SENATE BILL NO. 33 "An Act relating to a seafood product development tax credit; providing for an effective date by repealing secs. 32 and 35, ch. 61, SLA 2014; and providing for an effective date." 1:10:23 PM SENATOR GARY STEVENS, SPONSOR, introduced the legislation. He stated that the proposal was a direct economic benefit policy, which had been used in the past for salmon and herring. The bill extended the sunset date, and broadened the scope of the tax credit to include investment incentives for pollack and prawn products. He shared that the bill was a partial reimbursements for investments in hardware, machinery, and infrastructure in the processing industry. 1:11:26 PM TIM LAMKIN, STAFF, SENATOR GARY STEVENS, offered background to the legislation. Co-Chair Bishop requested a Sectional Analysis. Mr. Lamkin discussed the Sectional Analysis (copy on file): Sec. 1: AS 43.75.035(b)(1) and (2), relating to tax credits applied to value-added activity for the processing of salmon and herring products, (1) adds the fisheries of pollock and cod as applicable for the tax credit; and (2) extends the sunset of the applicable tax credits through year 2025. Sec. 2: AS 43.75.035(c), conforming amendment, relating to applying a tax credit for investment equipment used to process salmon or herring, to include equipment used for processing pollock and cod. Sec. 3: AS 43.75.035(d), conforming amendment, relating to a 3-year carry-forward of unused tax credits for the processing of salmon and herring, adds the same carry-forward of tax credits to be applicable for pollock and cod processing. Sec. 4: AS 43.75.035(e), relating to the 50 percent of liability cap on applicable tax credits, is legal drafting statutory clean-up, deleting a duplicative and redundant clause already contained in Section 1 of the bill. Sec. 5: AS 43.75.035(g)(5), conforming amendment, relating to state claw-back of a carry-forward tax credit, in the event an asset used for the processing of salmon or herring to which a carry-forward applies, if the asset is removed from the state, adds pollock and cod in determining qualified investment of processing within the state. 1:16:02 PM Co-Chair Bishop surmised that the section applied to hard assets like processing equipment. Mr. Lamkin agreed. He continued with the Sectional Analysis: Sec. 6: AS 43.75.035(j)(3), conforming amendment, relating to the definition of "qualified investment" under this tax credit program, adds investment in assets used for processing pollock and cod products. Sec. 7: AS 43.75.035(j)(6), conforming amendment, relating to the definition of "value-added" products under this tax credit program, adds processing of pollock and cod byproducts. Sec. 8-11: Are historical sunset dates and repealers of this tax credit program, consolidating all of the various sunset provisions of the program into a single sunset, occurring now in section 8, and set for Jan. 1, 2026. Sec. 12: Sets an effective date for the bill of Jan. 1, 2021. Senator Hoffman wondered why the proposal was only for a three year sunset extension. Mr. Lamkin replied that the decision was historically a policy call, but relayed that the norm was usually a five-year extension with variations. He agreed to provide for detailed information. Senator Hoffman felt that there should be a minimum of a four or five-year extension. He stressed that there was such effort to put a bill through the process. Mr. Lamkin stated that most recent extension for the program was in 2014, so the original sunset was eight years. Senator Olson wondered whether the Coastal Development Quota (CDQ) groups weighed in on the bill. Senator Stevens replied that he had not heard from processors, but felt that it would be nice to hear from them. Mr. Lamkin referred to a list of support letters from various fishing organizations. Co-Chair Bishop requested a definition of where fish would fall in the cod family for tax purposes. Mr. Lamkin agreed to provide that information. 1:21:13 PM JEREMY WOODROW, ALASKA SEAFOOD MARKETING INSTITUTE, JUNEAU, testified in support of the legislation. He remarked that after processing, there was leftover product that could add potential value to Alaska seafood resources. He stated that fish bone and fish oil currently generates hundreds of millions of dollars annually for Alaskas seafood industry. He stressed that there was financial benefit to the discarded items after standard seafood processing. Senator Wielechowski wondered whether the bill required that the value added occur in Alaska, or whether the addition of value could occur outside of Alaska. Mr. Woodrow replied that he believed the intention of the bill was for processing within the state. Senator Wielechowski wondered whether the bill allowed for a tax credit for value added outside of the state. Mr. Lamkin replied that the bill was intended only for assets valued within the state. Co-Chair Bishop felt that Section 6 would speak to the question. Mr. Lamkin stated that DOR was available to answer that question. 1:26:47 PM Co-Chair Bishop wondered whether the tax credit was only applicable if the asset was used within the state. NICOLE REYNOLDS, DEPUTY TAX DIRECTOR, DEPARTMENT OF REVENUE (via teleconference), indicated in the affirmative. 1:27:30 PM CHRIS BARROWS, PACIFIC SEAFOOD PROCESSORS ASSOCIATION, JUNEAU, discussed his support of the bill. He pointed to letters of support and research in the members packets. He shared that the bill would reestablish a longstanding program and expand its list of eligible species. He stressed that the expansion was an important addition to the existing program. Co-Chair Bishop wondered whether it was possible to have less product discharge after processing with the expansion of eligible items. Mr. Barrows replied that the expansion of technology could have potential for a decrease in discharge. 1:32:38 PM AT EASE 1:32:56 PM RECONVENED 1:33:25 PM AT EASE 1:35:54 PM RECONVENED 1:36:40 PM AT EASE 1:38:50 PM RECONVENED 1:39:03 PM MARK PALMER, CEO OCEAN BEAUTY SEAFOODS, INC., ANCHORAGE (via teleconference), testified in support of the legislation. He remarked on the successful track record of infrastructure investment, which was still currently in service. He stressed that his company produced value added seafood products in every area of Alaska. Co-Chair Stedman asked for opinion on black cod and its place in the past and future of the seafood economy. Mr. Palmer replied that his company had a smoked black cod product with national distribution through Whole Foods and Costco. He noted that the availability and abundance of black cod created economic opportunities. Co-Chair Stedman wondered whether black cod should be included in the bill. Mr. Palmer replied that it was not yet qualified, and explained that he did not know whether black cod was included in the bill. 1:45:18 PM ABBY FREDRICK, DIRECTOR OF COMMUNICATIONS, SILVER BAY SEAFOODS, JUNEAU (via teleconference), testified in support of the legislation. She explained that there had been significant investment in processing facilities throughout the state, and operated in several coastal communities. She stated that Silver Bay Seafoods had utilized past versions of the program. 1:48:59 PM JULIANNE CURRY, CEO OCEAN BEAUTY SEAFOODS, INC., KODIAK (via teleconference), spoke in support of the bill. She explained that there was also a letter of support included in the members packets. She specifically spoke in support of the inclusion of pollock and cod in the legislation. Co-Chair Bishop OPENED and CLOSED public testimony. Senator Wielechowski wondered why there was a distinction in the bill between the words processed and produced. Ms. Reynolds replied the department interpreted those words were that the equipment or product needed to be in the state of Alaska. She stressed that the product or equipment outside of the state would not be eligible for the program. Senator Wielechowski surmised that the fish must be from and processed within Alaska. Ms. Reynolds responded that she could not speak to the location of the harvested fish, but believed that the intent was for the fish to be harvested within the state. 1:55:55 PM Mr. Lamkin stated that the intent of the bill was for the credits to cover Alaska resources. Senator Wielechowski noted that there was a published fiscal note from April 2021, which showed a revenue loss, but the new fiscal note had a significant change. Ms. Reynolds said that the updated FN had taken the Fall 2021 forecast, which had lower fish values than had been originally addressed in the bill. Senator Wielechowski asked about the revenue to the state general fund from the credits. Ms. Reynolds replied that DOR had not been involved in the crafting of the note. Senator Wielechowski was curious about revenue types and market changes. Ms. Reynolds agree to provide the information to the committee. Senator Wielechowski cited page 12 of the report. He then noted the report and read from the report about confidentiality rules. 2:00:55 PM Ms. Reynolds stressed that there was an intention for DOR to provide accurate revenue forecasts, and agreed to explore confidentiality rules. Senator Wielechowski stated that he was referring to a report from the Legislative Finance Division (LFD). Ms. Reynolds agreed to provide that information related to the question. Senator Wielechowski queried an opinion on the bill's possible retroactivity. Ms. Reynolds replied that DOR did not take a position, and would support the legislature. Senator Wilson wondered whether the bill would apply to vessels that were both fishing and processing vessels, and queried the number of those types of vessels that reside in the state. Mr. Lamkin replied in the affirmative, and differed to the industry representatives for the information about the number of those types of vessels. Senator Wilson wondered whether the investment in those vessels would be prorated for the amount used on processing versus fishing. Mr. Lamkin looked at page 4 of the bill, and stressed that the detailed analysis would be provided by DOR. Senator Wilson stated that he would follow up with DOR. Ms. Reynolds agreed to provide that information. SB 33 was HEARD and HELD in committee for further consideration. 2:05:27 PM AT EASE 2:11:12 PM RECONVENED