Legislature(2009 - 2010)HOUSE FINANCE 519
04/01/2010 01:30 PM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB357 | |
| HB344 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 357 | TELECONFERENCED | |
| + | HB 344 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE BILL NO. 344
"An Act relating to the salmon product development tax
credit; and providing for an effective date by
amending an effective date in sec. 7, ch. 57, SLA
2003, as amended by sec. 4, ch. 3, SLA 2006, and by
sec. 4, ch. 8, SLA 2008."
2:57:05 PM
PETER ECKLUND, STAFF, REPRESENTATIVE BILL THOMAS, SPONSOR,
Vice-Chair Thomas delivered the sponsor statement.
House Bill 344 extends the deadline for salmon
processors in Alaska to receive a salmon product
development tax credit. The program allows applicants
to claim a credit on their annual fisheries business
tax for 50% of the purchase costs of eligible
equipment. Credits received may not exceed 50% of a
taxpayer's annual tax liability. Under current law,
processors can claim the credit for the property first
placed into service by December 31, 2011. This bill
would extend the program's sunset date to December 31,
2015, allowing processors ample time to continue their
long-range investment planning.
The salmon product development tax credit was a key
recommendation of the Joint Legislative Salmon
Industry Task Force. First enacted in 2003, the
credit was part of an effort by Alaska's elected
leaders and the fishing industry to develop innovative
value-added salmon products. Since then it has
stimulated some important changes in Alaska's
commercial fishing industry. New processing equipment
eligible for the tax credit enables businesses to
offer a more diverse complement of Alaska salmon
products which helps increase overall customer
acceptance. Modern equipment also helps increase
efficiency of processing operations and improves
output, meaning that quality has improved. This tax
credit also encourages in-state processing of our
salmon resource which is critical to job creation and
retention in fishing communities.
Although Alaska's salmon industry is beginning to
recover from years of low values caused by factors
such as competition from fish farming, the industry
continues to be challenged by the recent economic
depression, changes in the marketplace, and increasing
labor and energy costs. Extending the tax credit
beyond its current sunset date of December 31, 2011
will allow the industry to continue the progress that
is being made in developing and producing salmon
products that will keep Alaska's fisheries competitive
in world markets. The state should continue to
support one of our most important basic industries by
extending the salmon product development tax credit
thought passage of HB 344.
Vice-Chair Thomas MOVED to ADOPT Work Draft (26-LS1473\E,
Kane, 3/11/10) as a working document. Co-Chair Stoltze
OBJECTED.
Mr. Ecklund noted that the fisheries committee added
qualified ice-making systems to the initial legislation. He
stated that he worked with Department of Revenue (DOR) who
administers the program to clarify that ice-making machines
would qualify for the tax credit.
3:01:32 PM
Co-Chair Stoltze queried how ice machines fit into
technological advances. Mr. Ecklund responded that chilled
fish are required to produce a quality product. The
fisheries committee believed that encouraging investment in
ice machines would help preserve the value of the base
product.
Co-Chair Stoltze commented on the necessity of the
legislation.
Vice-Chair Thomas responded that ice-making products are
lacking in the state. The demand for quality fish demands
additional ice. He added that Bristol Bay has been behind
the times in this area. The need to keep the fish chilled
for value-added products is high. Co-Chair Stoltze
clarified that he did not feel negatively about the
legislation, but encouraged open-mindedness.
Representative Doogan clarified that the state would cover
a portion of the cost through tax credits, with the theory
that better fish would be the result. He asked who benefits
from the higher quality fish. Vice-Chair Thomas responded
that the ice machines are located at the cannery or on a
barge. The boats visit the cannery or barge to collect the
ice, two tons at a time. He stated that everyone benefits
from the ice and the higher quality fish.
3:07:54 PM
Representative Doogan asked about the size of the ice
machines. Vice-Chair Thomas responded that the ice machines
create 25-30 tons of ice per day. Many canneries require a
large amount of ice. Representative Doogan guessed that the
commercial ice machines were much larger than those needed
for personal use. Vice-Chair Thomas agreed.
Representative Austerman clarified that the fishing boat
does not receive credit for the ice machine. The incentive
was for the processing industry to allow the fishermen to
get a better price for the fish and allows for greater flow
of money through the state. The processing industry paid
the fishery business tax that received the credit.
Co-Chair Stoltze asked if an industry standard exists for
the cost of the ice.
Vice-Chair Thomas responded that the policy depends on
whether the boats are employed by the processing company.
He added that the ice is normally given away. Language in
the bill prohibits the industry from selling ice for three
years.
Co-Chair Stoltze requested further clarification. Mr.
Ecklund responded that the issue of selling the ice was not
as important as tracking of the value of the fish processed
with the ice from the said ice machines. If a processor
receives a credit from an ice machine, the ice can only be
given or sold to employed fishermen.
Vice-Chair Thomas pointed out that two pounds of ice are
required to chill one pound of fish.
3:11:28 PM
Mr. Ecklund opined that the current tax credit is working.
He commented on the Alaska Tax Division Report (copy on
file) for FY 2007-2009 showing that the total tax received
by the state has increased from $29 to $42 million. The tax
credit is not responsible for the entire increase, but it
helped.
Representative Salmon asked why the ice contributes to the
added-value label for the fish. Mr. Ecklund responded that
there is a list of qualified and non qualified expenditures
that explain changes in the industry, primarily with
incentivizing value-added products.
Vice-Chair Thomas added the incentive of retaining jobs in
Alaska versus exporting them.
Co-Chair Stoltze pointed out that the discussion is based
on a policy issue and the CS has yet to be adopted. Mr.
Ecklund agreed and noted that the prior committee felt
strongly about ice machines.
Representative Fairclough pointed out that the revenue book
does not match the provided data.
Mr. Ecklund requested testimony from DOR.
3:15:05 PM
PAUL DICK, CHIEF OF OPERATIONS, TAX DIVISION, DEPARTMENT OF
REVENUE addressed the technical question.
Representative Fairclough restated her question from page
51 of the 2009 Revenue Sources Book which illustrates
numbers that vary from the document provided in the
committee packet.
Mr. Dick explained that the Revenue Source Book lists all
taxes on fisheries, including salmon enhancement tax
revenue, diving, and other types of seafood marketing. He
offered to provide the required breakdown from the Revenue
Sources Book.
Representative Fairclough explained her process in finding
the information and asked if the percentage was
proportional to the municipal share. Vice-Chair Thomas
stated that the municipal share was 50 percent. Mr. Dick
Figure added that the Revenue Sources Book does show 50
percent of the tax.
Representative Fairclough agreed to review the data later
with Mr. Dick.
Representative Doogan asked about the inclusion of ice
machines. Mr. Dick responded that the ice machines would
provide benefits to industry, but he was unable to comment
on the policy call.
3:19:23 PM
Representative Doogan added that ice machines used to be
specifically excluded and he wondered about the change in
circumstances that altered the decision. Mr. Dick believed
that the fisheries committee suggested adding the ice
machines.
Co-Chair Stoltze asked about departmental concerns
regarding the ice machines. Mr. Dick replied that the
concerns were with the technical changes regarding the
definition of qualified investment. The ice machines were
included with processing equipment and the ice machine does
not in fact "process."
Representative Salmon asked if the committee was including
"added-value" products to the list. Co-Chair Stoltze opined
that the committee is "doing it because we can."
Vice-Chair Thomas suggested that the list is an older one.
He repeated that covering the fish with ice increases the
value and allows Alaska to compete on an international
level. He stated that he did not know why the ice machines
were not a priority before. The trend in Bristol Bay is
moving toward iced fish.
3:23:32 PM
Co-Chair Stoltze suggested that the processors in Cook
Inlet and in Southeast Alaska already had ice machines.
Representative Austerman added that farmed fish entered the
market place a few years ago. Icing allowed the farmed fish
to arrive with a longer shelf life. If fish is not iced,
then one to two days of shelf life are lost. He pointed out
that the value is in the freshness of the fish. As Alaska
began to compete with farmed fish the ice helped. Ten years
ago, ice machines were not the issue. He agreed that
Bristol Bay was a difficult place to fish and ice machines
were necessary.
Representative Fairclough agreed that the case was well
made for ice machines; she supported the underlying issue.
She wished to ensure that the fiscal note reflects the
added ice machines. Mr. Dick responded that DOR had not
considered the work draft in the creation of the fiscal
note.
Co-Chair Stoltze asked if the change in the fiscal note
will be substantive. Mr. Dick did not believe so. He
explained that the department observed the last three years
of credits to create an average of $2.4 million. He was
unaware of the exact fluctuation of investments. He
anticipated a continued $2.4 million.
Co-Chair Stoltze asked if the ice machines will then
compete with the other technological investments. Mr. Dick
responded yes.
Representative Fairclough asked for the average cost and
life expectancy of an ice machine intended for heavy-
production.
3:27:27 PM
MARY MCDOWELL, VICE PRESIDENT, PACIFIC SEAFOOD PROCESSORS
ASSOCIATION spoke strongly in support of HB 344. She
stressed that the tax credit will allow the industry to
keep pace with consumer demands on tough world markets. She
referred to letters in the packet regarding the targeted
program. She stated that companies are faced with
challenges and those in rural areas are faced with high
energy and transportation costs. She declared that this was
an important time for Alaska to support the investment with
the additional economic incentive. The tax credit pays for
a small portion of the required product investment.
Ms. McDowell continued that fine market niches raise the
value of the salmon which benefit the fishermen,
communities, the processors and the state coffers.
Co-Chair Stoltze asked if there was concern about the
amendment and the ice machines. Ms. McDowell answered no.
She thought the amendment served as a good addition to the
bill. She agreed that icing fish allows for a high quality
item to smoke or can.
Co-Chair Stoltze asked about ice machines and the cost of
diesel to power the machine. He asked if the fuel was
covered in the tax credit. Ms. McDowell responded no.
Representative Doogan asked why companies are not investing
in ice machines if they are a good deal both in terms of
product and income derived.
3:32:58 PM
GREG FISK, BRISTOL BAY ECONOMIC DEVELOPMENT CORPORATION
stated that the installed cost per production ton of ice
machines is approximately $12,000 to $18,000. A ten-ton ice
machine costs approximately $180 thousand. He responded to
the question about the timing of policy change. He
explained that the tax credit was helpful for those wishing
to make investments in value-added equipment. The findings
were that high quality fish are not available particularly
in Bristol Bay. The state incentivized the purchases, but
full value is not achieved without enough number one
quality fish.
MARK PALMER, PRESIDENT, OCEAN BEAUTY SEAFOODS (via
teleconference), spoke in support of the legislation. He
explained that Ocean Beauty Seafoods has added a value-
added line, increasing employment and production capacity
as a result of the legislation. Often the freezing capacity
of a facility can act as a bottleneck. The legislation has
accelerated investment due to the tax incentive.
Representative Fairclough asked the amount of fish tax paid
by Ocean Beauty Seafoods.
Mr. Palmer responded that the company's fish tax totals an
average around $1.2 million. The company has taken
advantage of $600 thousand of the value added processing
tax credit. He offered to provide more detail.
Representative Fairclough stated that she was interested in
the percentage of the credit that the company utilized. She
understood that 50 percent of the company's liability to
the state is returned in the form of credits. Mr. Palmer
replied that 50 percent is the maximum amount available.
The bill allows for carry-over of the credit.
Representative Fairclough asked if the carry-over option
was a new addition to the bill.
3:39:26 PM
Mr. Palmer responded no, the company has a certain period
of time following the investment to carry-over.
Mr. Palmer pointed out that shore plants are not the only
ones that lack ice capacity. The fleet is widespread in
Bristol Bay. Some of the ice capacity would exist on
tenders. Ice is occasionally transported a great distance.
A thousand permits exist in Bristol Bay without
refrigeration capacity on board their vessels. Local
fishermen can only participate in premium programs if they
have the ability to chill the fish.
3:42:19 PM
Representative Austerman asked for an estimate of the
amount invested in value-added fisheries over past five
years and how much was based on tax credit ability. Mr.
Palmer responded that the company invested in excess of $2
million each season in increasing capabilities for value-
added products.
Co-Chair Stoltze disclosed that he served with Mr. Palmer
as a member of the Alaska Seafood Marketing Institute
helping to advance the marketing of Alaska Seafood
products.
BOB WALDROP, EXECUTIVE DIRECTOR, BRISTOL BAY REGIONAL
SEAFOOD DEVELOPMENT ASSOCIATION (via teleconference), spoke
strongly in support of HB 344. He stated that the most
valuable salmon fishery in the world is rising sharply.
Filet production in Bristol Bay increased by over 18
percent between 2008 and 2009 to 21 million pounds. He
expected to see the trend continue as a result of the tax
credit. He expressed hope that the committee would approve
the modest expansion of the tax credit to include ice
making. Ice is a necessary condition for higher value
products. Higher value products lead to higher prices upon
which the fishery's business tax and fishermen's income is
based. He mentioned the suffering market in Chile.
3:47:20 PM
Representative Doogan asked about the change in philosophy
regarding the qualification of ice machines as expenditures
when in the past they were considered non-qualified
expenditures. Mr. Waldrop believed that the tax credit
stimulated the growth of value-added equipment.
Representative Doogan referred to long list of non-
qualified expenditures including ice machines. He asked how
many other things not currently listed as qualified
expenditures will get moved to qualified list as time goes
on.
Representative Doogan asked whether additional pieces of
equipment will be moved over to the list of qualified
expenditures, which will ultimately increase the expense to
the state. Mr. Waldrop did not believe that the inclusion
of the ice machines qualified as "mission creep" but that
the original mission of the legislation was too narrow. The
Bristol Bay Regional Seafood Development Association has
invested $300,000 to $400,000 into ice making equipment.
3:51:51 PM
Representative Austerman noted that the equipment list is
ten years old and he did not think one change in ten years
signaled danger. He emphasized that the benefits of ice
machines had been discussed in committee for years.
KRIS NORORSZ, GOVERNMENT AFFAIRS, ICICLE SEAFOODS,
PETERSBURG (via teleconference), testified in support of
the bill. She explained that her company purchased and
processed salmon throughout Alaska. Icicle Seafoods has
utilized the tax credit to purchase equipment, further
diversify the product line, improve quality and prolong
product viability. She described the various equipment
purchased that prolong the shelf life of the salmon.
Vice-Chair Thomas closed public testimony. He asked DOR
about the fiscal note. Mr. Dick responded that the fiscal
note would not change with the added amendments.
Representative Fairclough asked if the credits carry
forward. Mr. Dick answered that the provision to carry-over
for three years after the tax year has always existed in
the legislation. He added that HB 344 simply extends the
carry over provision end-date.
Representative Fairclough asked for more information about
the carry-over. She asked how the carry-over functions if a
person purchases a piece of equipment for $1 million and is
able to declare up to $500 thousand. Mr. Dick responded
that the with a $100,000 tax liability, a company could use
$50,000 and carry over the remainder of the investment to
the subsequent tax years, for four years.
Representative Fairclough clarified that the provision
existed in the current legislation. Mr. Dick responded yes.
Representative Fairclough asked about the life-cycle of new
equipment provided for as a credit. She requested a cost
analysis regarding the payment schedule for the equipment.
Mr. Dick deferred to the industry for an answer.
Mr. Fisk answered that the typical life expectancy for an
ice plant was approximately 20-30 years.
3:58:20 PM
Representative Foster stated support for the legislation.
He believed that help for the rural, western, and
impoverished communities was always a step in the right
direction.
HB 344 was HEARD and HELD in Committee for further
consideration.
3:59:37 PM
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB357 Letters.pdf |
HFIN 4/1/2010 1:30:00 PM |
HB 357 |
| HB344 PSPA support.pdf |
HFIN 4/1/2010 1:30:00 PM |
HB 344 |
| HB 344--Alaska Tax Division 2009 Detail[1].pdf |
HFIN 4/1/2010 1:30:00 PM |
HB 344 |
| HB 344N Pac Seafood support.pdf |
HFIN 4/1/2010 1:30:00 PM |
HB 344 |
| HB 344--Qualified and Non-qualified Expenditures[1].pdf |
HFIN 4/1/2010 1:30:00 PM |
HB 344 |
| peter pan Letter HB 344.pdf |
HFIN 4/1/2010 1:30:00 PM |
HB 344 |
| PSPA support.pdf |
HFIN 4/1/2010 1:30:00 PM |
|
| ss Hb 344 Sponsor Statement.doc |
HFIN 4/1/2010 1:30:00 PM |
HB 344 |
| HB 344 CS WORKDRAFT 26-LS1473 E Version.pdf |
HFIN 4/1/2010 1:30:00 PM |
HB 344 |
| HB 344 Letter Icicle Seafoods.pdf |
HFIN 4/1/2010 1:30:00 PM |
HB 344 |