Legislature(2015 - 2016)BILL RAY CENTER 208
05/27/2016 03:00 PM FINANCE
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HOUSE BILL NO. 4006 "An Act relating to the fisheries business tax and fishery resource landing tax; removing the minimum and maximum restrictions on the annual base fee for the reissuance or renewal of an entry permit or an interim-use permit; relating to refunds of the fisheries business tax and the fishery resource landing tax to local governments; and providing for an effective date." Mr. Burnett detailed the bill would increase the tax rates by 1 percentage point. The entire tax increase was exempted from municipal revenue sharing. He explained the current tax was still shared 50/50 between the state and local governments. The bill would remove the $3,000 cap on annual Commercial Fisheries Entry Commission (CFEC) entry permit fees and would exempt developing fisheries from the increase. He clarified that developing fisheries taxes would not change under the legislation. He read the sectional analysis (copy on file): · Section 1: Eliminates the cap of $3,000 on the base fee for Commercial Fisheries Limited Entry Permits and Interim permits. · Section 2: Changes the tax rates for the fisheries business tax from four and one-half to five percent for salmon canned in a shore based business, from three to four percent for other fish processed in a shore based business and from five percent to six percent for fish processed by a floating business. · Section 3: Changes the tax on fish for a direct marketing business from three to four percent. · Section 4: Is a technical change eliminating the requirement to submit tax returns to Juneau. · Section 5: Provides that one percent of the value of each fishery under the fisheries business tax will be deposited in the general fund and not be subject to sharing with local governments. · Section 6: Changes the landing tax from three to four percent. · Section 7: Provides that one percent of the value of each fishery under the fisheries landing tax will be deposited in the general fund and not be subject to sharing with local governments. · Section 8: Provides that one percent of the value of each fishery under the fisheries tax will be deposited in the general fund and not be subject to sharing with local governments. · Section 9: Provides that the tax changes in sections 2, 3 and 6 are applicable after the effective dates of those sections. · Section 10: Allows for the Department of Revenue to adopt regulations to administer this act. · Section 11: Provides for an effective date for section 1 (CFEC) of January 1, 2017. · Section 12: Provides and immediate effective date for section 10. · Section 13: Provides that the rest of the bill is effective July 1, 2016. 4:29:56 PM Co-Chair Neuman was unfamiliar with the governor's version of the bill. He requested a sectional analysis showing the changes from the governor's original bill, the House Resources Committee version, and the current version of the bill. Mr. Burnett was happy to provide the document and offered to speak to the changes. He explained that Section 1, which eliminated the cap on CFEC permits had been added in the current bill. Co-Chair Neuman asked for an estimate on the economic impact. He wondered if there was an economic impact of $2 million plus or minus state revenue. Mr. Burnett answered the projection related to the change in Section 1 of the legislation was plus or minus $2 million. The remaining tax changes in the bill equated to about $18 million. He addressed the other change from the original bill and explained the original bill had increased the rate for one of the developing fisheries from 3 percent to 4 percent; however, the current bill did not make any changes to the tax rate for developing fisheries. He added that the previous year the total tax on developing fisheries had brought in less than $50,000. He estimated the amount may have been around $17,000. He concluded the dollar amount was not huge; therefore, the change made very little difference to the bill. He summarized that the changes to the bill were the additional $2 million and a few thousand in taxes related to a developing fishery. 4:32:04 PM Representative Edgmon asked how DOR would characterize the fishery taxes. He referred to previous discussion about mining taxes and net income based. Mr. Burnett responded that the fisheries business and landing taxes were both gross taxes on the value of the fishery. He detailed the taxes were modeled after a severance-type tax where people were taxed based on a common property resource owned by the people of the State of Alaska, which could be harvested by a few people. The individuals were paying something to Alaska residents for the privilege of harvesting the fish and to represent a value for the fish that were being harvested. He reiterated the tax was based on the value of the fish and not the profitability of the industry. Representative Edgmon asked how much of the annual $18 million in revenue generated by the taxes came from shore- side activities. FORREST BOWERS, DEPUTY DIRECTOR, DIVISION OF COMMERCIAL FISHERIES, DEPARTMENT OF FISH AND GAME (DFG), replied the $18 million was the increase in tax revenue that would result from the legislation. He believed the shore-side component of the current tax revenue was roughly 75 percent. Co-Chair Thompson requested the information from DFG for the following day. Mr. Bowers answered in the affirmative. Representative Edgmon commented that the issue demonstrated the "throwing of the dart process we're engaged in with these taxes." He clarified he did not intend his remarks to be disparaging towards the efforts of the departments and administration for bringing the bill forward. He could not recall when the fisheries tax had last been analyzed or revised (he mentioned the 1960s as a potential timeframe), but he surmised it had been a long time. He asked if the taxes had been revisited in the 1960s or 1970s. Mr. Burnett answered he did not recall the last time the fisheries tax changed, but it had been a number of years back. He noted there had been some changes to the methodology of sharing taxes and developing fisheries taxes over time. He clarified he was not referring to changes to the tax amounts. Representative Edgmon relayed many smaller fisheries (e.g. salmon fisheries in Bristol Bay) received bonuses in a good year. He furthered in a perfect world the bonuses were distributed amongst the owners, skippers, crew members, and everyone who took part in operations. He asked if any of the proposed taxes would reduce some of those extra earnings. Mr. Burnett responded that to the extent the fish were taxed by the legislation, if payment was due to the value of the fish, it should be taxed. He detailed it was not unusual for fish to be purchased at a specific price during season and for a price adjustment to be made later. The price adjustment was subject to the tax just the same as the original price paid. Co-Chair Thompson asked if that meant up and down. Mr. Burnett answered in the affirmative. 4:37:07 PM Representative Edgmon asked for verification DOR's annual assessment period occurred in the spring. He surmised the spring of 2015 reached back into calendar year 2014. Mr. Burnett responded in the affirmative. Representative Wilson asked whether the bill addressed bycatch. She remarked on bigger boats taking in a significant amount of fish. Mr. Burnett answered in the negative. To the extent that the fish were sold, they were taxed; if they were not sold there was nothing to tax. Mr. Bowers added there were certain bycatch species that may be legally retained and sold, which had a value and were taxed. There were other bycatch species discarded at sea, which were not taxed because there was no associated value. 4:38:35 PM Representative Wilson disputed the statement that discarded bycatch had no value. She reasoned that just because the fish went back overboard did mean the fish had no value. She understood that the industry also gave a significant amount to Seattle, Washington. She detailed that something had also been worked out with the Food Bank in Fairbanks. However, a large portion of the bycatch was thrown away. She stressed it was a resource that was being discarded. She referred to the legislation and believed the opportunity should be taken to penalize the boats. She understood there were ways to substantially reduce bycatch. She conceded it was more expensive for the boats, but she wondered why the legislation would not deal with the overall issue. Mr. Bowers responded that many of the fisheries Representative Wilson was referring to occurred in federal waters and were federally managed. He was unsure what authority the legislature would have to regulate the activities in federal waters. Representative Wilson asked for verification that none of the bycatch was caught in state waters and that everything caught in state waters were counted and brought in money. Mr. Bowers responded in the negative. He elaborated that bycatch was brought in by fisheries in state waters. The tax was assessed when the fish were caught or brought into state waters. He believed many of the larger fisheries mentioned by Representative Wilson occurred in federal waters. He elucidated that the legislature could implement something related to bycatch caught by small boat fisheries in state waters. However, he did not know what could be done for larger offshore vessels fishing in federal waters. Representative Wilson remarked that Alaska fishermen made sure to operate cleanly. She stated there were people doing the right thing and people doing the wrong thing. She stressed the fish were an Alaskan resource. She did not understand why the administration and legislature would not take the opportunity to stop some of the bycatch problem, whether it was related to bigger or smaller boats. She underscored the resources were all valuable. She hoped the department could provide an estimate related to the value the discarded fish. 4:41:25 PM Representative Gara shared Representative Wilson's concerns. He discussed fish caught inside and outside of state waters. He noted there were fish caught outside state waters that were processed in the state. He asked how to divide between the fish the state was allowed to tax and those it was not allowed to tax. Mr. Bowers replied the tax was assessed when the fish were brought into state waters. There was a commercial operators' annual report that every licensed processor had to complete. He detailed the annual report described a processor's production and purchasing history, which was the basis for calculating the price used to determine the value of the fish. He believed the processors indicated on their tax forms where the fish were purchased. Mr. Burnett elaborated there was one exception. He detailed that under the Magnuson Stevens Act, the state was allowed to tax pollock, which was landed outside state waters. Mr. Bowers corrected it was the American Fisheries Act. Mr. Burnett agreed. He expounded the state was allowed to tax pollock that landed in Seattle, but it was not able to tax other fish that were not either caught, processed in, or brought into state waters. 4:43:11 PM Co-Chair Neuman referred to floating processors that operated outside Alaska's waters. He believed Mr. Bowers had testified that the state did not tax fisheries until they reached Alaskan waters. He asked about floating processors. Mr. Bowers replied that if the processors brought processed fish into Alaska (e.g. to offload the fish for transshipment, which was common practice) they were responsible for the tax at that point. Co-Chair Neuman asked for verification that floating pollock processors operating outside of state waters and selling the fish in Seattle, were not included in the state's fish processing tax. Mr. Bowers answered the American Fisheries Act regulated the pollock fishery in the Bering Sea. He detailed that because the state's late U.S. Senator Ted Stevens was aware of the potential, he had included a provision in the act requiring any pollock caught between 3 and 200 miles offshore was subject to the state's taxes. Co-Chair Neuman concluded there was a tax. Mr. Burnett replied in the affirmative. Representative Gara spoke about king salmon bycatch and explained that many of the fish were not worth very much because they were one to two-year-old fish that got crushed and pulverized in the nets. He asked for the accuracy of his statement. Mr. Bowers responded that salmon were deemed prohibited species on groundfish vessels; therefore, when they were caught as bycatch they could not be legally sold. He explained the fish were not retained for use as a food product and were not handled the same as fish bound to become food products. Representative Gara remarked he had heard reports that when some of the younger fish ended up in the huge nets were pulverized by the time someone reached them. He noted the issue was for another day. He asked which of the taxes effected factory trawlers. Mr. Burnett replied the landing tax [applied to factory trawlers]. Representative Gara asked what type of operations were subject to the landing tax (e.g. factory trawlers). Mr. Burnett replied the tax applied to any fish that were landed regardless of the type of fishing operation. He deferred to Mr. Bowers for further detail. Mr. Bowers expounded the tax applied to any fish processed three miles offshore. He detailed it could include factory trawlers, loading processors taking deliveries from catcher vessels, freezer longliners (a number of large longliners operated in the Gulf of Alaska and Bering Sea that catch and process onboard), scallop catcher/processors, crab catcher/processors, and any other vessel processing in waters greater than three miles offshore. Representative Gara surmised the vessels were large. Mr. Bowers responded the smallest vessel in the category would be around 58 feet. He expounded on his earlier answer and relayed there were some salmon trollers that catch and process. He detailed some of those boats were under 58 feet, but most of the boats impacted by the tax were larger vessels due to space requirements for the processing equipment, freezers, and crew size. 4:48:27 PM Representative Gara asked why the state was allowed to tax vessels if they processed their catch beyond the three-mile offshore boundary. Mr. Bowers explained that the vessels became subject to the tax when they moved into state waters to offload fish. He detailed it was a common practice for the vessels to offload fish to freighters or cold storage facilities onshore because the boats were limited in their freezer size. Representative Gara asked about the current cost of running the Division of Commercial Fisheries. He believed the cost was between $25 million to $35 million. Additionally, he asked for the current revenue and the bill's projected revenue to the state for the combined fisheries taxes. He was interested in revenue brought in compared to the cost required to operate the Division of Commercial Fisheries. Mr. Bowers responded that the current General Fund budget for the Division of Commercial Fisheries was about $35 million to $36 million. Mr. Burnett expounded that taxes generated by the legislation would be fairly close to that amount [$35 million to $36 million] and potentially slightly higher. He noted the revenue depended on the price of fish in the current year and other things. The revenue coming to the state was currently less than the amount required to operate the division. Co-Chair Thompson mentioned he had chaired the House Fisheries Committee in previous years. He recalled that vessels in the Bering Sea had to pay for observers to be onboard the vessels. He detailed the vessels had been allowed a certain amount of bycatch; once the vessels reached the limit they were required to quit fishing. He asked for comment. Mr. Bowers agreed that most fisheries in Alaska had bycatch caps. The most common tool to assess those caps, especially for vessels processing at sea, were onboard observers. He detailed observer costs were $300 to $400 per day, which were typically borne by the vessels. Vice-Chair Saddler encouraged committee members to give some deference to the House Fisheries Committee, which had some special expertise. He recommended against using the bill as a way to fix any issues regarding allocation, bycatch, or international issues. He reasoned the House Finance Committee's responsibility was net profits and not longline nets. HB 4006 was HEARD and HELD in committee for further consideration. Co-Chair Thompson relayed the agenda for the following meeting. He recessed the meeting to a call of the chair [note: the meeting never reconvened].