                    
like with a cash  flow tax (oil and gas was  a cash flow tax                                                                    
rather than  a profits tax)  where capital costs  were taken                                                                    
when they were spent and credits were taken.                                                                                    
                                                                                                                                
Co-Chair  Thompson  informed   the  committee  that  Brandon                                                                    
Spanos the  deputy director of  the DOR Tax Division  was on                                                                    
the line for additional questions.                                                                                              
                                                                                                                                
Representative  Gara had  heard  companies  were allowed  to                                                                    
deduct  a certain  percentage  of  pre-operations costs.  He                                                                    
referred to the carried forward  tax credit and a portion of                                                                    
costs a  company could  deduct in the  first year.  He asked                                                                    
what  portion  could  be  deducted  once  a  company  became                                                                    
profitable.                                                                                                                     
                                                                                                                                
3:53:21 PM                                                                                                                    
                                                                                                                                
BRANDON   S.   SPANOS,   DEPUTY  DIRECTOR,   TAX   DIVISION,                                                                    
DEPARTMENT  OF  REVENUE   (via  teleconference),  asked  for                                                                    
clarification.                                                                                                                  
                                                                                                                                
Representative  Gara  referred  to a  company's  development                                                                    
costs and asked for an  estimate of what portion the company                                                                    
was  allowed  to  deduct once  they  became  profitable.  He                                                                    
referenced   the  concept   that  once   a  company   became                                                                    
profitable they would still not pay a tax for a few years.                                                                      
                                                                                                                                
Mr.  Spanos   replied  [note:  audio  cut   out  during  the                                                                    
response].                                                                                                                      
                                                                                                                                
Representative Gara referred to  the depletion allowance and                                                                    
asked  for  verification a  company  was  allowed to  deduct                                                                    
development  costs on  a depreciation  schedule (similar  to                                                                    
federal  law  pertaining to  federal  taxes).  He asked  for                                                                    
verification  that a  company received  the money  back (the                                                                    
deductions) over a period of time.                                                                                              
                                                                                                                                
Mr.  Spanos replied  in the  affirmative. He  detailed there                                                                    
was  a cost  or  percentage depletion  allowance similar  to                                                                    
federal depreciation or depletion.                                                                                              
                                                                                                                                
3:55:39 PM                                                                                                                    
                                                                                                                                
Representative Gara asked if the  allowance pertained to all                                                                    
of a company's development costs.                                                                                               
                                                                                                                                
Mr.  Spanos  responded  it  pertained  to  a  company's  own                                                                    
capitalized development costs.                                                                                                  
                                                                                                                                
Representative  Gara asked  for  verification the  allowance                                                                    
pertained to capital costs but not operations costs.                                                                            
                                                                                                                                
Mr. Spanos  replied no, if  there had  been an expense  in a                                                                    
given  year that  would  be capitalized.  He  detailed if  a                                                                    
company had a loss in the  year a corporation may be able to                                                                    
use   it  against   other   income.   However,  in   general                                                                    
development costs were capitalized.                                                                                             
                                                                                                                                
Representative  Gara relayed  he was  getting tripped  up on                                                                    
capitalized versus  capital costs. He explained  he was used                                                                    
to oil production  taxes and the terms  capital costs versus                                                                    
operations costs.  He asked for a  definition of capitalized                                                                    
costs.                                                                                                                          
                                                                                                                                
Mr. Spanos  replied a capitalized  cost was an  expense that                                                                    
was not expensed  in the current year. He  furthered that it                                                                    
became  part  of the  capital  and  was expensed  through  a                                                                    
schedule over the life of the mine.                                                                                             
                                                                                                                                
Representative   Gara   asked   for  verification   that   a                                                                    
capitalized  development cost  could include  operations and                                                                    
capital  costs.  Mr.  Spanos asked  Representative  Gara  to                                                                    
repeat the question.                                                                                                            
                                                                                                                                
Representative  Gara   complied.  He   surmised  capitalized                                                                    
development  costs  could  include  operations  costs  (e.g.                                                                    
labor)  and  capital  costs  (e.g.  equipment).  Mr.  Spanos                                                                    
agreed. He expounded that the  labor would be capitalized if                                                                    
it was part of the development of a mine.                                                                                       
                                                                                                                                
Representative  Wilson asked  how  the mining  and fuel  tax                                                                    
bills would economically impact the mining industry.                                                                            
                                                                                                                                
3:58:15 PM                                                                                                                    
                                                                                                                                
FRED  PARADY, DEPUTY  COMMISSIONER, DEPARTMENT  OF COMMERCE,                                                                    
COMMUNITY, AND ECONOMIC  DEVELOPMENT (DCCED), responded that                                                                    
the  mining tax  itself  was  a net  income  tax, which  was                                                                    
somewhat  unusual in  his experience  related to  mining. He                                                                    
shared  he had  spent 30  years  in mining  in Wyoming.  The                                                                    
taxes he was  most familiar with in  Wyoming were severance-                                                                    
based, not  net income-based. The  net income tax  would not                                                                    
occur unless  a property  had a net  income. He  stated "you                                                                    
can debate the amount of the  haircut, but at the end of the                                                                    
day you're still  growing hair, you weren't  bald." He noted                                                                    
he would leave the specifics of  the fuel tax to DOR, but he                                                                    
believed  there  was an  off-road  tax  credit against  that                                                                    
because it's a fuel tax.                                                                                                        
                                                                                                                                
Representative  Wilson indicated  that she  had spoken  with                                                                    
Fort Knox and  she believed even with a credit  the fuel tax                                                                    
would  be  a huge  amount  of  money (excluding  the  mining                                                                    
portion).  She  thought  it was  DCCED's  responsibility  to                                                                    
consider  how taxes  would impact  business  in Alaska.  She                                                                    
added  if it  was not  the department's  responsibility, she                                                                    
wanted to know why.                                                                                                             
                                                                                                                                
Mr. Parady that the task had  not been given to DCCED in the                                                                    
current timeframe.  He suggested that as  everyone looked at                                                                    
the holistic  picture of the  situation Alaska  found itself                                                                    
in,  of  course  there  were   economic  consequences  to  a                                                                    
$400,000 per hour deficit.                                                                                                      
                                                                                                                                
Representative  Wilson stressed  that  HB 4005  was not  her                                                                    
legislation; however, if  it was her bill she  would come up                                                                    
with  the information  [she was  currently  asking for  from                                                                    
DCCED]. She did not understand  why anyone would have to ask                                                                    
the administration to bring certain  things up. She reasoned                                                                    
there were departments for  specific reasons. She redirected                                                                    
her question  to the Department of  Natural Resources (DNR).                                                                    
She asked DNR if it had  done any analysis on how the mining                                                                    
and  fuel  taxes  would  impact  the  mining  industry.  She                                                                    
wondered how much money they  were talking about, especially                                                                    
related to mines making over $100,000.                                                                                          
                                                                                                                                
BRENT  GOODRUM,  DIRECTOR,  DIVISION  OF  MINING,  LAND  AND                                                                    
WATER,    DEPARTMENT     OF    NATURAL     RESOURCES    (via                                                                    
teleconference), replied  that the  department had  not been                                                                    
able to  conduct an  economic analysis  at the  present time                                                                    
regarding the bill proposals.                                                                                                   
                                                                                                                                
Co-Chair Thompson asked  how many mines in  Alaska made over                                                                    
$100,000 per year in taxable profits.                                                                                           
                                                                                                                                
Mr. Goodrum  responded that  about six  mines fell  into the                                                                    
category  [note: due  to poor  audio quality  some testimony                                                                    
indecipherable].                                                                                                                
                                                                                                                                
Representative  Wilson  stated  she  was  not  asking  trick                                                                    
questions. She  reasoned the  administration was  asking the                                                                    
legislature  to increase  taxes on  industry as  well as  on                                                                    
individuals without  the information she believed  should be                                                                    
required.  She wanted  to  know the  overall  impact of  the                                                                    
proposed taxes on  each industry. She noted  the bills would                                                                    
add an  incredible cost to  Fort Knox (the estimate  did not                                                                    
include property taxes,  which Pogo Mine did  not have). She                                                                    
stated each mine  was different and although  there were not                                                                    
a  significant   number,  certain  boroughs   had  different                                                                    
responsibilities  and  costs.  She thought  the  information                                                                    
should have been available either from DOR or DCCED.                                                                            
                                                                                                                                
4:03:05 PM                                                                                                                    
                                                                                                                                
Co-Chair Neuman asked if there  was a methodology that could                                                                    
predict the economic impacts of an increased tax.                                                                               
                                                                                                                                
Mr. Parady replied  that in a mine  management scenario with                                                                    
an investment property such as  Fort Knox (i.e. an operating                                                                    
mine) at  the time of  determining the capital  investment a                                                                    
company would have run best,  worst, and probable scenarios;                                                                    
the internal rate of return;  and hurdle rate related to the                                                                    
range  of risk  for the  investment. He  stated the  factors                                                                    
came  from  all  directions including  permitting  timeline,                                                                    
scale  of  investment,  rate   of  return,  commodity  price                                                                    
volatility,  and  other.  Across  the  range  of  factors  a                                                                    
company   was   reaching    an   investment   decision.   He                                                                    
acknowledged that  uncertainty was the enemy  of investment,                                                                    
which  was the  reason  the  tax holiday  (at  the time  the                                                                    
investment  was  made)  was  a  fairly  significant  benefit                                                                    
because  it  occurred right  at  the  point where  cash  was                                                                    
flowing out  the door, but  not in. The bill  would shorten,                                                                    
but  not eliminate  the  window. He  continued  that once  a                                                                    
company began  operation, its cost structure  was predicated                                                                    
on all  of the variable  costs (i.e. labor  contracts, fuel,                                                                    
and  other) and  commodity price  variability. He  explained                                                                    
that mines were driven by  economies of scale. He detailed a                                                                    
company could  respond to market  volatility by  running its                                                                    
equipment around the  clock, year round to  spread out fixed                                                                    
cost and lower per unit cost.                                                                                                   
                                                                                                                                
Mr. Parady  addressed the particular  tax and its  impact on                                                                    
an operating environment.  He agreed the change from  7 to 9                                                                    
percent was  not a 2  percent change, it was  a two-sevenths                                                                    
change or  28 percent,  which constituted a  substantive tax                                                                    
change.  However,  it was  a  tax  change occurring  on  net                                                                    
income; at  that point,  it may lessen  a mine's  ability to                                                                    
reinvest  or  hire  additional workforce,  but  it  was  not                                                                    
shifting from  a profitable  to a  non-profitable enterprise                                                                    
on the  basis of  the tax.  He did not  have the  ability to                                                                    
model  Fort  Knox's cost  structure;  each  of the  existing                                                                    
mines knew  exactly where their  cost structure  was against                                                                    
the current price of gold.  He agreed the tax increase would                                                                    
have an  impact, but because it  was a net income,  it would                                                                    
tighten their operating margins,  but would not position the                                                                    
mines for failure.                                                                                                              
                                                                                                                                
4:06:30 PM                                                                                                                    
                                                                                                                                
Co-Chair  Neuman  knew  that different  mines  had  internal                                                                    
information  that he  surmised the  department did  not have                                                                    
access  to. He  thought the  state would  have a  $3 billion                                                                    
deficit for  some time; he  did not anticipate the  price of                                                                    
oil to  increase any time  soon. He wondered how  to measure                                                                    
that  against   trying  to  cover   the  state's   debt.  He                                                                    
questioned  whether  the  money  should be  taken  from  the                                                                    
state's dividend.  He was  trying to think  of some  way the                                                                    
department  could  model the  economic  impacts  of all  the                                                                    
various information.                                                                                                            
                                                                                                                                
Mr. Burnett  responded that  it was not  a simple  model. He                                                                    
specified  that  each  of  the   mines  were  different.  He                                                                    
clarified that DOR did receive  the mines' cost information.                                                                    
The largest  taxpayers in the  group had about  $451 million                                                                    
in profits in  2014 and the tax would take  an additional $7                                                                    
million  in  taxes per  year  out  of  that type  of  profit                                                                    
structure. He corrected that prices  would be lower based on                                                                    
commodity  prices  -  the  profit was  in  the  hundreds  of                                                                    
millions  and  the  state  would  take  a  few  million.  He                                                                    
elaborated  that the  state's tax  would reduce  the federal                                                                    
tax.  He continued  it was  not a  deduction from  the state                                                                    
income tax, but  it was a deduction from  the federal income                                                                    
tax,  which  was  a  35  percent  tax.  The  impact  on  the                                                                    
companies  was not  as great  as  the dollar  amount in  the                                                                    
fiscal note.  The 4 cents  in additional fuel tax  the mines                                                                    
would  pay  (he  clarified  the  number  was  determined  by                                                                    
subtracting  12  cents  from  16  cents)  was  lost  in  the                                                                    
volatility  of  fuel  prices.  He  acknowledged  the  dollar                                                                    
amount was significant, but commodity  prices also tended to                                                                    
move together  in many cases.  He continued that  oil prices                                                                    
and gold prices  could move in the  opposite directions, but                                                                    
it  was only  possible to  make predictions  or guesses.  He                                                                    
underscored the  increase would mean  a small  dollar impact                                                                    
relative to  the total investment.  The bill would  not mean                                                                    
the  state would  take money  before it  became profit;  the                                                                    
bill would only take profits with the mining tax.                                                                               
                                                                                                                                
Co-Chair Neuman  requested a comparison of  the mining, gas,                                                                    
motor fuel,  and fisheries  taxes compared  to the  taxes in                                                                    
other states.                                                                                                                   
                                                                                                                                
Mr.  Burnett  replied  that the  department  had  previously                                                                    
provided  the information  to the  committee.  He noted  the                                                                    
department could locate the information.                                                                                        
                                                                                                                                
Vice-Chair  Saddler echoed  the  comments by  Representative                                                                    
Wilson.  He   expressed  embarrassment  on  behalf   of  the                                                                    
administration that  the taxes had been  considered for five                                                                    
or  six  months,  but  he   did  not  see  any  analysis  or                                                                    
consideration  of  the potential  impact  of  the taxes.  He                                                                    
understood  the tax  would only  be  on the  profit, but  he                                                                    
wondered if  the profit margin  could be reduced to  a point                                                                    
where it was not  sufficiently profitable. He wondered about                                                                    
the potential impact on  employment, exploration, and future                                                                    
investments. He assumed  there must be a  general model that                                                                    
applied.  He  believed  the administration  had  been  given                                                                    
sufficient  time to  come  up with  some  specifics. He  was                                                                    
concerned   the   administration   appeared  not   to   have                                                                    
considered the impact of the bills.                                                                                             
                                                                                                                                
Mr. Parady assured the committee  the administration had not                                                                    
approached  the  tax  bills with  a  cavalier  attitude.  He                                                                    
explained that mining  was a cyclical business.  In the past                                                                    
several years the  price of gold had varied  between $950 or                                                                    
$1,000  to  $1,400  or  $1,500.  He  detailed  the  specific                                                                    
commodity  price  spread  far  exceeded any  impact  in  the                                                                    
suggested tax  rate. He agreed  that taxes had an  effect on                                                                    
the bottom line of a business  and a company would deal with                                                                    
the bottom line  the same way the state  was approaching the                                                                    
current deficit - a business  could freeze travel, overtime,                                                                    
and hiring,  and could  layoff contractors.  He acknowledged                                                                    
there  was  an  impact  when  money  was  pulled  out  of  a                                                                    
business. However, he spoke to  the perspective of the scale                                                                    
of a  change from 7  to 9 percent, which  was only on  a net                                                                    
income basis. He underscored the  increase was not on a cost                                                                    
basis.  He explained  the effect  was difficult  to quantify                                                                    
and was less than the effect  of the cost variability in the                                                                    
commodities cycle.                                                                                                              
                                                                                                                                
Mr.  Parady continued  that  in his  knowledge  of taxes  in                                                                    
general, Alaska's  mining tax structure, which  dated to the                                                                    
1950s  and was  based on  net income  was different  than in                                                                    
other  major mining  states; the  most direct  comparison to                                                                    
Alaska was probably  Nevada because it was a  hard rock gold                                                                    
mining  state,   whereas  Wyoming  was  primarily   a  coal,                                                                    
uranium,  and  trona  mining   state  (albeit  trona  mining                                                                    
occurred underground  and there were some  similarities). He                                                                    
elucidated that most tax structures  were typically based on                                                                    
a  percentage of  cost, in  Wyoming it  was a  severance tax                                                                    
basis. The  fact that  Alaska's tax structure  was on  a net                                                                    
income  basis  moderated some  of  the  effect. He  believed                                                                    
DCCED had  a state-by-state comparison and  he would provide                                                                    
it to the committee.                                                                                                            
                                                                                                                                
Co-Chair  Thompson  noted  the committee  had  received  the                                                                    
comparison in the past.                                                                                                         
                                                                                                                                
4:14:00 PM                                                                                                                    
                                                                                                                                
Representative Gattis  discussed that she could  not compare                                                                    
her farms  to those in the  Lower 48. She detailed  that the                                                                    
cost  of  fuel  and  fertilizer  was  significantly  higher.                                                                    
Additionally, she had  to haul in all of  her equipment from                                                                    
the  Lower 48.  She  reminded committee  members and  others                                                                    
that  Alaska  was  unlike  other states  as  it  related  to                                                                    
logistics. She  did not believe  it was possible  to compare                                                                    
apples-to-apples.                                                                                                               
                                                                                                                                
Representative  Gara   thought  additional   discussion  was                                                                    
necessary.  He recalled  oil tax  debates in  the past  when                                                                    
there had been a gross tax.  He asked whether in low profits                                                                    
years a mining  company would prefer a profits  based tax or                                                                    
a gross tax (like in Wyoming).                                                                                                  
                                                                                                                                
Mr.  Parady  clarified the  Wyoming  tax  was severance  tax                                                                    
based. He  detailed the tax  was based  on the value  of the                                                                    
mineral  at the  time it  was  severed from  the ground.  He                                                                    
explained it  was not a  gross on the  cost as the  value of                                                                    
the  cycle was  completed when  fed to  a refinery  or power                                                                    
plant. He  believed a mining  company would want  the lowest                                                                    
tax possible at any given point in time.                                                                                        
                                                                                                                                
Representative Gara  thought there  had to  be an  answer to                                                                    
his  question.  He wondered  if  a  company would  prefer  a                                                                    
severance based tax or a tax  based on profits during a time                                                                    
when profits were low or a company was losing money.                                                                            
                                                                                                                                
Mr. Parady commented  on the complexity of  the question. He                                                                    
explained  when  Russia   imploded  and  Russian  yellowcake                                                                    
flooded the world market and  depressed uranium pricing, "we                                                                    
went to a graduated severance  tax." He detailed the tax was                                                                    
zero  percent at  $12 per  pound of  yellowcake and  down (1                                                                    
percent to $14,  2 percent to $16, and back  to the original                                                                    
rate  of 4  percent  at $18).  The point  was  an effort  to                                                                    
salvage  the industry  through the  low spot  caused by  the                                                                    
spike.  There had  been zero  taxes at  the low  end and  an                                                                    
increase  back  to the  normal  taxing  rate as  the  market                                                                    
returned. He concluded  "there's a lot of ways  to skin this                                                                    
cat."                                                                                                                           
                                                                                                                                
4:17:16 PM                                                                                                                    
                                                                                                                                
Mr. Burnett responded to  Representative Gara's question and                                                                    
explained  that a  net income  based  tax at  a zero  profit                                                                    
would  be  a zero  tax;  therefore,  anytime a  company  was                                                                    
losing money or  profits were low, the tax would  be lower -                                                                    
unless it was structured as Mr. Parady had discussed.                                                                           
                                                                                                                                
4:17:43 PM                                                                                                                    
                                                                                                                                
Representative  Gara had  been surprised  to learn  that the                                                                    
state's royalty  was profits  based as  opposed to  based on                                                                    
the value  of the commodity.  He asked what the  royalty was                                                                    
on mining.                                                                                                                      
                                                                                                                                
Mr. Burnett deferred the question  to Mr. Goodrum. He agreed                                                                    
it was a  net tax based on the same  calculations as the net                                                                    
mining license tax. He did not have the rate on hand.                                                                           
                                                                                                                                
Mr. Goodrum answered the rate was 3 percent net profit.                                                                         
                                                                                                                                
Representative Gara  was not interested  in raising  the tax                                                                    
on struggling  mines (companies that  were not  making money                                                                    
or were making  very little money). He pointed  out that the                                                                    
bill  applied to  mining companies  making over  $100,000 in                                                                    
profit. He  was curious what  the fiscal impact would  be if                                                                    
there  were  a  slightly  higher tax  for  companies  making                                                                    
$250,000  per year  in profits.  He asked  about the  fiscal                                                                    
impact of an 11 percent tax on those companies.                                                                                 
                                                                                                                                
Mr.  Burnett  replied he  had  answered  the question  in  a                                                                    
previous committee.  Generally speaking,  nearly all  of the                                                                    
income  above   $100,000  was  income  above   $250,000.  He                                                                    
clarified it was nearly all  above $1 million. The impact of                                                                    
2 additional  percent on mines  earning over  $250,000 would                                                                    
mean a doubling of the fiscal  note at about $14 million per                                                                    
year as opposed to the $7 million.                                                                                              
                                                                                                                                
4:20:08 PM                                                                                                                    
                                                                                                                                
Representative  Kawasaki  asked  for verification  that  gas                                                                    
prices and  motor fuel would  be rolled into the  net income                                                                    
tax. He surmised  companies would have the  ability to write                                                                    
the   increase  off.   Mr.   Burnett   responded  that   any                                                                    
expenditure for operating  the mine could be taken  as a tax                                                                    
deduction against profits.                                                                                                      
                                                                                                                                
Representative  Kawasaki  recalled   a  previous  discussion                                                                    
related  to when  mining  taxes had  last  been changed  (in                                                                    
1955). He  asked if the brackets  in Section 6 had  been set                                                                    
at the time. He outlined  the brackets as $40,000 to $50,000                                                                    
at  3  percent, $50,000  to  $100,000  was 5  percent,  plus                                                                    
$1,500.                                                                                                                         
                                                                                                                                
Mr. Burnett replied that the  brackets had been set in 1955.                                                                    
He  reminded the  committee  that there  had  been no  large                                                                    
mines operating in  Alaska at the time.  There were numerous                                                                    
large operating  mines in  Alaska prior  to WWII  and nearly                                                                    
all of the  current operating mines had been  started in the                                                                    
1980s, 1990s, and 2000s.                                                                                                        
                                                                                                                                
Representative Kawasaki requested  additional information on                                                                    
why  the  discussions  about  the   brackets  had  not  been                                                                    
changed. He referred to a  Fairbanks resident working in the                                                                    
summer as  a placer  miner who made  $40,000 to  $50,000 per                                                                    
year  and paid  3  percent  of net.  He  continued that  the                                                                    
largest scale mines  paid 7 percent (or 9  percent under the                                                                    
proposed legislation).  He thought  the "mom and  pop" mines                                                                    
were getting  hit disproportionately compared to  the larger                                                                    
mines.                                                                                                                          
                                                                                                                                
Co-Chair Thompson  relayed that in a  prior presentation for                                                                    
HB 4001,  a statement  had been made  that the  tax increase                                                                    
would not  impact mom and pop  miners at all other  than the                                                                    
$50 annual license fee. He asked  if the same applied to the                                                                    
current legislation.                                                                                                            
                                                                                                                                
Mr. Burnett replied in the  affirmative; the increase in the                                                                    
legislation  only applied  to  mines  making over  $100,000;                                                                    
therefore, mom and pop organizations  would not be impacted.                                                                    
He addressed Representative  Kawasaki's question and relayed                                                                    
it had been  discussed in the House  Resources Committee. He                                                                    
elaborated there  had been  discussions about  expanding the                                                                    
brackets, which  would have very  little impact in  terms of                                                                    
how much money the state  received. He continued it would be                                                                    
a policy decision to opt not  to tax people at lower levels.                                                                    
The primary  income to  the state from  the miners  was from                                                                    
the 14 to 20 taxpayers  making more than $100,000 in profits                                                                    
on an  annual basis (primarily  from the 6 large  mines). He                                                                    
referred  to a  spreadsheet the  department had  created for                                                                    
Representative  Kawasaki, which  had  been  shared with  the                                                                    
committee  in  2014. He  detailed  the  net profits  of  the                                                                    
taxpayers  making under  $100,000  totaled approximately  $1                                                                    
million.                                                                                                                        
                                                                                                                                
4:23:57 PM                                                                                                                    
                                                                                                                                
Representative  Kawasaki referred  to  the discussion  about                                                                    
whether  it   was  possible  to  make   an  apples-to-apples                                                                    
comparison  of  the  mining industry  in  Alaska  and  other                                                                    
states. He  believed it  was fair to  ask the  questions. He                                                                    
wondered  if  any  analysis  had been  done  on  what  other                                                                    
countries  did.  He  reasoned Alaska  was  an  international                                                                    
mining  destination and  was ranked  number 6  worldwide for                                                                    
investment  attractiveness (just  behind Western  Australia,                                                                    
Saskatchewan,  Nevada, Ireland,  and Finland)  in a  Frasier                                                                    
report.  He noted  the committee  was familiar  with Frasier                                                                    
pertaining to oil and gas.  He continued that Frasier listed                                                                    
Alaska as number  2 worldwide for best  practices, number 11                                                                    
worldwide for best mineral  extraction potential, and other.                                                                    
He  asked if  the administration  had considered  the report                                                                    
when analyzing the mining license tax.                                                                                          
                                                                                                                                
Mr. Burnett replied that the  issues were considered by DOR,                                                                    
DNR, and  probably by DCCED. He  affirmed the administration                                                                    
had  looked  at taxes  in  other  jurisdictions besides  the                                                                    
United States.                                                                                                                  
                                                                                                                                
Vice-Chair  Saddler commented  that  the  most recent  large                                                                    
mine to  open in  Alaska had taken  a significant  amount of                                                                    
time  and   had  required  a  Supreme   Court  decision.  He                                                                    
questioned how  many new  mines were  opening in  Alaska. He                                                                    
referred to  page 3 of  the bill and asked  for verification                                                                    
the mining tax was on net income, not net profits.                                                                              
                                                                                                                                
Mr.  Burnett  replied  that  net   income  and  profit  were                                                                    
generally considered the same thing.                                                                                            
                                                                                                                                
Vice-Chair  Saddler  asked   for  verification  the  current                                                                    
mining  royalty was  3 percent  of net  profit. Mr.  Burnett                                                                    
answered in the affirmative.                                                                                                    
                                                                                                                                
Vice-Chair Saddler had heard  in previous presentations that                                                                    
the $50 mining tax was in  lieu of a royalty. He referred to                                                                    
the 3 percent net profit royalty and a mining tax royalty.                                                                      
                                                                                                                                
Mr. Burnett responded that the  $50 mining license fee was a                                                                    
recognition that all  other businesses in Alaska  paid for a                                                                    
business license. He continued  that companies with a mining                                                                    
license   were  exempt   from  regular   business  licensing                                                                    
requirements.                                                                                                                   
                                                                                                                                
HB  4005  was  HEARD  and  HELD  in  committee  for  further                                                                    
consideration.                                                                                                                  
                                                                                                                                
4:26:48 PM                                                                                                                    
                                                                                                                                
HOUSE BILL NO. 4006                                                                                                           
                                                                                                                                
     "An  Act relating  to the  fisheries  business tax  and                                                                    
     fishery resource landing tax;  removing the minimum and                                                                    
     maximum  restrictions on  the annual  base fee  for the                                                                    
     reissuance  or  renewal  of  an   entry  permit  or  an                                                                    
     interim-use   permit;  relating   to  refunds   of  the                                                                    
     fisheries  business   tax  and  the   fishery  resource                                                                    
     landing tax to local  governments; and providing for an                                                                    
     effective date."                                                                                                           
                                                                                                                                
Mr. Burnett detailed  the bill would increase  the tax rates                                                                    
by 1 percentage point. The  entire tax increase was exempted                                                                    
from  municipal revenue  sharing. He  explained the  current                                                                    
tax  was still  shared  50/50 between  the  state and  local                                                                    
governments. The bill would remove  the $3,000 cap on annual                                                                    
Commercial  Fisheries Entry  Commission (CFEC)  entry permit                                                                    
fees  and   would  exempt  developing  fisheries   from  the                                                                    
increase.  He  clarified  that  developing  fisheries  taxes                                                                    
would  not  change  under  the   legislation.  He  read  the                                                                    
sectional analysis (copy on file):                                                                                              
                                                                                                                                
   · Section 1:  Eliminates the  cap of  $3,000 on  the base                                                                    
     fee for Commercial Fisheries  Limited Entry Permits and                                                                    
     Interim permits.                                                                                                           
   · Section  2: Changes  the tax  rates  for the  fisheries                                                                    
     business  tax from  four and  one-half to  five percent                                                                    
     for  salmon  canned in  a  shore  based business,  from                                                                    
     three to  four percent  for other  fish processed  in a                                                                    
     shore  based  business and  from  five  percent to  six                                                                    
    percent for fish processed by a floating business.                                                                          
   · Section  3:  Changes  the  tax on  fish  for  a  direct                                                                    
     marketing business from three to four percent.                                                                             
   · Section  4:  Is  a  technical  change  eliminating  the                                                                    
     requirement to submit tax returns to Juneau.                                                                               
   · Section 5:  Provides that one  percent of the  value of                                                                    
     each fishery  under the fisheries business  tax will be                                                                    
     deposited in  the general  fund and  not be  subject to                                                                    
     sharing with local governments.                                                                                            
   · Section 6: Changes  the landing tax from  three to four                                                                    
     percent.                                                                                                                   
   · Section 7:  Provides that one  percent of the  value of                                                                    
     each fishery  under the fisheries  landing tax  will be                                                                    
     deposited in  the general  fund and  not be  subject to                                                                    
     sharing with local governments.                                                                                            
   · Section 8: Provides that one percent of the value of                                                                       
     each fishery under the fisheries tax will be deposited                                                                     
     in the general fund and not be subject to sharing with                                                                     
     local governments.                                                                                                         
   · Section 9: Provides that the tax changes in sections                                                                       
     2, 3 and 6 are applicable after the effective dates of                                                                     
     those sections.                                                                                                            
   · Section 10: Allows for the Department of Revenue to                                                                        
     adopt regulations to administer this act.                                                                                  
   · Section 11: Provides for an effective date for section                                                                     
     1 (CFEC) of January 1, 2017.                                                                                               
   · Section 12: Provides and immediate effective date for                                                                      
     section 10.                                                                                                                
   · Section 13: Provides that the rest of the bill is                                                                          
     effective July 1, 2016.                                                                                                    
                                                                                                                                
4:29:56 PM                                                                                                                    
                                                                                                                                
Co-Chair Neuman  was unfamiliar with the  governor's version                                                                    
of the bill.  He requested a sectional  analysis showing the                                                                    
changes  from  the  governor's   original  bill,  the  House                                                                    
Resources Committee version, and  the current version of the                                                                    
bill.                                                                                                                           
                                                                                                                                
Mr. Burnett  was happy to  provide the document  and offered                                                                    
to speak to the changes.  He explained that Section 1, which                                                                    
eliminated the  cap on  CFEC permits had  been added  in the                                                                    
current bill.                                                                                                                   
                                                                                                                                
Co-Chair  Neuman  asked  for an  estimate  on  the  economic                                                                    
impact. He  wondered if there  was an economic impact  of $2                                                                    
million plus or minus state revenue.                                                                                            
                                                                                                                                
Mr. Burnett  answered the projection  related to  the change                                                                    
in  Section  1 of  the  legislation  was  plus or  minus  $2                                                                    
million. The  remaining tax changes  in the bill  equated to                                                                    
about $18  million. He addressed  the other change  from the                                                                    
original bill and explained the  original bill had increased                                                                    
the rate for one of  the developing fisheries from 3 percent                                                                    
to 4  percent; however,  the current bill  did not  make any                                                                    
changes to the  tax rate for developing  fisheries. He added                                                                    
that  the   previous  year  the  total   tax  on  developing                                                                    
fisheries  had brought  in less  than $50,000.  He estimated                                                                    
the amount  may have been  around $17,000. He  concluded the                                                                    
dollar amount was not huge;  therefore, the change made very                                                                    
little  difference  to  the bill.  He  summarized  that  the                                                                    
changes to  the bill  were the additional  $2 million  and a                                                                    
few thousand in taxes related to a developing fishery.                                                                          
                                                                                                                                
4:32:04 PM                                                                                                                    
                                                                                                                                
Representative Edgmon  asked how DOR would  characterize the                                                                    
fishery  taxes. He  referred  to  previous discussion  about                                                                    
mining taxes and net income based.                                                                                              
                                                                                                                                
Mr.  Burnett  responded  that  the  fisheries  business  and                                                                    
landing  taxes were  both gross  taxes on  the value  of the                                                                    
fishery.  He  detailed  the  taxes   were  modeled  after  a                                                                    
severance-type  tax  where  people  were taxed  based  on  a                                                                    
common property  resource owned by  the people of  the State                                                                    
of Alaska,  which could  be harvested by  a few  people. The                                                                    
individuals were  paying something  to Alaska  residents for                                                                    
the  privilege of  harvesting the  fish and  to represent  a                                                                    
value for the fish that  were being harvested. He reiterated                                                                    
the  tax was  based on  the value  of the  fish and  not the                                                                    
profitability of the industry.                                                                                                  
                                                                                                                                
Representative  Edgmon  asked how  much  of  the annual  $18                                                                    
million in revenue  generated by the taxes  came from shore-                                                                    
side activities.                                                                                                                
                                                                                                                                
FORREST  BOWERS,  DEPUTY  DIRECTOR, DIVISION  OF  COMMERCIAL                                                                    
FISHERIES, DEPARTMENT  OF FISH  AND GAME (DFG),  replied the                                                                    
$18  million was  the  increase in  tax  revenue that  would                                                                    
result  from the  legislation.  He  believed the  shore-side                                                                    
component  of  the  current  tax   revenue  was  roughly  75                                                                    
percent.                                                                                                                        
                                                                                                                                
Co-Chair  Thompson requested  the information  from DFG  for                                                                    
the following day. Mr. Bowers answered in the affirmative.                                                                      
                                                                                                                                
Representative Edgmon commented  that the issue demonstrated                                                                    
the  "throwing of  the dart  process we're  engaged in  with                                                                    
these taxes." He clarified he  did not intend his remarks to                                                                    
be disparaging  towards the efforts  of the  departments and                                                                    
administration for  bringing the bill forward.  He could not                                                                    
recall  when the  fisheries tax  had last  been analyzed  or                                                                    
revised (he  mentioned the 1960s as  a potential timeframe),                                                                    
but he  surmised it had  been a long  time. He asked  if the                                                                    
taxes had been revisited in the 1960s or 1970s.                                                                                 
                                                                                                                                
Mr. Burnett  answered he  did not recall  the last  time the                                                                    
fisheries tax  changed, but  it had been  a number  of years                                                                    
back.  He  noted   there  had  been  some   changes  to  the                                                                    
methodology of sharing taxes  and developing fisheries taxes                                                                    
over time. He  clarified he was not referring  to changes to                                                                    
the tax amounts.                                                                                                                
                                                                                                                                
Representative Edgmon  relayed many smaller  fisheries (e.g.                                                                    
salmon fisheries in Bristol Bay)  received bonuses in a good                                                                    
year.  He furthered  in  a perfect  world  the bonuses  were                                                                    
distributed amongst the owners,  skippers, crew members, and                                                                    
everyone who  took part  in operations. He  asked if  any of                                                                    
the  proposed  taxes  would  reduce   some  of  those  extra                                                                    
earnings.                                                                                                                       
                                                                                                                                
Mr.  Burnett responded  that  to the  extent  the fish  were                                                                    
taxed by  the legislation, if  payment was due to  the value                                                                    
of the  fish, it  should be  taxed. He  detailed it  was not                                                                    
unusual for fish to be  purchased at a specific price during                                                                    
season  and for  a price  adjustment to  be made  later. The                                                                    
price adjustment  was subject  to the tax  just the  same as                                                                    
the original price paid.                                                                                                        
                                                                                                                                
Co-Chair  Thompson asked  if  that meant  up  and down.  Mr.                                                                    
Burnett answered in the affirmative.                                                                                            
                                                                                                                                
4:37:07 PM                                                                                                                    
                                                                                                                                
Representative  Edgmon asked  for verification  DOR's annual                                                                    
assessment period  occurred in  the spring. He  surmised the                                                                    
spring of  2015 reached  back into  calendar year  2014. Mr.                                                                    
Burnett responded in the affirmative.                                                                                           
                                                                                                                                
Representative  Wilson  asked  whether  the  bill  addressed                                                                    
bycatch.  She   remarked  on  bigger   boats  taking   in  a                                                                    
significant amount of fish.                                                                                                     
                                                                                                                                
Mr. Burnett  answered in  the negative.  To the  extent that                                                                    
the fish were  sold, they were taxed; if they  were not sold                                                                    
there was nothing to tax.                                                                                                       
                                                                                                                                
Mr.  Bowers added  there were  certain bycatch  species that                                                                    
may  be legally  retained and  sold, which  had a  value and                                                                    
were taxed.  There were other  bycatch species  discarded at                                                                    
sea, which  were not taxed  because there was  no associated                                                                    
value.                                                                                                                          
                                                                                                                                
4:38:35 PM                                                                                                                    
                                                                                                                                
Representative Wilson disputed  the statement that discarded                                                                    
bycatch had  no value.  She reasoned  that just  because the                                                                    
fish went  back overboard  did mean the  fish had  no value.                                                                    
She  understood that  the industry  also gave  a significant                                                                    
amount to  Seattle, Washington. She detailed  that something                                                                    
had also  been worked out  with the Food Bank  in Fairbanks.                                                                    
However, a  large portion  of the  bycatch was  thrown away.                                                                    
She stressed  it was  a resource  that was  being discarded.                                                                    
She   referred  to   the   legislation   and  believed   the                                                                    
opportunity  should  be taken  to  penalize  the boats.  She                                                                    
understood there were ways  to substantially reduce bycatch.                                                                    
She conceded  it was more  expensive for the boats,  but she                                                                    
wondered  why  the  legislation  would  not  deal  with  the                                                                    
overall issue.                                                                                                                  
                                                                                                                                
Mr.   Bowers   responded   that  many   of   the   fisheries                                                                    
Representative Wilson  was referring to occurred  in federal                                                                    
waters  and  were  federally managed.  He  was  unsure  what                                                                    
authority  the  legislature  would   have  to  regulate  the                                                                    
activities in federal waters.                                                                                                   
                                                                                                                                
Representative Wilson  asked for  verification that  none of                                                                    
the bycatch was  caught in state waters  and that everything                                                                    
caught in state waters were counted and brought in money.                                                                       
                                                                                                                                
Mr.  Bowers responded  in the  negative. He  elaborated that                                                                    
bycatch was  brought in  by fisheries  in state  waters. The                                                                    
tax was assessed  when the fish were caught  or brought into                                                                    
state  waters.  He believed  many  of  the larger  fisheries                                                                    
mentioned  by  Representative  Wilson  occurred  in  federal                                                                    
waters. He  elucidated that the legislature  could implement                                                                    
something related to bycatch caught  by small boat fisheries                                                                    
in  state waters.  However, he  did not  know what  could be                                                                    
done for larger offshore vessels fishing in federal waters.                                                                     
                                                                                                                                
Representative  Wilson remarked  that Alaska  fishermen made                                                                    
sure to operate cleanly. She  stated there were people doing                                                                    
the  right  thing and  people  doing  the wrong  thing.  She                                                                    
stressed  the fish  were an  Alaskan resource.  She did  not                                                                    
understand why the administration  and legislature would not                                                                    
take the  opportunity to stop  some of the  bycatch problem,                                                                    
whether  it was  related  to bigger  or  smaller boats.  She                                                                    
underscored the  resources were all valuable.  She hoped the                                                                    
department could  provide an estimate  related to  the value                                                                    
the discarded fish.                                                                                                             
                                                                                                                                
4:41:25 PM                                                                                                                    
                                                                                                                                
Representative    Gara   shared    Representative   Wilson's                                                                    
concerns.  He discussed  fish caught  inside and  outside of                                                                    
state waters. He noted there  were fish caught outside state                                                                    
waters that  were processed  in the state.  He asked  how to                                                                    
divide between  the fish  the state was  allowed to  tax and                                                                    
those it was not allowed to tax.                                                                                                
                                                                                                                                
Mr. Bowers replied  the tax was assessed when  the fish were                                                                    
brought   into  state   waters.  There   was  a   commercial                                                                    
operators' annual  report that every licensed  processor had                                                                    
to  complete.  He detailed  the  annual  report described  a                                                                    
processor's  production and  purchasing  history, which  was                                                                    
the basis  for calculating the  price used to  determine the                                                                    
value of the  fish. He believed the  processors indicated on                                                                    
their tax forms where the fish were purchased.                                                                                  
                                                                                                                                
Mr. Burnett elaborated there was  one exception. He detailed                                                                    
that under the  Magnuson Stevens Act, the  state was allowed                                                                    
to tax pollock, which was landed outside state waters.                                                                          
                                                                                                                                
Mr. Bowers corrected it was the American Fisheries Act.                                                                         
                                                                                                                                
Mr. Burnett  agreed. He expounded  the state was  allowed to                                                                    
tax pollock that  landed in Seattle, but it was  not able to                                                                    
tax other  fish that were  not either caught,  processed in,                                                                    
or brought into state waters.                                                                                                   
                                                                                                                                
4:43:11 PM                                                                                                                    
                                                                                                                                
Co-Chair  Neuman   referred  to  floating   processors  that                                                                    
operated  outside Alaska's  waters. He  believed Mr.  Bowers                                                                    
had testified  that the  state did  not tax  fisheries until                                                                    
they  reached  Alaskan  waters.   He  asked  about  floating                                                                    
processors.                                                                                                                     
                                                                                                                                
Mr. Bowers replied that if  the processors brought processed                                                                    
fish   into   Alaska  (e.g.   to   offload   the  fish   for                                                                    
transshipment,   which  was   common  practice)   they  were                                                                    
responsible for the tax at that point.                                                                                          
                                                                                                                                
Co-Chair  Neuman   asked  for  verification   that  floating                                                                    
pollock  processors operating  outside of  state waters  and                                                                    
selling  the  fish in  Seattle,  were  not included  in  the                                                                    
state's fish processing tax.                                                                                                    
                                                                                                                                
Mr.  Bowers answered  the American  Fisheries Act  regulated                                                                    
the  pollock fishery  in the  Bering Sea.  He detailed  that                                                                    
because the state's late U.S.  Senator Ted Stevens was aware                                                                    
of the  potential, he  had included a  provision in  the act                                                                    
requiring  any  pollock  caught  between  3  and  200  miles                                                                    
offshore was subject to the state's taxes.                                                                                      
                                                                                                                                
Co-Chair  Neuman  concluded there  was  a  tax. Mr.  Burnett                                                                    
replied in the affirmative.                                                                                                     
                                                                                                                                
Representative  Gara spoke  about  king  salmon bycatch  and                                                                    
explained that  many of  the fish were  not worth  very much                                                                    
because they were one to  two-year-old fish that got crushed                                                                    
and pulverized  in the  nets. He asked  for the  accuracy of                                                                    
his statement.                                                                                                                  
                                                                                                                                
Mr.  Bowers responded  that  salmon  were deemed  prohibited                                                                    
species  on groundfish  vessels; therefore,  when they  were                                                                    
caught  as  bycatch  they  could not  be  legally  sold.  He                                                                    
explained  the fish  were not  retained  for use  as a  food                                                                    
product  and were  not handled  the  same as  fish bound  to                                                                    
become food products.                                                                                                           
                                                                                                                                
Representative Gara remarked he  had heard reports that when                                                                    
some of  the younger  fish ended  up in  the huge  nets were                                                                    
pulverized by  the time someone  reached them. He  noted the                                                                    
issue  was for  another day.  He  asked which  of the  taxes                                                                    
effected factory trawlers.                                                                                                      
                                                                                                                                
Mr.  Burnett replied  the landing  tax  [applied to  factory                                                                    
trawlers].                                                                                                                      
                                                                                                                                
Representative  Gara  asked  what type  of  operations  were                                                                    
subject to the landing tax (e.g. factory trawlers).                                                                             
                                                                                                                                
Mr. Burnett  replied the tax  applied to any fish  that were                                                                    
landed  regardless  of the  type  of  fishing operation.  He                                                                    
deferred to Mr. Bowers for further detail.                                                                                      
                                                                                                                                
Mr. Bowers expounded  the tax applied to  any fish processed                                                                    
three miles  offshore. He detailed it  could include factory                                                                    
trawlers, loading processors  taking deliveries from catcher                                                                    
vessels, freezer  longliners (a  number of  large longliners                                                                    
operated in  the Gulf  of Alaska and  Bering Sea  that catch                                                                    
and  process  onboard),   scallop  catcher/processors,  crab                                                                    
catcher/processors,  and  any  other  vessel  processing  in                                                                    
waters greater than three miles offshore.                                                                                       
                                                                                                                                
Representative  Gara surmised  the vessels  were large.  Mr.                                                                    
Bowers responded  the smallest vessel in  the category would                                                                    
be around  58 feet. He  expounded on his earlier  answer and                                                                    
relayed  there  were some  salmon  trollers  that catch  and                                                                    
process.  He detailed  some  of those  boats  were under  58                                                                    
feet, but most of the boats  impacted by the tax were larger                                                                    
vessels  due  to  space   requirements  for  the  processing                                                                    
equipment, freezers, and crew size.                                                                                             
                                                                                                                                
4:48:27 PM                                                                                                                    
                                                                                                                                
Representative Gara asked  why the state was  allowed to tax                                                                    
vessels if they processed  their catch beyond the three-mile                                                                    
offshore  boundary. Mr.  Bowers explained  that the  vessels                                                                    
became subject to the tax  when they moved into state waters                                                                    
to offload  fish. He detailed  it was a common  practice for                                                                    
the vessels  to offload fish  to freighters or  cold storage                                                                    
facilities onshore  because the boats were  limited in their                                                                    
freezer size.                                                                                                                   
                                                                                                                                
Representative Gara asked about  the current cost of running                                                                    
the Division  of Commercial Fisheries. He  believed the cost                                                                    
was  between $25  million to  $35 million.  Additionally, he                                                                    
asked  for  the current  revenue  and  the bill's  projected                                                                    
revenue to  the state for  the combined fisheries  taxes. He                                                                    
was interested  in revenue brought  in compared to  the cost                                                                    
required to operate the Division of Commercial Fisheries.                                                                       
                                                                                                                                
Mr. Bowers  responded that the  current General  Fund budget                                                                    
for  the  Division of  Commercial  Fisheries  was about  $35                                                                    
million to $36 million.                                                                                                         
                                                                                                                                
Mr.   Burnett  expounded   that  taxes   generated  by   the                                                                    
legislation  would  be  fairly  close to  that  amount  [$35                                                                    
million to $36 million]  and potentially slightly higher. He                                                                    
noted  the revenue  depended on  the  price of  fish in  the                                                                    
current year  and other  things. The  revenue coming  to the                                                                    
state  was  currently  less  than  the  amount  required  to                                                                    
operate the division.                                                                                                           
                                                                                                                                
Co-Chair  Thompson  mentioned  he   had  chaired  the  House                                                                    
Fisheries  Committee in  previous  years.  He recalled  that                                                                    
vessels in  the Bering Sea  had to  pay for observers  to be                                                                    
onboard  the  vessels.  He detailed  the  vessels  had  been                                                                    
allowed  a  certain  amount of  bycatch;  once  the  vessels                                                                    
reached the  limit they  were required  to quit  fishing. He                                                                    
asked for comment.                                                                                                              
                                                                                                                                
Mr. Bowers agreed that most  fisheries in Alaska had bycatch                                                                    
caps. The most common tool  to assess those caps, especially                                                                    
for vessels  processing at sea,  were onboard  observers. He                                                                    
detailed observer  costs were  $300 to  $400 per  day, which                                                                    
were typically borne by the vessels.                                                                                            
                                                                                                                                
Vice-Chair  Saddler  encouraged  committee members  to  give                                                                    
some deference  to the House Fisheries  Committee, which had                                                                    
some  special expertise.  He recommended  against using  the                                                                    
bill  as  a way  to  fix  any issues  regarding  allocation,                                                                    
bycatch,  or international  issues.  He  reasoned the  House                                                                    
Finance Committee's  responsibility was net profits  and not                                                                    
longline nets.                                                                                                                  
                                                                                                                                
HB  4006  was  HEARD  and  HELD  in  committee  for  further                                                                    
consideration.                                                                                                                  
                                                                                                                                
Co-Chair  Thompson  relayed  the agenda  for  the  following                                                                    
meeting.  He recessed  the meeting  to a  call of  the chair                                                                    
[note: the meeting never reconvened].                                                                                           
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
4:53:53 PM                                                                                                                    
                                                                                                                                
The meeting was adjourned at 4:53 p.m.                                                                                          
                                                                                                                                
                                                                                                                                

Document Name Date/Time Subjects
HB4003 Sponsor Statement - Governor's Transmittal Letter.pdf HFIN 5/27/2016 3:00:00 PM
HB4003
HB4003 Supporting Document - Sectional Analysis.pdf HFIN 5/27/2016 3:00:00 PM
HB4003
HB4005 Sponsor Statement - Governor's Transmittal Letter.pdf HFIN 5/27/2016 3:00:00 PM
HB4005
HB4005 Supporting Document - Sectional Analysis.pdf HFIN 5/27/2016 3:00:00 PM
HB4005
HB 4006 - UFA comments for Hse Fin 052716.pdf HFIN 5/27/2016 3:00:00 PM
HB4006
HB 4006 Alaska-Seafood-Industry-Taxes-Fees-UFA 2015.pdf HFIN 5/27/2016 3:00:00 PM
HB4006
HB 4006 AWTA oppostion to HB251.pdf HFIN 5/27/2016 3:00:00 PM
HB 251
HB4006
HB 4006 HB251 - CFEC Cap -Patrick Odonnell 050416.pdf HFIN 5/27/2016 3:00:00 PM
HB 251
HB4006
HB4006 Sponsor Statement - Governor's Transmittal Letter.pdf HFIN 5/27/2016 3:00:00 PM
HB4006
HB4006 Supporting Document - Sectional Analysis.pdf HFIN 5/27/2016 3:00:00 PM
HB4006
HB 374 NEW FN DCCED 5-27-16.pdf HFIN 5/27/2016 3:00:00 PM
HB 374
HB 374 Fund code 1248.pdf HFIN 5/27/2016 3:00:00 PM
HB 374
HB 374 CS WORKDRAFT FIN vN.pdf HFIN 5/27/2016 3:00:00 PM
HB 374
HB 374 Conceptual Amendment 1 Gara - Thompson.pdf HFIN 5/27/2016 3:00:00 PM
HB 374