HB 154-COLLECTION OF FISHERY BUSINESS TAXES
CO-CHAIR STEVENS announced the next order of business was 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."
REPRESENTATIVE COGHILL made a motion to adopt the proposed
committee substitute (CS) for HB 154, version 22-LS0638\F,
Utermohle, 3/9/01, as a work draft. There being no objection,
Version F was before the committee.
REPRESENTATIVE SCALZI, sponsor of HB 154, stated that this is a
fairly simple bill.
REPRESENTATIVE SCALZI offered some background. He explained
that at statehood, when the raw-fish tax was implemented,
canneries ran the country. The raw-fish tax benefited the state
greatly. At the same time, the canneries said, "We need to hold
on [to] that money until our pack is sold." So, inadvertently,
the state gave [the canneries] latitude to hold the money until
April 1. This is in current statute.
REPRESENTATIVE SCALZI said that this worked "fine" for the
canneries. But for this to happen, he said, the state required
that [the canneries] put up collateral, either a bond of the
estimated amount of fish tax that they collected the previous
year or "lienable property, three times the amount of what was
collected in raw-fish taxes in the previous year." So, they
have an option.
REPRESENTATIVE SCALZI stated that until the recent passage of
IFQ's [individual fishing quota], "we" dealt exclusively with
resources that were processed by freezing or canning. There was
very little fresh product leaving the state. Consequently, when
the IFQs came in, there was a big demand for fresh fish.
Number 2353
REPRESENTATIVE SCALZI said "at least 90 percent of the fish
leaving the state are going out fresh." There is good reason
for this. Currently, there is a [halibut fishery] that lasts
for nine months a year from March 15 to November 15. In doing
this, some of these "fresh fish movers" are under the same
guidelines as the canneries. They either have to come up with a
bond of the amount of the money they paid the previous year in
raw fish [tax] or have lienable property of three times the
amount. Yet, when moving fresh fish, "you don't need a cannery,
you don't need a lot of property; what you need is a telephone,
fax line, a computer, ... some totes, and whatever it takes to
move an operation."
Number 2446
REPRESENTATIVE SCALZI went on to say that someone [dealing with
raw fish] who has $350,000 to $400,000 [in taxes] does not have
that amount in lienable property. So, he said that he
approached the Department of Revenue and asked how this problem
could be remedied, if at all. The Department of Revenue drafted
this bill that says the state's needs and securities will be
satisfied if the raw-fish tax is collected on a monthly basis,
but they ["raw-fish-movers"] won't be allowed to hold this
money until April 1 of the following year. So, if ["raw fish
movers"] don't want to bond for the amount of raw-fish tax paid
the previous year or if they do not have the lienable property
to do so, the state will be satisfied if they pay on a monthly
basis. He said, "This is an advantage to the state because raw-
fish tax is being paid immediately; it's not being held in
interest collected by another entity."
REPRESENTATIVE SCALZI stated that this bill applies only to
those dealing with raw [fish] product who are not processing.
The Department of Revenue had several reasons for not including
processing in this bill. He said that he has spoken to the
Department of Revenue about a comprehensive bill that would help
the industry and state. However, the Department [of Revenue]
would like another year to work on that bill in order to review
the current raw fish tax and collection method. He reiterated
that this bill only applies to the fresh fish market.
Number 2523
NEIL SLOTNICK, Deputy Commissioner, Treasury Division,
Department of Revenue, stated that Representative Scalzi had
contacted the department for assistance in drafting the bill,
and that assistance was provided. He said Representative
Scalzi's directive to them was to develop a scheme that could
protect the State of Alaska and its tax revenues, which has been
done.
CO-CHAIR STEVENS asked for clarification that this bill does not
apply to processors who change the raw [fish] product into some
form, but only applies to those dealing with raw fish product.
MR. SLOTNICK confirmed this statement.
Number 2557
CO-CHAIR WILSON asked: If ["raw-fish-movers"] can do this in 30
days and not have to be bonded, then why can't processors do
this as well?
Number 2589
CHUCK HARLAMERT, Juneau Section Chief, Central Office, Tax
Division, Department of Revenue, said he suspected that a "good
number of processors" would prefer to take this option. The
department estimated that 45 out of 507 ["raw-fish-movers"]
would take this option. He said that although this number seems
small, it makes up a "big chunk" of the tax that is not secured
by real property. He went on to say that he is not comfortable
[with applying this option to processors] because once "you"
move in that direction, the accounting burden and security
issues become difficult. He said:
If you look at the way we do business now, we get our
security, our certainty that we're going [to] collect
up front and we do that on behalf of the state and we
do that on behalf of the municipalities. If we were
to switch to a more broad-based "pay as you go"
system, our ability to control collection would be
diminished, and we would have to come up with
different mechanisms to deal with it. ... We're not
prepared to do that right now.
CO-CHAIR WILSON indicated that she was still not clear on why 30
days was acceptable for "raw-fish-movers" and not others.
MR. HARLAMERT replied that the answer is not simple. He said
that he envisions the bill to have a fairly limited scope of no
more than 5 participants. This is a level of participation that
"we" know [the department] can keep track of. He said that it
seemed like a reasonable risk, "if you look at a $50,000 bond in
place in the amount that the state could be left hanging out in
a ... 45-day period." If this was a broader base where monthly
returns were being filed, it's not guaranteed that "we" would
identify someone who failed to file or report all of their fish
or failed to pay in a timely manner within the season. If there
was a very short season, the season could be practically over
before the problem was identified and liens could be secured and
or "otherwise get our hands on the money".
CO-CHAIR WILSON asked how the [taxes] are collected now if [the
department] is waiting until the end of the season.
MR. HARLAMERT said, "We have our security before we even give
them their license." This bill gives them an option of issuing
one $50,000 bond and paying monthly, rather than using the
"normal traditional security arrangements." So [the Department
of Revenue] would be forgoing either "our 3 times-lienable-value
in real estate or bonding for twice the tax or prepayment, as
often occurs."
Number 2784
MR. SLOTNICK remarked that the [Department of Revenue] is not
prepared at this time to accept a large volume of monthly
returns. It would require a "surprisingly hefty" fiscal note.
He added that he was not going to pursue this type of process,
given that a very limited number of brokers would be able to
make the election under the bill as written. "We" believe that
this [Version F] can be processed and the monthly returns
handled without an increased fiscal note. But if it goes beyond
that, there will be a large one.
Number 2816
REPRESENTATIVE DYSON asked if interest is charged on an unpaid
balance.
MR. HARLAMERT replied yes, it is treated as an "underpayment of
estimate tax," and one will be subjected to penalties and
interest.
Number 2840
CO-CHAIR STEVENS asked if they expect the number of participants
to increase, meaning that "a bigger portion of the product is
moving out fresh."
Number 2857
MR. SLOTNICK remarked that he was not sure if the Department of
Revenue was in a position to respond to that question. He said
five participants is only an estimate; records show that only
one taxpayer would take advantage of this. But the department
does expect it to grow, so they allowed up to five for its
estimate.
Number 2888
REPRESENTATIVE SCALZI referred to Mr. Slotnick's remarks
regarding the change in the fiscal note if this program was
expanded. He said throughout the year, he would be willing to
work on changes the department would like to see, and that [the
committee] could address at another time. He remarked that
committee members might hear arguments from some processors that
this program is "An unfair competitive advantage and that we are
encouraging fresh fish to be promoted versus processed in-
state." He continued:
I can tell you, the industry is not going to go
backwards. We're not going back to a one-day derby of
freezing all the fish in the state of Alaska and
peeling it out. The fishermen will not stand for that.
We've done very well by the IFQs. The general public
is serviced very well and getting fresh fish on a
nine-month season. So, I don't think that that's a
very valid argument. But nonetheless, you may hear
that, and I encourage any comments you get to [be
directed] to my office, and I would be glad to address
them. ... Again ... I would like to hold this bill
and let the public comment on it over the next week.
REPRESENTATIVE DYSON asked Representative Scalzi if the
committee was going to hear from anybody from the industry.
TAPE 01-10 SIDE B
REPRESENTATIVE SCALZI mentioned that he has spoken to some of
the smaller processors. He explained that the original language
of the bill had July 1 as the date, in Section 2. He was a bit
confused by this, he said, because he thought, "Here's a break
for the processors; we're going to allow them to hold their
money until July 1. They loved it. They were in support of the
bill." However, that portion [of the bill] only applied to
"catcher-processors". So, he had asked the Department [of
Revenue] for their reason for this and they said they have a
hard time collecting from "catcher-processors". His response to
the department was: "What's fair for catcher-processors should
be fair for our shoreside processors." Therefore, this section
was taken out of the bill. He said he is "sure we will be
hearing from processors, but I think the argument is to promote
the fresh fish."
Number 2920
REPRESENTATIVE DYSON remarked that he sees a lot more of the
processing industry being interested [in this program]. He
encouraged them to be creative about solving the problems. He
wondered if all of the reporting could be done electronically in
order to "offload these folks" from administrative duties.
Furthermore, if people wanted to pay by increment, perhaps they
could possibly pay a slight premium to offset costs to the
department. This would ultimately save [the processing
industry] a lot of money, "depending on what it cost them to
rent," and it would answer objections that have come up. He
said, "Our job is to make it easier for business people to do
business here and remove impediments ...." He noted that if the
Department [of Revenue] foresees this as being "really messy and
a lot more work," there might be other ways around this.
[HB 154 was held over.]