Legislature(2007 - 2008)BUTROVICH 205
02/15/2008 03:30 PM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| SB248 | |
| Aenergia, Llc | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| + | TELECONFERENCED | ||
| += | SB 248 | TELECONFERENCED | |
SB 248-SALMON PRODUCT DEVELOPMENT TAX CREDIT
3:34:29 PM
CHAIR HUGGINS announced SB 248 to be up for consideration.
TIM GRUSSENDORF, Staff to Senator Lyman Hoffman, Alaska State
Legislature, presented SB 248 on behalf of Senator Hoffman,
sponsor. He indicated the salmon product development tax credit
was enacted in 2003 to allow processors to claim up to
50 percent of the cost of qualified investments from the
fisheries business tax. To qualify, projects must be new,
predominantly for salmon, and involve value-added products. The
credit encourages and accelerates development and production of
value-added salmon products, giving an economic incentive to
invest in technology and equipment. The current bill makes two
changes. The first extends the sunset date three years, to
December 31, 2011.
3:36:22 PM
SENATOR WIELECHOWSKI joined the meeting.
MR. GRUSSENDORF discussed the second change. He said after some
processors had invested in equipment, they found it didn't
qualify once the Department of Revenue (DOR) reviewed the
project and application. Thus Section 2 says folks can present
their project to DOR, which will review it; if it's approved,
DOR is bound to that decision as long as the processor follows
the intent and the project that was submitted.
CHAIR HUGGINS noted the credit is binding. He asked: If a
project is deemed not appropriate, is that decision not binding?
MR. GRUSSENDORF replied that's how he understands it, but
someone from DOR could speak to that.
CHAIR HUGGINS asked whether that is a big deal, based on past
experience.
MR. GRUSSENDORF noted packets contain a sheet from DOR's Tax
Division showing credits denied at audit. He didn't know how
often it had happened, but indicated the bill lets the
processors know better whether their investments will qualify.
CHAIR HUGGINS observed that $2.5 million was denied in 2004.
MR. GRUSSENDORF clarified that it was upon audit.
CHAIR HUGGINS asked whether there is concern in the other
direction, since there must be some rationale for denying it
during an audit.
3:38:22 PM
MR. GRUSSENDORF surmised some processors had called in,
explained the project over the phone, and then been told it
sounded like a project that would qualify; then it wasn't done
exactly as discussed or there was miscommunication. So now
there'll be a process under which a determination is made as to
whether the project fits within the scope of the credit.
CHAIR HUGGINS asked about page 2 of the analysis, which says the
credits only reduce fisheries business tax to the state and do
not impact revenues shared with municipalities.
MR. GRUSSENDORF answered that he believes some of the fisheries
tax goes back to the communities where the fish was landed. The
other part goes to the state, and this credit only applies to
that part. He deferred to DOR for details.
3:39:49 PM
MARY McDOWELL, Vice President, Pacific Seafood Processors
Association (PSPA), listed PSPA's member companies that are
salmon processors, many with shore plants around the state. She
said those companies make good use of this tax credit to advance
the program's goals and purposes, including: developing and
expanding new and value-added salmon products, helping Alaska's
salmon products keep pace with evolving consumer demands, and
keeping Alaska's fisheries competitive in world markets. She
highlighted letters from companies regarding how they've used
the credit to make improvements and how much sooner they've been
able to accomplish these developments because of it.
MS. McDOWELL said the legislature constructed the tax credit
tightly to accomplish specific goals; it has been successful,
but momentum must be maintained. Skyrocketing energy costs eat
up profits and hamper the ability to reinvest and advance new
product forms. She pointed out that most processors operate in
rural areas where energy costs are highest and yet the need for
the kind of economic activity generated by the seafood industry
is highest as well.
MS. McDOWELL told members that adding value to salmon products
right away and keeping products competitive provides benefits to
fishermen, communities, processors, and the state coffers. The
state needs to encourage economic diversification, prepare for
the future, ensure Alaskan products are competitive, and make
the best use of natural resources. Adding value to raw products
is an important part, and this tax credit facilitates those
goals. She opined that this pays for itself because adding
value in Alaska increases the raw fish tax, which comes back to
the state. She encouraged support for SB 248.
3:43:43 PM
SENATOR STEDMAN asked about machines that the processors are
buying for value-added products.
MS. McDOWELL answered that many do boneless, skinless fillets
for cans or else filleting and freezing. And one company does
prepackaged meals, for instance. Some secondary products
otherwise are done outside of Alaska. Even filleting and
packaging the fish within Alaska, rather than sending out headed
and gutted fish, increases the in-state value tremendously.
SENATOR STEVENS recalled that this idea came out of the Joint
Legislative Salmon Task Force. Noting it seems very successful,
he surmised the big change over the past four or five years
relates to the market. Most salmon used to go to Japan, but now
it finds markets in the U.S. and Europe. He asked Ms. McDowell
to comment.
3:45:57 PM
SENATOR McGUIRE joined the meeting.
MS. McDOWELL agreed that where the fish go is changing, partly
because of excellent marketing; a good reputation; and increased
consumer demand for a pure, natural product, a sustainably
managed product, and value-added products. Together, those are
making a big difference, she added, stressing the forward
momentum that needs to be maintained.
SENATOR WAGONER returned to Senator Stedman's question, saying
in his district a lot of fish are bled on the boat, iced,
brought in, and filleted by hand. But then a machine is used to
pick the pin bone. He said he knows of five or six processors
that have gone clear to the pin bone stage, which probably
doubles or triples the price and value of their product. He
opined that this is a highly rewarding bill that should be given
the utmost consideration. He added that he has no conflict
because he no longer is a commercial salmon fisherman.
MS. McDOWELL added that doing these processes in the communities
reduces transportation costs and saves energy because of being
able to get rid of the waste out there and ship a more finished
product. It also creates more jobs in the state.
CHAIR HUGGINS asked how the fish are shipped and where the labor
comes from for the plants.
MS. McDOWELL replied there is a huge variety for shipping;
things are shipped fresh, flown out, frozen in blocks or
portions, and so on. With respect to labor, there are thousands
of jobs. Some go to Alaskans, but there are complaints about
nonresident hiring. The industry is working hard to move
Alaskans into skilled labor positions, and there is recruitment
in rural Alaska for the processing lines. She indicated PSPA
works closely with the labor department on all those issues.
3:49:07 PM
TOM SUNDERLAND, Marketing Director, Ocean Beauty Seafoods LLC
("Ocean Beauty"), supported SB 248, noting Ocean Beauty is an
Alaska corporation, 50 percent owned by the Bristol Bay Economic
Development Corporation; it operates seven shore-based plants
around the state, with salmon as the primary product.
MR. SUNDERLAND said Ocean Beauty believes this tax credit has
done exactly as intended. Salmon prices have increased, and
this has allowed modernization of old facilities, speeding the
process or encouraging it where it wouldn't have happened
otherwise. This keeps jobs in Alaska and moves more value-added
production into Alaska, rather than just sending headed and
gutted fish overseas or to Seattle for reprocessing; this also
creates a higher quality product.
MR. SUNDERLAND explained that putting the machinery in the
plants allows greater product variation, minimizing boom-and-
bust cycles in the industry related to changes in demand, the
market, customers, or currency issues. Ocean Beauty has
invested a lot in filleting equipment and skinless/boneless
canning equipment. He opined that net revenues to the state
from this tax have increased during the time that the credit has
been in place, due to the increase in the value of salmon.
MR. SUNDERLAND also said Ocean Beauty believes this credit
should be continued because of the amount of time it takes to
implement changes. Even if it were financially feasible to make
changes all at once, the company couldn't do so because of
technical hurdles and the effort and manpower required. Ocean
Beauty also takes a lot of time to develop new sales
relationships that allow selling new forms of product.
MR. SUNDERLAND reported that Ocean Beauty has used this credit
to upgrades its plants at Excursion Inlet, Kodiak, and Alitak.
There are continuing upgrades at the Kodiak plant and major
upgrades at Naknek. But that leaves three plants untouched that
they haven't been able to get to. While the plan is to upgrade
them all, it cannot be done all at once.
MR. SUNDERLAND said this program leads to not only job creation,
but very good jobs. In 2007, for example, Ocean Beauty used a
State Training Employment Program (STEP) grant to bring over
trainers from Baader's headquarters in Germany to help Kodiak
workers become technicians on some highly complex and advanced
machines. He closed by saying Ocean Beauty believes this credit
is good for the industry and the state as a whole.
3:53:27 PM
MR. SUNDERLAND, in response to Senator Green, explained that
Baader in Germany has sophisticated machinery used primarily for
filleting. The expertise to operate and maintain these machines
is extraordinary. To get the best training possible, Ocean
Beauty flew Baader's own trainers to Kodiak, thereby creating
some excellent jobs, some of the highest paying in the whole
seafood industry.
SENATOR STEVENS agreed this results in highly skilled, highly
paid American employees in the fish plants.
SENATOR GREEN expressed surprise that STEP money could be used
that way.
CHAIR HUGGINS inquired about DOR's position on the bill.
3:55:16 PM
TIM COTTONGIM, Fish Group Manager, Tax Division, Department of
Revenue, came forward with Dan Stickel, DOR economist.
Mr. Cottongim said DOR has empirical evidence supporting the
testimony regarding to an increase in 1) the amount of salmon
tax collected, 2) the amount of fillet production, and 3) the
ex-vessel value of salmon during the period this tax credit has
been in place. Thus DOR sees a benefit to this credit program.
However, he'd not had the opportunity to talk with the governor
about the administration's position on the bill.
CHAIR HUGGINS asked what it means that DOR auditing had
disallowed $2.5 million in credits.
MR. COTTONGIM replied he believes it means DOR can do a better
job of educating customers as to what qualifies and what
doesn't. He suggested DOR is challenged to do that if this
program continues, which is one reason for wanting to include an
outreach program in the future.
3:57:03 PM
MR. COTTONGIM, in response to Chair Huggins, explained that
50 percent of all taxes collected from fisheries business is
dedicated to the communities; that portion isn't affected. This
tax credit is taken from the state's 50 percent.
CHAIR HUGGINS asked whether that's how it has always been and
whether Mr. Cottongim is satisfied with that.
MR. COTTONGIM replied yes to both. In response to Senator
Stedman, he specified that organized cities and boroughs that
have processing within their boundaries receive a share of the
taxes collected from processing activities in that area.
SENATOR STEDMAN recalled that this tax started in 1914.
MR. COTTONGIM concurred.
SENATOR STEVENS remarked that one big improvement to a nearly
perfect bill from five years ago is the addition of the
preliminary determination as to whether something will qualify
for the tax credit. He asked whether DOR feels comfortable that
it can make this determination.
MR. COTTONGIM answered that DOR knows it will be challenging to
ensure all the criteria are met in advance. Processors must
understand there'll be caveats and requirements to fulfill.
Surmising there'll be bumps in the road, he mentioned give and
take, outreach programs, and regulations that will afford DOR an
opportunity to better work with the industry and educate
everyone, in order to avoid as much conflict as possible.
Furthermore, if preapproval is denied, a company can claim the
credit with its tax return and go through the appeals process.
Thus DOR believes there will be sufficient checks and balances
so companies can correct any errors that DOR has made.
4:00:48 PM
MR. COTTONGIM, in further response, explained that it would be
the normal administrative appeals process, going through an
informal appeal within the division, and then could go outside
DOR after that, to the Office of Administrative Hearings.
SENATOR STEVENS said it's short of a legal process, then.
MR. COTTONGIM agreed.
CHAIR HUGGINS noted the preliminary decision appears to be
binding, without caveats or qualifiers.
SENATOR STEDMAN moved to report SB 248 from committee with
individual recommendations and accompanying fiscal notes. There
being no objection, SB 248 was moved out of the Senate Resources
Standing Committee.
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