Legislature(2001 - 2002)

04/20/2001 12:42 PM House RLS

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                    ALASKA STATE LEGISLATURE                                                                                  
                 HOUSE RULES STANDING COMMITTEE                                                                               
                         April 20, 2001                                                                                         
                           12:42 p.m.                                                                                           
                                                                                                                              
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Pete Kott, Chair                                                                                                 
Representative Brian Porter                                                                                                     
Representative Vic Kohring                                                                                                      
Representative Carl Morgan                                                                                                      
Representative Lesil McGuire                                                                                                    
Representative Ethan Berkowitz                                                                                                  
Representative Reggie Joule                                                                                                     
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
All members present                                                                                                             
                                                                                                                                
OTHER LEGISLATORS PRESENT                                                                                                     
                                                                                                                                
Representative Carl Moses                                                                                                       
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
CS FOR HOUSE BILL NO. 154(FSH)                                                                                                  
"An Act relating to security for the payment of fishery business                                                                
taxes and to payment of the fisheries resource landing tax."                                                                    
                                                                                                                                
     - HEARD AND HELD                                                                                                           
                                                                                                                                
PREVIOUS ACTION                                                                                                               
                                                                                                                                
BILL: HB 154                                                                                                                  
SHORT TITLE:COLLECTION OF FISHERY BUSINESS TAXES                                                                                
SPONSOR(S): REPRESENTATIVE(S)SCALZI                                                                                             
                                                                                                                                
Jrn-Date   Jrn-Page                     Action                                                                                  
02/28/01     0462       (H)        READ THE FIRST TIME -                                                                        
                                   REFERRALS                                                                                    
02/28/01     0462       (H)        FSH, RES, FIN                                                                                
03/12/01                (H)        FSH AT 5:00 PM CAPITOL 124                                                                   
03/12/01                (H)        Heard & Held                                                                                 
03/12/01                (H)        MINUTE(FSH)                                                                                  
03/19/01                (H)        FSH AT 5:00 PM CAPITOL 124                                                                   
03/19/01                (H)        Moved CSHB 154(FSH) Out of                                                                   
                                   Committee                                                                                    
03/19/01                (H)        MINUTE(FSH)                                                                                  
03/22/01     0686       (H)        FSH RPT CS(FSH) NT 4DP 3NR                                                                   
03/22/01     0686       (H)        DP: SCALZI, KAPSNER,                                                                         
                                   KERTTULA, WILSON;                                                                            
03/22/01     0686       (H)        NR: DYSON, COGHILL, STEVENS                                                                  
03/22/01     0686       (H)        FN1: ZERO(REV)                                                                               
03/30/01                (H)        RES AT 1:00 PM CAPITOL 124                                                                   
03/30/01                (H)        Moved CSHB 154(FSH) Out of                                                                   
                                   Committee                                                                                    
03/30/01                (H)        MINUTE(RES)                                                                                  
04/02/01     0807       (H)        RES RPT CS(FSH) NT 4DP 2NR                                                                   
04/02/01     0807       (H)        DP: KERTTULA, CHENAULT, FATE,                                                                
                                   SCALZI;                                                                                      
04/02/01     0807       (H)        NR: KAPSNER, MASEK                                                                           
04/02/01     0807       (H)        FN1: ZERO(REV)                                                                               
04/11/01                (H)        FIN AT 1:30 PM HOUSE FINANCE                                                                 
                                   519                                                                                          
04/11/01                (H)        Moved CSHB 154(FSH) Out of                                                                   
                                   Committee                                                                                    
04/11/01                (H)        MINUTE(FIN)                                                                                  
04/12/01     0981       (H)        FIN RPT CS(FSH) NT 7DP                                                                       
04/12/01     0982       (H)        DP: BUNDE, CROFT, HARRIS,                                                                    
                                   DAVIES,                                                                                      
04/12/01     0982       (H)        LANCASTER, HUDSON, WILLIAMS                                                                  
04/12/01     0982       (H)        FN1: ZERO(REV)                                                                               
04/12/01     0982       (H)        REFERRED TO RULES                                                                            
04/20/01                (H)        RLS AT 0:30 PM BELTZ 211                                                                     
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
REPRESENTATIVE DREW SCALZI                                                                                                      
Alaska State Legislature                                                                                                        
Capitol Building, Room 13                                                                                                       
Juneau, Alaska 99801                                                                                                            
POSITION STATEMENT:  Testified as sponsor of HB 154.                                                                            
                                                                                                                                
BOB JUETTNER, Administrator                                                                                                     
Aleutians East Borough                                                                                                          
(No address provided.)                                                                                                          
POSITION STATEMENT:  Expressed concerns with changing the tax                                                                   
structure.                                                                                                                      
                                                                                                                                
FRANK KELTY, Resource Analyst                                                                                                   
City of Unalaska                                                                                                                
(No address provided.)                                                                                                          
POSITION STATEMENT:  Testified in opposition to the proposed CS,                                                                
version O.                                                                                                                      
                                                                                                                                
KRIS NOROSZ                                                                                                                     
Icicle Seafoods, Inc.                                                                                                           
PO Box 1147                                                                                                                     
Petersburg, Alaska 99833                                                                                                        
POSITION STATEMENT:   Testified  in support  of the  proposed CS,                                                               
version O.                                                                                                                      
                                                                                                                                
REPRESENTATIVE CARL MOSES                                                                                                       
Alaska State Legislature                                                                                                        
Capitol Building, Room 500                                                                                                      
Juneau, Alaska 99801                                                                                                            
POSITION STATEMENT:   Testified that the original HB  154 is good                                                               
legislation.                                                                                                                    
                                                                                                                                
CHUCK HARLAMERT, Juneau Section Chief                                                                                           
Tax Division                                                                                                                    
Department of Revenue                                                                                                           
550 W 7th Avenue, Suite 500                                                                                                     
Anchorage, Alaska 99501-3566                                                                                                    
POSITION STATEMENT:  Answered questions.                                                                                        
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
TAPE 01-8, SIDE A                                                                                                               
Number 0001                                                                                                                     
                                                                                                                                
CHAIR  PETE  KOTT  called  the  House  Rules  Standing  Committee                                                               
meeting to  order at 12:42  p.m.  Representatives  Kott, Kohring,                                                               
Morgan, McGuire,  Berkowitz, and Joule  were present at  the call                                                               
to order.   Representative Porter  arrived as the meeting  was in                                                               
progress.  Representative Moses was also in attendance.                                                                         
                                                                                                                                
HB 154-COLLECTION OF FISHERY BUSINESS TAXES                                                                                   
                                                                                                                                
CHAIR KOTT  announced that the  first order of business  would be                                                               
HOUSE BILL NO. 154, "An Act  relating to security for the payment                                                               
of fishery business  taxes and to payment  of estimated fisheries                                                               
resource  landing taxes  and penalties."   [Before  the committee                                                               
was CSHB 154(FSH).]                                                                                                             
                                                                                                                                
REPRESENTATIVE DREW  SCALZI, Alaska State  Legislature, testified                                                               
as the sponsor of HB 154.   He informed the committee that HB 154                                                               
takes into  consideration a  problem that  has been  in existence                                                               
since 1995 and the advent  of the Individual Fishery Quota (IFQ).                                                               
Since statehood canneries operated under  one system in which the                                                               
cannery either  canned or  froze its  product.   [Canneries] were                                                               
allowed to hold  the funds they collected  for up to a  year.  In                                                               
order to  collect the fisheries  business tax, the  [cannery] had                                                               
to put up  a bond in the  amount of the revenue  collected in the                                                               
prior year  or the [cannery] had  to have three times  the amount                                                               
of lienable  property in  order to secure  the revenue  the state                                                               
would allow them  to utilize.  With IFQs, the  buying and selling                                                               
of  fresh fish  began. Although  this type  of business  does not                                                               
require a  cannery or a  lot of investment, these  businesses are                                                               
held to  the same tax  structure as canneries.   These businesses                                                               
may be paying in as much  as $500,000 worth of fisheries business                                                               
tax a year.  Therefore, this  business would be obligated to bond                                                               
$500,000 for  the following  year or the  business would  have to                                                               
have  lienable  property three  times  that  amount, which  would                                                               
amount  to $1.5  million.    However, many  of  these fresh  fish                                                               
buyers don't have $1.5 million  worth of lienable property nor do                                                               
they have the ability to bond $500,000 for the business year.                                                                   
                                                                                                                                
REPRESENTATIVE SCALZI  explained that  he went to  the Department                                                               
of Revenue, who  was very helpful in finding a  solution to this.                                                               
The department  agreed to allow  a new regime under  which [these                                                               
fresh fish buyers]  would bond $50,000 or  have $100,000 lienable                                                               
property, and the fish tax must be  paid in the month in which it                                                               
is collected.  [The fresh fish  buyers] are amenable to not being                                                               
able to hold the tax as  canneries have been able to.  Therefore,                                                               
if [the fresh  fish buyers] pay the fish tax  on a monthly basis,                                                               
they  aren't  obligated  to have  any  large  financial  backing.                                                               
Representative Scalzi  said that  was the  original intent  of HB
154.                                                                                                                            
                                                                                                                                
Number 0309                                                                                                                     
                                                                                                                                
REPRESENTATIVE  SCALZI then  turned to  the committee  substitute                                                               
(CS)  [labeled 22-LS0638\O,  Utermohle,  4/20/01],  which he  had                                                               
been asked  to introduce by some  in the industry.   He explained                                                               
that the  American Fisheries Act was  passed in 1998 in  order to                                                               
eliminate   some    vessels   in   an    overpopulated   fishery,                                                               
predominately in  pollock.  Furthermore, [the  American Fisheries                                                               
Act] secured both processors and  catcher processors in some type                                                               
of class.   This class system would not allow  movement among the                                                               
classes nor  would it allow  new entrants.   Therefore, it  was a                                                               
limited  entry  system for  the  large  players.   Although  U.S.                                                               
Senator  Stevens was  trying to  remove some  of the  vessels, it                                                               
didn't quite work  out.  However, in doing this  the industry was                                                               
divided into off-shore catcher processors,  mother ships, and in-                                                               
shore plants.   [The American Fisheries Act]  limited each sector                                                               
to a  specific pollock  processing facility.   Moreover,  the act                                                               
prohibited new  pollock processors  from entering the  Bering Sea                                                               
and  the  pollock  business.    This  act  ensured  that  pollock                                                               
harvested  by  the American  Fisheries  Act  Cooperative but  not                                                               
landed in  the state  is subject to  the Alaska  fishery resource                                                               
landing tax.   Thus, the  pollock catcher processor,  the pollock                                                               
mother  ship,  and the  on-shore  plants  pay  a 3  percent  tax.                                                               
However,  the on-shore  floating processors,  of which  there are                                                               
only two,  pay a  5 percent  tax and  thus they  are placed  at a                                                               
competitive disadvantage.  Representative  Scalzi said that it is                                                               
up to the committee to determine  whether there is an inequity in                                                               
this case.                                                                                                                      
                                                                                                                                
Number 0491                                                                                                                     
                                                                                                                                
REPRESENTATIVE SCALZI,  in response to  Representative Berkowitz,                                                               
explained that  off-shore processors  are vessels that  catch the                                                               
pollock and process it at sea;  these are large vessels.  The in-                                                               
shore processors  are in  the 120  foot and  less range  and they                                                               
deliver shore  side.  There are  also the mother ships  that tend                                                               
their fleet as  well.  Now there is also  the floating processor.                                                               
He explained  that the thought  is that under pollock  only, [the                                                               
mother  ships] should  be treated  the  same as  the other  three                                                               
classes.                                                                                                                        
                                                                                                                                
REPRESENTATIVE  BERKOWITZ asked  if the  floating processors  are                                                               
generally moored.                                                                                                               
                                                                                                                                
REPRESENTATIVE  SCALZI replied  no  and  explained that  floating                                                               
processors are generally towed to  an area and are then anchored.                                                               
He related  his understanding that  if [a floating  processor] is                                                               
moored in one location for more  than one year, it falls into the                                                               
on-shore  category.   He  said, "If  you're  mobile, then  you're                                                               
considered  a  floating  processor."   He  specified  that  these                                                               
vessels would  be moored in a  bay, a cove, or  around a floating                                                               
island not in  the sea.  These floating processors  deal with the                                                               
difficulties of the logistics of some of the canneries.                                                                         
                                                                                                                                
REPRESENTATIVE BERKOWITZ related his  understanding, then, that a                                                               
floating  processor wouldn't  be  subject to  a  property tax  as                                                               
would be the case with a shore-based [vessel].                                                                                  
                                                                                                                                
REPRESENTATIVE SCALZI reiterated that  under the current rule, [a                                                               
floating processor] would pay a 5  percent tax.  He remarked that                                                               
they don't  pay a property tax.   However, he did  point out that                                                               
[a floating processor] would pay  personal property tax depending                                                               
upon the location of the ownership of the facility.                                                                             
                                                                                                                                
Number 0622                                                                                                                     
                                                                                                                                
REPRESENTATIVE  BERKOWITZ noted  that he  pays real  property tax                                                               
for his  house.  However,  he wouldn't pay  a property tax  if he                                                               
had a house boat that he motored around.                                                                                        
                                                                                                                                
REPRESENTATIVE SCALZI pointed  out that it would  depend upon the                                                               
borough  and the  classification.   For  instance,  in the  Kenai                                                               
Peninsula  Borough  [such  a property  tax]  is  collected  under                                                               
personal property tax, but not under real property tax.                                                                         
                                                                                                                                
REPRESENTATIVE  SCALZI, in  response  to  Chair Kott,  reiterated                                                               
that  an  off-shore  catcher  process is  one  that  catches  and                                                               
processes  on  one  vessel.    A  mother  ship  is  an  off-shore                                                               
processor that  tenders to  off-shore catcher  vessels.   This is                                                               
similar  to the  situation in  the 1980s  with the  joint venture                                                               
system.   In response  to Representative  McGuire, Representative                                                               
Scalzi explained that the mother  ship adds supplies to the fleet                                                               
and takes the product and processes it.                                                                                         
                                                                                                                                
Number 0796                                                                                                                     
                                                                                                                                
REPRESENTATIVE  SCALZI addressed  the  fair  taxation portion  of                                                               
this legislation  and said that it  is a judgment call  in regard                                                               
to how the  legislature wants to deal with  this.  Representative                                                               
Scalzi noted  that the  argument that this  would not  change the                                                               
fisheries business tax percent increment  for anything other than                                                               
pollock could  be made.   This  CS is only  changing the  tax for                                                               
pollock in order to create a level playing field.                                                                               
                                                                                                                                
CHAIR KOTT related  his understanding that the  pollock issue was                                                               
dealt  with in  the American  Fisheries Act  and thus  pollock is                                                               
dealt with separately from other fisheries.                                                                                     
                                                                                                                                
REPRESENTATIVE  McGUIRE asked  if Representative  Scalzi believes                                                               
that one  of the  intents of  the American  Fisheries Act  was to                                                               
address this particular tax structure.                                                                                          
                                                                                                                                
REPRESENTATIVE  SCALZI replied  no.   The American  Fisheries Act                                                               
was clearly  an issue regarding  the amount of entrants  into the                                                               
fishery.  Therefore, he didn't  believe that the tax situation in                                                               
Alaska  was  taken   into  account.    In   further  response  to                                                               
Representative McGuire, Representative  Scalzi related his belief                                                               
that  U.S.   Senator  Stevens  would   say  that  this   is  [the                                                               
legislature's]   call   on  an   issue   that   is  the   state's                                                               
jurisdiction.                                                                                                                   
                                                                                                                                
REPRESENTATIVE SCALZI  reiterated the  tax structure  as follows.                                                               
The  following  are taxed  at  3  percent:   catcher  processors,                                                               
pollock  mother ships,  and on-shore  pollock  plants.   However,                                                               
floating processors are  taxed at 5 percent on  everything.  This                                                               
legislation would change the tax  of the floating processors to 3                                                               
percent for pollock only.                                                                                                       
                                                                                                                                
REPRESENTATIVE  BERKOWITZ  inquired  as to  why  the  distinction                                                               
between floating processors and other vessels was made.                                                                         
                                                                                                                                
REPRESENTATIVE SCALZI explained that  an on-shore processor would                                                               
contribute to the  community in other ways and  thus the standard                                                               
fisheries business tax is 3 percent.   A floating processor or an                                                               
entity that doesn't reside in a  community or have an interest in                                                               
a community,  "it's another  way of accruing  2 more  percent for                                                               
you  to do  business."    He speculated  that  the Department  of                                                               
Revenue felt that floating processors  could be taxed at a higher                                                               
rate due to their mobility.                                                                                                     
                                                                                                                                
Number 1052                                                                                                                     
                                                                                                                                
REPRESENTATIVE  SCALZI   concluded  by  urging   the  committee's                                                               
support of  HB 154.   The  initial HB  154 was  well-intended and                                                               
necessary.                                                                                                                      
                                                                                                                                
REPRESENTATIVE BERKOWITZ surmised  that Representative Scalzi was                                                               
critical of the committee substitute.                                                                                           
                                                                                                                                
REPRESENTATIVE SCALZI said:                                                                                                     
                                                                                                                                
     I'm not  critical of  it because it  was brought  to me                                                                    
     earlier and I had no  problem introducing it.  I didn't                                                                    
     want to garner support for it  and I know there is some                                                                    
     opposition to  it and therefore, I'm  hedging myself to                                                                    
     say that I  100 percent support the initial  bill.  And                                                                    
     I  have  some  reservations,   but  I  think  that  the                                                                    
     committee substitute has  a lot of merit  too, but it's                                                                    
     an issue  that has  to be brought  up and  discussed at                                                                    
     the legislative level.                                                                                                     
                                                                                                                                
Number 1115                                                                                                                     
                                                                                                                                
BOB  JUETTNER, Administrator,  Aleutians East  Borough, testified                                                               
via teleconference.  Mr. Juettner  said that he has some concerns                                                               
with  the committee  substitute [version  O].   There  is a  long                                                               
history  of  the tax  structure  for  floating processors.    Mr.                                                               
Juettner  related his  belief that  [version O]  would create  an                                                               
unfair advantage for a special  interest by lowering the tax rate                                                               
for floating  processors to be  the same as that  for shore-based                                                               
plants.  However, the shore-based  plants have a large investment                                                               
in the communities  and produce many secondary  benefits and thus                                                               
limiting the  tax on one species  creates an unfair benefit.   He                                                               
pointed out  that Title  43 provides  any floating  processor the                                                               
ability to  become a shore-based  plant by merely staying  in the                                                               
same location for one year.                                                                                                     
                                                                                                                                
MR. JUETTNER  pointed out that  although this legislation  may be                                                               
targeting a  specific situation,  the Aleutians East  Borough has                                                               
other  floating  processors  that work  outside  [the  borough's]                                                               
boundaries.    Therefore,  that  reduced  tax  structure  may  be                                                               
extended  as a  way of  creating a  disincentive for  any further                                                               
shore-based investment.  In regard  to the remainder of the bill,                                                               
Mr.   Juettner  said   that   he  had   no   problem  with   what                                                               
Representative Scalzi was  doing because he is  addressing a real                                                               
issue that has resulted from IFQs.                                                                                              
                                                                                                                                
Number 1269                                                                                                                     
                                                                                                                                
MR.  JUETTNER, in  response to  Representative Berkowitz,  agreed                                                               
that there should be an  incentive for shore-based plants because                                                               
they add value to the resource  and bring economic benefit to the                                                               
communities.   In further  response to  Representative Berkowitz,                                                               
Mr. Juettner  said that he  couldn't provide a  definitive answer                                                               
in  regard to  the financial  impact this  [tax] reduction  would                                                               
have on the  Aleutians East Borough.  However,  he estimated that                                                               
it  would  impact the  Aleutians  East  Borough  in the  tens  of                                                               
thousands of dollars.                                                                                                           
                                                                                                                                
Number 1327                                                                                                                     
                                                                                                                                
FRANK KELTY,  Resource Analyst, City  of Unalaska,  testified via                                                               
teleconference.  Mr. Kelty stated  his opposition to the proposed                                                               
amendment included in version O.   "The shared fisheries business                                                               
tax  program was  created  by the  Alaska  State Legislature  for                                                               
sharing fish taxes collected within  waters but outside municipal                                                               
boundaries with municipalities  which can demonstrate significant                                                               
impacts  from  fisheries   business  activities,"  he  explained.                                                               
Sometimes this tax is referred  to as the extraterritorial shared                                                               
fish tax.   Based  on a  formula, this tax  is shared  with other                                                               
communities in  the Aleutians Fisheries  Management Area.   Under                                                               
the  formula  "we"  have,  the Aleutians  East  Borough  and  its                                                               
communities receive  60 percent  of this  tax while  Unalaska and                                                               
communities west of Unalaska share the remaining 40 percent.                                                                    
                                                                                                                                
MR. KELTY pointed  out that the City of Unalaska  is outside of a                                                               
borough.     There  is  a   pollock  processing  plant   that  is                                                               
approximately 3  miles outside the  city limits of Unalaska.   He                                                               
felt that this  plant was located outside  Unalaska's city limits                                                               
in  order  to avoid  local  property  taxes.   Furthermore,  this                                                               
location avoids  the 2  percent fishery  landing tax  because the                                                               
fleet's  boats [land]  outside the  boundaries.   However,  these                                                               
people use the local airport,  local roads, local medical clinic,                                                               
and police and  fire [services] if asked.  Mr.  Kelty pointed out                                                               
that  if the  reduction in  the tax  is approved,  then it  would                                                               
impact Unalaska  in the amount  of $50,000 to $70,000.   Although                                                               
that  isn't significant,  it is  of concern.   Furthermore,  this                                                               
would also mean a reduction in state revenue.                                                                                   
                                                                                                                                
Number 1467                                                                                                                     
                                                                                                                                
CHAIR KOTT pointed out that  although personnel of the processors                                                               
use various services  of the community, they would  pay for those                                                               
services in most of those cases.                                                                                                
                                                                                                                                
MR. KELTY  agreed, but  reiterated that  it is  an impact  to the                                                               
community.                                                                                                                      
                                                                                                                                
REPRESENTATIVE  BERKOWITZ asked  if  these folks  are paying  for                                                               
road maintenance and police and fire services.                                                                                  
                                                                                                                                
MR. KELTY  guessed that Unalaska's share  of the extraterritorial                                                               
tax would alleviate  some of those impacts.   However, this would                                                               
reduce that tax.  Mr. Kelty  pointed out that [the processor that                                                               
is located outside of the city  limits] does not pay property tax                                                               
on its operation.                                                                                                               
                                                                                                                                
Number 1524                                                                                                                     
                                                                                                                                
KRIS NOROSZ,  Icicle Seafoods,  Inc., testified  in favor  of the                                                               
CS, version  O.  She  recognized that the American  Fisheries Act                                                               
is complicated.   She related her belief that  [with the American                                                               
Fisheries Act] U.S.  Senator Stevens attempted to  end the battle                                                               
over the  [pollock] allocation by rationing  the pollock fishery,                                                               
which was  overcapitalized.  Therefore, U.S.  Senator Stevens got                                                               
rid  of  some boats  and  requested  the Americanization  of  the                                                               
fleet, which seems  to be working well.  The  pollock fishery was                                                               
divided such  that there  is an on-shore  allocation and  an off-                                                               
shore  allocation  and  it  established  sectors.    The  sectors                                                               
included  the catcher  processors,  which catch  and process  the                                                               
fish on  the vessel outside of  state waters.  Another  sector of                                                               
boats  was established,  the mother  ships,  who operate  outside                                                               
state jurisdiction and  take fish from smaller  catcher boats and                                                               
process  the  fish.   There  is  also  the on-shore  sector  that                                                               
includes on-shore plants as well  as the floating processors that                                                               
operate within three miles of state waters.                                                                                     
                                                                                                                                
MS.  NOROSZ pointed  out  that the  American  Fisheries Act  also                                                               
prevented any of the sectors operating  as other sectors do.  She                                                               
explained  that  she  has an  in-shore  floating  processor  that                                                               
operates in-shore.   However, that [in-shore  floating processor]                                                               
can't move  outside the  three miles to  operate and  utilize the                                                               
fishery resource tax that the  catcher processors can.  Likewise,                                                               
the  catcher  processors that  operate  outside  the three  miles                                                               
can't  come   in  and  operate   where  [the   in-shore  floating                                                               
processor]  does for  pollock.   However, the  catcher processors                                                               
can come  in for  salmon or  other species and  when they  do so,                                                               
they pay  the 5  percent tax.   Ms. Norosz  emphasized that  is a                                                               
significant point  because she  can't operate  for 3  percent for                                                               
pollock, which is the tax inequity.                                                                                             
                                                                                                                                
MS.  NOROSZ informed  the committee  that the  American Fisheries                                                               
Act essentially  brought limited entry to  the processing sector.                                                               
She  said, "For  the  first time  in the  history  of the  United                                                               
States, we've  limited how many  processors can  process pollock.                                                               
Therefore, Ms. Norosz said she  knows who her competitors are and                                                               
it won't  change next  year.  Although  [the processors]  are all                                                               
competing for the same markets,  she is at a disadvantage because                                                               
[the processors]  have to pay at  a higher rate.   Therefore, she                                                               
believes that  the tax rate should  be changed for pollock.   Ms.                                                               
Norosz  informed  the committee  that  Icicle  Seafoods also  has                                                               
property in Dutch  Harbor and it brings other  vessels into Dutch                                                               
Harbor  to process.    Icicle  Seafoods is  not  trying to  avoid                                                               
taxes.   As a matter of  fact, when Icicle Seafoods  operates its                                                               
processors in Dutch Harbor, it  pays the 5 percent state business                                                               
tax as  well as the  local 2 percent  tax, which sums  7 percent.                                                               
Ms.  Norosz  said that  she  is  trying  to be  treated  equally.                                                               
However, because of the passage  of the American Fisheries Act in                                                               
1988, she didn't feel that the playing field is level.                                                                          
                                                                                                                                
Number 1729                                                                                                                     
                                                                                                                                
REPRESENTATIVE  BERKOWITZ asked  if  the playing  field could  be                                                               
leveled by  raising the  taxes on  the shore-based  and off-shore                                                               
[processors].                                                                                                                   
                                                                                                                                
MS. NOROSZ  acknowledged that to be  an option.  She  then turned                                                               
to the passage  of the fisheries resource landing  tax, which was                                                               
contested.  One of the state  arguments was that the on-shore and                                                               
off-shore  fleets had  to be  treated  the same  for purposes  of                                                               
taxation.  Ms.  Norosz related her feeling that she  is caught in                                                               
the middle.  She processes pollock  the same as everyone else and                                                               
thus she  wants to be treated  the same.  Under  Alaska's current                                                               
revenue tax structures,  she didn't feel that she  is treated the                                                               
same.   Ms.  Norosz pointed  out  that those  same statutes  make                                                               
distinctions  for different  species  and thus  this wouldn't  be                                                               
setting  precedent.   Therefore,  she  believes  that making  the                                                               
proposed change to the pollock  tax structure would bring about a                                                               
more equitable tax situation.                                                                                                   
                                                                                                                                
REPRESENTATIVE  BERKOWITZ  related  his  understanding  that  the                                                               
differential  tax  rates  for different  species  and  processing                                                               
reflect some  policy decisions, such  as the desire  to encourage                                                               
certain activity.                                                                                                               
                                                                                                                                
MS. NOROSZ emphasized that she can't  change the sector she is in                                                               
to process pollock in order to obtain a lower tax rate.                                                                         
                                                                                                                                
REPRESENTATIVE   McGUIRE    relayed   comments    regarding   the                                                               
possibility that  [this tax change] might  encourage the in-shore                                                               
processors to  move out  because there is  no incentive  to stay.                                                               
She asked  if the in-shore  processors would move out  and become                                                               
floating processors, if this tax change occurred.                                                                               
                                                                                                                                
MS.  NOROSZ  answered  that  she   didn't  believe  the  in-shore                                                               
processors  would abandon  their equipment  or their  investment.                                                               
She reiterated that she can't go  on-shore.  In response to Chair                                                               
Kott,  Ms.  Norosz affirmed  that  she  could take  her  business                                                               
elsewhere.                                                                                                                      
                                                                                                                                
Number 1878                                                                                                                     
                                                                                                                                
REPRESENTATIVE CARL MOSES, Alaska  State Legislature, related his                                                               
belief that  HB 154 began  as a  necessary bill and  the proposed                                                               
CS,  version O,  is wrong.   Representative  Moses remarked  that                                                               
this  should have  been  taken  care of  in  the [House]  Finance                                                               
Committee.   Furthermore,  in the  current  fiscal situation,  he                                                               
maintained that this is poor timing.   The proposed CS would mean                                                               
a  reduction  in  revenue  for   Unalaska  of  about  $50,000  to                                                               
$100,000, which  is a  lot.  Representative  Moses turned  to the                                                               
barge that  is located just outside  of the city limits  in order                                                               
to escape the  municipal taxes, property taxes, and  sales tax on                                                               
fish.   Although  the current  owner of  the barge  inherited the                                                               
situation,  Representative   Moses  maintained   "buyer  beware."                                                               
Therefore,  Representative Moses  didn't  believe it  is fair  to                                                               
give  an exemption  for this  type of  relief when  the barge  is                                                               
intentionally located outside  the city limits in  order to avoid                                                               
local  taxes.   Representative Moses  echoed Mr.  Kelty's earlier                                                               
comments  regarding  the  local  services  that  these  [floating                                                               
processors] use.   Furthermore, the landfill is also  used by the                                                               
fishing industry.   He  estimated that  80 to  90 percent  of the                                                               
landfill is  filled with items  from the fishing  industry, which                                                               
is costly to the city and the state.                                                                                            
                                                                                                                                
REPRESENTATIVE MOSES reiterated that  this is poor timing because                                                               
this is a time when the  legislature should be looking at revenue                                                               
enhancements, not decreasing  the amount of taxes.   Perhaps, the                                                               
inequity could  be resolved  by raising  the 3  percent tax  to 5                                                               
percent; such  action may be  necessary in  the near future.   In                                                               
conclusion,  he  related  his  understanding  that  [a  barge  or                                                               
floating processor] that stays in  the same location for one year                                                               
[would qualify for  the shore-based] tax of 3 percent  and if the                                                               
vessel  is within  the city  limits, it  would also  pay property                                                               
tax.                                                                                                                            
                                                                                                                                
MS.  NOROSZ pointed  out that  would mean  [her vessel]  couldn't                                                               
move in order to have repairs.                                                                                                  
                                                                                                                                
Number 2084                                                                                                                     
                                                                                                                                
CHAIR KOTT concluded from Representative  Moses' comments that he                                                               
would  be supportive  of  raising  the tax  on  the  rest of  the                                                               
industry from 3 percent to 5 percent.                                                                                           
                                                                                                                                
REPRESENTATIVE MOSES  said that a  number of things will  have to                                                               
be done,  whether it is having  an income tax, using  some of the                                                               
permanent fund earnings, or having an oil tax.                                                                                  
                                                                                                                                
CHAIR KOTT closed the public testimony portion of HB 154.                                                                       
                                                                                                                                
Number 2119                                                                                                                     
                                                                                                                                
REPRESENTATIVE BERKOWITZ  moved to report CSHB  154(FSH), version                                                               
22-LS0638\J,  out of  committee  with individual  recommendations                                                               
and the accompanying fiscal notes.                                                                                              
                                                                                                                                
CHAIR KOTT objected.                                                                                                            
                                                                                                                                
REPRESENTATIVE BERKOWITZ  said that the question  of differential                                                               
tax  rates  is a  question  of  public  policy.   The  notion  of                                                               
differential tax rates  is accepted in an effort  to encourage or                                                               
discourage behavior.   Representative Berkowitz pointed  out that                                                               
one of the  goals of the legislature is  to encourage value-added                                                               
industries to [locate in]  communities.  Representative Berkowitz                                                               
viewed  [version O]  as rewarding  shore-based processors  with a                                                               
slightly lower  tax rate.  However,  those shore-based processors                                                               
pay the local  property tax and contribute to the  community in a                                                               
way  that   the  floating   processors  don't.     Representative                                                               
Berkowitz  pointed out,  "It  defeats the  purpose  of trying  to                                                               
diversify  the economy  if we  reward people  for not  making the                                                               
full contribution that they could to the communities."                                                                          
                                                                                                                                
REPRESENTATIVE BERKOWITZ  turned to the retroactivity  section of                                                               
the proposed  CS.  He  didn't believe  that such would  be easily                                                               
accomplished.  Furthermore, giving out  tax rebates is of dubious                                                               
value   given  the   current  fiscal   gap.     Furthermore,  the                                                               
communities  rely on,  in real  ways,  this tax  structure.   The                                                               
stability  of  the  tax  structure  is  important  in  order  for                                                               
municipal governments to  carry on the services as  they see fit.                                                               
Moreover,  business decisions  have probably  been made  based on                                                               
the differential tax  rate.  Therefore, changing  the rules after                                                               
the  process began  sends  a confusing  message  to the  business                                                               
community; a message that says  the legislature isn't in favor of                                                               
a stable  tax regime.   Representative  Berkowitz felt  that such                                                               
action would  establish a terrible  precedent with regard  to the                                                               
policy of economic development and  in terms of the legislature's                                                               
ability to provide a stable tax regime for the municipalities.                                                                  
                                                                                                                                
CHAIR KOTT  inquired as  to the net  effect of  the retroactivity                                                               
clause in  Section 5 of  version O.  He  also inquired as  to how                                                               
the  taxes are  collected and  dispersed, and  the Department  of                                                               
Revenue's ability to determine what the tax would be.                                                                           
                                                                                                                                
Number 2268                                                                                                                     
                                                                                                                                
CHUCK HARLAMERT,  Juneau Section Chief, Tax  Division, Department                                                               
of  Revenue, informed  the  committee that  taxes  for 2000  were                                                               
collected on  April 1 and will  be shared out in  the next couple                                                               
of  months.   He  pointed  out that  there  is  no provision  for                                                               
bringing that [tax]  money back and sending a bill  to those that                                                               
received a  share.  He  suspected that the department  would have                                                               
to find a way to debit  their account next year.  Furthermore, he                                                               
indicated that there  would be a need for interest  as well.  Mr.                                                               
Harlamert  said  that it  is  not  clear how  [the  retroactivity                                                               
clause]  will be  dealt with.   He  reiterated that  there is  no                                                               
mechanism to do this retroactively.                                                                                             
                                                                                                                                
MR. HARLAMERT, in  further response to Chair  Kott, affirmed that                                                               
the department  has already collected  the taxes for  2000, which                                                               
he believes  will be dispersed  in June.   He did know  that when                                                               
the department repays  the taxpayers under this  bill, they would                                                               
have to  be paid  with interest.   He  predicted that  would come                                                               
from the shared value as well.                                                                                                  
                                                                                                                                
Number 2318                                                                                                                     
                                                                                                                                
REPRESENTATIVE JOULE inquired  as to how the revenue  lost due to                                                               
the passage of this [proposed  CS, version O,] would be recovered                                                               
by the communities.                                                                                                             
                                                                                                                                
MR. JUETTNER answered  that he didn't believe  the Aleutians East                                                               
Borough  could recover  lost revenue  because the  [community] is                                                               
solely reliant on the fisheries, which  are in much disarray.  At                                                               
this point, [the Aleutians East Borough] has no alternatives.                                                                   
                                                                                                                                
TAPE 01-8, SIDE B                                                                                                               
                                                                                                                                
MR. KELTY  guessed that  the [City of  Unalaska] could  raise the                                                               
sales tax  in order to  try to capture  some money from  the crew                                                               
when  it is  in  town.   However, that  would  impact the  entire                                                               
community  as well  as other  processing companies.   An  airport                                                               
head tax would also impact  the entire community.  Therefore, Mr.                                                               
Kelty wasn't sure how the revenue could be recovered.                                                                           
                                                                                                                                
Number 2350                                                                                                                     
                                                                                                                                
REPRESENTATIVE  McGUIRE referred  to Ms.  Norosz' testimony  that                                                               
the option  of coming  in-shore doesn't  exist because  there are                                                               
established [sectors].                                                                                                          
                                                                                                                                
MR.  KELTY refuted  that notion  and  pointed out  that there  is                                                               
another operation  in Beaver Inlet  that has moved to  Akutan Bay                                                               
and after a  year will be considered a  shore-based operation and                                                               
thus  pay  a  3  percent  fisheries  business  tax.    Mr.  Kelty                                                               
acknowledged that if  an operation was brought  into Unalaska, it                                                               
would have to spend some money in order to secure the vessel.                                                                   
                                                                                                                                
MR.  KELTY, in  response to  Representative McGuire,  agreed that                                                               
there is no  reason that [an off-shore vessel]  couldn't move in-                                                               
shore other  than being  cost prohibitive.   He also  pointed out                                                               
that "they"  are currently anchored  in state waters,  which also                                                               
includes   municipal  boundaries.     In   further  response   to                                                               
Representative McGuire,  Mr. Kelty  wasn't sure what  today's law                                                               
says about  a vessel's ability to  move for repairs and  still be                                                               
considered a shore-based facility.                                                                                              
                                                                                                                                
CHAIR KOTT noted  that he maintained his objection  to the motion                                                               
to report CSHB 154(FSH), version 22-LS0638\J, out of committee.                                                                 
                                                                                                                                
Number 2208                                                                                                                     
                                                                                                                                
A roll call  vote was taken.   Representatives Porter, Berkowitz,                                                               
and  Joule   voted  to  report  CSHB   154(FSH)  from  committee.                                                               
Representatives McGuire, Morgan, Kohring,  and Kott voted against                                                               
reporting  CSHB  154(FSH)  from  committee.    Therefore,    CSHB
154(FSH),  version  22-LS0638\J,  failed   to  be  reported  from                                                               
committee by a vote of 3-4.                                                                                                     
                                                                                                                                
Number 2151                                                                                                                     
                                                                                                                                
REPRESENTATIVE  McGUIRE  moved to  adopt  CSHB  154, version  22-                                                               
LS0638\O, Utermohle, 4/20/01, as  the working document before the                                                               
committee.                                                                                                                      
                                                                                                                                
REPRESENTATIVE BERKOWITZ objected.                                                                                              
                                                                                                                                
REPRESENTATIVE JOULE  inquired as  to what happens  to HB  154 if                                                               
version O  is not adopted.   He asked  if the committee  can then                                                               
rescind its action with either motion.                                                                                          
                                                                                                                                
CHAIR KOTT replied that was correct.                                                                                            
                                                                                                                                
A roll  call vote  was taken.   Representatives  Porter, McGuire,                                                               
Morgan, Kohring,  and Kott voted  for the adoption of  version O.                                                               
Representatives Berkowitz  and Joule  voted against  the adoption                                                               
of  version O.   Therefore,  version O  was the  working document                                                               
before the committee by a vote of 5-7.                                                                                          
                                                                                                                                
REPRESENTATIVE  BERKOWITZ  reiterated that  he  has  a number  of                                                               
concerns with changing  the tax rate at this point.   The pollock                                                               
issue  has  already been  dealt  with  and  is reflected  in  the                                                               
current statutory  scheme.  Furthermore,  this would  establish a                                                               
bad precedent in terms of  the consistency of [the legislature's]                                                               
support of the  tools available to local  governments.  Moreover,                                                               
this  would  send a  bad  message  to  the business  industry  by                                                               
destabilizing  the  tax regime.    Consistency  is critical  when                                                               
making economic decisions.   From a policy  perspective, there is                                                               
much incentive  to encourage businesses to  locate in communities                                                               
[especially   in  economically   depressed   communities].     By                                                               
eliminating  the shore-based  advantage, it  takes a  community's                                                               
ability to attract business and provide for its local citizenry.                                                                
                                                                                                                                
CHAIR  KOTT  related  his   understanding  that  the  shore-based                                                               
vessels have  the advantage and  this is attempting  to stabilize                                                               
the  playing field,  which would  illustrate  equity rather  than                                                               
distinguish  between  the  tax structures.    Therefore,  he  was                                                               
unsure as to whether the analogy is on track.                                                                                   
                                                                                                                                
REPRESENTATIVE BERKOWITZ  pointed out that there  are differences                                                               
based on how  the salmon is treated.  Therefore,  there have been                                                               
policy calls that have treated different processors differently.                                                                
                                                                                                                                
Number 1933                                                                                                                     
                                                                                                                                
CHAIR KOTT  announced that HB 154  would be held.   He noted that                                                               
he wanted  to talk with  the Department of Revenue  regarding the                                                               
dispersement  of money  to the  communities and  how that  scheme                                                               
works with the retroactive clause.                                                                                              
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no  further business before the  committee, the House                                                               
Rules Standing Committee meeting was  recessed to the call of the                                                               
chair at 1:41 p.m.  [This meeting reconvened on April 25, 2001.]                                                                

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