Legislature(2003 - 2004)
03/24/2003 03:39 PM House FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE FINANCE COMMITTEE
March 24, 2003
3:39 PM
TAPE HFC 03 - 37, Side A
TAPE HFC 03 - 37, Side B
CALL TO ORDER
Co-Chair Williams called the House Finance Committee meeting
to order at 3:39 PM.
MEMBERS PRESENT
Representative John Harris, Co-Chair
Representative Bill Williams, Co-Chair
Representative Mike Chenault
Representative Eric Croft
Representative Richard Foster
Representative Mike Hawker
Representative Reggie Joule
Representative Kevin Meyer, Vice-Chair
Representative Bill Stoltze
Representative Jim Whitaker
MEMBERS ABSENT
Representative Carl Moses
ALSO PRESENT
Senator Gary Stevens; Senator Ben Stevens; Cheryl Sutton,
Staff, Senator Ben Stevens; Chuck Harlamert, Revenue Audit
Supervisor, Tax Division, Department of Revenue
PRESENT VIA TELECONFERENCE
Kris Norusz, Icicle Seafoods
SUMMARY
HB 90 "An Act relating to a salmon product development
tax credit under the Alaska fisheries business tax
and the Alaska fisheries resource landing tax; and
providing for an effective date."
CSHB90 (FIN) was REPORTED out of Committee with No
Recommendation and one new fiscal impact note from
the Department of Revenue.
HB 104 "An Act relating to payment of the fisheries
business tax and to security for collection of the
fisheries business tax."
CSHB 104 (FIN) was REPORTED out of Committee with
a "do pass" recommendation and with one new fiscal
impact note from the Department of Revenue.
HOUSE BILL NO. 90
"An Act relating to a salmon product development tax
credit under the Alaska fisheries business tax and the
Alaska fisheries resource landing tax; and providing
for an effective date."
Co-Chair Harris MOVED to ADOPT the Committee Substitute HB
90 (FIN), Work Draft 23-LS0525\I (Utermohle). There being
no OBJECTION the Committee Substitute was ADOPTED.
SENATOR BEN STEVENS, SPONSOR, spoke in support of the bill.
He explained that the Committee Substitute resulted from
work with the Salmon Task Force over the past seven months.
He noted that the Salmon Task Force prioritized its
proposals to the legislature based on potential impact to
the 2003 harvest cycle. He pointed out that the bill
contained two tax credits: one for product development and
one for salmon utilization.
Senator B. Stevens went on to explain important elements of
the salmon product development tax credit. First, he
pointed out that the credit could not exceed a taxpayer's
liability by more than fifty percent. Second, he noted that
the opportunity to invest lasted for three years, with a
three-year carry on for those investments made in the third
year.
Senator B. Stevens stated that the credit applied to
processing vessels as well as shore plants. He emphasized
that the credit applied to the property first placed in
service, encouraging investment in new equipment to produce
new products for the industry with the intent of raising the
vessel value over the long term.
Senator B. Stevens also noted that a taxpayer may not
participate in the program if they are in arrears on any
other state liability.
Senator B. Stevens discussed the salmon utilization tax
credit, and reiterated that a taxpayer could not exceed
fifty percent of their liability with a combination of the
two tax credits. He also noted the difference between the
two tax credits: one being for equipment to produce new
products, and one for "the cost associated with the
development, manufacture, purchase, or operation of new
equipment or a manufacturing process to produce marketable
products using the bones, skin, viscera and carcasses of
salmon"(page 4, line 5). He noted that this language was
added in an effort to attract the industry toward full
utilization.
Senator B. Stevens observed that the bill was a priority
of the Salmon Task Force, and suggested that the legislation
would ultimately raise the ex vessel value over the next
three years by raising product quality.
Senator B. Stevens stated that the impact of fiscal note was
uncertain until investment was actually made. He explained
that the fiscal note merely projected impact of potential
investment. He stated that the long-term return of the
benefit was also undetermined at this time.
In response to a question by Co-Chair Harris, Senator
Stevens explained that the Fisheries Business Tax was a
buyers tax, paid based on the value of a product purchased,
differentiating this from wholesale value. He noted that
the tax was 3 percent on shore and 5 percent off shore.
Senator B. Stevens clarified that the tax credits pertained
to both on and off shore processors. He confirmed that the
bill did not focus on fishers but rather on the tax
liability of processors, whether a large multi-facility or a
small, individually owned facility.
Representative Croft referred to a Letter of Intent written
by the House Special Committee on Fisheries, signed by
Representative Seaton, recommending two additions to the
bill. Senator B. Stevens stated that these additions were
not included in the Committee Substitute.
Senator B. Stevens went on to explain that the Letter of
Intent requested the addition of a refined definition of
"value added" and a "claw back" provision in case the system
was abused. Senator Stevens suggested that if policy was
created to address potential abusers, the policy then lost
its value. He reiterated that this language was not
included in the legislation.
In response to a question by Representative Stoltze, Senator
B. Stevens confirmed that if a taxpayer invested and
utilized the tax credit, it would reduce the liability to
the general fund.
Representative Stoltze asked if a cap for individuals or the
overall tax credit was considered. Senator B. Stevens
reiterated that taxpayers were limited to fifty percent of
their total liability. He indicated that an overall cap was
not considered but speculated that, since the total [salmon]
tax was $5.6 million, if fully utilized the credit would
still yield $2.8 million to the state.
Vice-Chair Meyer referred to the fiscal note dated 3/20/03
written by the Department of Revenue and asked for an
explanation of costs.
CHUCK HALAMERT, CHIEF OF OPERATIONS, TAX DIVISION,
DEPARTMENT OF REVENUE projected an investment in FY 04 of $3
million, with a maximum of $4.8 million in FY05. He stated
that the total credit over a six-year period was estimated
at $4.9 million.
Co-Chair Williams asked for clarity about the changes in
fiscal impact between the original bill and the Committee
Substitute.
CHERYL SUTTON, STAFF, SENATOR BEN STEVENS, clarified that
the Committee Substitute added a tax credit for full salmon
utilization to the original bill. She pointed out however
that the combined credits could not exceed fifty percent of
a taxpayer's liability.
Co-Chair Williams asked if a fiscal note was created to
address the original bill. There was some question as to
the amount of change in the new fiscal note.
Co-Chair Harris observed that the new fiscal note [to the
House Fisheries' version] projected the state would
experience a loss of approximately $500 thousand in FY 04,
increasing to a maximum of $1.2 million, and then decreasing
to $50 thousand in FY 09. He further observed that state
operations cost would be approximately $23 thousand in
general funds. He asked for further explanation regarding
the $6 thousand reduction in cost between the new (3/20/03)
and the previous (3/04/03) fiscal notes.
Mr. Harlamert explained that the difference in cost was due
to an error in the original fiscal note. He noted that an
audit position and associated travel was included in the
original fiscal note, and explained that the position was
eliminated from the subsequent fiscal note.
In response to a question by Representative Croft, Mr.
Harlamert clarified that the value added salmon processing
equipment credit would generate $2 to $3 million in
investment in the first year.
Representative Croft maintained that the new credit
definition was much more broad. He speculated that any new
equipment used to market the product would potentially
qualify.
Mr. Harlamert concurred that full utilization potential was
much more broad.
Representative Croft asked whether the deduction could total
fifty percent of as much as $5.6 million if full utilization
occurred. He suggested that the loss to the general fund
would be between $1.2 million and $2.8 million.
Mr. Harlamert pointed out that the credit was intended to
generate investment in its first three years, which then
could apply toward taxes generated over a six-year period.
He noted the potential to leverage earnings beyond the fifty
percent figure.
Representative Croft asked if, assuming that the taxes
remained somewhat stable at $5.6 million, the maximum of
general fund revenue in any one-year would be $2.8 million.
Co-Chair Williams asked for an estimate of the potential
revenue loss, without the incentive.
Mr. Harlamert explained that the revenue impact was
impossible for the department to determine, and something
that an economist might better determine.
Representative Whitaker clarified that the state would
receive approximately $2.5 million in tax revenues in any
given year, under the new tax credits, and asked if the
revenue curve was declining or flat.
Mr. Harlamert speculated that the state had experienced a
downward trend in salmon tax. He maintained that it was
unclear how much the credit would affect this pattern.
Representative Whitaker asked how applications would be
reviewed if the credit were fully utilized.
Mr. Harlamert responded that there was no competition among
participants, since there was no set amount for the tax
relief, other than a percentage of existing taxation.
Representative Whitaker followed up to ask if projections
were therefore conservative, and if there might be a great
deal more participation.
Mr. Harlamert expressed his belief that the projections were
optimistic in terms of generating credit. He speculated
that a fairly limited group of taxpayers had the required
liability and were able to take advantage of the credit. He
explained that the liability was based on what they paid for
raw fish.
Representative Chenault theorized that if liability were
based on payment for product, revenue would increase by
creating a better product. Mr. Harlamert concurred that if
prices increased, the tax revenue would also increase.
KRIS NORUSZ, ICICLE SEAFOODS, testified via teleconference
in support of the bill. She maintained that the bill
supported development of the industry. She cited a previous
tax credit in the 1980's, and stated that her company took
advantage of that credit to purchase improved equipment that
increased efficiency. She proposed that a similar tax
credit would also stimulate industry development.
Representative Stoltze asked whether the Administration was
in support of the bill.
Ms. Sutton responded that the Administration supported the
bill. Representative Stoltze requested that written support
be available should the bill proceed to the House Floor.
Ms. Sutton confirmed that the Administration viewed the bill
as a method of improving the industry this season.
Representative Joule expressed his desire to also see
legislation that supported fishers as well as processors.
Representative Whitaker asked for clarity about which fiscal
note would be adopted.
Co-Chair Williams stated that an updated [Department of
Revenue] fiscal note would accompany the bill to the House
Floor.
Representative Whitaker asked for assurance that the fiscal
note represented an accurate range of projections.
Mr. Harlamert clarified that the fiscal note for the
Committee Substitute would be different from the current
fiscal note, both in terms of revenue and operating costs.
Co-Chair Williams addressed the issue of salmon utilization.
He noted that currently the industry experienced costly
difficulty in processing and disposing of salmon waste.
Representative Joule asked whether it was appropriate to
send the bill from Committee without an appropriate fiscal
note. Co-Chair Williams also expressed his discomfort with
the lack of clarity over the new fiscal note.
Vice-Chair Meyer also expressed his discomfort with this
process. He asked about the compliance associated with the
fish product waste.
Co-Chair Williams speculated that the Environmental
Protection Agency and the Department of Environmental
Conservation set requirements for dealing with waste
disposal. He noted that the State did not have water
primacy issues. He discussed the methods for handling these
waste products and emphasized its importance to industry
participants.
Vice-Chair Meyer asked whether the process needed to be
examined to find a solution to the disposal requirements.
TAPE HFC 03 - 37, Side B
Senator Ben Stevens addressed concerns regarding the new
fiscal note. He clarified that the combination of the
development and the utilization tax credits could never
exceed fifty percent of a user's total liability. He
maintained that since the fisheries business tax generated
$5.6 million, the cost of full utilization was $2.8 million.
He speculated that the investment level was the only
unknown.
Representative Croft observed that the fiscal note was
between $1.2 million and $2.8 million. Senator Stevens
stated that the $1.2 million figure was based on the credit
not being fully utilized in the first year. He maintained
that it was unclear how many processors would participate in
the credit.
Senator B. Stevens stated that the value of the product
correlated directly to the tax revenue. He explained that
the intent of the bill was to increase the value of the
overall industry. He indicated that the largest year for
the salmon industry was $882 million.
Representative Croft speculated whether if salmon prices
rebounded the tax credit would generate a greater cost.
Senator Stevens pointed out that the credit was only for
three years, and maintained that the industry would likely
not change significantly in that time.
Senator B. Stevens indicated that the purpose of the
legislation was to stimulate investment in the industry. He
pointed out that the uncertainty was not in the cap of
liability but rather in the management of the liability.
Representative Croft clarified that the full utilization
credit was to encourage processing of all discard, excluding
traditionally used parts of the fish.
Senator B. Stevens referred to Page 2, line 23 of the bill
(FSH), which outlined value added portions.
Representative Croft expressed confusion as to the specific
equipment that could be written off with the utilization
credit. Senator Stevens conceded that some equipment may be
included in the development tax credit and as well as the
utilization credit, but pointed out that both credits apply
to the same fisheries business tax.
Representative Croft maintained that, since different limits
pertained to each credit, it might allow for abuse of the
tax credit system.
LARRY PERSILY, DEPUTY COMMISSIONER, DEPARTMENT OF REVENUE,
testified via teleconference regarding the new fiscal note.
He provided information on the fiscal history of the
business fisheries tax. He noted that in fiscal years 93
through 96, the [total fisheries] tax revenue was $42, $34,
$39, and $38 million respectively. He also stated that in
FY 02 the tax revenue was at $25.5 million.
Mr. Persily explained that the original fiscal note had been
revised on March 20. He referred to the Finance Committee
Work Draft, and committed to publishing a final Committee
Substitute fiscal note by the next day.
In response to a question by Representative Croft, Mr.
Persily stated that the total FY 02 fisheries business tax
revenue was approximately $25.3 million, with half going to
the general fund and half to municipalities.
Senator B. Stevens noted that the fisheries business tax
applied to all species, such as halibut, crab etc. He
clarified that the tax under consideration pertained only to
the salmon portion, which was $5.6 million.
Representative Croft confirmed his support of assisting
industry development. He stated his belief that the cap was
not a clear $2.8 million, but rather 50 percent of the price
of product, which fluctuated. He speculated that the amount
might therefore exceed $2.8 million. He stated that this
amount was contained in the fiscal note, and should
therefore be clear.
Representative Croft MOVED to report CSHB 90 out of
Committee with individual recommendations and the
accompanying fiscal note.
There being NO OBJECTION, it was so ordered.
CSHB 90 (FIN) was REPORTED out of Committee with "No
Recommendation" and one new fiscal note from the Department
of Revenue.
HOUSE BILL NO. 104
"An Act relating to payment of the fisheries business
tax and to security for collection of the fisheries
business tax."
SENATOR GARY STEVENS, SALMON TASK FORCE, testified in
support of the bill. He pointed out that the previous bill
(HB 90) was modeled after a successful bill, which assisted
the pollock industry. He expressed his hope that the
current bill would have a similar affect on the salmon
industry.
Senator G. Stevens explained that HB 104 also pertained to
the processing industry. He noted that often the smaller
processors did not have the financial depth to pay tax
liabilities on an annual basis. He noted that the bill
allowed taxes to be paid on a monthly basis.
Senator G. Stevens indicated that larger processors might
choose to continue to pay their taxes annually. He noted
that participants would be required to file a bond for $50
thousand, or demonstrate lienable property valued at $100
thousand. He speculated that it might only be taken
advantage of by a handful of smaller processors. He
summarized that the bill allowed smaller processors to
expand development.
Representative Chenault expressed concern on behalf of
processors in his area. He asked about the accessibility of
a $50 thousand bond.
Senator Stevens responded that the legislation did not
prevent processors to continue with their current business
practices, but merely provided them with another
opportunity.
Ms. Sutton noted that a Salmon Task Force member who owns a
salmon processing center in Naknek viewed the bill as an
opportunity that would benefit his business management.
Representative Foster MOVED to report CSHB104 out of
Committee with the accompanying fiscal note
There being NO OBJECTION, it was so ordered.
CSHB 104 (FIN) was REPORTED out of Committee with a "do
pass" recommendation and with one new fiscal impact note
from the Department of Revenue.
ADJOURNMENT
The meeting was adjourned at 4:47 PM
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