HB 392 - REPORTS: FISH TAX & SALMON PRODUCTS MS. AMY DAUGHERTY, Staff to Representative Alan Austerman, sponsor of HB 392, said it addresses two types of reporting, exvessel value and wholesale price. The most important part are the changes they make to the wholesale price reporting. The size of the cans are antiquated, so they changed the denominations of the cans. Section Four also adds another reporting period, so this information can be obtained on a more timely basis by people who make marketing decisions with it. The first three sections enable the Department of Revenue to provide processor information needed by ADF&G and DEC. Currently, ADF&G is able to share information they receive with DOR, but this is not provided for in law. DEC currently is unable to access this information from DOR as well, although they have legitimate needs for it. Additional duplicative reporting may be established unless we can maximize and coordinate information the State already obtains. SENATOR TAYLOR asked if DEC would use this legislation to increase fees on processors. MS. DAUGHERTY answered that the fees wouldn't necessarily increase, but perhaps they would decrease. SENATOR TAYLOR said since DEC lives of its fees, he hadn't seen a decrease yet. Once they take away the floor they are having to charge all processors as a set fee, he is concerned they will use this as an opportunity. SENATOR TORGERSON asked if this information is currently available to DEC. He said he didn't know why they don't take the word of a little operator that they are a little operator. CHAIRMAN HALFORD noted that they are adding thermally processed to the reporting requirements and fees and asked if they are totally untaxed at this point. MS. DAUGHERTY said this just deals with the wholesale price which isn't where the taxation occurs at the dock. The thermal processing is new language so everything is consistent with DEC and federal regulations on this type of product. CHAIRMAN HALFORD said we are amending this law to be consistent with regulations and thought it was supposed to happen the other way. He asked if there was any change to any processor by changing the word "canned" to "thermally processed." MS. DAUGHERTY answered that the bill speaks past canned, applying to pouched as well as any other device. CHAIRMAN HALFORD asked if that was previously taxed. MS. DAUGHERTY answered that it has always been taxed, but this is just for the reporting of the wholesale value. There are enough loopholes that information on products was not reported. This generalizes the information by the size of container in which the salmon is sold. Number 502 SENATOR LEMAN asked what is the purpose of this report if they don't have reporting of frozen product. He asked if that showed up somewhere else. MS. DAUGHERTY answered that fishermen who approached them were concerned mostly with pink salmon and how that goes through the market and how the information gets compiled. She said that frozen is not within this bill now. CHAIRMAN HALFORD said he hoped someone from DEC could explain how this system works. It looks like it's all full of holes and all they are doing is changing the terminology. SENATOR LEMAN asked where in the bill was the reporting on exvessel value. MS. DAUGHERTY said the only part that refers to exvessel value is the part that seeks to let the agencies share information in Sections One and Two. SENATOR LEMAN asked what kind of information DEC would possibly have access to. Would it be grouped information or down to raw fish data and who catches it and where it's caught. MS. DAUGHERTY said she thought the bill didn't have restrictions on the information. She said Representative Austerman is far more attached to the wholesale reporting than any raw fish data. MR. BOB BARTHOLOMEW, Assistant Director, Income and Exise Audit, Department of Revenue, said he understands that there are two distinct objectives with the draft bill, one is bringing in a provision from last year to streamline and become more efficient. This is to save money to satisfy industry concerns that too many agencies are asking for too many reports. They found that they could not streamline the reporting parts, because there were certain confidentialities. The information comes into their data base and the information that's not confidential they pass on to ADF&G and DEC. They also send them the applications because they don't capture all of the data. There is a lot of information the ADF&G and DOR use that is reported to both departments. As the Department of Revenue, it is their intent that the only information they would allow DEC access to is what they have already been getting in current reports. They would, then, replace a Fish and Game report with the unified report. It's the same with DEC. They will not open up the tax information and let DEC come in and pick what they want. TAPE 98-25, SIDE B But if they currently, in determining their fees, get volume and value information, they would work with industry and DEC to eliminate that report. Sections One and Two deal with three agencies trying to find ways to combine reporting. They took the lead on this and it seems to have worked. Three agencies use one application; dealing with the reporting is phase two of it. There are no changes in reporting requirements in terms of looking for efficiencies. The second part of the bill deals mainly with the objectives of Representative Austerman. It has nothing to do with taxes or values and is basically a reporting requirement the legislature has placed on certain parts of the fishing industry and they needed somebody to collect that data, compile a report, and release it. That somebody was the Department of Revenue. They don't do a lot with the information. It used to be strictly for canned salmon twice a year. Certain fishermen requested information more often in a different format and covering more than just canned salmon. SENATOR HALFORD said the way he reads the reference section, there is no confidentiality required because it says it's not a matter of public record except as provided in AS 43.05.230 which says it has to have the degree of confidentiality required by law which it doesn't. MR. BARTHOLOMEW said the intent is to make certain confidential information available to DEC and to ADF&G and try to give some assurance that that information will be kept confidential by making them subject to the same confidentiality requirements as the Department of Revenue. CHAIRMAN HALFORD said there is some concern about the actual language in everything that is passed under 230 (I) remains confidential and he's not convinced that it works. Number 521 MR. SCOTT MCALLISTER, Chairman, Southeast Regional Chapter of United Salmon Association, said they are comprised of salmon permit holders and high volume harvesters of pink salmon, chum salmon, and red salmon. Their primary purpose is to recapture profitability for the salmon harvest industry. One of their objectives in achieving that goal is to become market oriented. It became apparent to them a number of years ago that they had no standards of measurement in the marketplace. In researching what their options were, they came up with the WCPR reporting requirement in this bill. It's their desire to see the language tightened up in statute to close the loopholes that seem to be of concern to harvesters. The old statutes had can sizes that are not used now and the other purpose was to have reporting periods that were more conducive to negotiation and settlement of a year-round contract. This bill also adequately tightens up language with thermal processed wording replacing the "canned" wording. Number 46 SENATOR TAYLOR asked if there was somewhere in law where frozen product is reported. MR. MCALLISTER said it was in regulation, but not statute. They don't get good information about frozen product, which is another step. SENATOR TAYLOR asked where egg sales are covered. MR. MCALLISTER said the commercial operator's annual report that ADF&G requires covers eggs. SENATOR TAYLOR thought egg sales would be a higher revenue generator than canned product is. MR. MCALLISTER said that's true in some years on some species, particularly with chum salmon. Processors say that the data base isn't worth the paper it's reported on and it's not statutorily required; there is nothing requiring them to be accurate and also there is no auditing provision. CHAIRMAN HALFORD said it looks like the title doesn't prohibit an amendment that would deal with frozen product. MR. MCALLISTER said a very good report that was generated for this body in 1983 goes into the difficulties in condensing different product forms down to reliable and accurate reporting requirements. He would support that debate anywhere it would occur, but it would not be in time for the upcoming fishing season which is almost upon us. Number 401 MS. JANICE ADAIR, Director, Division of Environmental Health, said Mr. Bartholomew characterized the first three sections of this bill very well. They have been involved in combining their permitting applications and the reporting is the next step that the processors have actually asked for. The fisheries business tax, which is the information that would be provided to DEC, is from people who engage in processing fisheries resources for sale by freezing, cooking, salting, or other methods. This bill does not give DEC access to any kind of catch records, nor would they want that information. It is their intent to not actually share paper with the Department of Revenue, but have electronic sharing of processing amounts for purposes of main categories. Right now, their processing permits are based on the amounts of fish processed and are very large groupings. This is because right now they do not have the authority to keep that information confidential. They are subject to the public record and have relied upon constitutional protection for trade secrets when it comes to recipes and things like that that they have in their files. So far they have been successful, but haven't wanted to chance it with financial information. This bill would allow them to have access to that information for purposes of determining the appropriate permitting structure and placement in that structure for different processors and that's all they want it for. SENATOR LEMAN said that is all the information they should be seeking, but to get to that number, is it possible that the Department could claim that they need the underlying data which is the actual raw data that the processor uses as a receipt to pay the fishermen. MS. ADAIR answered that she couldn't fathom that. SENATOR LEMAN asked if they would be looking at other data relating to that processor's sales, or deployments of vans, or something else that demonstrates how much product is moving out of the facility. MS. ADAIR answered that they would be looking at how much they processed. SENATOR TORGERSON asked if they would base that on tons or numbers of cans or what - to determine the size of the facility. MS. ADAIR said they report this in pounds. That is the information they would use and put it into categories like they have now for permits. SENATOR TORGERSON asked if they don't trust the operators now to tell them how many pounds they process a year. MS. ADAIR answered that they don't ask them now. SENATOR TORGERSON asked why they don't instead of having the legislature pass legislation that would open up confidential records. MS. ADAIR answered she didn't know why they would tell her. SENATOR TORGERSON responded if their fee structure is based that way, why wouldn't they. MS. ADAIR answered that DEC couldn't keep it confidential. SENATOR TORGERSON said their fee structure for restaurants is based on how many people they sit and that's not confidential either. MS. ADAIR responded that it's easy to see how many people a restaurant can seat; it is a trade secret how much fish a processor processes. All the seats in the restaurant are not full seven days a week. You can't really glean how much money they are making based on the number of seats, but you could figure out how much money a processor is making by finding out how many pounds they process and she didn't think it was appropriate for them to be involved with that. SENATOR TORGERSON asked if the processors are asking for this, but they don't want each other to know what they are doing. MS. ADAIR read an excerpt from a letter from the Southeast Alaska Gillnetters Association saying they supported a fee assessment based on poundage processed. SENATOR TORGERSON asked if they have the authority to audit if they suspect the poundage information was not correct. MS. ADAIR said she didn't believe so. SENATOR TAYLOR asked why DEC would, other than for structuring a fee, have to know poundage. Wouldn't they rather know the number of lines they had for canning processing, the number of tables and cookers, the number of sinks and bathrooms, etc. MS. ADAIR said he was right. There is a correlation between how much fish is processed and all those other things. They base their fees on how much time it takes them within a given plant in certain broad categories of plants. They want the categories to be smaller and once you break them down, you're looking at amounts that are being processed. SENATOR TAYLOR asked if they are just looking for ways to come up with a new fee schedule. MS. ADAIR responded that they are responding to a request made by the public which has asked them to base their fees on something they don't have access to. She thought it would lead to a fee reduction for the smaller processors. SENATOR TAYLOR said they could just as easily base their fee on the number of employees at a plant. MS. ADAIR said she didn't know what correlation she could make between their processing services and the number of employees at a given facility. SENATOR TAYLOR said he was concerned that basing fees on the volume of fish processed would be moving toward a straight tax. MS. ADAIR said it is not their intent or the processor's intent, but they are trying to get a better correlation between their average amount of time spent in a plant and what that plant actually looks like. Currently, their categories are broad, because they are not able to keep the information confidential. They are trying to get smaller categories that are more reflective of those processors who are in that category. One of the ways to do that is to look at how much fish is processed in a facility. CHAIRMAN HALFORD asked what would happen to the fee if they freeze the fish. MS. ADAIR responded that their fees are different for different kinds of processing. Thermal processing and smoking are the highest fees, because that is more complicated and requires more time. Fresh frozen has lower fees. CHAIRMAN HALFORD asked how they knew processors were not lying about how much they froze. MS. ADAIR answered if they have facilities for smoking and canning, they are inspected at a higher frequency. CHAIRMAN HALFORD clarified his point was that they have a lot of reporting for thermally processed fish and not for frozen fish. SENATOR TAYLOR said he thought the majority of lobbying for this bill is coming from the smaller processors who are getting hit with the same fee that they are charging the big processors. MS. ADAIR said that was not the case and that the smaller processors don't pay as much as the large ones do. SENATOR TAYLOR asked if everyone wanted the fee based on the volume of fish produced. MS. ADAIR answered that wasn't true, but the lobbying was coming from only one group. SENATOR TAYLOR asked why they didn't just charge $100, $200, and $300 for the small, medium, and large processors and come back to the legislature for general funds which is the way it used to be done. MS. ADAIR said that is not how they budget and set fees and she would be happy to go over the process with him. No one pays the full cost to the Department of the time involved in inspections and permitting. The fees cover only about 30 percent of the seafood processing program. SENATOR TAYLOR asked if there was assurance in this legislation that that same 30 percent of cost would be reflected in the future. He asked how he would know they weren't getting 100 percent of their cost in the future. MS. ADAIR responded that the Legislature had to approve, through the budget process, any department's ability to receive and expend fees. SENATOR TAYLOR parried that was called program receipts and didn't count as general funds, anymore, and no one gets denied their program receipts. MS. ADAIR responded that program receipts are only considered designated program receipts if they cover the entire cost of a program. DEC has a statutory prohibition on covering the travel costs of the programs through fees. Their program receipts are considered general funds and they have had increases denied. CHAIRMAN HALFORD said they would have staff work on this bill further.