HOUSE SPECIAL COMMITTEE ON FISHERIES APRIL 5, 1993 8:30 a.m. MEMBERS PRESENT Representative Carl E. Moses, Chairman Representative Harley Olberg, Vice-Chairman Representative Gail Phillips MEMBERS ABSENT Representative Irene Nicholia Representative Cliff Davidson COMMITTEE CALENDAR * HB 264 "An Act providing for a fishery resource landing tax; and providing for an effective date." HELD IN COMMITTEE FOR FURTHER CONSIDERATION (* first public hearing) WITNESS REGISTER Carl A. Meyer, Chief of Appeals Income and Excise Audit Division Alaska Department of Revenue P.O. Box 110420 Juneau, AK 99811-0420 Phone: 465-2343 Position Statement: Gave an overview of HB 264 Vince Usera, Assistant Attorney General Alaska Department of Law P. O. Box 110300 Juneau, AK 99811-0300 Phone: 465-2398 Position Statement: Believed HB 264 is constitutional Carl L. Rosier, Commissioner Alaska Department of Fish and Game P.O. Box 25526 Juneau, AK 99802-5526 Phone: 465-4100 Position Statement: Supported HB 264 Kim Elton, Executive Director Alaska Seafood Marketing Institute 1111 W. 8th St., Ste 100 Juneau, AK 99801-1895 Phone: 465-5560 Position Statement: Supported HB 264 PREVIOUS ACTION BILL: HB 264 SHORT TITLE: FISHERY RESOURCE LANDING TAX BILL VERSION: SPONSOR(S): RULES TITLE: "An Act providing for a fishery resource landing tax; and providing for an effective date." JRN-DATE JRN-PG ACTION 03/30/93 854 (H) READ THE FIRST TIME/REFERRAL(S) 03/30/93 854 (H) FISHERIES, FINANCE 04/05/93 (H) FSH AT 08:30 AM CAPITOL 17 ACTION NARRATIVE TAPE 93- 20, SIDE A Number 000 CHAIRMAN CARL MOSES called the meeting to order at 8:40 a.m. He noted Representatives Moses, Olberg and Phillips in attendance and said the committee would hear for the first time HB 264. Number 030 HB 264: FISHERY RESOURCE LANDING TAX CARL MEYER, CHIEF OF APPEALS, INCOME AND EXCISE AUDIT DIVISION, ALASKA DEPARTMENT OF REVENUE, gave a brief overview of HB 264 and described the goals of the legislation. He began by saying Section 1 of HB 264 adds state authority to implement a landing tax, which would apply to processed fishery resources that are not already subject to the Fisheries Business Tax (FBT) provisions. A fishery resource can only be subject to one of the taxes, he said. MR. MEYER explained that the FBT applies to fishery resources that are either caught or processed in Alaska, including within the state's three mile jurisdiction. The landing tax provision would only apply to fishery resources that were both caught and processed outside the jurisdiction of Alaska and brought into the state and first landed in Alaska, he advised. Number 060 As described by MR. MEYER, the landing tax would apply to processed resources that are first landed in the state of Alaska, rather than in another state or foreign country. Some fishery resources are transferred between ships in international waters, but not within another state or foreign country, so when that resource comes into Alaska waters, that will be a first landing and subject to the landing tax. A first landing outside the jurisdiction of a state or foreign country, such as in United States jurisdictional waters, is not a landing in a state or foreign country and does not prevent the Alaska tax from applying. MR. MEYER disclosed the tax rate is 3.3% of the value of the processed fishery resources at the place of the landing. Section 20 of HB 264 provides that a person subject to the tax must file a return reporting the value of the resources landed and the point of landing. MR. MEYER explained the details of the filing requirements. MR. MEYER pointed out Section 30 of HB 264 allows a credit against the landing tax for processing and salmon enhancement type taxes paid to a state in which the fishery resource was caught or processed prior to landing in Alaska. In this provision, according to MR. MEYER, "state" is interpreted to include foreign countries. This credit provision is intended to avoid certain constitutional challenges that might be made to the tax and in reality, it is thought to be unlikely that any resource will be subject to any other state or foreign tax first, he alleged. MR. MEYER noted Section 40 of HB 264 provides that the tax collected on .3% of the value of the fishery resource be deposited into the general fund for use by the Alaska Seafood Marketing Institute (ASMI). The tax collected on 3% of the value would be deposited into the general fund and is available for appropriation by the legislature for revenue sharing purposes, he added. MR. MEYER advised Section 50 of HB 264 contains the revenue sharing provisions, and mirror those that apply to the FBT. Section 60 gives the Department of Revenue the authority to adopt regulations to interpret and implement the landing tax provisions. Section 200 contains definitions. A "fishery resource" for purposes of this chapter is a processed resource. An unprocessed fishery resource in the state would be subject to the FBT. "Landing" is defined as the act of unloading or transferring a fishery resource and can take place over water or on land. According to MR. MEYER, most of the resources that would be subject to the landing tax never make it to land. As an example, a catcher-processor on the high seas outside the Alaska three-mile limit catches fish and then transfers the processed resource to a second vessel on the high seas - that transfer has no application under HB 264; but once the second vessel enters Alaska waters and transfers the product to a third vessel, the FBT would not apply because the fish was both caught and processed outside the state of Alaska. However, the landing tax would apply at the point the second vessel transferred the product to the third vessel. The owner of that resource aboard the second vessel at the moment of transfer would be subject to the tax, he stated. MR. MEYER explained that the valuation of the resources for purposes of computing the tax differs from that under the FBT provision. The value is the lesser of the actual market value of the resource at the point of landing in the state or the statewide average price paid for the resource in that tax year as reported by the Alaska Department of Fish and Game (ADF&G). MR. MEYER said the use of the statewide average price paid is intended to accomplish two results. First, it would simplify the determination of the tax value since the market value for the processed product may otherwise be difficult to determine. Second, it would roughly approximate the value that would otherwise have been applicable under the FBT provisions. MR. MEYER acknowledged that the statewide average price paid in most cases will be the value used for the landing tax and will be determined by the ADF&G based on fish tickets. That value is based on the unprocessed product, even though when the resource is subject to tax it is in a processed form. This valuation is equivalent to what in-state processors pay on equivalent product. He added Section 2 of HB 264 provides that the legislation take effect on January 1, 1994. MR. MEYER admitted that one of the biggest questions people might have concerns who is impacted by HB 264. He explained that this legislation is geared to the operators who both catch and process outside Alaska in the Exclusive Economic Zone (EEZ). These are large catcher-processors that have the capability to both catch and process the resources almost simultaneously, outside the jurisdiction of the state and pay no fisheries business taxes. According to MR. MEYER, even though these catcher-processors pay no taxes, the state of Alaska provides significant benefits and services, incurs quite a bit of management responsibilities with respect to the resources caught on the high seas, and the state's local communities are impacted by those operations. The landing tax would be one way to compensate the state for these impacts, and through the revenue sharing provisions, compensate the communities for some of those local impacts, he declared. MR. MEYER told the committee there would not be a situation where the FBT and the landing tax would both apply. There would not be double taxation. If the FBT applies, the landing tax would never apply. The landing tax would also not apply to fishery resources that are first landed in some other state or foreign country and again landed in Alaska. This would prevent a situation from occurring where grocery stores could bring in processed products and be subject to this tax. This tax would capture the resources that are caught in the EEZ and brought into the state of Alaska and transferred to the Lower 48, he believed. With regard to the determination of value, MR. MEYER explained that the "value" is the lesser of the fair market value at the time and place of the transfer, or the average statewide price paid for the unprocessed resource as determined by the ADF&G. In the event that some resource subject to this provision does not have a statewide average price, the value would not be zero, but the Department of Revenue through regulations would substitute some other method for the statewide average price in determining the value of the product, he said. MR. MEYER said in looking at the landing tax rate overall in comparison to the FBT, the tax rate imposed on the catcher-processors is equivalent to the rate a shore-based processor would pay. The 3.3% is equivalent to the 3.3% paid by a shore-based fisheries business. On balance, he called it a very favorable taxing scheme for an EEZ catcher-processor when compared to the FBT provisions, because it puts them on a par with the shore-based processors. It was MR. MEYER'S understanding that if this type of tax was proposed, the offshore industry would not have any opposition if they were treated fairly and equivalent to the shore-based processors. MR. MEYER called the tax fair and more favorable than what a floating processor would pay under the FBT provisions. MR. MEYER then described the revenue sharing provisions, including those for boroughs incorporated after June 16, 1987. If a landing occurs outside a municipality or borough, 50% of the tax is transmitted to the Department of Community and Regional Affairs for sharing under AS 29.60.450. The Department of Revenue has submitted a fiscal note for HB 264 showing that the 3% portion of the revenues from this tax, net of the amount shared back to municipalities, would be about $4.3 million. The .3% of the tax is not subject to revenue sharing and would be $860,000. MR. MEYER pointed out the Department of Revenue has submitted a fiscal note for one position for a revenue auditor and related travel, supplies and equipment. That position would be required to perform the audits and ensure compliance, he concluded. REPRESENTATIVE GAIL PHILLIPS asked if there would be any fishing groups left who would not be taxed once HB 264 was passed. MR. MEYER replied that with passage of HB 264, everyone should be subject to one of the taxes. REPRESENTATIVE PHILLIPS asked about the ASMI dedication and was concerned about the phrase "for other public purposes" that might lead to the money not being appropriated to ASMI. MR. MEYER answered that all the funds would be subject to appropriation by the legislature. VICE-CHAIR HARLEY OLBERG speculated that the provision might have been included to get around the dedicated funds prohibition. REPRESENTATIVE PHILLIPS also asked about the June, 1987 restrictions on the revenue sharing sections. MR. MEYER replied that these revenue sharing provisions were intended to track exactly those in the FBT. Number 398 REPRESENTATIVE PHILLIPS asked for the Department of Law's response to a memorandum prepared by Legislative Legal Services' attorney, Jack Chenoweth, to House Speaker Ramona Barnes, concerning the constitutional issues raised by HB 264. VINCE USERA, ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF LAW, replied that this particular tax has been the subject of discussion for years, and while no one can say definitively it is either constitutional or unconstitutional, it is the feeling of the Department of Law that they are secure in its defensibility. Until the Supreme Court was to bang its gavel, nobody would know for sure, MR. USERA admitted, but the Department of Law is prepared to defend the legislation. Number 440 CARL ROSIER, COMMISSIONER, ALASKA DEPARTMENT OF FISH AND GAME, was pleased to see HB 264 introduced. The offshore factory trawl fleet off Alaska waters is a large fleet, approximately 60 plus modern vessels, MR. ROSIER said, mostly based in the state of Washington and operating in the EEZ off the coast of Alaska. Number 460 According to MR. ROSIER, this fishery has been extremely profitable, with the fleet harvesting a by-catch of crab, halibut, herring and salmon while targeting other species. These species are important to Alaska's fishermen, processors and coastal communities, he added. The incidental harvest of these species by the factory trawlers has an economic impact on Alaskans by the removal of resources that would otherwise be harvested by Alaskans. MR. ROSIER pointed out that the fleet avails itself of Alaska docks, harbors, communication and transportation systems, as well as medical services when needed. Yet, the factory trawler fleet pays virtually no taxes to the state for either the services it receives or the impacts on coastal communities. According to MR. ROSIER, the revenue from this tax could help pay for the services used by the factory trawlers and mitigate some of the impacts they have on Alaska coastal communities. MR. ROSIER acknowledged management and enforcement in the offshore fisheries is underfunded. He pointed out the revenue from this landing tax would provide the necessary addition to fund these functions. MR. ROSIER concluded with some remarks about his concern for current efforts, especially in the Alaska Senate, to reduce funding for fish and game management. REPRESENTATIVE PHILLIPS asked for a copy of Commissioner Rosier's statement. KIM ELTON, EXECUTIVE DIRECTOR OF THE ALASKA SEAFOOD MARKETING INSTITUTE (ASMI), commented that the .3% of the portion of the tax is identical to what shore-based processors are paying. He also pointed out that the offshore processors are presently deriving benefits from the efforts of ASMI. Page 2 of HB 264, under the ASMI section, should be sufficient to indicate the legislature has the option to appropriate those funds to ASMI, he concluded. HB 264 WAS HELD FOR FURTHER CONSIDERATION. ADJOURNMENT CHAIRMAN MOSES adjourned the meeting at 9:18 a.m.