Legislature(2015 - 2016)BUTROVICH 205

02/08/2016 03:30 PM Senate RESOURCES

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03:30:22 PM Start
03:30:35 PM SB135
04:49:34 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Testimony <Invitation Only> --
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
          SB 135-ELECTRONIC TAX RETURNS & FISHERIES TAXES                                                                   
3:30:35 PM                                                                                                                    
CHAIR  GIESSEL  announced  consideration   of SB  135,  one  of  the                                                            
administration's  revenue  enhancement  proposals.  It  proposes  to                                                            
raise taxes  on commercial  fishing  in the form  of an increase  to                                                            
the fish  business tax and  the fish landing  tax. The testimony  is                                                            
invited only.                                                                                                                   
3:32:03 PM                                                                                                                    
KEVIN BROOKS,  Deputy Commissioner,  Alaska  Department of Fish  and                                                            
Game  (ADF&G), Juneau,  Alaska,  said SB  135 affects  two types  of                                                            
taxes.  He addressed  the  fisheries business  tax  by first  saying                                                            
it is  paid by  people or  a business  who processes  in or  exports                                                            
fish  from  Alaska,  and  it's  charged  on the  price  of  the  raw                                                            
resource or fair market value.                                                                                                  
3:32:42 PM                                                                                                                    
SENATOR MICCICHE joined the committee.                                                                                          
CHAIR  GIESSEL noted  that  former Representative   Bill Thomas  was                                                            
in the audience.                                                                                                                
MR. BROOKS  said the  fisheries business  tax was  first started  in                                                            
1913  as the  salmon  pack tax  and  it expanded  to  include  other                                                            
fish  by  1949.  A fish  business  license  was  first  required  in                                                            
1951,  and municipal  sharing  of  this revenue  began  in 1962.  It                                                            
increased over time from 10 to 50 percent.                                                                                      
3:33:35 PM                                                                                                                    
SENATOR WIELECHOWSKI joined the committee.                                                                                      
3:33:46 PM                                                                                                                    
MR.  BROOKS said  the current  tax  structure  was put  in place  in                                                            
2004.  Under  that regime,  shore-based  facilities  pay  1  percent                                                            
for  developing  species  and 3  percent  for  established  species.                                                            
The  floating   facilities   or  "floaters"   pay   3  percent   for                                                            
developing  fisheries  and  5  percent  for established   fisheries.                                                            
Salmon canneries pay 4.5 percent.                                                                                               
CHAIR  GIESSEL  asked  the difference   between  developing  species                                                            
and established species.                                                                                                        
MR.  BROOKS explained  that  by statute,  the Alaska  Department  of                                                            
Fish  and Game  (ADF&G)  commissioner  submits to  the commissioner                                                             
of the  Department  of Revenue  (DOR) a  letter  every January  that                                                            
identifies   fisheries   whose   criteria   is   set   out   in   AS                                                            
16.05.050(a)(10).   Typically,  new   species  are  fisheries   that                                                            
don't have  a long history,  like sea urchins,  and these are  given                                                            
a "kick-start"  to  get them  established.  Once  they meet  certain                                                            
criteria,  they  are moved  to the  established  listing  and pay  a                                                            
higher rate.                                                                                                                    
CHAIR  GIESSEL said  the new  species  list is  actually  four-pages                                                            
and includes sea cucumbers, octopus, snails, and lamprey.                                                                       
3:35:13 PM                                                                                                                    
SENATOR STOLTZE joined the committee.                                                                                           
MR. BROOKS  explained that  direct marketing  license holders  pay a                                                            
shore-based  rate; these are  the smaller  "mom and pop  operations"                                                            
that sell fish.                                                                                                                 
The second  type  of tax addressed  by the  bill would  be the  fish                                                            
landing tax  that is levied  on the unprocessed  value of a  fishery                                                            
resource   first   landed  in   Alaska,   but  that   is   processed                                                            
"Outside."  That  value  is calculated  using  a  statewide  average                                                            
price  that  the  ADF&G  compiles  from  fish  tickets  and  its  e-                                                            
landings  database  and submits  to the  DOR. It's  mainly  assessed                                                            
on  factory trawlers  and  floating processors.  Like  the  business                                                            
tax, it's shared 50 percent with local governments.                                                                             
CHAIR  GIESSEL   asked  if   the  factory   trawlers  and   floating                                                            
processors  that  pay the  tax  are limited  to  the ones  in  state                                                            
3:37:04 PM                                                                                                                    
FORREST   BOWERS,   Deputy   Director,   Division    of   Commercial                                                            
Fisheries,  Alaska  Department  of Fish  and Game  (ADF&G),  Juneau,                                                            
Alaska,  answered that  the  fisheries landing  tax  is assessed  on                                                            
vessels  that catch  fish and  process  them in  federal waters  and                                                            
if  they enter  state  waters  to  do business  like  offloading  or                                                            
taking on  fuel. If the  vessel never enters  state waters  it would                                                            
not be  assessed the  tax: for instance,  if they  came up from  the                                                            
Lower 48 and fished in federal waters and then went back.                                                                       
CHAIR  GIESSEL asked  what  percent of  these factory  trawlers  and                                                            
floating processors come into state waters.                                                                                     
MR. BOWERS  answered  that almost  all  of them  enter state  waters                                                            
for a number  of reasons:  they will fly crew  into Dutch Harbor  or                                                            
other ports,  do offloads  for multiple trips,  or take on  fuel and                                                            
groceries  and  do   repairs.  He  added  that  these   aren't  just                                                            
factory  trawlers,  but include  about  25  vessels in  the  "ground                                                            
fish non-pollock  trawl fishery,"  also known  as the "Amendment  80                                                            
Fleet."  It  also includes  about  40  catcher  processors  (freezer                                                            
long  liners) that  fish primarily  for  Pacific cod  and a  handful                                                            
of boats  that fish for  crab and scallops.  Those vessel types  pay                                                            
this tax.                                                                                                                       
SENATOR  MICCICHE  asked  how an  unprocessed  value  is  determined                                                            
when a factory trawler delivers a finished product to market.                                                                   
MR. BOWERS  answered  that the  value of  the same  species that  is                                                            
landed  at shore-based  plants  is  used and  then  estimated  back.                                                            
The  weight  of  the   product  that  is  sold  on  the   commercial                                                            
operators' annual report is the figure that is used.                                                                            
SENATOR WIELECHOWSKI asked if bycatch is assessed a tax.                                                                        
MR. BOWERS  answered  yes, if the  bycatch can  be legally  retained                                                            
and sold.                                                                                                                       
SENATOR WIELECHOWSKI  asked  if, for example,  1,000 pounds  of King                                                            
Salmon  is  caught illegally  and  not  allowed  to be  kept,  would                                                            
that be taxed.                                                                                                                  
MR. BOWERS answered no.                                                                                                         
CHAIR GIESSEL  said she  had visited  Dutch Harbor  and saw  bins of                                                            
bycatch and  was told they  are donated to  food banks. She  guessed                                                            
they weren't being taxed, because they weren't being sold.                                                                      
MR. BOWERS  responded that  certain salmon  species are donated  and                                                            
wouldn't  be taxed, because  no ex-vessel  price is associated  with                                                            
3:41:15 PM                                                                                                                    
SENATOR  MICCICHE  said bycatch  is  a sore  subject  for  everyone,                                                            
especially  for the  in-river species  that are  intercepted out  in                                                            
the ocean  and asked  if there  were discussions  about a  potential                                                            
bycatch tax as a deterrent.                                                                                                     
MR. BOWERS  answered not that  he was aware  of. High bycatch  rates                                                            
usually happen  in federally  managed fisheries  and those  programs                                                            
would  come  about through  the  North  Pacific  Fishery  Management                                                            
Council process,  and a number  of steps have  been taken to  reduce                                                            
the bycatch rates.                                                                                                              
3:42:48 PM                                                                                                                    
SENATOR STOLTZE  asked, since  Alaska has a  majority of members  on                                                            
the North  Pacific Fisheries  Management Council  (NPFMC), if  there                                                            
is a lack of resolve on this issue.                                                                                             
3:43:39 PM                                                                                                                    
MR. BROOKS  said  he wouldn't  characterize  it that  way and  added                                                            
that  the  Council's  focus   has  been  on  trying  to  reduce  the                                                            
SENATOR  WIELECHOWSKI asked  what the  state is  legally allowed  to                                                            
tax and  if the state can  tax fish caught  outside of state  waters                                                            
when it's brought inside to sell.                                                                                               
MR. BROOKS  answered that  the landing tax  was effected in  1994 at                                                            
3.3 percent.  Now  it is 1  percent  on developing  fisheries and  3                                                            
percent   on  established   fisheries.  Pollock   was  specifically                                                             
addressed  under the  1999 American  Fisheries Act,  so even  if the                                                            
Pollock  catch is  brought  to Seattle  to  sell, the  vessel  still                                                            
has to pay an Alaska tax.                                                                                                       
SENATOR  WIELECHOWSKI asked  if Alaska  get anything  if a  Canadian                                                            
vessel  fishes  in  Alaskan  waters  and takes  its  catch  back  to                                                            
MR. BOWERS  answered  that foreign  vessels aren't  allowed to  fish                                                            
in  Alaskan  waters; only  U.S.  flagged  vessels  can fish  in  the                                                            
waters  of  Alaska,  which  includes  the  Exclusive  Economic  Zone                                                            
(EEZ)-waters  from 3 to 200  miles offshore.  If fish are caught  in                                                            
state  waters, defined  as  zero to  3 miles  offshore,  the tax  is                                                            
assessed  regardless  of where  the  fish are  landed.  If fish  are                                                            
caught  3  to  200  miles  offshore  and  the  vessel  never  enters                                                            
Alaska  waters, no  tax is  assessed, but  if that  vessel  transits                                                            
waters  of  Alaska-it  doesn't   even  have  to  come  ashore-it  is                                                            
liable for the tax.                                                                                                             
SENATOR  WIELECHOWSKI  asked  if  that  last  scenario  occurs  very                                                            
MR.  BOWERS  answered  that  vessels  based  in the  U.S.  Lower  48                                                            
would rarely  fish in the  Alaska EEZ and  then transit back  to the                                                            
Lower  48, but  it's also  possible  that a  handful  of boats  take                                                            
their  last trip  back  with  them to  sell.  In the  halibut  derby                                                            
fishery  of the  past some  boats  would come  up  from Seattle  and                                                            
fish  in  the  Gulf of  Alaska,  then  go  back  to  Bellingham  and                                                            
offload there  to get a higher  price. But  the derby opening  was a                                                            
one-shot deal.                                                                                                                  
SENATOR  STOLTZE   asked  if  any  other  extractive   or  renewable                                                            
resource  taxes  are shared  with  the communities  like  this  fish                                                            
tax is.  Maybe it's  a vestige  of an  old policy  that needs  to be                                                            
MR. BROOKS  responded  that revenue  sharing started  in 1962  at 10                                                            
percent  and grew  to  50 percent  over  time. The  on-line  Revenue                                                            
Sources  Book has a  chronology of  how sharing  of taxes  occurred.                                                            
He didn't  know of any other  taxes that are  shared, but DOR  might                                                            
know more.                                                                                                                      
3:52:46 PM                                                                                                                    
SENATOR STOLTZE  said the  Governor had started  this discussion  on                                                            
taxes and  maybe this  money should  go into the  General Fund  (GF)                                                            
and then  a new  policy debate  could  happen on  how to  distribute                                                            
all revenue sharing funds.                                                                                                      
SENATOR  MICCICHE said  he was  very interested  in  the history  of                                                            
revenue  sharing  and if  coastal  communities  are  providing  some                                                            
sort  of service  for  which  the revenue  sharing  compensates.  He                                                            
asked  if the  department can  quantify  the landings  of fish  that                                                            
did not enter state waters.                                                                                                     
MR. BOWERS said he would look into it.                                                                                          
3:54:04 PM                                                                                                                    
SENATOR COSTELLO  said she  wanted to hear  from the administration                                                             
about  the  policy discussion  surrounding  this  tax  proposal.  Is                                                            
this  part  of a  fairness  approach,  and  if so,  what  policy  is                                                            
that? She also wanted to know if there wasn't a policy.                                                                         
MR. BROOKS  said that  the DOR was  involved in  development  of all                                                            
eight  initiatives and  fairness was  a consideration.  Some  people                                                            
say that  increasing this  existing tax by  1 percent is actually  a                                                            
33 percent  increase  if one  is already  paying 3  percent. If  one                                                            
is already paying 5 percent, it's a 20 percent increase.                                                                        
3:55:11 PM                                                                                                                    
JERRY BURNETT,  Deputy Commissioner,  Department  of Revenue  (DOR),                                                            
Anchorage,  Alaska, added  that there  were discussions  within  the                                                            
administration  about each  proposal. This tax  goes to the  General                                                            
Fund,  as  does  the  commercial   passenger  vessel   tax  increase                                                            
rather than being shared with local communities.                                                                                
There  was   a  lot  of  discussion   about  being  fair   with  all                                                            
industries  and the  administration  tried  to create  a balance  of                                                            
fairness  and impact.  The exact  amounts  could be  argued more  or                                                            
less,  as some  of these  industries require  more  GF fund  support                                                            
than  others. He  offered  to bring  the  DOR commissioner  back  to                                                            
address  the issue  more fully.  He noted  that each  of the  shared                                                            
taxes  is in the  budget bill  every  year and  the legislature  has                                                            
the ability to discuss them along with the rest of the budget.                                                                  
SENATOR  COSTELLO  asked  if  there was  any  discussion  about  how                                                            
this tax  would affect the  state's competitiveness  outside  of the                                                            
MR.  BURNETT  answered  that  this  tax  will  actually  impact  the                                                            
industry  within Alaska rather  than the price  of the fish  and its                                                            
competitiveness  in the  marketplace.  He explained  that it's  more                                                            
a  matter  of  ensuring   that  the  state  budget  has   sufficient                                                            
revenues  to manage  the fisheries  properly  (creating the  ability                                                            
to  catch  these fish  and  maintaining  the  species)  rather  than                                                            
being a matter of competitiveness in the marketplace.                                                                           
3:58:51 PM                                                                                                                    
SENATOR STEDMAN joined the committee.                                                                                           
3:59:08 PM                                                                                                                    
CHAIR GIESSEL  said the  committee reviewed  an Institute of  Social                                                            
and  Economic Research  (ISER)  study  last week  that demonstrated                                                             
that  the commercial  fishery  industry brings  in  more revenue  to                                                            
the state  than it costs  to regulate it,  and asked if the  DOR did                                                            
any fiscal modeling on that topic.                                                                                              
MR. BURNETT  answered yes.  They looked at  those issues, but  it is                                                            
a matter  of  how much  revenue the  state  has coming  to it  right                                                            
now. If  there is insufficient  revenue, cuts  will need to  be made                                                            
in every  area. There  should be  a benefit to  all industries  from                                                            
a tax on any industry, ultimately.                                                                                              
CHAIR  GIESSEL  said  the committee  wanted  to  see  that  modeling                                                            
like  it  does for  oil  and  gas  taxes,  because  it is  a  policy                                                            
change  and  they are  very  interested  in how  it  affects  Alaska                                                            
families,   businesses  and  jobs.   They  also  want  to   see  the                                                            
modeling  because fish is  a resource that  taxation could  diminish                                                            
the  extraction   of  and  this  committee  is  interested   in  the                                                            
state's resources bringing maximum benefit to its people.                                                                       
SENATOR  MICCICHE asked  Mr.  Burnett to  clarify what  he meant  by                                                            
"commodity  cost." He  said, "You  have to  admit that  a unit  cost                                                            
either  makes a fishery  viable or  not, and when  you're adding  to                                                            
any  cost per  unit  instate  you  potentially  jeopardize  marginal                                                            
fisheries. Right?"                                                                                                              
MR.  BURNETT  said   that  was  right  and  that's  why   developing                                                            
fisheries  have a lower  tax rate.  Commercial  fishermen will  have                                                            
an additional  cost  as a result  of this  tax, and  in a  low-price                                                            
environment  that   might  have  an  effect  on  their   ability  to                                                            
commercially produce the fish, he surmised.                                                                                     
SENATOR  STOLTZE asked  for  DOR and  DOL advice  on constitutional                                                             
issues related to taxing residents versus non-residents.                                                                        
SENATOR  WIELECHOWSKI said  he saw  a statistic  indicating that  81                                                            
percent  of the permit  holders  in Bristol  Bay are non-residents.                                                             
He  asked if  there is  a way  to  tweak the  tax structure  to  get                                                            
more of those permits into the hands of Alaskan residents.                                                                      
MR.  BURNETT  said   that  is  part  of  the  response   to  Senator                                                            
Stoltze's  question  about  the  limitations   on  differential  tax                                                            
rates for out-of-state versus in-state taxpayers.                                                                               
CHAIR  GIESSEL  asked  Mr.  Brooks  if  he knew  for  sure  that  81                                                            
percent was correct.                                                                                                            
MR. BROOKS said he would get that number for her.                                                                               
SENATOR   STEDMAN  said  the   80  percent   figure  also   includes                                                            
Alaskans who live in Alaska but outside of the Bristol Bay.                                                                     
4:06:03 PM                                                                                                                    
MR.  BROOKS   said  he  would  do   his  best  to  bring   the  best                                                            
information back to the committee.                                                                                              
4:06:18 PM                                                                                                                    
MR.  BROOKS  went to  slide  8  on tax  distribution  and  said  the                                                            
state  bears the  offset  of any  credits that  might  occur. To  be                                                            
clear, he  said, the local  governments get  a full 50 percent  of a                                                            
calculated  tax and  the state  gets typically  a  little bit  less,                                                            
because the credits come off of its share.                                                                                      
SENATOR  STOLTZE  asked  if  the  communities  he  talks  about  are                                                            
incorporated.   He  also   asked  Mr.  Brooks   his  definition   of                                                            
MR.  BROOKS answered  that  it varies  in different  circumstances.                                                             
He said  that  50 percent  goes to  communities  and boroughs  where                                                            
the  processing and/or  the  fishery  resource landing  took  place.                                                            
If an  incorporated  city is  within an  organized  borough, the  50                                                            
percent  sharable  amount  of tax  is divided  equally  between  the                                                            
city  and  the organized  borough.  If  the  processing  or  landing                                                            
takes  place   outside  of   an  incorporated   city  or   organized                                                            
borough,  50  percent  of  the  tax  is  disbursed   to communities                                                             
through  an allocation  program under  the Department  of  Commerce,                                                            
Community and Economic Development (DCCED).                                                                                     
SENATOR  STOLTZE asked  if Mr. Brooks  could get  him the detail  in                                                            
his notes.                                                                                                                      
4:08:25 PM                                                                                                                    
MR.  BROOKS said  he  would. He  went  to slide  9 that  showed  how                                                            
much  is brought  in by  the  fisheries business  tax  and how  it's                                                            
shared.  He noted  that  a 1  percent  increase  would  bring in  an                                                            
additional $18 million.                                                                                                         
He  explained  that  the  Office  of  Management  and  Budget  (OMB)                                                            
looks  at the  ADF&G  budget  as well  the  programs related  to  it                                                            
like  enforcement,  the  Department  of  Law,  and  the  courts  and                                                            
comes  up with an  estimate  of those  costs. Those  costs are  used                                                            
in  updating  the   Carlson  case  differential   (a  rate  that  is                                                            
charged non-residents  on  licenses) every three  years.  The  total                                                            
cost of  government caused  by ADF&G  is more  than the current  tax                                                            
can  cover,  so the  broader  question  of  if there  should  be  an                                                            
additional contribution to the General Fund is a policy call.                                                                   
SENATOR  COGHILL   asked  for  more   background  on  the   "Carlson                                                            
MR. BROOKS  explained  that for years  the State  of Alaska  charged                                                            
non-residents  a  3:1  ratio  of  what  it  charged   residents  for                                                            
commercial  crew member licenses,  limited  entry permits and  those                                                            
kind of  things. The Supreme  Court took a  long time to settle  the                                                            
Carlson case,  but in the  end ruled that  the state could  charge a                                                            
premium  to non-residents,  but  it  had to  be based  on  something                                                            
other  than just  an arbitrary  number.  So, the  state developed  a                                                            
basis  of state  costs that  are not  shared by  non-residents.  All                                                            
state  agencies  that  have related  costs  were  factored  in,  and                                                            
then, through OMB, a differential was calculated. Now non-                                                                      
residents  are charged  about $265  in addition  to what a  resident                                                            
is charged.  For instance,  a resident crew  member license  is $60,                                                            
but  a non-resident  must  pay  a  $265 differential  based  on  the                                                            
Carlson case.                                                                                                                   
4:12:20 PM                                                                                                                    
SENATOR  MICCICHE  asked  if there  is  a reason  the  Carlson  case                                                            
rate might not be considered for landing taxes, as well.                                                                        
MR. BROOKS  said  he didn't  have an answer  to that,  and he  would                                                            
want to consult with the Department of Law.                                                                                     
MR. BURNETT  added that  taxes are  different than  fees. Fees  have                                                            
a cost  directly associated  with  them and taxes  don't. So,  there                                                            
is much less ability to charge a differential to taxpayers.                                                                     
SENATOR  MICCICHE asked  if one could  get creative  with sort  of a                                                            
grandfather  tax that locked  in property  taxes like what  happened                                                            
in California and Florida.                                                                                                      
4:13:54 PM                                                                                                                    
SENATOR  WIELECHOWSKI  noted that  they  weren't talking  about  new                                                            
taxes on fish but about fees on fish.                                                                                           
SENATOR  COSTELLO   asked  if  credits  could  be  tied   to  Alaska                                                            
residents,  because   that  is  done  in  other  programs  and  non-                                                            
Alaskans are not eligible for those.                                                                                            
MR.  BURNETT answered  that  he would  have  to get  specific  legal                                                            
advice on that.                                                                                                                 
CHAIR GIESSEL  said Mr. Brooks  had mentioned  that OMB had  done an                                                            
estimate  of what the State  of Alaska's  regulatory costs  were for                                                            
administering this tax.                                                                                                         
MR.  BROOKS  responded  that  OMB  estimates  the  management  costs                                                            
that  include some  regulatory  costs for  the Board  of  Fisheries,                                                            
but  it's kind  of  an all-in-state  operating  budget  estimate  of                                                            
costs related to commercial fishing.                                                                                            
CHAIR  GIESSEL said  she  wanted to  see  that information  if  it's                                                            
4:15:34 PM                                                                                                                    
MR. BROOKS  noted that  in response  to questions  about  residency,                                                            
in 2014  the Bristol  Bay  drift gillnet  fishery  had 18.7  percent                                                            
local    participants,  25.8  percent  non-local  but  still  Alaska                                                            
participants,  and  55.5  percent  non-resident   participants.  For                                                            
the  set gillnet  fishery,  34.5 percent  were  local participants,                                                             
29.9  percent were  non-local  but Alaskan  participants,  and  35.6                                                            
percent were non-resident participants.                                                                                         
4:16:29 PM                                                                                                                    
MR.  BROOKS explained  that  the fisheries  landing  tax  is not  as                                                            
large,  but similar  to  the business  tax,  it is  shared, and  the                                                            
amount  of tax  collected  has varied  from  $8.4 million  to  $13.4                                                            
million over the last three years.                                                                                              
CHAIR GIESSEL  asked if  the wide  variation is  based on the  value                                                            
of the fish in those years.                                                                                                     
MR. BROOKS  answered that  both price and  volume were factors,  but                                                            
some credits  also factor  in that aren't as  neat as the  fisheries                                                            
business  tax.   He didn't  know if  that  variant was  a factor  of                                                            
CHAIR  GIESSEL observed  that  obviously the  value  varies a  great                                                            
deal just like some other natural resources.                                                                                    
SENATOR MICCICHE asked for more details about credits.                                                                          
MR. BURNETT  responded that  he would get  whatever level of  detail                                                            
he could without identifying specific taxpayers.                                                                                
4:18:47 PM                                                                                                                    
MR. BROOKS  summarized  slide 11.  The 1 percent  increase  starting                                                            
with  the  business  tax  on established   floating  fisheries  goes                                                            
from 5 to  6 percent; the  salmon cannery  tax goes from 4.5  to 5.5                                                            
percent;  and the  shore-based  tax goes  from  3 to  4 percent.  On                                                            
the  developing  fisheries:  the  floating  tax  goes  from 3  to  4                                                            
percent  and the  shore-based tax  was left  at 1  percent. The  tax                                                            
would  generate  about  $50 million,  about  $200,000  of  which  is                                                            
related  to developing  fisheries.  Some consideration  is given  to                                                            
the   developing  nature   of   a  fishery,   but   once  they   get                                                            
established they would move into the established category.                                                                      
MR.  BROOKS   said  the   resource  landing   tax  for  established                                                             
fisheries  is proposed  to go  from 3 to  4 percent  and stays  at 1                                                            
percent in the developing stage.                                                                                                
SENATOR WIELECHOWSKI  said  it seems that  there are fisheries  that                                                            
are  largely  non-resident  that  have  non-resident   workers,  and                                                            
that is  not benefiting  Alaska very  much. He asked  if there  is a                                                            
way to target those fisheries more.                                                                                             
MR.  BROOKS  clarified  that  boats coming  from  "down  south"  are                                                            
paying  a tax;  it's more  the  exception than  the  rule that  they                                                            
aren't.  The  Pollock fishery,  which  is  very  big, even  if  it's                                                            
landed  in  another   state,  is  going  to  be  taxed   in  Alaska.                                                            
However,  having said  that,  a lot of  non-residents  are hired  on                                                            
the floating  processors. He  said he didn't  know of a means  to be                                                            
so surgical for taxation purposes in the manner suggested.                                                                      
SENATOR  WIELECHOWSKI said  he had  seen non-resident  reports  over                                                            
the  years  where some  processing  plants  have  100  percent  non-                                                            
residents  and  he  wondered  if more  data  was  available  on  it.                                                            
"There  are probably  entire  areas where,  yeah,  they're paying  a                                                            
small  tax right  now, but  there's no  benefit  to Alaska.  They're                                                            
taking  our fish.  They're from  out of  state.  They're not  hiring                                                            
Alaska  workers.  All  the fish,  or  most  of it,  is  leaving  the                                                            
state,  and I'm  just  wondering if  there  is a  way you  can be  a                                                            
little more surgical in getting a fair tax for Alaskans."                                                                       
MR. BROOKS  said he  could see  his point  and that  it was part  of                                                            
the  policy discussion.  Another  initiative  has a  different  type                                                            
of tax that would get at some of those employees.                                                                               
SENATOR  MICCICHE  asked  for  clarification  that,  if  Pollock  is                                                            
caught  in  federal   waters,  whether  or  not  it  crosses   state                                                            
waters, is taxed upon landing in the Lower 48.                                                                                  
MR. BROOKS answered yes.                                                                                                        
SENATOR MICCICHE  asked, instead  of areas,  if there is any  reason                                                            
a different tax rate couldn't be charged for different species.                                                                 
MR.  BURNETT  answered   yes,  it  is  possible  to  tax   different                                                            
species at  different rates.  The department  could probably  design                                                            
a  surgical,  but  complicated   tax  that  would  be  expensive  to                                                            
SENATOR  MICCICHE  said  he  wasn't  sure  about  complexity  on  an                                                            
electronic  tax form that  has the same rate  for every species  but                                                            
SENATOR  STEDMAN cautioned  that the  Carlson case  took decades  of                                                            
litigation  and Alaska  had to  write checks  amounting  to tens  of                                                            
millions  of dollars. It left  a bad taste  in Alaskans' mouth  that                                                            
Alaska  doesn't  want to  repeat.  He  said that  this  is  American                                                            
where  people can  come  and go  and  work where  they  want and  he                                                            
urged them to respect the Interstate Commerce law.                                                                              
MR.  BROOKS  continued   with  the  presentation  noting   that  the                                                            
Carlson case was tied to the Interstate Commerce Act.                                                                           
SENATOR  MICCICHE clarified  that the  Carlson case  was based  on a                                                            
differential,  but  his  suggestion   was  related  to  species  and                                                            
every participant having the same rate.                                                                                         
MR. BROOKS  noted that  the proposed  1 percent  increase is  not to                                                            
be shared with communities.                                                                                                     
4:27:54 PM                                                                                                                    
SENATOR  STOLTZE  asked  if the  increased  tax  would  go  straight                                                            
into the General Fund and if it is subject to credits.                                                                          
MR.  BROOKS answered  yes,  the additional  1  percent  goes to  the                                                            
General Fund.                                                                                                                   
MR.  BURNETT said  that  the credits  would  still come  out of  the                                                            
other part  of the state's  share and their  analysis assumed  the 1                                                            
percent increase was to be a full 1 percent additional tax.                                                                     
SENATOR  STOLTZE said  he thought  that could be  clarified in  this                                                            
4:29:34 PM                                                                                                                    
SENATOR  MICCICHE asked  if there  a potential  to  segregate the  1                                                            
percent  as going directly  to the  General Fund  and not  including                                                            
those other credit accounts on the way to GF.                                                                                   
MR. BURNETT answered nothing prevents that.                                                                                     
4:30:25 PM                                                                                                                    
MR.  BROOKS  said  slide  14 provided  some  context  of  other  tax                                                            
rates  in different  jurisdictions.  The  only  other  state with  a                                                            
tax  specific  to fish  is in  Washington  and  it ranges  from  .09                                                            
percent to  5.62 percent of  the value at  point of landing.  He was                                                            
sure  the  rate factored  into  someone's  decision  to  land  their                                                            
fish on their last run at either Dutch Harbor or Seattle.                                                                       
SENATOR  MICCICHE said  the second bullet  on the  slide is  what he                                                            
was  talking   about:  the  rate   in  Washington  does   depend  on                                                            
MR. BROOKS  said the  fiscal note  shows $18  million of  additional                                                            
tax revenue  would be  derived from  a 1 percent  increase based  on                                                            
the Fall 2015 Revenue Forecast Book.                                                                                            
CHAIR  GIESSEL  asked  how  close  the  revenue  forecasts  come  in                                                            
fisheries each year.                                                                                                            
MR.  BURNETT  responded   that  he  would  have  to  look  at  that,                                                            
because  fish  runs  and  prices  vary  every  year.  It's  probably                                                            
closer than with oil in the last couple of years.                                                                               
4:32:24 PM                                                                                                                    
MR. BROOKS  noted that  an earlier  slide indicated  more  stability                                                            
in  the business  tax  than  in the  landing  tax for  a  three-year                                                            
SENATOR   STOLTZE   asked   how   the   department    tracks   price                                                            
adjustments for fish.                                                                                                           
MR. BOWERS  explained  that the  tax is  assessed on  the volume  of                                                            
fish reported  on the commercial  operator's  annual report  that is                                                            
filed  annually and  that  takes the  post season  adjustments  into                                                            
4:34:00 PM                                                                                                                    
MR.  BROOKS  said  the additional   tax would  require  the  DOR  to                                                            
update  its tax  revenue  management  system.  It estimates  a  one-                                                            
time  implementation  cost of  $100,000 to  recreate  tax forms  and                                                            
reprogram  and test  the  tax system.  They  do not  anticipate  any                                                            
additional  costs to  administer the  program. In  fact, going  with                                                            
the requirement to do on-line returns will create efficiencies.                                                                 
MR. BURNETT  added that this  will be a new  cost that will  show on                                                            
the  fiscal  note  as  a  one-time  cost,  but  there  would  be  no                                                            
additional  cost  to  administer  the  program.  He  explained  that                                                            
this  tax is  more  expensive  to administer,  because  the  revenue                                                            
sharing  component  requires  splitting  the  tax out  in  different                                                            
4:35:40 PM                                                                                                                    
CHAIR GIESSEL  asked if  these taxpayers  are filing electronically                                                             
now and if it would be an additional barrier for them.                                                                          
MR.  BURNETT  answered  that  a  number  of  taxpayers  file  online                                                            
right now,  and the department  doesn't see  electronic filing  as a                                                            
barrier,  as  there  is  the  ability  to  get  a  waiver  from  the                                                            
requirement if from some reason one can't file online.                                                                          
4:36:39 PM                                                                                                                    
SENATOR  STOLTZE asked  if there is  any reason  that a region  that                                                            
has a  higher economic  value or  higher economic  opportunity  cost                                                            
couldn't  have   a  different  assessment   fee.  Maybe   a  Chinook                                                            
species  has greater  economic value  in an urbanized  area that  is                                                            
not reflected in poundage.                                                                                                      
MR. BURNETT  answered  that in  doing that  they could  make this  a                                                            
very complicated tax.                                                                                                           
SENATOR  STOLTZE   said  sometimes   worthwhile  things   are  worth                                                            
spending a little more time on.                                                                                                 
4:38:16 PM                                                                                                                    
MR.  BROOKS said  slide  17  related how  this  bill fits  into  the                                                            
governor's  broader initiative.  The  FY16 budget  is $5.2  billion;                                                            
the  FY17  baseline  revenue  after  the  proposed   Permanent  Fund                                                            
Protection  Act will be  $3.3 billion, revenue  from existing  taxes                                                            
and  fees  will generate  $850  million,  and  earnings  on  savings                                                            
will  bring  in  $135  million  for  a  total  of  just  under  $4.3                                                            
4:39:12 PM                                                                                                                    
On  the  spending  reduction   side  for  FY17  he  said  there  are                                                            
continued   cuts  of  $140  million   for  all  state  agencies   in                                                            
addition  to what  occurred in  the FY16  budget and  reform in  oil                                                            
and gas  tax credits  will  bring in  $400 million.  A reduction  of                                                            
net  priority  investments  would  be  $40  million.  That  scenario                                                            
would be net reductions of $500 million.                                                                                        
From the  initiatives  that are  being discussed  fishing is  listed                                                            
second  and it would  generate an  estimated  $18 million  annually.                                                            
All  of  the initiatives   together  would  generate  potential  new                                                            
revenue  of  $457   million.  So,  total  with  reductions   in  new                                                            
revenue would  bring the budget  to just over  the $5.2 billion.  He                                                            
add that these are aggregated numbers from a number of sources.                                                                 
4:40:30 PM                                                                                                                    
MR. BROOKS  said the  main impact  of these taxes  is on  commercial                                                            
fishing  operations  without  much  of a  tax  burden likely  to  be                                                            
passed  on  to buyers.  He  offered  to  walk  through  a  sectional                                                            
4:40:51 PM                                                                                                                    
SENATOR  MICCICHE  said  he  disagreed   with  slide  19.  He  said,                                                            
"Respectfully,  that's  a shallow  statement. It  affects folks  all                                                            
the way  up and down the  supply chain and  could result in  some of                                                            
our resources  not being  harvested...." He  said it's important  to                                                            
truly  evaluate  the  effects   across  the  board  and  that  slide                                                            
simplifies a more complex issue.                                                                                                
4:41:48 PM                                                                                                                    
MR. BROOKS provided the following sectional analysis:                                                                           
 Sec. 1.  Adds a $25 or  1 percent tax penalty  for failure  to file                                                          
electronically unless an exemption is received by the taxpayer                                                                  
 Sec.  2. Requires  electronic  submission of  tax returns,  license                                                          
applications,  and other  documents submitted  to the  Department of                                                            
 Sec. 3.  Increases three different  tax rates within  the Fisheries                                                          
Business Tax by one percent.                                                                                                    
 Sec. 4.  Increases tax rate  within the Fisheries Business  Tax for                                                          
developing fish species processed by  a floating processor from 3 to                                                            
4 percent.  Rate remains  at 1 percent  for developing  fish species                                                            
processed by a shore-based business.                                                                                            
 Sec. 5.  Increases tax rate  within the Fisheries Business  Tax for                                                          
direct marketers from 3 to 4  percent. Rate remains at 1 percent for                                                            
developing fish species sold by direct marketers.                                                                               
 Sec. 6.  Conforming language related  to the requirement  to submit                                                          
returns  or   reports  electronically.  This  section   deletes  the                                                            
requirement for taxpayers to submit  their returns to the department                                                            
in Juneau.                                                                                                                      
 Sec.  7. Establishes  that the  revenue  from the  one percent  tax                                                          
increase is  deposited in  the General  Fund. The  remaining revenue                                                            
shall  be shared  with  municipalities  per the  currently  existing                                                            
 Sec. 8.  Increases tax  rate within the  Fisheries Landing  Tax for                                                          
fish  species  other  than  developing  fish species  from  3  to  4                                                            
percent. Rate remains at 1 percent for developing fish species.                                                                 
 Sec.  9. Establishes  that the  revenue  from the  one percent  tax                                                          
increase  is deposited in  the General Fund.  The remaining  revenue                                                            
shall  be shared  with  municipalities  per the  currently  existing                                                            
 Sec.10.  Establishes that  the  revenue from  the  one percent  tax                                                          
increase is  deposited in  the General  Fund. The  remaining revenue                                                            
shall be shared with boroughs per the currently existing formula.                                                               
Sec. 11. Transitional language allowing for regulations.                                                                      
Sec. 12. Section 11 takes effect immediately.                                                                                 
Sec.  13.  Effective  date  of  7/1/16  for the  rest  of  the  bill                                                          
including the tax rate change.                                                                                                  
4:44:47 PM                                                                                                                    
SENATOR  STOLTZE said  he noticed  the OMB section  talks about  how                                                            
the budget  gap  is filled  that included  the reform  of  petroleum                                                            
oil and  gas credits,  and  asked if  the departments  analyzed  tax                                                            
credits  for the  fishing  industry,  because  the amount  going  to                                                            
the  General  Fund  from the  fishing  industry  has  been  steadily                                                            
declining irrespective of price.                                                                                                
MR.  BURNETT  answered  that  the  department   had  looked  at  tax                                                            
credits  for  fish  on  a  regular  basis.  Last  year  an  indirect                                                            
expenditure  report was done  and staff is  following up on  each of                                                            
the items.                                                                                                                      
SENATOR  STOLTZE  asked  if  the  DOR  is  happy  that  the  fishing                                                            
proportion is functioning best for the people of Alaska.                                                                        
MR. BURNETT said he couldn't answer that.                                                                                       
SENATOR  STOLTZE  said that  should  be part  of the  discussion  on                                                            
SENATOR STEDMAN  commented  that in the budget  situation the  state                                                            
is in  now,  anybody who  gets a  credit from  the  State of  Alaska                                                            
shouldn't  make  long  term  plans  for  receiving  them.  They  are                                                            
removing  credits   and  letting  the  free  markets   flow  on  all                                                            
CHAIR GIESSEL said Milton Freedman would agree with him.                                                                        
MR.  BROOKS said  the department  will  quantify  the credits,  list                                                            
them out  by types and amounts  generated,  and provide that  to the                                                            
CHAIR GIESSEL  asked what  input ADF&G  had in  the writing  of this                                                            
MR.  BROOKS   answered   that  Commissioner   Cotten  was   actively                                                            
involved  with a  subgroup  of the  Cabinet  consisting  of the  DOR                                                            
Commissioner and the affected department. He was not part of                                                                    
those meetings.                                                                                                                 
CHAIR GIESSEL, finding no further questions, held SB 135 in                                                                     
committee in anticipation of getting the answers to their                                                                       

Document Name Date/Time Subjects
2016 List of Alaska's Developing Fisheries Memo.pdf SRES 2/8/2016 3:30:00 PM
SB 135
SB0135-Presentation-AKDOR-AKDFG-02-8-2016.pdf SRES 2/8/2016 3:30:00 PM
SB 135
SB0135-Presentation-AKDOR-AKDFG-02-8-2016.pdf SRES 2/8/2016 3:30:00 PM
SB 135
SB0135-Govr's Transmittal Letter.pdf SRES 2/8/2016 3:30:00 PM
SB 135
SB0135 Sectional Analysis.pdf SRES 2/8/2016 3:30:00 PM
SB 135
SB0135-Hearing Request-SRES.pdf SRES 2/8/2016 3:30:00 PM
SB 135
SB0135-Supporting Document-AK DOR 2014 Annual Report-Fisheries Excerpt.pdf SRES 2/8/2016 3:30:00 PM
SB 135
SB0135-Supporting Document-AK DOR Tax Divison Fact Sheet on Fish Tax.pdf SRES 2/8/2016 3:30:00 PM
SB 135