CS FOR SENATE BILL NO. 286(L&C) "An Act relating to direct marketing fisheries businesses, to the fisheries business tax, and to liability for payment of taxes and assessments on the sale or transfer of fishery resources; and providing for an effective date." This was the first hearing for this bill in the Senate Finance Committee. Co-Chair Wilken explained that this legislation would reduce "the fisheries business tax rate for direct marketers from five to three percent." A direct marketer is defined "as a fisherman who owns a vessel of at least 65-feet or less and catches, processes, and sells both processed and unprocessed fish product" in or outside of the State. Senator Bunde moved to adopt the Finance committee substitute, Version 23-LS0738\Z as the working document. Co-Chair Wilken objected for explanation. SENATOR BERT STEDMAN, the bill's sponsor, explained that this legislation would affect the direct marketing business sector of the fishing industry. The fisheries business, which was implemented in 1913, is the oldest tax in Alaska. Currently, a three-percent tax is assessed on the "the grounds price," which is the price paid upon delivery of raw fish to the dock. The tax rate on fish sold to a floating processor, "which is a large mobile processing facility" is currently five-percent. This bill focuses on the group of fishermen who no longer fit these "old" fisheries business tax definitions, for, as the industry has developed, circumstances have changed and more independent, small boat fishermen are conducting their own processing and marketing. Unlike the large scale floating processors, these business "are primarily Alaskans resident fishermen who operate out of our ports, buy our fuel, and supplies" and own property in the State. Senator Stedman stated that this bill would correct current tax inequities by charging these small direct marketing vessels a three-percent rather than five-percent fisheries business tax. It would also alter the value upon which the direct marketers' tax is based. Rather than the value being determined by the grounds price, which is the floating processors' first point of sale, the direct marketers' "first point of sale is the second wholesale or retail price because these businesses are selling their fish to supermarkets, restaurants," or directly to the customer. Therefore, this bill would clarify "that direct marketers would be taxed on the 'prevailing' ground price." Senator Stedman stated that, while some fisheries are required to pay taxes on a monthly basis, this legislation would specify that all taxes due by direct market vessels would be due each April first in order to allow them to take care "of their accounting comprehensively at the end of the season." Senator Stedman summarized that this legislation would "remove the current disincentive in our tax system" by recognizing that the direct marketing industry is providing quality fish products, is responding to marketing demands, and is taking more responsibility to ensure the success of their operation. He stated that passage of this legislation would provide a level playing field to direct marketers by providing tax fairness. He reiterated that the vessels addressed in this legislation are less than 65 feet in length. IAN FISK, Staff to Senator Bert Stedman, informed the Committee that the Version "Z" differs from the previous bill version in that it adds the word "unprocessed" into the definition of value in Sec. 5, page four, line five as follows. (A) the market value of the fishery resource as determined by the prevailing price paid to fishermen for the unprocessed fishery resource of the same kind and quality by fisheries business in the same region or market areas where the fishery resource was taken if New Text Underlined [DELETED TEXT BRACKETED] Co-Chair Wilken removed his objection. There being no further objection, the Version "Z" committee substitute was ADOPTED as the working draft. Co-Chair Wilken noted that the sponsor has provided a "Short Definitions of Terms" handout [copy on file] that defines fishing terminologies. Senator Olson inquired to the reason that April first is specified as the date the tax would be due. That date might place a hardship on the fishing industry. Mr. Fisk responded that, historically, the Fisheries Business Tax has been due on April first, due to the fact that oftentimes "fishermen receive retroactive payments over the course of the winter." In an effort to make taxation filing easier, this legislation would consolidate a variety of taxes, including the hatchery assessment tax and the marketing tax, by making them uniformly due at the same time. Senator Olson asked what impact would occur were the price of fish to lower and negate the retroactive payments. Mr. Fisk could not recall any situation wherein a fisherman was required to pay back a company due to a reduction in price. Senator Olson asked the burden were no retroactive funds forthcoming during the winter months. Mr. Fisk responded that absent any retroactive checks, the fisherman would be required to pay based upon the price received at the time of delivery. KATHY HANSEN, Executive Director, Southeast Alaska Fishermen's Alliance, testified in support of the bill as it would address "a tax clarity and tax fairness issue." Noting that she had been a participant in the development of this legislation, she shared that the bill is "a tightly woven compromise" resulting from discussion "between the industry, processors, and all the agencies that are involved in direct marketing licensing." Co-Chair Wilken noted that Members' packets contain several letters in support of the legislation, including one from the Alliance, [copy on file] dated March 22, 2004. Senator Stedman noted that the legislation was initiated and furthered by the Salmon Task Force, which is comprised of fishermen and processors. This issue has required attention for several years. Co-Chair Green asked whether the legislation's new subsections contain any further language that should be addressed. Senator Stedman responded in the negative. He stated that work has been conducted in regards to this issue for several years. Both the fishing and processing industries support it. Co-Chair Green asked whether the new language in the bill would disadvantage any agency or group. Senator Stedman responded no. The intent of the legislation is to "conceptually enhance" the State's value-added fisheries products, assist the industry in their modernization efforts and response to market conditions, enhance the product price, and address some tax reporting issues. The hope is that these efforts would result in increased revenue to both the State and the industry. Senator Dyson moved to report the bill from Committee with individual recommendations and accompanying fiscal notes. There being no objection, CS SB 286 (FIN) was REPORTED from Committee with indeterminate fiscal note #1 from the Department of Revenue and zero fiscal note #2 from the Department of Fish and Game.