CS FOR SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 397(FIN) "An Act relating to the fisheries resource landing tax and to the seafood marketing assessment; and providing for an effective date." Representative Alan Austerman was invited to join the committee and testified on behalf of the bill. This bill makes the on-shore and the off-shore processors tax to be more identical. The off-shore processors took the state to court over this tax and one of the reasons they gave was because they were different. The court has sent them back to the state of Alaska to handle the matter administratively. Senator Rieger asked the fiscal note to be amended noting the money was to be directed to ASMI. Representative Austerman said the money being discussed was for salmon marketing and this money was collected on a white fish basis. He is not in favour of the intent language because it created some problems between the two fisheries. One problem is that the white fisheries is paying this tax now and if we are going to go in and rob that out to promote salmon then another loophole has been created if and when this goes to court for them to use as justification. The money that is being collected on this white fish is being held in escrow and probably will not be available for a couple of years. It is expected they will take this matter to Court after the administrative processes have been exhausted. The intent language does not answer any kind of immediate problem for the coming money they were trying to get from the federal government to match the ASMI money that was taken out of the budget. Senator Rieger withdrew his amendment to the fiscal note as he did not wish to go against the wish of the prime sponsor. Co-chairman Halford said it appeared there was a loss on the revenue side and then a gain on the ASMI side. Mr. Bob Bartholomew, Department of Revenue was invited to join the committee. Sections 22 and 23 are allowing for the landing tax to credit programs that are available for the on-shore fishery business tax. If the taxpayers had made contributions to either the scholarship fund or to an eligible education institution they would be eligible for the tax credit they do not have now. It is estimated the potential loss on that fiscal note to be $130,000 and it was just to mirror the two tax programs. The tax at risk with the Court challenge is $7 million per year, what is collected in the landing tax. Two credits are available that are retroactive. Co-chairman Halford said it seemed that any kind of a retroactive tax credit is kind of hard to justify as an incentive for performance that otherwise would not occur. Mr. Bartholomew said if an individual has already made the contributions in those previous tax years they would get a credit. Part of all the provisions of this bill are retroactive to try to say these are complimentary taxes to each other. Co-chairman Halford said if it was a legal thing that has to be done for defensive purposes for other reasons that can be understood. However, any time one sees a tax credit incentive that is retroactive there is another reason rather than encouraging the action retroactively. Mr. Bartholomew said the hope was that there had not been eligible contributions to those organizations. If there has not been there will be no fiscal impact. At this point, however, they have looked at what would be reasonable compared to what has happened in other tax programs. $130,000 is at the top end. Senator Sharp wanted to know if there were any credit applications on file at this time. Mr. Bartholomew said the taxpayers have filed their tax returns and they have paid taxes. Since the credits were not available it is not sure if they would have applied. Steven (Neil) Slotnick, Department of Law was invited to join the committee. He explained why the credit portion was retroactive in the area the credit did not exist before. This seemed to be an easy cure for any potential discrimination. If contributions were made individuals will be able to receive a tax credit same as the fisheries business taxpayers will be able to. Co-chairman Halford stressed that he was only questioning the retroactivity provision and not the equality provision. Mr. Slotnick said he could not guarantee that but possibly there would be a legal argument that the retroactivity does not cure the potential discrimination because there was no incentive before. Co-chairman Halford said the only reason for a tax credit is to get something done that otherwise would not get done. Senator Sharp moved to amend section 29, page 9, line 8 after the word "act" inserting "except section 22" as retroactive. Co-chairman Halford said if the maximum exposure was only $130,000 and if it is clearly advantageous in a legal case in which we stand to lose $7 million he wanted to know that in being retroactive we were really getting our money's worth. Senator Sharp wanted to know how it was legally advantageous to make a contribution tax exemption retroactive. Mr. Slotnick explained why it was advantageous in that they had been taken to Court and presently has been moved back to an administrative hearing. The matter has been taken retroactively from the first day of the tax. The tax was paid under protest. Senator Sharp asked if it was part of the Court case the fact the individual did not get a contribution credit? Mr. Slotnick indicated that it was. Representative Austerman said the reason the matter was taken to Court was because it was discriminatory and was not the same as the on-shore processors were paying or that they were allowed to contribute. That is why the matter is here now and being retroactive is a question that must be decided. Senator Sharp withdrew his motion from further consideration. Senator Zharoff said he would be surprised if any contributions had been made. There is a deadline that must be met to identify any contributions that might have been made. He further said that when the bill was previously before the committee he had wanted to include at the time a tax credit to entice the off-shore processors to develop on- shore. It would create economic stability and jobs in the communities. Senator Rieger moved CSSSHB 397(FIN) and without objection it was reported out with individual recommendations and zero fiscal note from Department of Revenue and $1,300.0 from Department of Commerce and Economic Development.