SB 130-FISHERIES PROD DEVELOPMENT TAX CREDIT  3:45:24 PM CHAIR GIESSEL announced the consideration of SENATE BILL NO. 130 "An Act relating to the fisheries product development tax credit; providing for an effective date by amending the effective date of sec. 2, ch. 31, SLA 2022; and providing for an effective date." 3:45:40 PM TIM LAMKIN, Staff, Senator Gary Stevens, Alaska State Legislature, Juneau, Alaska, said SB 130 closely models legislation Senator Stevens introduced several years ago that expanded the value-added tax credits for salmon and herring. SB 130 further expands the value-added tax credits to include all species. He said this is the product of continuing discussions with the processing sector and is an attempt to acknowledge the complexities of that sector. He said the change would create greater flexibility for those who would qualify for the tax credits. 3:47:15 PM SENATOR DUNBAR asked if the Department of Revenue (DOR) was available for questions. 3:47:31 PM CHAIR GIESSEL replied yes. 3:47:43 PM SENATOR DUNBAR said he would hold his question until after invited testimony. 3:48:01 PM MR. LAMKIN said there are two invited testifiers, one from DOR and one from the Pacific Seafood Processors Association. 3:48:20 PM CHAIR GIESSEL [announced invited testimony on SB 130]. 3:48:49 PM JULIE DECKER, President, Pacific Seafood Processors Association (PSPA), Wrangell, Alaska, provided a brief overview of PSPA. She said PSPA strongly supports SB 130. She said this legislation would provide an incentive to Alaska seafood processors to invest in new equipment to produce higher quality value-added products in Alaska. She argued that this would provide long-term economic benefits to the State of Alaska, coastal communities, fishermen, and processors. She pointed out that SB 130 does not change the current maximum value of the tax credit, which remains capped at 50 percent of a processing company's Alaska fisheries business tax. SB 130 would expand the types of equipment and the species eligible for the tax credit. In addition, it would facilitate a one-time private investment in equipment that would continue to increase the quality and utilization of each fish (and of associated value-added products) year after year. This would increase the long-term value of the fishery resource to all users (i.e. the State of Alaska, communities, fishermen, and processors). MS. DECKER said fish taxes are based on fish value; therefore, SB 130 would provide increased returns to the State of Alaska and communities. She pointed out that this legislation is supported by a previous analysis by the McKinley Research Group, which showed a return on investment of over 200 percent to the state's general fund. She stated that the health of the seafood industry is critical to Alaska, generating $6 billion in economic activity each year. The seafood industry is the state's largest manufacturing and export sector. She said that the seafood industry lowers transportation costs for all Alaskans. She stated that the seafood industry is facing historically challenging economic conditions and offered data to illustrate this. She said United States Department of Agriculture (USDA) purchases of Alaska salmon and pollock and the ban on Russian seafood have resulted in inventory stabilization. However, other economic conditions have not significantly improved. She emphasized the unknown risks related to trade and tariffs, which may be significant. SB 130 would implement one of the near-term recommendations of the Joint Legislative Task Force Evaluating Alaska's Seafood Industry (ASTF). She stated that the task force final report focuses on several near-term items within Alaska's purview that would positively impact the fishing industry. She said the primary understanding [of the report] is that lower operating costs and increased product value are necessary for change to occur. She reiterated that SB 130 would encourage a one-time investment that would then increase the long-term value of fishery resources. 3:52:51 PM SENATOR DUNBAR asked how often processors reach the 50 percent cap. 3:53:20 PM MS. DECKER shared her understanding that the total tax credit is $1 million to $3 million per year on average. She said that this indicates that processors are either not taking advantage of the tax credit or are not reaching the cap. 3:53:44 PM SENATOR KAWASAKI noted that SB 130 would expand the tax credit to any species and asked if there is a reason any fishery should be excluded. 3:54:10 PM MS. DECKER opined that, if the State of Alaska is interested in increasing value through quality improvements and increasing value-added processing (which generally leads to more jobs and activity in the state), there is no reason to exclude any fisheries. She further opined that extending the tax credit to all fisheries would further those goals. She noted that the tax credit already extends to the major state fisheries. 3:54:51 PM SENATOR KAWASAKI asked whether all fisheries are equally stressed. 3:55:15 PM MS. DECKER rephrased the question. She asked if the question is whether all fisheries are facing the same economic challenges. 3:55:29 PM SENATOR KAWASAKI replied yes. 3:55:35 PM MS. DECKER replied that not all fisheries are experiencing the same economic challenges; however, in 2023, the economic downturn impacted nearly all fisheries. 3:56:02 PM MR. LAMKIN said the task force discussed various species at length. He agreed that the tax credit was initially for salmon only, and over time the legislature extended the credit to cod, pollock, herring, and sable fish. He said some processors operate in multiple fisheries and this can create difficulties in determining where the tax credit would apply. Extending the tax credit to all fisheries would avoid this issue. Additionally, any new fisheries would be included, which would encourage future investment and activity in those fisheries. He indicated that expanding the tax credit to all fisheries would create greater ease when new fisheries open. 3:57:51 PM BRANDON SPANOS, Deputy Director, Tax Division, Department of Revenue (DOR), Anchorage, Alaska, introduced himself and said he is available for questions or to review the fiscal note from the Department of Revenue, OMB Component Number 2476, dated March 28, 2025. 3:58:08 PM SENATOR DUNBAR observed that committee members did not receive a copy of the SB 130 Department of Revenue (DOR) fiscal note. CHAIR GIESSEL asked Mr. Spanos to provide an overview of the DOR fiscal note. 3:58:38 PM MR. SPANOS apologized for the delay in releasing the fiscal note. He directed attention to the fiscal note from the Department of Revenue, OMB Component Number 2476, dated March 28, 2025. He said the fiscal note is indeterminate but has average high and low scenarios on page 2. He explained that the revenue impact is indeterminate because the changes in utilization - and the impact of the economic downturn on future investments - are unknown. He said DOR developed the average high and low scenarios by scaling up existing fisheries product development tax credit forecast. This accounts for the expansion to all species and new equipment, beginning on January 1, 2025. He explained that this also accounts for a three-year carry- forward extension. He said the credit will be sunset in 2030 and the fiscal note includes a 2031 date, as DOR anticipates 75 percent of the 2030 credit will be utilized in 2031 as a carry- forward. He referred to page 2 of the fiscal note from the Department of Revenue, OMB Component Number 2476, dated March 28, 2025, and noted the following impacts by fiscal year (FY): 2 Year Average Credit Utilization Rate Scenario (in  millions):  FY2026 - (1,010.0) FY2027 - (1,040.0) FY2028 - (2,060.0) FY2029 - (3,090.0) FY2030 - (4,120.0) FY2031 - (3,770.0) High Rate Adoption Scenario (in millions):  FY2027 - (1,120.0) Low Rate Credit Scenario (in millions):  FY2027 - (950.0) 4:00:44 PM SENATOR DUNBAR asked what types of taxes processors are currently paying that would be impacted by SB 130. He shared his understanding that this is 50 percent of total tax liability and surmised that this would apply only to state taxes. He wondered if SB 130 applies to corporate income taxes. In addition, he asked about the total tax liability that those processors are currently paying. 4:01:21 PM MR. SPANOS replied that SB 130 applies to fisheries taxes and does not apply to the corporate income tax. He said this would apply to the fisheries business tax. He said it might also apply to the fisheries resource landing tax and deferred to the Tax Division for further clarification. He said he would follow up with information on annual tax liability. 4:01:59 PM CHRIS BECKER, Lead Auditor, Tax Division, Department of Revenue (DOR), Anchorage, Alaska, clarified that the credit only applies to the fisheries business tax. He said that, in FY2024, the total tax before credits was $35 million. He contrasted this with the $51 million in FY2023. 4:02:22 PM SENATOR DUNBAR commented that this is a remarkably low utilization of tax credits relative to other industries. He noted FY2023 totals of $51 million and recalled that tax credit claims average $1 million to $3 million per year. He acknowledged that businesses can only take half; however, there would still be $25 million in available tax credits. He surmised that the low utilization is related to the limited application of the credit. 4:03:20 PM CHAIR GIESSEL held SB 130 in committee.