Legislature(2003 - 2004)

02/18/2004 08:32 AM House FSH

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
HB 444-DIRECT MARKETING FISHERIES BUSINESS                                                                                    
[Contains discussion of SB 286, the companion bill]                                                                             
CHAIR SEATON announced that the  first order of business would be                                                               
HOUSE  BILL  NO.  444,  "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                                                               
Number 0116                                                                                                                     
REPRESENTATIVE   WILSON,   sponsor,   explained  that   HB   444,                                                               
recommended by  the Joint Legislative Salmon  Industry Task Force                                                               
("Task Force"), would  provide fairness and a  more level playing                                                               
field  while encouraging  value-added [products];  it relates  to                                                               
the sector  of the  commercial fishing  industry known  as direct                                                               
marketing fisheries businesses.                                                                                                 
REPRESENTATIVE  WILSON reported  that  this  [tax] originated  in                                                               
1913 when  the Territory of  Alaska decided to gain  revenue from                                                               
the fishing industry;  the oldest tax in Alaska, it  is levied on                                                               
the processing  companies:  3  percent on  shore-based processors                                                               
and  5  percent  on  floating  fisheries  businesses,  which  are                                                               
primarily large,  mobile processing facilities that  are assessed                                                               
at  a higher  rate to  compensate for  the fact  that they  don't                                                               
operate a  shore-based plant.  Although  these fishing businesses                                                               
fit the mold in 1913, they don't anymore.                                                                                       
REPRESENTATIVE WILSON noted that this  bill is a product of years                                                               
of negotiating among the industry,  the government, and those who                                                               
are concerned;  the desire is  to not jeopardize  that agreement.                                                               
Saying the  Task Force endorsed  the bill unanimously,  she asked                                                               
Ian  Fisk [staff  to the  sponsor of  the Senate  companion bill,                                                               
SB 286] to explain further.                                                                                                     
Number 0350                                                                                                                     
IAN   FISK,  Staff   to  Senator   Bert  Stedman,   Alaska  State                                                               
Legislature,  began  by  saying  this relates  primarily  to  the                                                               
fisheries  business  tax, although  there  are  other taxes  that                                                               
direct marketing  businesses and other fisheries  businesses must                                                               
pay.   Specifying  that  this  changes the  tax  rate for  direct                                                               
marketers  from 5  percent to  3 percent  in order  to level  the                                                               
playing  field,  he  said  it seems  appropriate  that  a  direct                                                               
marketing business -  which is primarily an Alaskan  vessel - not                                                               
be treated the same as a large, mobile, floating processor.                                                                     
MR. FISK explained  that second, and perhaps  most important, the                                                               
bill  changes  the point  of  taxation.   If  fishermen  directly                                                               
market under the  current tax structure, the tax is  on "a second                                                               
wholesale  or  retail  price  that  they  sell  that  fish  for."                                                               
Currently, for king  salmon sold at the dock for  $5 a pound, for                                                               
example, they'd pay  5 percent, a disincentive  for "adding value                                                               
to  that  resource," when  the  desire  is to  encourage  further                                                               
development of that sector of the industry.                                                                                     
MR. FISK noted  that third, the bill rectifies the  tax due dates                                                               
for direct  marketers.  Currently,  those fishing for  salmon are                                                               
required to pay the enhancement  tax, which is basically to cover                                                               
the  cost of  hatcheries; they  pay that  monthly, and  pay their                                                               
salmon marketing  tax monthly as  well.   This bill sets  all the                                                               
tax  due  dates  to  April   1,  which  is  friendlier  to  small                                                               
businesses so they don't have to do accounting while fishing.                                                                   
Number 0554                                                                                                                     
MR.  FISK addressed  two important  sideboards agreed  to by  the                                                               
Task Force.  First, this bill  relates to vessels 65 feet or less                                                               
in  length,   which  conforms  to  the   existing  Department  of                                                               
Environmental  Conservation  (DEC)  permit for  direct  marketing                                                               
vessels.   He pointed  out that DEC  is involved  for food-safety                                                               
reasons, and  said [65 feet] is  where (DEC) drew the  line years                                                               
ago.  Second,  it only applies to what is  caught by the licensee                                                               
and sold by that same individual.                                                                                               
MR.  FISK   turned  attention  to  fiscal   impacts,  saying  the                                                               
Department  of Revenue  (DOR) estimates  this will  end up  being                                                               
revenue-neutral to the state.   He mentioned that businesses like                                                               
catcher/processors have been taxed at  the higher rates, and said                                                               
there  is some  other confusion  in the  overall tax  picture for                                                               
direct  marketers, but  indicated DOR  feels that  anytime a  tax                                                               
structure is clarified, it results in better compliance.                                                                        
Number 0661                                                                                                                     
MR. FISK  said this bill  closes a tax  loophole for a  sector of                                                               
direct  marketers called  catcher/sellers.   Referring to  a one-                                                               
page handout  of definitions, he explained  that a catcher/seller                                                               
is a direct marketer who  sells unprocessed fish or other fishery                                                               
resources.   Closing  this  loophole will  result  in more  [tax]                                                               
income from that sector of the fleet, he predicted.                                                                             
MR. FISK concluded by saying this  bill will result in a "clearer                                                               
picture for the industry to deal  with, which is good in the long                                                               
run";  will do  away  with the  current  disincentive related  to                                                               
value-added products; and will apply  primarily to Alaskan small-                                                               
business fishermen.   Agreeing  that it had  gone through  a long                                                               
process  involving  compromise  and  had gone  through  the  Task                                                               
Force,  he added,  "The sponsor  and  cosponsor of  the bill  are                                                               
mainly concerned that we don't have  any changes that are to such                                                               
an  extent that  they  jeopardize ...  the  agreement that  we've                                                               
reached at this point."                                                                                                         
Number 0761                                                                                                                     
CHAIR SEATON referred  to page 1 [line 8], where  it changes from                                                               
"frozen"  to   "processed".     He  asked   about  ramifications,                                                               
specifically,  any requirement  to reclassify  the vessels  under                                                               
the U.S.  Coast Guard as  processing vessels, instead  of fishing                                                               
MR. FISK  said he didn't know.   Noting that Section  1 clarifies                                                               
the liability  for the tax, he  added that the exclusion  was set                                                               
up so one  sector of the direct marketing portion  of the fishing                                                               
industry  could freeze  fish on  board -  for example,  a freezer                                                               
salmon troller -  and then not be liable for  the tax because the                                                               
fish  are  sold  to  a  licensed processor.    Existing  law,  by                                                               
contrast, says  the person  who first  processes the  resource is                                                               
liable.  He elaborated:                                                                                                         
     This  extends that  exclusion so  that if  a ...  small                                                                    
     vessel is  doing processing on  board and  then selling                                                                    
     it to  a licensed fishery business,  i.e., a processor,                                                                    
     then this clarifies that the  processor is liable.  And                                                                    
     so Section  3 is kind of  related to this as  well, and                                                                    
     ...  it's all  about clarifying  who's supposed  to pay                                                                    
     the  tax.   And  that's  part  of  the bill  that  [the                                                                    
     Department  of] Revenue  was ...  set on  so that  they                                                                    
     could get  better compliance and better  clarity in the                                                                    
     whole tax structure.                                                                                                       
CHAIR SEATON emphasized  the need to look at [how  the U.S. Coast                                                               
Guard regulations  would apply]  and whether  reclassification of                                                               
the vessel would be required.                                                                                                   
MR. FISK  said he was  fairly sure  it wouldn't be  required, but                                                               
offered to find out before the next hearing.                                                                                    
Number 0975                                                                                                                     
REPRESENTATIVE GUTTENBERG referred to  the sectional analysis and                                                               
Section 4, page 3.   He asked what the breaking  point of 65 feet                                                               
for vessel length represents.                                                                                                   
MR.  FISK  answered  that  DEC,  whose  involvement  with  direct                                                               
marketing is a  food-safety concern, has a  license geared toward                                                               
the group that is the subject here.  He remarked:                                                                               
     They  made  a cutoff  at  65  feet.  ... I  don't  know                                                                    
     exactly the  origins of that,  but I do know  that what                                                                    
     we intended to do with  this bill was not throw another                                                                    
     monkey wrench  in that and require  further change with                                                                    
     them.  I think the comfort  level of some people in the                                                                    
     industry is  higher with this  bill if you limit  it to                                                                    
     the  smaller  vessels.   If  you  don't draw  the  line                                                                    
     clearly  enough, ...  you could  get  into a  situation                                                                    
     where  there are  catcher/processing  vessels that  are                                                                    
     really  of  a different  scale  than  the vessels  that                                                                    
     we're talking about here.  And  so the line kind of had                                                                    
     to be drawn somewhere.                                                                                                     
Number 1061                                                                                                                     
MR.  FISK,  in  response  to Chair  Seaton,  explained  that  the                                                               
exclusion  [in  Section 3]  doesn't  affect  tax revenue  to  the                                                               
state.  It  defines the processor, rather  than a freezer-troller                                                               
who sells to  an onshore licensed fishery  business, for example,                                                               
as the  one who  will pay  the tax.   In  Section 3,  "frozen" is                                                               
deleted  and  "processed" is  added  so  that for  other  onboard                                                               
processing, if the  product is then sold to a  processor, the tax                                                               
liability  is  clarified [as  being  the  responsibility of]  the                                                               
processor.  He  suggested this clarification makes  it easier for                                                               
Number 1243                                                                                                                     
KATHY  HANSEN, Executive  Director, Southeast  Alaska Fishermen's                                                               
Alliance  (SEAFA), informed  the committee  that she  was on  the                                                               
working group for  this legislation and worked on  this issue for                                                               
several years  before that; she  agreed it's been a  long process                                                               
involving compromise  on many  sides.   Stating full  support for                                                               
the legislation, she acknowledged there  might be a few technical                                                               
wording  changes, but  cautioned that  major changes  would cause                                                               
"large segments of  support" to fall away.   Although some direct                                                               
marketers  don't qualify  under this  legislation, she  remarked,                                                               
"They understand.   They  know why.   I've  talked to  several of                                                               
them.   It's just that you  cannot make every scenario  fit every                                                               
situation.    And so  what  we  did is,  we  tried  to cover  the                                                               
greatest number of people in the legislation."                                                                                  
MS. HANSEN addressed adding ["processed"]  instead of "frozen" by                                                               
saying, "It  does not bring  in the  Coast Guard.   It's actually                                                               
not   Coast  Guard   regulations;   it's   the  'fishing   safety                                                               
initiatives' of 1996."  She  then said many processors around the                                                               
state want to buy "headed"  product from fishermen, just that one                                                               
additional step,  which brings  in less  waste to  the facilities                                                               
and so forth.   However, under current law each  fisherman had to                                                               
be liable for  his/her own taxes; the processor  couldn't take on                                                               
that responsibility.  She explained:                                                                                            
     What we've actually done is,  we've gone a step farther                                                                    
     in  this  legislation,  and  we've  flat  made  it  the                                                                    
     processor's  responsibility if  they  buy this  product                                                                    
     that's processed.   That was  not the  original thought                                                                    
     as  we were  going  into  it, but  it's  what ended  up                                                                    
     occurring, and there's good reasons for it.                                                                                
Number 1397                                                                                                                     
CHAIR SEATON referred  to Section 3, the processing  tax, and the                                                               
".017 exclusion" from the fisheries  business tax.  He said other                                                               
wording  throughout  the  bill  is   such  that  the  person  who                                                               
possesses  the  fish  at  the  time  is  liable  for  the  salmon                                                               
enhancement tax,  dive fishery tax,  and so forth.   He requested                                                               
confirmation that  the language  in the rest  of the  bill "means                                                               
that  the  processor  who  buys  -  the  other  licensed  fishery                                                               
business  that   buys  -  from   the  direct  marketer   will  be                                                               
responsible  for  collecting  the  salmon  enhancement  tax,  the                                                               
marketing   tax,  a   dive  fishery   tax  -   all  those   other                                                               
MS. HANSEN answered in the affirmative.                                                                                         
Number 1489                                                                                                                     
CHAIR SEATON asked:   If the product is sold  to another licensed                                                               
fishery business, who is responsible for the reporting?                                                                         
MS. HANSEN  answered that the  COAR report  [Commercial Operators                                                               
Annual Report]  would be  done by the  processor, and  the direct                                                               
marketer would  still have to fill  out a portion of  it.  Either                                                               
could be responsible  for writing the fish ticket.   This statute                                                               
only deals with Department of  Revenue (DOR) statutes, she noted,                                                               
and  doesn't get  into "fish  and  game deals."   She  explained,                                                               
"Currently,  right  now,  for these  different  various  sectors,                                                               
sometimes   the  catcher/processor   writes   the  fish   ticket;                                                               
sometimes it's rewritten  at the processor when  it's resold, and                                                               
the previous one written by the catcher/processor is voided."                                                                   
Number 1544                                                                                                                     
CHAIR   SEATON  offered   his  understanding   that  the   Alaska                                                               
Department of Fish  & Game (ADF&G) doesn't see  any problems with                                                               
fish tracking as it relates to this legislation.                                                                                
MS. HANSEN stated  her belief that [ADF&G} is  supportive of this                                                               
legislation.  "All their issues have been addressed," she added.                                                                
Number 1570                                                                                                                     
REPRESENTATIVE GUTTENBERG  inquired about  those who  are outside                                                               
the definitions of the bill.                                                                                                    
MS. HANSEN  said one  who comes  to mind is  a shrimper  who does                                                               
"frozen-at-sea  shrimp"  on a  72-foot  vessel  and will  operate                                                               
under the  regulations under which  he has operated for  the last                                                               
five or ten years.   As to the numbers, she  said it's a handful,                                                               
to her  belief.   She reiterated  that the effort  was to  try to                                                               
bring in the  greatest number possible, but there were  a few for                                                               
whom it just  didn't fit "unless you made the  language so broad-                                                               
open that it was totally open to abuse."                                                                                        
CHAIR  SEATON surmised  there  might be  a  75-foot troller,  for                                                               
example, that wouldn't fit the  definition, but that expanding it                                                               
would also expand it for Bering Sea vessels and so forth.                                                                       
REPRESENTATIVE  WILSON  requested  confirmation  that  the  [Tax]                                                               
Division doesn't believe it will lose revenue either way.                                                                       
Number 1669                                                                                                                     
CARL  MEYER,  Chief  of  Appeals,  Tax  Division,  Department  of                                                               
Revenue (DOR), referred  to the fiscal note and said  it was hard                                                               
to answer, since there wasn't sufficient information.  He added:                                                                
     Overall, I  think the opinion  is that, because  of the                                                                    
     extra  compliance that  will be  achieved and  the fact                                                                    
     that with  ... the salmon  enhancement tax and  some of                                                                    
     the  smaller  taxes  that  ...  are  going  uncollected                                                                    
     because the  buyer is required  to collect that  tax --                                                                    
     and  when   you  have   buyers  that   aren't  licensed                                                                    
     fisheries  businesses,  they  don't really  know  about                                                                    
     that  requirement, so  they don't,  under current  law,                                                                    
     really collect  that tax.  With  this legislation, that                                                                    
     will change  and the direct  marketer will  collect the                                                                    
     tax - or the commercial fisherman.                                                                                         
REPRESENTATIVE WILSON asked whether,  when she herself has bought                                                               
fish or shrimp from someone, she  was supposed to have kept track                                                               
of the tax.                                                                                                                     
MR. MEYER answered, "Technically, yes."                                                                                         
Number 1780                                                                                                                     
CHAIR SEATON  referred to  page 3, beginning  at line 15,  "or by                                                               
means of  custom processing services  obtained by  the licensee."                                                               
He asked whether it's tight  enough, in that a floating processor                                                               
who now pays 5 percent could  operate under this scenario and pay                                                               
3  percent.   Noting that  it doesn't  specify "shoreside  custom                                                               
processor", and saying  he doesn't think it  should, Chair Seaton                                                               
said fishermen  should have the  opportunity to sell  their fish,                                                               
but if it's a  question, there might be a need  to specify that a                                                               
floating custom processor pays 5 percent.                                                                                       
MR.  MEYER  expressed  hope  that the  statute  itself  is  tight                                                               
enough.   He said the  direct marketer  has to be  an individual,                                                               
and will  have that  product custom-processed.   Whether it  is a                                                               
floating or shore-based  operation, he said hopefully  it will be                                                               
self-regulating enough that  there won't be abuse in  the form of                                                               
people  "crossing over"  who otherwise  wouldn't qualify  for the                                                               
direct marketing license.                                                                                                       
CHAIR  SEATON explained  that  the  product could  be  sold to  a                                                               
floating processor without the community  support that comes from                                                               
having shoreside processors, and yet  the tax would be 3 percent.                                                               
He again asked whether it's tight enough or should be looked at.                                                                
MR.  MEYER answered  that when  the product  is custom-processed,                                                               
the direct marketer  will have to retain ownership;  it will come                                                               
back to the direct marketer in order to be sold.                                                                                
Number 1941                                                                                                                     
CHAIR SEATON  observed, however, that nothing  in the legislation                                                               
says  "you cannot  later  sell your  direct-market  product to  a                                                               
licensed fishery  business who  happens to  be the  same business                                                               
that you had custom-process fish for you."                                                                                      
MR. MEYER said he'd have to think about it.                                                                                     
CHAIR SEATON clarified  that he isn't objecting to  the bill, but                                                               
is  trying  to  see  if there  are  problems,  including  whether                                                               
there's  a need  to tighten  the  language so  a floating  custom                                                               
processor pays at the 5 percent rate, to eliminate any loophole.                                                                
MR. MEYER responded:                                                                                                            
     In  your  example,  if  I   was  a  licensed  fisheries                                                                    
     business  and  the  sale  was being  made  to  me,  ...                                                                    
     presumably I  would be, at that  point, responsible for                                                                    
     collecting the  tax, because we  have expanded,  in ...                                                                    
     Section 1,  the definitions  of what the  fisherman can                                                                    
     legally  do  to qualify  for  the  exclusion.   So  the                                                                    
     fisherman in that case, I  think, would qualify for the                                                                    
     fisherman's exclusion,  and then it would  transfer the                                                                    
     tax liability onto me to collect it.                                                                                       
CHAIR SEATON said the exclusion is  there, but also the 3 percent                                                               
tax rate for a licensed fishery business.                                                                                       
MR. MEYER replied, "In that  situation, if the fisherman does not                                                               
have liability  for the tax and  I'm a floater and  I obtain that                                                               
product, ... I'm  going to pay a  tax of 5 percent."   In further                                                               
response, he  said, "I'm not going  to say there might  not be an                                                               
instance, but I don't think that it should arise."                                                                              
CHAIR  SEATON  said he  hoped  not,  expressed appreciation,  and                                                               
indicated the question would be asked  of others as well, to make                                                               
sure all the bases were covered.                                                                                                
Number 2128                                                                                                                     
SUSAN  M. SHIRLEY,  Chief of  Information  Services, Division  of                                                               
Commercial Fisheries,  Alaska Department of Fish  & Game, related                                                               
the  understanding that  this  bill in  no  way affects  existing                                                               
reporting  regulations for  ADF&G, including  fish-ticket reports                                                               
as well as the COAR reports.                                                                                                    
Number 2203                                                                                                                     
DALE KELLEY, Executive Director, Alaska Trollers Association                                                                    
(ATA), testified as follows:                                                                                                    
     The  Alaska Trollers  Association supports  HB 444  and                                                                    
     views  it  as an  important  piece  of legislation  for                                                                    
     fishermen  who  are  currently  direct-marketing  their                                                                    
     products, as well as those  who may turn to this option                                                                    
     due to poor  price, loss of markets,  or simply because                                                                    
     they  want to  try their  hand at  marketing their  own                                                                    
     line of select products.                                                                                                   
     HB  444  appears to  be  a  complicated bill,  but  its                                                                    
     essence is simple.  This  bill establishes a reasonable                                                                    
     tax rate and payment timeframe  for small business.  It                                                                    
     clarifies who  is liable  for that  tax and  under what                                                                    
     circumstances,  and it  defines the  product form  that                                                                    
     the tax is  levied on.  Important features  of the bill                                                                    
     are sideboards which  have been put in  place to ensure                                                                    
     that  this action  doesn't  disadvantage our  shoreside                                                                    
     processors or compromise food safety.                                                                                      
     This  bill  is  nearly  a  decade  in  the  making  and                                                                    
     represents  a  tightly  woven  compromise  ...  between                                                                    
     fishermen, processors, and the  three agencies.  Key to                                                                    
     its success  is passing  the bill  intact.   Picking at                                                                    
     any of  its threads could  cause it to unravel  in your                                                                    
     That said,  there are a couple  of technical amendments                                                                    
     that might  further clarify the  bill now and  into the                                                                    
     future, such  as adding the  word "unprocessed"  to the                                                                    
     section  dealing with  the product  to be  taxed.   The                                                                    
     bill  does  not  accommodate   each  and  every  direct                                                                    
     marketer's desires,  but it does ...  address the needs                                                                    
     of most  of them.   In  addition, it  should streamline                                                                    
     the agencies' workload, hopefully  at a cost savings to                                                                    
     the state over time.                                                                                                       
Number 2270                                                                                                                     
MS. KELLEY noted that she'd submitted additional testimony for                                                                  
the record.  Addressing the earlier question of freezing versus                                                                 
processing, she said:                                                                                                           
     Depending  on what  method of  processing  the boat  is                                                                    
     undertaking, they  may have  to be  a catcher/processor                                                                    
     and have  additional licensing  anyway.   For instance,                                                                    
     freezer-trollers  are processing  vessels.   And that's                                                                    
     where this whole  exclusion thing came into  play.  And                                                                    
     ... there  are also ones  that have to  file additional                                                                    
     fish  tickets, as  do  some  of our  freezer-shrimpers.                                                                    
     But  freezer-trollers are  processing vessels  by their                                                                    
     very nature,  and they  have additional  licensing that                                                                    
     some direct ... marketers may not have. ...                                                                                
     So it  doesn't get any  processing boat out  from under                                                                    
     DEC  requirements for  food  wholesomeness and  safety.                                                                    
     But it will allow, as  Kathy [Hansen] pointed out, some                                                                    
     processors to  buy headed product  and do with  it what                                                                    
     they  may, and  provides  the protection  to the  state                                                                    
     that the tax liability is covered.                                                                                         
Number 2338                                                                                                                     
CHAIR  SEATON  asked  where  in  the  bill  Ms.  Kelley  believes                                                               
"unprocessed" should be included.                                                                                               
MS.  KELLEY  indicated   Mr.  Fisk  had  just   referred  her  to                                                               
Section 5.  Noting that a  fisheries business tax is a processing                                                               
tax  but is  paid  on the  value  of raw  fish,  she said  direct                                                               
marketers have been  penalized for adding value by  having to pay                                                               
a higher  tax, whereas processors  pay tax on the  raw-fish form.                                                               
Highlighting  confusion over  the years,  she said  what prompted                                                               
the effort to establish something  for direct marketers is that a                                                               
[DOR] regulation had been changed,  muddying the waters as to the                                                               
point at which that product is taxed.                                                                                           
MS. KELLEY  noted that  a gentleman who  testified [on  SB 286 in                                                               
the Senate  Labor and Commerce Standing  Committee] had mentioned                                                               
perhaps adding  ["unprocessed"], which  she said could  make some                                                               
sense.  Suggesting some clarifying  amendments might be good over                                                               
time,  she said  although DOR  representatives have  been working                                                               
closely on  this, for  example, who knows  what the  next [hiring                                                               
round] will bring.                                                                                                              
Number 2449                                                                                                                     
CHAIR  SEATON suggested  clarification  will  probably be  needed                                                               
from the Tax  Division; for example, Chuck [Harlamert  of the Tax                                                               
Division]  had  indicated previously  that  the  tax would  be  3                                                               
percent,  but  on the  value  sold  to  "the other  ...  licensed                                                               
fishery business."  Chair Seaton  expressed the desire to have it                                                               
"get  it  to  raw-fish  value."     He  then  asked  whether  the                                                               
suggestion was to put ["unprocessed"] under Section 5.                                                                          
MS. KELLEY said  it could be gone over if  other issues are being                                                               
analyzed, but expressed concern  about messing something else up.                                                               
She reiterated that  the bill has been worked on  for years among                                                               
a  number of  parties,  and that  any  substantive changes  could                                                               
cause [the  agreement] to fall apart,  which would be a  big loss                                                               
for direct marketers.                                                                                                           
CHAIR SEATON expressed  hope that the Tax  Division would contact                                                               
the committee about the current  projection and where it would be                                                               
with the addition of that [language].                                                                                           
MS. KELLEY  expressed appreciation for  DOR's work over  the past                                                               
couple of years.                                                                                                                
Number 2599                                                                                                                     
MS.  HANSEN  responded  to  the suggestion  of  adding  the  word                                                               
"unprocessed" as follows:                                                                                                       
     If  those of  us that  have  been looking  at this  and                                                                    
     talking  about it  understand it  correctly -  and I've                                                                    
     just  kind of  checked  with Department  of Revenue;  I                                                                    
     have  e-mails into  Department of  Revenue, but  [Chuck                                                                    
     Harlamert has] been unavailable -  what it does is, for                                                                    
     the direct marketer that is  actually going all the way                                                                    
     to  market with  his product,  it makes  it very  clear                                                                    
     that what we're talking about  is ... the tax goes down                                                                    
     onto a raw product.                                                                                                        
     For  those  individuals  ... selling  to  the  licensed                                                                    
     fishery business,  their tax  is going  to be  taken on                                                                    
     what  they're paid  for by  that processor;  there's no                                                                    
     ifs, ands, or  buts about it. ... In some  cases, a guy                                                                    
     that's   selling  to   the   shoreside  processor   his                                                                    
     processed product ... might pay  a little bit more than                                                                    
     somebody who  goes to  ... the  trouble of  marketing -                                                                    
     ... all the way to the end consumer - their product.                                                                       
CHAIR SEATON asked  that Ms. Hansen confer with  the committee to                                                               
ensure  that  the  correct  placement  is  being  considered  for                                                               
"unprocessed" in order to not affect "the end use."                                                                             
Number 2667                                                                                                                     
CHAIR SEATON  asked whether  anyone else wished  to testify.   He                                                               
then closed public testimony.                                                                                                   
CHAIR  SEATON  drew  attention  to  page  3,  lines  13-16.    He                                                               
suggested  there   is  good  clarification  in   allowing  direct                                                               
marketing vessels  to expand their options,  since currently they                                                               
must  process on  their own  vessel only  what they've  caught on                                                               
their  own vessel.   This  [new wording]  allows processing  at a                                                               
shoreside facility  or obtaining custom-processing services.   He                                                               
pointed  out,  however,  that  while this  works  well  for  some                                                               
localities close  to town,  many places such  as the  outer Kenai                                                               
Peninsula have no shoreside facility nearby.                                                                                    
CHAIR SEATON therefore  asked members to consider  adding [to the                                                               
portion at  lines 13-16] the language  on lines 9-10 that  says a                                                               
vessel doesn't exceed  65 feet in overall length and  is owned or                                                               
leased by  the commercial fisherman;  thus someone  could utilize                                                               
another vessel  or a small barge.   He explained that  people may                                                               
be constrained  if putting product  into boxes, for  example, and                                                               
this would  give those without  access to a  shore-based facility                                                               
the  same ability  to utilize  this direct-marketing  legislation                                                               
and have "a little more facility."                                                                                              
Number 2808                                                                                                                     
REPRESENTATIVE  WILSON surmised,  then,  that  a fisherman  could                                                               
bring alongside another boat that he or she owns.                                                                               
CHAIR SEATON  clarified, "Owns  or leases."   Again  referring to                                                               
the  wording  on  lines  9-10,  he said  it  would  be  the  same                                                               
definition.   Shore could be too  far away to do  processing, for                                                               
example, and  this increases options  for direct  marketers, just                                                               
as options are increased for those  who fish close to town and to                                                               
shore-based facilities; this also  makes [the bill] applicable to                                                               
more areas of the state.                                                                                                        
REPRESENTATIVE WILSON asked who would pay the tax.                                                                              
CHAIR  SEATON  said it  would  be  the [original]  direct  market                                                               
vessel.   The  second boat  or  facility wouldn't  be a  licensed                                                               
fishery business; if it were,  it would be a different situation.                                                               
He suggested, for example, a  fisherman might have a 38-foot boat                                                               
and a  barge or second boat  anchored up on which  to process the                                                               
product;  this would  allow the  fisherman  to do  what the  bill                                                               
allows  for  people close  to  town  who  can use  a  shore-based                                                               
facility.  The  [second boat or barge] would have  to be [65 feet                                                               
or less]; the fisherman would  still have to be direct marketing,                                                               
and would still  have to maintain the product just  as if using a                                                               
shore-based facility.                                                                                                           
Number 2948                                                                                                                     
REPRESENTATIVE WILSON  asked whether there would  be extra steps,                                                               
other than transporting the fish.                                                                                               
CHAIR SEATON said no, it would be  no different from the use of a                                                               
shore-based  facility and  would have  no extra  advantage.   The                                                               
difference  is  that  line  15  says it  must  be  a  shore-based                                                               
facility, but  that means a fisherman  must be tied to  and close                                                               
to such a facility.                                                                                                             
[Not on  tape, but reconstructed  from the  committee secretary's                                                               
log notes, was  Representative Ogg's question as  to whether that                                                               
isn't covered already under custom processing.]                                                                                 
TAPE 04-9, SIDE B                                                                                                             
Number 2975                                                                                                                     
CHAIR  SEATON said  custom processing  involves another  licensed                                                               
fishery business that  someone contracts with to  process fish; a                                                               
person can  maintain ownership of  the fish and have  [the custom                                                               
processor]  do  the  processing.   By  contrast,  this  [proposed                                                               
change] allows people to process their  own fish, as is done with                                                               
a shore-based facility.  He  said that's why it says "shore-based                                                               
facility or by  means of custom processing", and it  gives a dual                                                               
ability so someone doesn't need a separate license.                                                                             
REPRESENTATIVE OGG  highlighted testimony  about freezer-trollers                                                               
and their need for a processing  license.  He asked about needing                                                               
a  different license  for the  processing part  on a  second boat                                                               
[for other  fishermen].  He  again suggested it would  be covered                                                               
under  custom  processing.    He  noted  that  it  would  be  two                                                               
different vessels.                                                                                                              
CHAIR  SEATON agreed,  but  said there  is  a difference  between                                                               
being licensed to process and  being a separate business that one                                                               
is  selling to,  contracting services  with,  and so  forth.   He                                                               
pointed  out  that  DEC,  ADF&G, and  [DOR]  all  have  different                                                               
definitions of  processing and different licenses.   He specified                                                               
that this suggestion is to  give individual fishermen the easiest                                                               
option to  conduct operations on  their own boats, using  for the                                                               
processing a small barge or another  boat that is leased or owned                                                               
Number 2836                                                                                                                     
REPRESENTATIVE OGG asked:  Why limit it to 65 feet?                                                                             
CHAIR  SEATON  answered  that  the  whole  idea  of  the  "direct                                                               
marketing  compromise" is  to restrict  it to  boats [65  feet or                                                               
less  in  overall length].    Saying  there  is no  intention  of                                                               
expanding  that to  floating processors,  for example,  he added,                                                               
"That would be  where you'd have a floating  processor that would                                                               
be covered under ... the custom-process side."                                                                                  
REPRESENTATIVE  OGG  pointed  out   that  fishermen  could  avail                                                               
themselves of  a floating custom-processing  vessel that  came in                                                               
and was  bigger than  65 feet.   He again  asked why  this should                                                               
limit fishermen  to just 65  feet, since [the  processing vessel]                                                               
wouldn't be the boat utilized to catch the fish.                                                                                
REPRESENTATIVE WILSON  surmised that it's part  of the compromise                                                               
worked out.   She asked  whether those  close to shore  would use                                                               
their own  barges, for  instance; how  it would  all fit  in; and                                                               
whether it was okay or would make a difference.                                                                                 
Number 2750                                                                                                                     
CHAIR  SEATON said  he thinks  it  gives fishermen  options.   He                                                               
offered his belief that it's always  easier, if close to port, to                                                               
use a  shoreside facility  rather than do  things offshore.   But                                                               
shoreside facilities  aren't scattered  evenly across  the state.                                                               
He asked Ms. Hansen how this  works in relation to the compromise                                                               
on the 65-foot length.                                                                                                          
MS.  HANSEN  replied that  she'd  first  heard of  this  proposed                                                               
language this  morning and thus  hadn't figured out how  it would                                                               
fit  in and  whether it  would affect  all the  different parties                                                               
that had worked on this.  She continued:                                                                                        
     I do know  that, in listening to  the discussion that's                                                                    
     occurred so far, there are  two things that immediately                                                                    
     occur to me  that need to be checked into.   One is the                                                                    
     Coast Guard  question that  you'd asked  about earlier.                                                                    
     And I  guess my  discussion earlier  didn't go  all the                                                                    
     way into it.  Where  you have problems with those Coast                                                                    
     Guard regulations or the  fishing ... safety initiative                                                                    
     Act is, when  you take a vessel that's  a harvester and                                                                    
     turn  it  into  a  processor,   you  have  to  have  it                                                                    
     So a vessel where you're  doing the harvesting on, even                                                                    
     if they're  doing processing, they  don't go  into that                                                                    
     whole new  routine.   But if you  have a  vessel that's                                                                    
     sitting there alongside that  is doing only processing,                                                                    
     you might  very well bump  into those.   It's something                                                                    
     that would need to be checked into.                                                                                        
     And then the second one is,  I would have a question of                                                                    
     Department of  Labor [& Workforce Development].   To go                                                                    
     back,  in about,  I believe,  ...  1998, Department  of                                                                    
     Labor   started  contacting   all   of  the   Southeast                                                                    
     gillnetters that  processed on  board their boat.   And                                                                    
     they  were  telling  us  that  we  needed  to  pay  our                                                                    
     crewmembers  by processing-employee  standard salaries,                                                                    
     W-2s, overtime, and the whole  [works].  And ... we got                                                                    
     it solved  within a short  time period, but it  was ...                                                                    
     definitely  a lot  of work  to convince  them that  ...                                                                    
     that crewmember that was  processing on that harvesting                                                                    
     boat was  still a crewmember,  was still being  paid by                                                                    
     crew  shares, and  that everything  was legitimate  and                                                                    
     they were not a processing employee.                                                                                       
     Again, if you  step over onto another  boat that didn't                                                                    
     do the  harvesting, do  you cross that  line?   I don't                                                                    
     know.   But  the thought  does come  to my  mind, as  a                                                                    
Number 2614                                                                                                                     
CHAIR SEATON  surmised that the  same concern with regard  to the                                                               
Department  of Labor  [& Workforce  Development] would  arise for                                                               
crewmembers  who use  a shore-based  facility and  are no  longer                                                               
aboard the vessel.                                                                                                              
MS. HANSEN replied,  "You might. ... Most people  that use shore-                                                               
based facilities  pay for the  services through a  processor that                                                               
already operates.  There are  very few individuals that use their                                                               
own  shoreside facilities.   Most  of  them do  their boxing  and                                                               
everything on board the boat."                                                                                                  
Number 2588                                                                                                                     
CHAIR SEATON mentioned cod that  fishermen have boxed on board in                                                               
Homer because they couldn't use  a boxing facility, and said it's                                                               
a  great  thing  to  be  able  to  use  the  shoreside  facility.                                                               
Thanking  participants, he  noted  that  some questions  required                                                               
investigation before the next hearing.  [HB 444 was held over.]                                                                 

Document Name Date/Time Subjects