SB 130-SEAFOOD PRODUCT DEVELOPMENT TAX CREDIT  3:46:54 PM CHAIR MICCICHE announced that the next order of business would be SENATE BILL NO. 130, "An Act relating to a seafood product development tax credit; providing for an effective date by repealing secs. 32 and 35, ch. 61, SLA 2014; and providing for an effective date." 3:47:11 PM TIM LAMKIN, Staff, Senator Gary Stevens, Alaska State Legislature, Juneau, Alaska, explained that SB 130 is truly a direct economic policy that the State has used for some time. The intent is to support the long-term development of Alaska's value-added seafood processing industry, specifically targeting both salmon and herring fisheries. He said the historical incentive has been processor tax credits for salmon and herring fisheries to provide infrastructure and research and development investment for added-value product improvements or discoveries. MR. LAMKIN detailed that the bill would extend the sunset for the tax credit and broaden its scope to include pollock and cod. The change will grow market demand for Alaska's quality byproducts rendered from salmon, herring, pollock, and cod. He said there may be amendments to the bill to include tax credits for other fisheries such as perch, flounder, and others. Extending the tax credits and incentives to find added-value technology for all of Alaska's seafood is a topic for future conversations. MR. LAMKIN noted that United Fishermen of Alaska (UFA) submitted a letter of support for SB 130. CHAIR MICCICHE asked him to proceed with the sectional analysis. 3:49:36 PM MR. LAMKIN provided the following sectional analysis of SB 130: Sec. 1: AS 43.75.035(b)(1) and (2), relating to tax credits applied to value-added activity for the processing of salmon and herring products, (1) adds the fisheries of pollock and cod as applicable for the tax credit; and (2) extends the sunset of the applicable tax credits through year 2025. Sec. 2: AS 43.75.035(c), conforming amendment, relating to applying a tax credit for investment equipment used to process salmon or herring, to include equipment used for processing pollock and cod. Sec. 3: AS 43.75.035(d), conforming amendment, relating to a 3-year carry-forward of unused tax credits for the processing of salmon and herring, adds the same carry-forward of tax credits to be applicable for pollock and cod processing. Sec. 4: AS 43.75.035(e), relating to the 50 percent of liability cap on applicable tax credits, is legal drafting statutory clean-up, deleting a duplicative and redundant clause already contained in Section 1 of the bill. Sec. 5: AS 43.75.035(g), conforming amendment, relating to state claw-back of a carry-forward tax credit, in the event an asset used for the processing of salmon or herring to which a carry-forward applies, if the asset is removed from the state, adds pollock and cod in determining qualified investment of processing within the state. Sec. 6: AS 43.75.035(j)(3), conforming amendment, relating to the definition of "qualified investment" under this tax credit program, adds investment in assets used for processing pollock and cod products. Sec. 7: AS 43.75.035(j)(6), conforming amendment, relating to the definition of "value-added" products under this tax credit program, adds processing of pollock and cod byproducts. Sec. 8-11: Are historical sunset dates and repealers of this tax credit program, consolidating all of the various sunset provisions of the program into a single sunset, occurring now in section 8, and set for Jan. 1, 2026. Sec. 12: Sets an effective date for the bill of Jan. 1, 2021. 3:53:31 PM SENATOR KAWASAKI asked if there is any metric to prove that the tax credit has the intended result of increased investment in value-added products for those fisheries. MR. LAMKIN directed attention to the analysis section of the fiscal note that describes the economic activity that has resulted from the program. He deferred any discussion of the specifics to the industry. 3:54:23 PM SENATOR GARY STEVENS, Alaska State Legislature, Juneau, Alaska, sponsor of SB 130, explained that the legislation to address out of state competition that was affecting the salmon and herring fisheries passed in 2002 or 2003. He said that program has been very successful and he believes the tax credit will be similarly beneficial to the pollock and cod fisheries. CHAIR MICCICHE asked Mr. Spanos about the timing if there is no fiscal note for FY2021 but the sunset splits that fiscal year. 3:55:40 PM BRANDON SPANOS, Deputy Director, Tax Division, Alaska Department of Revenue, Anchorage, Alaska, explained that the tax return is filed the year following the catch so there would not be a reduction as a result of the credit until the following year. CHAIR MICCICHE said he assumes that there would not be an interruption in the tax credit because of the previous sunset date. MR. SPANOS answered that's correct. If the tax credit sunsets, the processors can still claim their credit in FY2021. CHAIR MICCICHE asked if he had testimony on the bill. MR. SPANOS stated that the writeup in the division's fiscal note estimates the reduction though the indirect expenditure for FY2022-FY2026. It takes into account the historic credit amounts for salmon and herring as well as an estimate for the new species, pollock and cod. CHAIR MICCICHE noted that the fiscal note increases from $3.6 million up to $6.6 million in FY2026. He asked what the division's methodology is to assume an investment increase. MR. SPANOS answered that the assumption is that the industry will spend the money immediately and increase spending in later years. The estimate ranges between $3.6 million to $6.6 million. 3:58:34 PM CHAIR MICCICHE asked Senator Stevens if he had any closing comments. SENATOR STEVENS said the tax-credit policy passed many years ago and it was very effective in helping the salmon and herring industry move ahead. SB 130 is an extension that would also apply to pollock and cod. The tax-credit policy made an enormous difference in the industry by allowing fishermen to put in new engines and processors to put in new lines. He said his hope is that the bill will have a similar impact on pollock and cod. CHAIR MICCICHE said that as a fisherman, he has witnessed the industry substantially increase its value-added products as a result of the investment from the tax credit. He noted that the fishermen have received more value for the prices as well. 4:00:28 PM CHAIR MICCICHE opened public testimony. 4:00:43 PM CHRIS BARROWS, President, Pacific Seafood Processors Association, Tacoma, Washington, testified in support of SB 130. He said SB 130 would provide Alaska seafood processors with the ability to continue to receive some capital cost recovery in exchange for investing in new equipment that produces value- added products in Alaska. The bill incentivizes getting more value out of each fish, which in turn provides greater benefit to the State of Alaska, the coastal communities, fishermen, and processors. MR. BARROWS stated that expanding the list of tax-credit eligible species to include Alaska pollock and Pacific cod is important. He noted that the two species comprise about 69 percent of the statewide harvest by volume, based on 2018 numbers. Getting more value long term from the high value species is a benefit to all fishery participants and the State of Alaska. He shared that the Pacific Seafood Processors Association (PSPA) is comprised of eight major seafood companies that purchase fish from harvesters from Ketchikan to Unalaska and St. Paul. In turn, PSPA produces value-added products and provides markets for Alaska fisheries in a global context. The PSPA companies operate 25 facilities in 15 coastal communities across Alaska and 3 floating processors that serve remote locations. MR. BARROWS said seafood processors have used the existing salmon tax credit to make critical investments in processing technologies for salmon that would otherwise be cost prohibitive for some processors. The tax credit has changed the face of salmon processing to an increase in fillet and other value-added salmon products that have a strong U.S. market. A higher value product means a higher return on investment for the State and all participants, including fish taxes which are based on fish value. He stated that part of the sustainability effort in Alaska is to increase and improve the utilization of each fish which in turn generates more value out of the state's resources. He said there is no better way to increase the value of Alaska's resources then to increase the utilization of harvested fish. Some other examples include using milt, roe, stomachs, bellies, fish oil, bones and skins that generated new products and new consumers of Alaska seafood. He summarized that reauthorizing the value added tax credit and including cod and pollock in the reauthorization will help Alaska producers continue progressing and expanding more fully into other species. 4:04:24 PM JERRY MCCUNE, Board President, Cordova District Fishermen United, Cordova, Alaska, testified in support of SB 130. He noted that when the legislation first passed, farmed fish flooded the market and Alaska was just putting out frozen fish. The industry's use of fillet machines is a result of the tax credit. It applies strictly to value added, not something like a new forklift. MR. MCCUNE concluded saying that adding cod and pollock is probably a good thing for applying tax credits to different things. 4:05:44 PM FRANCIS LEACH, Executive Director, United Fishermen of Alaska, Juneau, Alaska, stated support for SB 130. She said the bill will provide Alaska's seafood processors with the ability to receive capital cost recovery for investing in new equipment to produce value-added products. New and innovative products will benefit Alaska's processors, fishermen, and coastal communities. She recalled that the legislature enacted the seafood product development tax credit when salmon and herring prices were extremely low. It helped the processing sector to upgrade infrastructure and develop new and innovative products. She added that UFA appreciates the bill extending the tax credit to benefit pollock and cod during an industry downturn. MS. LEACH summarized that the seafood product development tax credit is helpful to processors. The tax credit has shown in the past, through innovative and updated equipment, to increase the raw fish taxes revenue. Fish taxes are based on fish value and the more money derived from fish equates to more money for Alaska. 4:07:30 PM CHAIR MICCICHE announced that public testimony remains open. 4:07:41 PM CHAIR MICCICHE held SB 130 in committee.