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.]