Legislature(2003 - 2004)
04/08/2003 09:02 AM Senate FIN
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
CS FOR SENATE BILL NO. 82(L&C)
"An Act relating to the state alcoholic beverage tax for
certain wine and other beverages."
This was the first hearing for this bill in the Senate Finance
Committee.
Co-Chair Wilken explained this bill "exempts from the State tax on
alcoholic beverages, wine in the amounts sold in, or consigned for
shipment into the State that does not exceed 100 gallons a month."
DOUG LETCH, Staff to Senator Gary Stevens, testified this bill
would replace the federal yearly sales eligibility excise tax limit
of 100,000 gallons with a tax exemption of 100 gallons per month.
He informed that currently wineries are taxed at a rate of $2.50 a
gallon. He stated that this reduction would decrease the impact on
State revenues by approximately $18,600 annually, however "at the
same time stimulating and supporting small Alaska wineries."
Mr. Letch reported that two of the wineries impacted are located on
Kodiak Island, another is located in Haines and a fourth operates
from Anchorage. He expressed, "this burgeoning Alaska industry does
need the support of our Legislature to prosper while continuing to
contribute to the State's changing economy." He surmised that this
legislation would provide one form of assistance. He predicted that
although revenue would be lost to the State under the provisions of
this bill, all revenue from this source could be lost without the
tax exemption.
SFC 03 # 42, Side B 09:52 AM
Mr. Letch indicated winery operators would present testimony to the
bill.
Co-Chair Wilken commented that the sponsor statement does not
address the issue and asked the motivation of this legislation.
Mr. Letch shared that the winery operators located on Kodiak Island
approached Senator Gary Stevens and requested assistance in
mitigating the impacts of the increased alcohol tax passed the
previous legislative session.
Mr. Letch told of the efforts, in conjunction with the Department
of Revenue, to draft this legislation to accommodate the needs of
the growing winery industry in Senator Gary Steven's election
district. He stated this legislation attempts to exempt local
wineries in a similar manner as Alaska breweries are exempted from
the increased taxation.
Co-Chair Wilken referenced the sponsor statement indicates an
exemption of 100,000 gallons of wine per year, although the witness
testified the exemption would be 100 gallons per month.
Mr. Letch responded the sponsor statement was in error.
Co-Chair Wilken asked about the federal eligibility excise tax
mentioned in the sponsor statement.
Mr. Letch explained the federal exemption is limited to 100,000
gallons per year.
Co-Chair Wilken clarified that the alcohol tax would not be
required for the first 100 gallons of wine produced each month.
Mr. Letch affirmed this is the intent of the legislation.
Co-Chair Wilken asked if this would "set aside the liability for
the excise tax under the federal government."
CHUCK HARLAMERT, Juneau Section Chief, Tax Division, Department of
Revenue, testified the exemption proposed in the bill is
"completely unrelated" to the federal tax credit.
Senator Olson understood the struggles of new businesses and asked
the annual production of the wineries in question.
Mr. Letch could only speak to two wineries and listed the average
monthly production of one winery as 120 gallons, during the busier
months, noting the business is seasonal dependant. The other
winery, he stated produced approximately 350 gallons total the
previous year.
Senator Olson questioned the mathematics, noting the wineries
produce more than 100 gallons per month and would not be completely
exempt from the alcohol tax.
Mr. Letch replied that this bill attempts to promote wineries as a
growth industry "and give them room to grow". He told of hearings
on this bill in the Senate Labor and Commerce Committee in which an
annual production total of 1,000 gallons per year was considered.
However, he stated the monthly calculations would be more conducive
for the Department of Revenue administration of the alcohol tax. He
qualified he has not had input on the current proposed exemption
structure from the wineries.
Senator Olson asked if the wineries are in "danger" of going out of
business if an exemption is not provided.
Mr. Letch stated that such "inference" has been received.
Mr. Harlamert stated that the current calculation structure was
"designed to maximize the impact on Alaska producers and minimize
the unintended tax benefits flowing to other wineries." He
explained that several methods exist to calculate an exemption,
however, exemptions could not be limited to in-state producers.
Therefore, he stated the "trick" is to structure the tax exemption
to benefit local producers, without extending the exemption to
wineries located outside Alaska. He assured the proposed method
would best accomplish this.
Senator Olson asked if the Department of Revenue supports this
legislation.
Mr. Harlamert remarked that the Department of Revenue has not taken
a position on the tax exemption matter.
Co-Chair Wilken asked if the language "on amounts sold in or
consigned for shipment into the state that exceed 100 gallons a
month" inserted by this legislation into AS 43.60.010(a)(3), on
page 2, lines 2 and 3 of the committee substitute speaks to the
federal tax exemption.
Mr. Harlamert answered that this language is unrelated to the
federal constitutional restriction prohibiting states from
discriminating against interstate commerce. He explained that the
language clarifies that any entity that brings alcohol into the
State for sale or produces alcohol in the State is a "taxpayer".
Senator Bunde understood during hearings on this bill in the Senate
Labor and Commerce Committee that this legislation is an "attempt
at fairness" because microbreweries had received some tax exemption
for which the wineries did not qualify. He commented that although
he did not generally support tax exemptions, he would support this
legislation based on the issue of fairness in comparison to the
breweries operating in the State, as well as the unlikelihood that
the winery industry would expand to the extent that it could
significantly contribute to the State's general fund.
DAVE MENAKER, Great Land Wines, testified via teleconference from
an off-net location that the annual taxes and permit fees for his
operation is approximately $2,200 not including taxes imposed on
any wine produced, and sold. He expressed this is a significant
amount for small business. He appreciated any assistance in
securing some tax relief.
Senator Bunde asked number of gallons the Great Lands winery
produced per year.
Mr. Menaker informed that the facility has approximately 450-500
gallons currently on site in various stages of fermentation or
packaging. He commented that with the "economic spiral down" in
Haines, business was "not good", although he expected the situation
to improve. He estimated the winery produces between 200 and 250
gallons during the season, which occurs in late summer and early
fall, at the time blueberries and other wild fruit ripen.
Senator Bunde clarified the annual production is 300 to 500 gallons
of wine.
Mr. Menaker affirmed, "If I'm lucky, that would be the maximum."
Co-Chair Wilken asked for clarification of the imposition of the
tax, specifically whether the production limits are calculated
monthly or commemoratively.
Mr. Menaker stated the tax would be levied upon the sale of the
product. He explained that the wine he produces today would not be
ready for sale for one year.
Co-Chair Wilken gave a scenario of 100 gallons sold one month and
150 gallons sold the next month and asked if all but 50 gallons
would be exempt from the tax under the proposed legislation.
Mr. Menaker understood this to be correct.
STEVE THOMSEN, Alaskan Wilderness Wines, testified via
teleconference from Kodiak that the matter arose with the increased
alcohol tax passed under HB 25 the previous legislative session,
which raised the tax from 85 cents per gallon to $2.50 per gallon.
He noted that breweries were exempted for the first 60,000 barrels
produced per year, based on the federal "reduction amount". He
stated that this exemption is inequitable for wineries. Because
wineries are a similar trade, he opined they should receive a
similar tax discount. He expressed the need to assist wineries in
Alaska without significantly impacting State revenue.
Mr. Thomsen informed that occasionally monthly sales from a winery
would exceed the exemption limit, although predicted this would be
infrequent. He listed his total annual sales of 300 gallons the
previous year, with approximately one-third of the sales occurring
over the Christmas holiday season.
Co-Chair Wilken noted the negative fiscal note indicating it would
be discussed further.
Co-Chair Wilken ordered the bill HELD in Committee.
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