02/20/2004 09:03 AM Senate FIN

                                                                                                                                
     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 second  hearing for  this bill in  the Senate  Finance                                                            
Committee.                                                                                                                      
                                                                                                                                
Co-Chair Wilken  stated that this  bill "reduced the tax  burden for                                                            
all small  Alaskan wine producers.  Currently  wine is taxed  at the                                                            
rate of  $2.50 per gallon  at the  time it is  sold in the state  or                                                            
consigned  in the State.  SB 82 exempts the  taxation for the  first                                                            
100 gallons of wine, each  month per taxpayer. Department of Revenue                                                            
estimates  tax loss  to the  State to be  $18,400."  He noted  a new                                                            
fiscal note dated 2/17/04.                                                                                                      
                                                                                                                                
DOUG LETCH,  Staff to Senator  Gary Stevens  overviewed the  sponsor                                                            
statement, updated 4/23/04, into the record as follows.                                                                         
                                                                                                                                
     SB 82 "An Act relating  to the state alcoholic beverage tax for                                                            
     certain wine and other  beverages." This bill will aid Alaska's                                                            
     four  small  wineries;  two  of which  are  located  on  Kodiak                                                            
     Island, a third is in Haines, the forth is in Anchorage.                                                                   
                                                                                                                                
     When  the 22nd Alaska  Legislature passed  into law House  Bill                                                            
     225,  breweries were  allowed to  keep the  former tax rate  of                                                            
     $.35 per  gallon on sales of  the first 60,000 barrels  of beer                                                            
     sold   in  the   state.  Wineries   were   not  given   similar                                                            
     consideration; as  a result, the tax on wine rose from $.85 per                                                            
     gallon  to $2.50 per  gallon. This  important revenue  measure,                                                            
     while  helping  breweries,  has,  unfortunately,  put  Alaska's                                                            
     small, emerging  wineries at a competitive disadvantage  in the                                                            
     marketplace.                                                                                                               
                                                                                                                                
     Recognizing  that a revision to current state  statute to allow                                                            
     wineries  an exemption  similar  to breweries  would lead  to a                                                            
     substantial  revenue loss, SB 82 attempts to  level the playing                                                            
     field  for our small  wineries by offering  a tax exemption  of                                                            
     100  gallons per  month.  This figure  was derived  after  much                                                            
     consultation  with  winery  operators  and  the  Department  of                                                            
     Revenue. The 100 gallon  per month figure is also an attempt to                                                            
     minimize  revenue  loss from  unintended  beneficiaries,  while                                                            
     keeping  within the constrictions  of interstate commerce  law.                                                            
                                                                                                                                
     The  bill  also includes  language  that  will  further  reduce                                                            
     unintended  revenue loss by treating as a single  taxpayer, two                                                            
     or more  taxpayers who  have a relationship,  as defined  in 26                                                            
     U.S.C. 267(b)(Internal Revenue Code).                                                                                      
                                                                                                                                
     By  supporting  SB 82,  you will  help this  developing  Alaska                                                            
     industry produce a  competitively-priced product, allowing them                                                            
     to continue  to contribute new revenue to the  state's changing                                                            
     economy.                                                                                                                   
                                                                                                                                
Mr.  Letch   shared  that  Senator   Gary  Stevens  sponsored   this                                                            
legislation  on behalf of the wineries  located on Kodiak  Island to                                                            
assist an emerging industry.                                                                                                    
                                                                                                                                
STEVEN   THOMSEN,    Alaskan   Wilderness   Wine,   testified    via                                                            
teleconference from Kodiak in support of the bill.                                                                              
                                                                                                                                
Co-Chair Wilken  asked whether this legislation would  assist in the                                                            
expansion of the witness's winery operations.                                                                                   
                                                                                                                                
Mr. Thomsen affirmed it would.                                                                                                  
                                                                                                                                
JOHANNA  BALES, Revenue  Auditor, Department  of Revenue,  testified                                                            
via teleconference  from  Anchorage,  that the  Department does  not                                                            
oppose this  bill. She  clarified the Department  supports  the 100-                                                            
gallon exemption per taxpayer,  as opposed to the exemption to small                                                            
breweries, which she stated  has become administratively burdensome.                                                            
                                                                                                                                
Senator  Olson  asked  that  given  the  small  amount  of  revenues                                                            
involved, why the Department opposes this bill.                                                                                 
                                                                                                                                
Ms. Bales corrected  that the Department  does not oppose  this bill                                                            
and the subsequent exemption.                                                                                                   
                                                                                                                                
Senator  Dyson  commented  on attempts  to  encourage  cruise  ships                                                            
operating  in Alaska  to  use Alaskan  products  and  he hoped  this                                                            
legislation would benefit this process.                                                                                         
                                                                                                                                
Senator Bunde  offered a  motion to report  the bill from  Committee                                                            
with individual recommendations and new fiscal note.                                                                            
                                                                                                                                
There was no objection  and CS SB 82 (L&C) MOVED from Committee with                                                            
a  new zero  fiscal  noted from  the Department  of  Revenue,  dated                                                            
2/17/2004.                                                                                                                      
                                                                                                                                
AT EASE 9:12 AM / 9:13 AM                                                                                                       
                                                                                                                                
Co-Chair Green chaired the remainder of the meeting.