CS FOR SENATE BILL NO. 33(FIN) "An Act relating to a fisheries product development tax credit; and providing for an effective date." 1:33:53 PM SENATOR GARY STEVENS, SPONSOR, thanked the committee for hearing the bill. He explained that the bill was a value- added bill which would allow seafood processors to use a tax credit to purchase new equipment for their business. He relayed that the process had worked well in the past and there had been a similar program for salmon and herring processing that started in 2003. However, the program came to an end in 2020 because it was not extended. The bill restored the salmon and herring tax credit that had become obsolete and would also make pollock, pacific, and sable fish products eligible for the credit. He reiterated that the program had worked well in the past and suggested that it would also work well in the future. Co-Chair Merrick noted that Representative Rasmussen had joined the meeting. 1:35:20 PM MARK PALMER, PRESIDENT AND CHIEF EXECUTIVE OFFICER, OBI SEAFOODS (via teleconference), wanted to discuss the benefits of the tax credits. He indicated that the erosion of the trade market in China due to hostile trade policies had dramatically impacted the amount of raw material that the United States could export. He shared that the Chinese market had been the largest market for seafood products from Alaska. As this changed, his business had become more reliant on the domestic market and the European market. He perceived these markets to be higher value, and thought it was important to market Alaskan seafood products to them. He thought there was more reason to target domestic markets rather than exporting Alaskan fish. He explained that Russian seafood products could no longer be imported into the United States due to the war in Ukraine. This gave Alaska an opportunity to replace Russian seafood in the domestic and European markets. The tax credit proposed by the bill would allow new infrastructure to be built in Alaska. However, much of the money that OBI Seafoods invested into projects was the company's own money, which benefited the local communities and the fishermen. He echoed Senator Stevens' comments that the program had worked well in the past. 1:39:11 PM ABBY FREDRICK, DIRECTOR OF COMMUNICATIONS, SILVER BAY SEAFOODS (via teleconference), had submitted a letter of support for the bill and did not need to make an additional statement. 1:40:05 PM Co-Chair Merrick OPENED public testimony. 1:40:19 PM Co-Chair Merrick CLOSED public testimony. 1:40:26 PM AT EASE 1:42:59 PM RECONVENNNED Co-Chair Merrick indicated the committee would be hearing amendments for SB 33. 1:43:10 PM Representative Wool MOVED to ADOPT Amendment 1, 32- LS0308\N.6, Nauman, 3/14/22 (copy on file): Page 3, line 14, following "section": Insert "(I)" Page 3, line 16: Delete". For" Insert "; for" Page 3, line 17: Delete "subsection" Insert "paragraph" Page 3, line 18, following "appeal": Insert "; or (2) for property that is the same type of property as, or that is comparable to, property (A) on which a tax credit has been claimed under this section; (B) that has been removed from the state; and (C) that was purchased in the previous 10 years" Co-Chair Merrick OBJECTED for discussion. Representative Wool explained that Amendment 1 was a back- stop amendment. He drew attention to Section 1 on page 3 of the bill, which discussed recapture percentage. His amendment stated that if an entity purchased a piece of equipment, the entity would get a full 50 percent tax credit after four years for the purchased equipment. However, the entity could not buy a replacement for the piece of equipment for 10 years. This would prevent companies from buying equipment in Alaska and receiving a tax credit after four years, shipping the equipment to a different state, and buying a new piece of equipment and repeating the process. Representative Wool MOVED to ADOPT conceptual Amendment 1 to Amendment 1. Co-Chair Merrick OBJECTED for discussion. Representative Wool explained conceptual Amendment 1 to Amendment 1. He referenced line 14 through line 15 [of Amendment 1] and proposed removing language to ensure that if an entity purchased the same type of equipment for which it had already received a tax credit, it could not receive an additional tax credit for another 10 years. Starting on line 14 of Amendment 1, he proposed deleting: "as, or that is comparable to, property". Representative LeBon asked a clarifying question. 1:46:03 PM AT EASE 1:46:43 PM RECONVENED Representative Wool reiterated that conceptual Amendment 1 to Amendment 1 proposed the deletion of language beginning on line 14 of Amendment 1. Co-Chair Merrick WITHDREW her OBJECTION. There being NO further OBJECTION, it was so ordered. conceptual Amendment 1 to Amendment 1 was ADOPTED. 1:47:31 PM Representative LeBon asked if a business would be entitled to receiving another tax credit if it shipped a piece of equipment out of state and replaced the equipment four years after receiving a tax credit for the equipment. Representative Wool responded in the affirmative. An entity would only be eligible to receive the tax credit for the same type of equipment every 10 years, but there would be no limit on the amount of equipment a company could purchase. However, this was only applicable for replacements. If an entity had an ice machine and purchased an additional ice machine, it would still receive the tax credit. Representative LeBon wondered whether an entity could purchase a new and improved ice machine and replace the original and still qualify for the tax credit. Representative Wool responded that if it was the same type of property, it would not be eligible for the credit. Representative LeBon wanted to not discourage the upgrading of equipment. Representative Wool agreed and did not think an upgrade in technology would be the same. He thought it would still qualify for the tax credit because the upgrades would make the equipment a new type of machinery. That is why he chose the language "same type" to ensure that different types of equipment would remain eligible. Co-Chair Merrick WITHDREW her OBJECTION to the original Amendment 1 as amended. There being NO further OBJECTION, it was so ordered. Amendment 1 was ADOPTED as amended. Co-Chair Merrick indicated Amendment 2 would not be offered. 1:50:01 PM Vice-Chair Ortiz MOVED to ADOPT Amendment 3, 32-LS0308\N.9, Nauman, 3/23/22 (copy on file): Page 2, line 23: Delete "A" Insert "Except as provided in (f) of this section, a" Page 3, line 9, following "service.": Insert "In this subsection, "eligible fish" does not include pollock, sablefish, or Pacific cod." Page 3. line 14, following "section": Insert "(1)" Page 3, line 16: Delete ". For" Insert "; for" Page 3, line 17: Delete "subsection" Insert "paragraph" Page 3, line 18, following "appeal": Insert "; or (2) for property installed on a vessel used primarily to process pollock, sablefish, or Pacific cod" Page 4, line 27, following "means": Insert ", except as otherwise provided in (c) of this section," Co-Chair Merrick OBJECTED for discussion. Vice-Chair Ortiz asked Mr. Tim Lamkin to review the amendment. TIM LAMKIN, STAFF, SENATOR GARY STEVENS, reviewed the amendment. He indicated that Amendment 3 addressed a hypothetical loophole that a value-added tax credit could be applied to processing activities in the facilities that produced pollock, cod, or sablefish aboard vessels outside of state waters. The amendment would ensure that processors of the aforementioned fish would have to process the fish at onshore processing facilities to qualify for the tax credit. 1:51:44 PM Representative Josephson shared his understanding that the tax in question brought in around $50 million to the state. He asked if this number was correct. Senator Stevens deferred to Ms. Nicole Reynolds. 1:52:25 PM NICOLE REYNOLDS, DEPUTY DIRECTOR, TAX DIVISION, DEPARTMENT OF REVENUE (via teleconference), responded that the tax collections for the fisheries business tax over the past four fiscal years (FY) ranged between $34.6 million and $46.2 million. Representative Josephson reported that historically the credit had been in the low millions of dollars. He wondered about the impact of the proposed reform on the growth of the credit and the tax. Senator Stevens deferred to Ms. Reynolds. Ms. Reynolds replied that the historic value of the credit between 2017 and 2020 ranged between $2.3 million and $4.4 million. She referred to the fiscal note submitted by the Department of Revenue (control code slwkY) and explained that the department used historical value and utilization rates of the existing salmon and herring credits to estimate the way in which the revenue would be impacted by adding pollock, cod, and sablefish to the eligibility. For FY 23, the department estimated a negative $1.6 million for the credit. Between FY 24 through FY 27, the department estimated between $3 million and $3.6 million. 1:54:54 PM Representative Josephson suggested that the tax might increase as value was added to the product. Ms. Reynolds responded that the value reflected the value of the raw resource. The tax was not applied to the value- added portion. Representative Josephson thought, "it is what it is." Ms. Reynolds noted that the tax revenue was not expected to increase due to the credit. Representative Wool asked about the total for fish business taxes. Ms. Reynolds responded that the fisheries business tax revenue ranged between $34.6 million and $46.2 million over the last four fiscal years. Representative Wool shared his understanding that half of the taxes went to municipalities and half went to the state. He asked whether the credit only applied to the state's portion. He calculated that that $34.6 million to $46.2 million would become roughly $17 million to $23 million for the state. Ms. Reynolds replied, "that's correct." 1:57:42 PM Co-Chair Merrick WITHDREW her OBJECTION. There being NO further OBJECTION, it was so ordered. Amendment 3 was ADOPTED. Vice-Chair Ortiz MOVED to report HCS CSSB 33(FIN) out of Committee with individual recommendations and the accompanying fiscal note. There being NO further OBJECTION, it was so ordered. HCS CSSB 33(FIN) was REPORTED out of committee with seven "do pass" recommendations and with one "no recommendation" recommendation and with one previously published fiscal impact note: FN2(REV). 1:58:10 PM AT EASE 2:00:05 PM RECONVENED