Legislature(2015 - 2016)BILL RAY CENTER 208

05/27/2016 03:00 PM FINANCE

* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
-- Open Public Testimony --
Heard & Held
-- Open Public Testimony --
Heard & Held
-- Open Public Testimony --
+ Bills Previously Heard/Scheduled TELECONFERENCED
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                                                                    
   · 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                                                                    
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                                                                    
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                                                                    
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                                                                    
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                                                                    
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                                                                    
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                                                                    
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].                                                                                           

Document Name Date/Time Subjects
HB4003 Sponsor Statement - Governor's Transmittal Letter.pdf HFIN 5/27/2016 3:00:00 PM
HB4003 Supporting Document - Sectional Analysis.pdf HFIN 5/27/2016 3:00:00 PM
HB4005 Sponsor Statement - Governor's Transmittal Letter.pdf HFIN 5/27/2016 3:00:00 PM
HB4005 Supporting Document - Sectional Analysis.pdf HFIN 5/27/2016 3:00:00 PM
HB 4006 - UFA comments for Hse Fin 052716.pdf HFIN 5/27/2016 3:00:00 PM
HB 4006 Alaska-Seafood-Industry-Taxes-Fees-UFA 2015.pdf HFIN 5/27/2016 3:00:00 PM
HB 4006 AWTA oppostion to HB251.pdf HFIN 5/27/2016 3:00:00 PM
HB 251
HB 4006 HB251 - CFEC Cap -Patrick Odonnell 050416.pdf HFIN 5/27/2016 3:00:00 PM
HB 251
HB4006 Sponsor Statement - Governor's Transmittal Letter.pdf HFIN 5/27/2016 3:00:00 PM
HB4006 Supporting Document - Sectional Analysis.pdf HFIN 5/27/2016 3:00:00 PM
HB 374 NEW FN DCCED 5-27-16.pdf HFIN 5/27/2016 3:00:00 PM
HB 374
HB 374 Fund code 1248.pdf HFIN 5/27/2016 3:00:00 PM
HB 374
HB 374 CS WORKDRAFT FIN vN.pdf HFIN 5/27/2016 3:00:00 PM
HB 374
HB 374 Conceptual Amendment 1 Gara - Thompson.pdf HFIN 5/27/2016 3:00:00 PM
HB 374