Legislature(2005 - 2006)CAPITOL 124

01/20/2005 08:00 AM House COMMUNITY & REGIONAL AFFAIRS

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Moved Out of Committee
Heard & Held
HB  25-REFUND OF FISH BUSINESS TAX TO MUNIS                                                                                   
CO-CHAIR THOMAS announced  that the next order  of business would                                                               
be  HOUSE  BILL NO.  25,  "An  Act  relating  to the  sharing  of                                                               
fisheries   business  tax   revenue   with  municipalities;   and                                                               
providing for an effective date."                                                                                               
8:17:21 AM                                                                                                                    
CO-CHAIR  OLSON  moved to  adopt  CSHB  25, Version  23-LS0169\G,                                                               
Utermohle,  1/19/05, as  the working  document.   There being  no                                                               
objection, Version G was before the committee.                                                                                  
8:17:34 AM                                                                                                                    
REPRESENTATIVE  PAUL SEATON,  Alaska State  Legislature, speaking                                                               
as  the  sponsor, explained  that  this  legislation attempts  to                                                               
bring  the [fisheries  business]  taxes to  the communities  that                                                               
generate the revenues.  He  noted that there are three components                                                               
of the  fisheries business tax,  which is  also known as  the raw                                                               
fish tax because  the tax is based  on the value of  the raw fish                                                               
as they come off the vessel.   The fisheries business tax is paid                                                               
by  the  processor  or  buyer  not  the  fisherman.    The  first                                                               
component of  the fisheries  business tax  is the  processing tax                                                               
which, for  a developed  fishery, is generally  3 percent  on the                                                               
ex-vessel  value  of the  fish  and  is  paid by  the  processor.                                                               
[Within]  the   processing  tax  there   is  also  a   1  percent                                                               
undeveloped  tax   that  is   used  to   stimulate  underutilized                                                               
fisheries.    [Within the  processing  tax  there  is also]  a  5                                                               
percent  tax  for  floating processors.    Representative  Seaton                                                               
explained that  50 percent of  the [fisheries business  tax] goes                                                               
to  the general  fund  (GF)  while the  remaining  50 percent  is                                                               
returned  to the  communities where  the processing  takes place.                                                               
In communities  in which there is  a city and a  borough, half of                                                               
the 50  percent returned to  community goes  to the city  and the                                                               
remaining  half goes  to the  borough.   He noted  that the  vast                                                               
majority of fisheries business taxes are processed in the state.                                                                
REPRESENTATIVE  SEATON  turned to  the  fish  that are  processed                                                               
outside a  borough or city.   In those  cases, 50 percent  of the                                                               
revenue  goes to  the GF  and the  other 50  percent goes  to the                                                               
Department  of   Commerce,  Community,  &   Economic  Development                                                               
(DCCED).   The department  uses a  formula to  broadly distribute                                                               
that  50 percent  throughout fishing  communities  in the  state.                                                               
The formula  is based on  the quantity of seafood  that's brought                                                               
into that community  or rather the total value of  the fishery in                                                               
that area as well as the  population, regardless of where the tax                                                               
was generated.                                                                                                                  
REPRESENTATIVE  SEATON  turned  to  the third  component  of  the                                                               
fisheries business  tax, which addresses  the situation  in which                                                               
fish are  landed in a community  but are exported from  the state                                                               
unprocessed.  Of  the [tax collected] on those  exported fish, 50                                                               
percent of  the tax  goes to  the GF while  the other  50 percent                                                               
goes to DCCED.   This legislation would change  statute such that                                                               
50 percent  of the [tax revenue]  collected would go to  the port                                                               
at which  it's landed.   Therefore, this legislation  attempts to                                                               
have the  revenue sharing  at the  location where  the facilities                                                               
for landing and handling the fish are located.                                                                                  
REPRESENTATIVE SEATON  noted that  the committee  packet includes                                                               
an  amendment,   which  clarifies  that  this   change  would  be                                                               
applicable  from the  point of  passage forward.   He  also noted                                                               
other items included in the  committee packet, including the zero                                                               
fiscal  note  with its  analysis,  a  memorandum from  Legal  and                                                               
Research Services,  and background  information.  He  pointed out                                                               
that the  fiscal note analysis  for bill version HB  25(A), under                                                               
the heading  "Technical Comments" specifies:   "The bill language                                                               
does not  provide a  methodology for determining  the situs  of a                                                               
sale although it must necessarily  be the place of origination or                                                               
the location of  the taxpayer that sells the  product."  However,                                                               
Version G  rectified the aforementioned  by defining the  port of                                                               
landing.    Representative  Seaton  drew  attention  to  a  chart                                                               
entitled  "Distribution of  Fish  Business Tax  on Fish  Exported                                                               
Unprocessed  Based  on 2003  Tax  Returns".   The  aforementioned                                                               
chart specifies the proposed distribution  under HB 25 versus the                                                               
actual distribution in 2004.   The purpose of this legislation is                                                               
to  bring  the  tax  to the  facilities  necessary  for  economic                                                               
development and generates  the tax base.  He  also drew attention                                                               
to the  document entitled "ESTIMATED  DCCED Payments".   He noted                                                               
that the document entitled "ESTIMATED  DCCED Payments" only shows                                                               
where DCCED  wouldn't distribute money, although  the state would                                                               
distribute  the money  directly  to those  communities [under  HB
25].   Confidentiality rules restrict the  sharing of information                                                               
regarding the  distribution amount to particular  communities, he                                                               
8:30:24 AM                                                                                                                    
REPRESENTATIVE   SALMON  referred   to   the  document   entitled                                                               
"ESTIMATED DCCED  Payments", and inquired  as to why the  rest of                                                               
the state is not included.                                                                                                      
REPRESENTATIVE SEATON  explained that DCCED bases  its formula on                                                               
fishing  communities, and  therefore  the community  has to  have                                                               
some tie to fishing.  Those  communities with some tie to fishing                                                               
apply  for  the  money.    He   noted  that  there  has  been  an                                                               
approximately   $3,000  minimum   to   each   community.     This                                                               
legislation "would  change about  a third of  that, direct  it to                                                               
the communities  that generate  the tax so  that even  under this                                                               
scenario, each  of those communities  would receive at  least ...                                                               
$2,000, even if  they don't generate the tax."   This legislation                                                               
doesn't  change the  other sources  of  revenue for  DCCED.   For                                                               
instance,  the   money  from  fish   processed  outside   of  any                                                               
municipality goes to  DCCED, which distributes the  money per the                                                               
8:32:06 AM                                                                                                                    
REPRESENTATIVE  LeDOUX asked  if Representative  Seaton would  be                                                               
able to  obtain a community-by-community breakdown  for the chart                                                               
entitled  "Distribution of  Fish  Business Tax  on Fish  Exported                                                               
Unprocessed Based on 2003 Tax Returns."                                                                                         
REPRESENTATIVE SEATON  said he  hoped to  obtain such.   However,                                                               
it's  problematic  because   information  hasn't  been  collected                                                               
community by  community.   He highlighted that  a number  of fish                                                               
are  exported  unprocessed.     Although  the  aforementioned  is                                                               
supported and  encouraged because  those fish  are worth  more to                                                               
the fisheries,  that community loses  the tax base.   He provided                                                               
examples   of    such   situations   in   Chignik    and   Sitka.                                                               
Representative  Seaton  informed  the committee  that  there  are                                                               
three  different  definitions  of  processing from  each  of  the                                                               
following  entities:    ADF&G,   DCCED,  and  the  Department  of                                                               
Revenue.    Trying to  change  the  definition of  processing  is                                                               
problematic, which is why this  legislation takes the approach it                                                               
does.    Troll-caught  salmon, he  highlighted,  are  unprocessed                                                               
under  the  Department  of Revenue's  definition,  and  therefore                                                               
there is no tax base that returns to that local community.                                                                      
8:35:25 AM                                                                                                                    
CO-CHAIR THOMAS  surmised that the  processing is  primarily done                                                               
by independent operations.                                                                                                      
REPRESENTATIVE SEATON  agreed, but pointed out  that Homer, where                                                               
the fish  go through  an auction system,  is the  largest halibut                                                               
port in  the world.   He estimated that approximately  80 percent                                                               
of Homer's fish  is trucked to British Columbia, which  is a loss                                                               
of the tax  base for Homer.  He reiterated  that this legislation                                                               
doesn't increase the tax on anyone,  rather it returns the tax to                                                               
the port where the facilities are being provided.                                                                               
8:37:38 AM                                                                                                                    
CO-CHAIR OLSON  asked whether  there is  any impact  on secondary                                                               
REPRESENTATIVE SEATON replied no, adding  that this is a tax paid                                                               
by the first buyer.  He  noted that the direct market legislation                                                               
includes  a provision  that  allows a  direct  marketer who  only                                                               
sells to  a secondary buyer the  ability to pass the  fish tax on                                                               
to the secondary buyer.                                                                                                         
8:38:42 AM                                                                                                                    
REPRESENTATIVE LeDOUX inquired  as to the impact on  the Lake and                                                               
Peninsula   Borough   in   relation  to   the   chart   entitled,                                                               
"Distribution of  Fish Business Tax on  Fish Exported Unprocessed                                                               
Based on 2003 Tax Returns."                                                                                                     
REPRESENTATIVE  SEATON offered  that  as the  Lake and  Peninsula                                                               
Borough area increases its flying  out of fish, the borough loses                                                               
that tax revenue.                                                                                                               
8:40:13 AM                                                                                                                    
REPRESENTATIVE  SALMON  inquired  as  to why  the  raw  fish  tax                                                               
doesn't go to communities outside the coastal communities.                                                                      
REPRESENTATIVE    SEATON   explained    that   the    legislation                                                               
distributing that portion  of the raw fish tax was  an attempt to                                                               
return the  revenue to the  ports with the  facilities generating                                                               
the  revenue.   Therefore, 50  percent of  the raw  fish tax  was                                                               
taken  in  order  to support  the  coastal  communities,  fishing                                                               
ports.   He  reminded the  committee  that the  portion going  to                                                               
DCCED  will  remain,  that  is  [the  tax  generated  from]  fish                                                               
processed in the state but  outside of a municipality will remain                                                               
unaffected, go to DCCED, and be  distributed by the formula.  The                                                               
formula was intended to return  the tax somewhat equitably to the                                                               
areas generating  the revenue.  Representative  Seaton specified,                                                               
"All this bill does is try and  say we can refine this process of                                                               
trying to support  the fishing communities with half  of the fish                                                               
tax by  targeting it  to the communities  ... that  generate that                                                               
tax, just like we  do with the vast majority of  it, which is the                                                               
processing tax."                                                                                                                
8:43:00 AM                                                                                                                    
CO-CHAIR THOMAS related his understanding  that the 50 percent of                                                               
the 3 percent  [processing tax] that goes into the  GF is how the                                                               
revenues are shared across the state.                                                                                           
REPRESENTATIVE SEATON agreed.   The distribution of  the raw fish                                                               
tax attempts to  return a portion of it to  the location at which                                                               
the revenue was generated in order to support the facilities.                                                                   
8:43:46 AM                                                                                                                    
REPRESENTATIVE  SEATON,  in  response to  Representative  Salmon,                                                               
clarified that  50 percent of  the total tax  goes to the  GF and                                                               
the  other  50 percent  goes  to  local  communities.   The  only                                                               
question has been  in regard to unprocessed  exported fish, which                                                               
have been  treated as if they  weren't part of a  local community                                                               
or  infrastructure  supporting that  fishery.    He reminded  the                                                               
committee of the amendment in the committee packet.                                                                             
CO-CHAIR THOMAS  announced that  HB 25 won't  be reported  out of                                                               
committee  today because  of the  new information  that has  been                                                               
provided and concerns that have been expressed.                                                                                 
8:45:47 AM                                                                                                                    
REPRESENTATIVE LeDOUX asked if there  are instances in which fish                                                               
are landed  in one community  and processed in  another community                                                               
within the  state.   In such a  situation would  this legislation                                                               
impact the taxation of that fish, she asked.                                                                                    
REPRESENTATIVE  SEATON   replied  no,  noting  that   in  such  a                                                               
situation it's  a processing  tax that  goes to  the [processing]                                                               
community.   This legislation  in no  way impacts  the processing                                                               
tax; this legislation only refers to unprocessed exported fish.                                                                 
8:47:46 AM                                                                                                                    
REPRESENTATIVE CISSNA  moved that  the committee  adopt Amendment                                                               
1, labeled 24-LS0169\G.1, Utermohle, 1/19/05, which read:                                                                       
     Page 3, following line 21:                                                                                                 
          Insert a new bill section to read:                                                                                    
         "* Sec. 5.  The uncodified law of the State of                                                                     
     Alaska is amended by adding a new section to read:                                                                         
          APPLICABILITY.       The   amendments    made   to                                                                    
     AS 43.75.130 by secs.  1 - 3 of this Act  apply only to                                                                    
     fisheries  business   tax  revenue  collected   by  the                                                                    
     Department  of  Revenue  for  tax  year  2005  and  for                                                                    
     subsequent tax years."                                                                                                     
     Renumber the following bill section accordingly.                                                                           
There being no objection, Amendment 1 was adopted.                                                                              
8:48:36 AM                                                                                                                    
CO-CHAIR THOMAS announced that CSHB  25, as amended, will be held                                                               

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