Legislature(2003 - 2004)
03/05/2003 08:43 AM House FSH
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* first hearing in first committee of referral
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+ teleconferenced
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ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON FISHERIES
March 5, 2003
8:43 a.m.
MEMBERS PRESENT
Representative Paul Seaton, Chair
Representative Peggy Wilson, Vice Chair
Representative Pete Kott
Representative Ralph Samuels
Representative Ethan Berkowitz
Representative David Guttenberg
MEMBERS ABSENT
Representative Cheryll Heinze
OTHER LEGISLATORS PRESENT
Senator Ben Stevens
Senator Gary Stevens
COMMITTEE CALENDAR
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."
- MOVED CSHB 90(FSH) OUT OF COMMITTEE
HOUSE BILL NO. 104
"An Act relating to payment of the fisheries business tax and to
security for collection of the fisheries business tax."
- MOVED CSHB 104(FSH) OUT OF COMMITTEE
PREVIOUS ACTION
BILL: HB 90
SHORT TITLE:TAX CREDIT FOR SALMON DEVELOPMENT
SPONSOR(S): REPRESENTATIVE(S)STEVENS
Jrn-Date Jrn-Page Action
02/10/03 0170 (H) READ THE FIRST TIME -
REFERRALS
02/10/03 0170 (H) FSH, RES, FIN
02/12/03 0203 (H) COSPONSOR(S): WOLF
02/26/03 (H) FSH AT 8:30 AM CAPITOL 124
02/26/03 (H) Heard & Held
MINUTE(FSH)
03/05/03 (H) FSH AT 8:30 AM CAPITOL 124
BILL: HB 104
SHORT TITLE:PAYMENT OF FISHERY BUSINESS TAX
SPONSOR(S): REPRESENTATIVE(S)STEVENS
Jrn-Date Jrn-Page Action
02/14/03 0215 (H) READ THE FIRST TIME -
REFERRALS
02/14/03 0215 (H) FSH, RES, FIN
03/05/03 (H) FSH AT 8:30 AM CAPITOL 124
WITNESS REGISTER
SENATOR BEN STEVENS
Alaska State Legislature;
Chair, Joint Legislative Salmon Industry Task Force
Juneau, Alaska
POSITION STATEMENT: Presented sponsor statement for HB 90.
SENATOR GARY STEVENS
Alaska State Legislature;
Joint Legislative Salmon Industry Task Force
Juneau, Alaska
POSITION STATEMENT: Testified on behalf of the Joint
Legislative Salmon Industry Task Force on HB 90; presented
sponsor statement for HB 104.
CHUCK HARLAMERT, Juneau Section Chief
Tax Division
Department of Revenue
Juneau, Alaska
POSITION STATEMENT: Provided technical guidance regarding HB
90.
CHRIS GARCIA, Fisherman
Cook Inlet Fishermen's Fund
Kenai, Alaska
POSITION STATEMENT: Testified on HB 90, offering suggestions;
testified in support of HB 104 and clarified concerns.
CHERYL SUTTON, Staff
to the Joint Legislative Salmon Industry Task Force
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Answered questions on HB 90.
ACTION NARRATIVE
TAPE 03-12, SIDE A
Number 0001
CHAIR PAUL SEATON called the House Special Committee on
Fisheries meeting to order at 8:43 a.m. Representatives Seaton,
Wilson, Kott, Samuels, and Berkowitz were present at the call to
order. Representative Guttenberg arrived as the meeting was in
progress. Representative Heinze was excused due to illness.
HB 90-TAX CREDIT FOR SALMON DEVELOPMENT
CHAIR SEATON announced that the first order of business would be
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." [Before the committee, adopted as a work
draft on 2/26/03, was Version D, labeled 23-LS0525\D, Utermohle,
2/25/03.]
Number 0168
SENATOR BEN STEVENS, Alaska State Legislature; Chair, Joint
Legislative Salmon Industry Task Force ("Task Force"), as
sponsor of HB 90, said the Task Force thinks the bill is one of
the highest priorities that could be adopted by the legislature.
He said the intent of HB 90 is to entice investment into the
processing sector of the industry and to make changes in terms
of what products are being produced. In light of the broad
issues being faced by the industry, the package of bills put
forth by the Task Force could have an impact on the 2003 harvest
and production cycle. He commented that not every sector of
seafood business is losing money - groundfish, crab, and halibut
make money. A prudent investment scenario would be that an
individual or company would invest money where there was money
to be made; investments are not in salmon because there is an
opportunity to make money in other areas. This bill is designed
to encourage investors in the seafood business to invest their
money in the salmon business.
SENATOR BEN STEVENS referred to the fiscal note and said that
the assumptions of changes in revenue are assumptions that
people will be enticed to make investments and he asked, "What
is going to be the change in revenues if we don't have them make
investments?" He mentioned that there are plants in Southeast
Alaska and all around the state that are not even scheduled to
open and said this bill addresses an integral part of getting
investments into industry so that plants will open, retooling
will get done, new products will be made, and as an ultimate
goal, the ex-vessel value will be raised.
Number 0495
SENATOR GARY STEVENS, Alaska State Legislature; Joint
Legislative Salmon Industry Task Force, said he was in agreement
with Senator Ben Stevens' testimony.
SENATOR BEN STEVENS urged the committee to pass the bill, and
commented that the legislature is the policymaking body, the
finance committee is the policymaking body with regard to
revenue, and the departments implement what the legislature
chooses to enact.
Number 0626
CHUCK HARLAMERT, Juneau Section Chief, Tax Division, Department
of Revenue, testified that he was available to provide technical
guidance. He noted that his comments were intended to be
regarded as recommendations rather than as a position on policy.
He said the changes in revenue refer only to outgoing revenue
and do not account for potential increases resulting from
additional salmon processing in the state. Mr. Harlamert
reviewed technical comments pertaining to the fiscal note. He
said his basic comment [from the meeting of 2/26/03] was the
need for clarification as to whether the "taxpayer" refers to
the legal entity or to the facility.
MR. HARLAMERT said he thought it was the intent of the drafters
to refer to the legal entity so that a taxpayer who makes an
investment in one facility can use the credit generated from
that investment to offset tax liability from another facility.
This advantage allows for building credit into business plans
more effectively; leverages the impact of the credit; and also
maximizes the benefit generated from credit, if that credit is
good and well designed. Conversely, if there have been mistakes
with the credit, this will also leverage problems with the
credit. He said that when a taxpayer is allowed to offset
liability from any facility, the impact of the credit is
maximized.
Number 0898
MR. HARLAMERT continued with comments pertaining to Sec.
43.75.035(c) [Section 1 of the bill], which provides a mechanism
for providing partial credit to investments in vessels that
process fish within or outside of Alaska. It was previously
brought up in committee [House Special Committee on Fisheries
meeting of 2/26/03] that the provision needs a basis for making
that determination. A decision needs to be made whether it is a
raw rate, which will favor fisheries that are low-value in
Alaska relative to salmon processing outside of Alaska, or is a
ratio based on the value of fish being processed within and
outside of Alaska, which would favor high-value fisheries that
are conducted in Alaska.
MR. HARLAMERT said this was a simple choice and he didn't know
how big of an impact this decision would have. Another comment
made in the meeting of 2/26/03 was that the carryover of credit
should be designated as using a first-in, first-out basis, so
that taxpayers who continue to generate credit for all three
periods don't fall prey to losing credit; that is, a taxpayer
who continues to generate credit for all three periods and is
still limited in liability to 50 percent of taxed salmon won't
have credits expiring. The department suggests that the first
credits be used first, before other credits.
MR. HARLAMERT commented on [Sec. 43.75.035(f)], saying this
provision denies the credit when the taxpayer is delinquent on
[certain taxes, including those] under Title 43. For this
provision to be effective, it should be "beefed up" and dealt
with more completely, or else dropped. As it reads now, the
taxpayer merely needs to be paid up for one day per year and
could be delinquent during the rest of the year and could still
get the credit.
Number 1085
MR. HARLAMERT continued that "the meat" of the department's
comments pertain to Sec 43.75.035(g), in which the definition in
that subsection defines what the credit will amount to in the
end. He said the existing bill credits only new property and
doesn't allow credit for used property. He said this has the
advantage of avoiding entirely tax-motivated transactions. He
pointed out that if a credit is worth 50 percent of the cost,
there is a lot of incentive to misbehave, which puts the state
at risk of not getting deserved money. He said there are
perfectly legitimate investments pertaining to used property,
and the committee might consider how to make the credit more
effective, allowing for both new and used property that is used
for the first time in Alaska - a credit for bringing this
investment into the state, whether it is new or used.
Number 1190
SENATOR BEN STEVENS asked, if new or used property were allowed,
how it would be determined that the property was "first time to
Alaska."
MR. HARLAMERT replied that could be done by reviewing the
documentation and finding the "to-from shift," which was a
standard compliance activity.
Number 1242
SENATOR BEN STEVENS commented that it was the intent of the Task
Force to include only new equipment. He stated that the intent
was to encourage or to entice "new investment in new equipment
for new products, not new investment for old equipment for the
same products."
REPRESENTATIVE BERKOWITZ agreed with Senator Ben Stevens, and
referenced post-World War II Japan, when there was no
infrastructure and the country was rebuilt with totally new
equipment, resulting in a modernized economy in a short period
of time. He contrasted this with Russia, where old equipment
was imported and stolen from Europe, resulting in a bogged-down
economy. He said the idea of HB 90 was to encourage new
capital, so the focus should be on new equipment.
Representative Berkowitz asked for a calculation of the dollar
difference in subsection (c) between basing the numerator and
the denominator on the weight of raw salmon as opposed to value.
MR. HARLAMERT replied that he could provide a ratio of weight to
value of salmon on floating processors throughout the state.
Number 1405
CHAIR SEATON suggested that the financial aspects of the bill
could be handled by the House Finance Committee, unless this
committee had any particular reasons for getting into those
details.
MR. HARLAMERT testified that [Sec. 43.75.035(g)(3)] contained
big problems with the definition of "qualified investments." He
said that too much was being packed into a single paragraph. He
referred to "qualified investment" on page 2, line 20, as being
the largest technical problem, potentially contributing to
unpredictable results that are not the intent of the bill. He
said the definition requires that depreciable property be used
predominately for value-added salmon products, without defining
"value-added" or "salmon products", which is followed by a list
of possible candidates - a threshold list, not an all-inclusive
list - of what processes and equipment qualify for the credit.
MR. HARLAMERT said the single largest problem is that there is
no benchmark; "value-added" has not been defined and there is
not a qualifying, compatible definition of "salmon product." As
the bill is written, it's feasible to apply for the credit by
off-loading any kind of machine at the end of a season and
running a single salmon through the machine. He said he
understood the intent of this bill as not including headed-and-
gutted products or products shipped outside to be further
processed outside of the state. However, the way the bill is
written, that goal is not accomplished. He reiterated the
desire that definitions for "value-added" and "salmon products"
be constructed and clarified.
Number 1772
SENATOR GARY STEVENS, speaking as a member of the Task Force,
said the purpose of bill is to encourage new investment; it is a
credit for an investment - for something purchased. He
questioned why anyone would intentionally bring up equipment
while having no intention of using it just to get an investment
credit on it.
MR. HARLAMERT responded that it was unlikely that those things
would be done just for the credit, but that by circumstance,
those behaviors would occur, and would result in qualifying for
the credit. For example, upgrading a heading-gutting-freezing
operation could qualify for the credit, even if it wasn't done
solely because of the credit. Under existing federal tax rules,
with appreciation, in some cases the tax laws would almost cover
the entire cost.
MR. HARLAMERT said the department's second serious technical
suggestion was that without a "claw-back" [recapture] provision,
qualifying for the credit could occur even if the property was
never, in essence, used in Alaska. For example, property could
be diverted on its way to Asia; if that property was in Alaska
for just one day and one salmon was run through it, one could
still qualify for the credit.
SENATOR GARY STEVENS said there was no intention of encouraging
misbehavior and that perhaps the finance committee could deal
with this issue.
Number 2000
CHAIR SEATON said his problem was more with the definition of
"value-added salmon products" because the intention was not to
imply that a tax credit would be applied if new equipment was
going to be used to continue the same operations. He said he
understood the department's attempt to clarify "new operations"
and the department's need to define "value-added salmon",
especially with the wording, "beyond gutting of [the] salmon".
He said that there probably needs to be an amendment that says
"not including heading and gutting", since the intent is
probably not to allow for the bringing in of a new heading
machine. He added that he is not sure how to get there
regarding "value-added".
Number 2130
MR. HARLAMERT addressed retroactivity. He said a retroactive
credit is essentially buying things that have already occurred,
and he suggested that the drafters pay attention to the
effective date of the credit. He said an advantage of being
retroactive is that decisions are not unduly influenced, whereas
if the credit was made effective for investment after July 1, a
50 percent credit could influence inappropriate business
conduct. One solution would be to adopt an effective date
coinciding with some point in the legislative process - a date
that would allow time for decisions to be made with relative
anonymity.
MR. HARLAMERT said investments made between January 1, 2003, and
December 31, 2005, would qualify. He said he was making a
comment on the retroactive aspect. Stating that some
transactions have already occurred this year, he said it seems
odd to allow for credits that have already occurred, adding that
it was "just a matter of whether we want to get the most for our
money."
CHAIR SEATON noted that said this was separate from the claw-
back provision referred to earlier.
MR. HARLAMERT said he was referring to Section 4, the date of
retroactivity.
Number 2318
REPRESENTATIVE SAMUELS asked if the department's position was
that retroactivity should be eliminated.
MR. HARLAMERT suggested that because a retroactive credit pays
for 50 percent of assets that have already been bought, it is
more of a subsidy than an incentive. He said this may or may
not be the intended use of these funds and that perhaps a more
effective use of the available revenues to be credited would be
those that are only prospective.
REPRESENTATIVE SAMUELS mentioned that in certain fisheries
people would miss the whole upcoming season if the effective
date were the end of May. He said that people who are following
this legislation are already taking a risk in case the bill
doesn't pass.
SENATOR GARY STEVENS said this "hit the nail on the head" and
that the intent of setting the date at January 1, 2003, is to
have an impact this coming season.
Number 2425
REPRESENTATIVE GUTTENBERG said he doesn't see the retroactive
clause as problematic if there is a good definition of "value-
added."
REPRESENTATIVE SAMUELS referred to the changes in revenue on the
fiscal note. He asked what assumptions were made as far as who
would be taking advantage of the credit.
MR. HARLAMERT said it was impossible to say. He said in the
last credit, which was a loose and broad credit, a lot more
credits were claimed than could be applied against the tax.
That credit was limited to 50 percent of a tax on any fish. He
said he doesn't remember the exact investment that was not
credited because of the 50 percent limitation, but it was
substantial. He said a 50 percent credit pays, up front, for
half of an asset, but the taxpayer still gets federal and state
tax benefits for that investment in terms of depreciation, which
really cuts down the cost of the asset - and "people will pay
attention to that." He said he expected that in the third year,
"we will essentially max out."
CHAIR SEATON said a 50 percent tax credit is 50 percent of the
tax liability, but not 50 percent of the cost of the equipment.
The equipment may cost considerably more than the amount of
money that is being put in. For example, if a $100,000 piece of
equipment has $10,000 worth of credit, this does not pay half of
the cost of the machinery. However, if the machinery cost
$20,000, applying $10,000 worth of credit would still be
possible. Hopefully, this [legislation] would be successful in
stimulating an investment much larger than double the tax
credit.
Number 2584
MR. GARCIA referred to "new property" on page 2, line 18, and
acknowledged that the trading of property back and forth would
need to be prevented, but he was also interested in not
discouraging small, new businesses. He suggested the language
"property that's never been used for the purpose of this tax
credit" as a possible correction. In reference to an earlier
comment on equipment being used only once before being shipped
to Asia, he offered the language, "the equipment must be
installed and kept in service for the entire time of this tax
credit." He said he had no problem with the retroactive date
being January 1, 2003, adding that if that date were changed,
the person who is taking a chance and currently investing for
this upcoming season would be penalized. He said January 1,
2003, was reasonable as a retroactive date.
CHAIR SEATON, after ascertaining that there was no further
public testimony, said he would like to move the bill out, but a
few issues need to be addressed. He said the department's
suggestion to further define "value-added" is important, as is
the claw-back provision so that people would have to maintain
usage of the equipment. He asked if the committee would like to
accept those two amendments, in principle.
Number 2733
REPRESENTATIVE WILSON suggested the committee pass the bill out,
with the understanding that [the House Finance Committee] look
at those two areas and include the Task Force in the process,
since the Task Force knows the intent of the legislation.
CHAIR SEATON asked Senator Gary Stevens if tightening up a
definition of "value-added" and also having a claw-back
provision would be agreeable to the Task Force.
Number 2793
SENATOR GARY STEVENS responded that he hoped further discussion
would take place, although he was not ready to endorse a claw-
back provision. He said if the committee could send the bill
on, without saying it must be a certain way, he would support
the finance committee's having that discussion.
REPRESENTATIVE GUTTENBERG asked about the definition of "new
property", commenting that somebody might set up a processing
plant, buy all used facilities from somebody else, completely
retool it, enhance it, have it for 20 years, but wouldn't be
eligible for the credit because the property is not new.
SENATOR GARY STEVENS said the intention of the Task Force was
not used, but new investment and new equipment; he said he was
comfortable with "new investment, new equipment."
REPRESENTATIVE SAMUELS concurred and said that the upside of
eliminating "used" outweighs the downside. He said the state's
tracking of used equipment would be relatively impossible,
whereas when new capital comes in to the state, the purpose is
clear.
Number 2931
CHAIR SEATON suggested deleting "beyond gutting of the salmon"
and inserting "but not including heading and gutting". He said
with regard to a splitting machine that left half of the head
on, that is not heading because the head hasn't been removed.
He said "that wouldn't exclude that piece from being value-
added" because it's not a traditional header. He said he
thought the intent was to get away from traditional heading-and-
gutting machines, as those aren't what is being called "value-
added."
Number 2985
CHERYL SUTTON, Staff to the Joint Legislative Salmon Industry
Task Force, Alaska State Legislature, said those items are being
addressed and it is not necessary for the committee to labor
over the exact wordings, since there is no disagreement. She
said she is aware of the intent of the bill and the committee's
intent and is working with Legislative Legal & Research
Services.
TAPE 03-12 SIDE B
Number 2962
REPRESENTATIVE WILSON moved to report CSHB 90, Version 23-
LS0525\D, Utermohle, 2/25/03, out of committee with individual
recommendations and the accompanying fiscal note. There being
no objection, CSHB 90(FSH) was reported from the House Special
Committee on Fisheries.
HB 104-PAYMENT OF FISHERY BUSINESS TAX
CHAIR SEATON announced that the next order of business would be
HOUSE BILL NO. 104, "An Act relating to payment of the fisheries
business tax and to security for collection of the fisheries
business tax."
Number 2906
SENATOR GARY STEVENS, Alaska State Legislature; Joint
Legislative Salmon Industry Task Force, sponsor of [HB 104],
noted that this is a bill that would help to develop the economy
of the fishing industry. He said the bill is geared to attract
the small processors and to hopefully expand processing
operations in Alaska. He pointed out that the fiscal impacts
are minimal. He mentioned that this is an issue of investment
and of economic development and is geared toward attracting new
business development. He added that all of the penalties that
are currently in the law will continue to apply. He said the
department [Department of Revenue] has looked at this closely
and has indicated that out of some 500 licenses, only about one
dozen would opt for this; so this is a small piece that may help
small processors. He added that large processors would probably
not be interested in paying their taxes on a monthly basis
because they would rather keep their money while they can and
pay it when they have to.
Number 2836
REPRESENTATIVE KOTT moved to adopt the proposed committee
substitute (CS) for HB 104, Version 23-LS0533\H, Utermohle,
3/3/03, for the purposes of discussion. There being no
objection, Version H was before the committee.
The committee took a brief at-ease from 9:40 to 9:42 a.m.
SENATOR GARY STEVENS reiterated that big processors probably
would not take advantage of this, but the smaller processors
operating on the edge, without large amounts of money or
property to put up for liens, might take advantage of this
option.
CHAIR SEATON asked if this bill mirrored a bill that was passed
last year - a bill that allowed people to continue to export
fish that wasn't processed within the state.
SENATOR GARY STEVENS confirmed that this was the case.
Number 2750
CHRIS GARCIA, Fisherman, Cook Inlet Fishermen's Fund, said he
thought the bill was good but he was confused by a few things.
He referred to page 1, line 8, which read "an applicant that
does not process a fishery resource in the state may elect to
avoid the requirements of (a) and (b) of this section". He
asked why an applicant would apply if he/she was not going to
process fish.
CHAIR SEATON replied that the language was from a bill which
passed last year that allowed people who didn't process fish in
the state to use this new provision of bonding and paying by the
15th of the month.
Number 2750
MR. GARCIA said he was definitely not opposed to the bill but
questioned the redundancy of line 8 on page 1.
SENATOR GARY STEVENS said that the language, "that does not
process a fishery resource in the state", was being deleted.
MR. GARCIA said that solves his question.
Number 2630
REPRESENTATIVE WILSON moved to report CSHB 104, Version 23-
LS0533\H, Utermohle, 3/3/03, out of committee with individual
recommendations and the accompanying fiscal note. There being
no objection, CSHB 104(FSH) was reported from the House Special
Committee on Fisheries.
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Fisheries meeting was adjourned at
approximately 9:48 a.m.
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