HOUSE BILL NO. 264 "An Act providing for a fishery resource landing tax; 1 and providing for an effective date." THORN SMITH, NORTH PACIFIC LONGLINERS ASSOCIATION testified via teleconference. He stated that his association operates approximately 30 vessels off the coast of Alaska. He emphasized that the product is processed in off shore waters. He asserted that the Association contributes to Alaska's economy. He noted that whitefish international markets have been flooded by the Russians. He asked that the Attorney General's office do a comprehensive legal analysis. He observed that the federal Interstate Commerce Clause limits state's ability to tax and regulate interstate and foreign commerce. He asserted that the majority of their operations are performed outside of the state's jurisdiction. He noted that the majority of their product goes to foreign markets. JOE BLUM, AMERICAN FACTORY TROLLERS ASSOCIATION testified from Seattle via teleconference. He stated that the American Factory Trollers Association opposes HB 264. He asserted that there has been inadequate legal analysis. He observed that no credit is given to the Bering Sea Commercial Fisheries Development Foundation. He described the Bering Sea Commercial Fisheries Development Foundation. He asserted that the definition of value is vague and confusing. He maintained that the tax does not reflect a fair assessment of the demand the factory troller fleet places on the state and local services. He noted that the factory troller fleet must compete in the world market. CARL OHLS, BERING SEA FISHERMEN'S ASSOCIATION testified via teleconference. Mr. Ohls represents Bering Sea CDQ communities. He observed that the federal government allocated 75 percent of the harvested pallock resources in the Bering Sea to villages in Western Alaska. The villages formed into six corporations. The corporations have entered into partnerships with the established seafood processing industry operating in Alaska. Mr. Ohls referred to section 43.77.040. He noted that the provision allows the processors a credit on the CDQ harvest portion of the landing tax for contributions to nonprofit corporations in Western Alaska. The contributions would be used for scholarships, training, infrastructure development and research. Representative Therriault asked if processors could form their own nonprofit corporations. Mr. Ohls noted that the processors are under contract with CDQ corporations. He asserted that processors would not have their contracts renewed if the tax credit is abused. He maintained that the purpose of the section is to get funds back to Western 2 Alaska. Representative Therriault asked if a statutory notation could be added to clarify that the contribution is to be given to a nonprofit associated with a CDQ corporation. Mr. Ohls responded that there is one for-profit CDQ corporation. Representative Martin asked Mr. Ohls to send him information regarding projects implemented with CDQ revenues. Representative Navarre asked if the credit would be given on the overall tax. He questioned if the tax would be taken from the state and/or municipal share. Co-Chair Larson thought that the credit would be taken out of the local government share. REPRESENTATIVE MOSES agreed that the tax credit would be taken from the local government share. Representative Navarre interpreted the legislation as taking the tax credit off the top with the remainder being shared between the state and local government. Mr. Ohls stated that it is the intent of the provision that the tax be taken from the municipal share. PHIL CHITWOOD, ARCTIC ALASKA FISHERIES testified via teleconference. He asserted that the legislation would have a serious impact on the industry. He stressed that the seafood industry is facing serious financial problems. He noted that fish prices have fallen. He maintained that the increased landing tax would result in curtailment of the Alaskan fisheries. He urged the Committee to seek a detailed legal opinion. He suggested that a provision be included for full credit for contributions to the Western Alaska Fisheries Development Foundation. He advised that section 43.77.060 (a) be removed. He maintained that the language confuses the bills intention. He asked that the tax rate for offshore processors be amended downward. He asserted that it is unfair to tax offshore processors at the same rate as onshore processors. He stressed that offshore processors maintain their own support services. He maintained that the portion of tax should be proportional to the demand placed on local services. JOHN WALSH, DIVISION OF MUNICIPAL AND REGIONAL ASSISTANCE, DEPARTMENT OF COMMUNITY AND REGIONAL AFFAIRS explained, in response to a question by Representative Martin, that the Department can perform the tax distribution. He noted that Akutan and Dutch Harbor stand to receive the greatest benefit from the tax. (Tape Change, HFC 93-122, Side 1) 3 MIKE SZYMANSKI, FISHING COMPANY OF ALASKA gave a brief history of the Company. He noted that all the Company's operations are performed offshore. He asserted that the 3.3 percent tax on the products value will have a devastating impact on the Company's ability to operate in a foreign market. He asserted that the legislation creates a two tier taxing structure. He noted that there has been a market price reduction of 50 percent due to Russian competition. He noted that the Company pays for direct local services such as; garbage, water, sewage, electricity, security, medical, transportation and food. He stressed that they also pay payroll taxes, docking fees, port fees and piloting fees. He referred to a memorandum from legal counsel, Jack Chenoweth, to the sponsor, suggesting that the legislation would invite scrutiny under the United States Constitution's commerce clause. Mr. Chenoweth advises that the legislation must demonstrate that the tax: (1) has a substantial nexus with the state; (2) does not discriminate against interstate commerce; (3) fairly relates to services claimed to be provided within or by the state or local government; and (4) is fairly apportioned. Mr. Szymanski suggested that the down stream taxes be exempt against taxes paid in the state. He added that tax free zones could be developed to entice fleet operations into more areas. REPRESENTATIVE CARL MOSES noted that trollers that sell their product onshore have to pay the processing fees, and a 2 percent sales tax. Mr. Szymanski replied that shore based operations have a greater impact on the community. JEFF KOENINGS, DIRECTOR, COMMERCIAL FISHERIES MANAGEMENT AND DEVELOPMENT DIVISION, DEPARTMENT OF FISH AND GAME spoke in support of HB 264. He noted that the Department of Fish and Game provides coordination and support of the management of Exclusive Economic Zone (EEZ) fisheries. He gave specific examples (Attachment 1). He emphasized that a number of permanent staff are assigned the responsibility of providing coordination and support of the management of Exclusive Economic Zone fisheries. Representative Martin suggested that a findings section be added to the legislation. Co-Chair Larson placed HB 264 in a subcommittee consisting of Chair Parnell with members Representatives Foster, Therriault, Navarre and Hoffman.