Legislature(2003 - 2004)

02/25/2004 08:37 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]                                                                                                 
Number 1046                                                                                                                     
CHAIR SEATON announced that the final 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 1068                                                                                                                     
REPRESENTATIVE  WILSON moved  to adopt  Amendment  1, which  read                                                               
[original punctuation provided]:                                                                                                
       P. 4, line 5: INSERT unprocessed between "the" and                                                                   
     "fishery resource"                                                                                                         
     The amended line 5 would read:                                                                                             
        by the prevailing price paid to fishermen for the                                                                     
     unprocessed fishery resource...                                                                                        
Number 1163                                                                                                                     
CHUCK HARLAMERT,  Juneau Section Chief, Tax  Division, Department                                                               
of Revenue  (DOR), stated  that the  Department of Revenue  would                                                               
not object to the proposed amendment.                                                                                           
REPRESENTATIVE OGG  asked Mr. Harlamert  what impact there  would                                                               
be on the amount of revenue generated if HB 444 were not passed.                                                                
MR.  HARLAMERT replied  that in  fiscal year  2003  (FY 03),  DOR                                                               
collected  $120,000  of  fisheries  business   tax  revenue  from                                                               
taxpayers that it feels would fall into  the category proposed by                                                               
HB 444.                                                                                                                         
Number 1193                                                                                                                     
REPRESENTATIVE OGG asked for a projected  amount of tax collected                                                               
if HB 444 passes.                                                                                                               
MR. HARLAMERT  said he doesn't have  a firm projection, but  from                                                               
data  analysis, DOR  believes there  are compliance  issues.   He                                                               
commented on the  difficulty of enforcing compliance  issues, but                                                               
said, at worst, the net effect would be revenue-neutral.                                                                        
Number 1310                                                                                                                     
CHAIR SEATON  asked if  there was  any objection  to adoption  of                                                               
Amendment  1  [text   provided  previously].    There   being  no                                                               
objection, it was so ordered.                                                                                                   
Number 1363                                                                                                                     
DENNIS ZADRA, Owner, Wild Salmon Incorporated,  testified that he                                                               
is  a  commercial  fisherman  who  is   processing  and  directly                                                               
marketing his own fish.   He offered his belief that HB  444 will                                                               
make  it   more  of  an  even   playing  field  for  the   custom                                                               
processor/direct marketer  sector.   Mr. Zadra  pointed out  that                                                               
currently that  sector is taxed at  a high rate,  especially when                                                               
taxed at the point of sale.                                                                                                     
MR. ZADRA,  using his own  experience as an example,  illustrated                                                               
many  examples  that  he felt  represented  just  how  much  more                                                               
expensive  being  a  custom  processor/direct  marketer  [over  a                                                               
larger business] is.  He compared the  costs between his business                                                               
and  a   larger-scale  business,  pointing  out   differences  in                                                               
taxation, the  higher cost of  shipping, and other inherent  fees                                                               
that his business has that other, larger businesses do not.                                                                     
Number 1459                                                                                                                     
CHAIR SEATON asked Mr. Zadra whether he was a resident of Cordova                                                               
and moored and stored his vessel there as well.                                                                                 
MR. ZADRA affirmed the foregoing.                                                                                               
Number 1501                                                                                                                     
BILL  WEBBER, Owner,  Gulkana  Seafoods  Direct, said  he'd  just                                                               
started in  the custom  processing/direct marketing  sector.   He                                                               
said he has  been a drift gillnetter in the Copper  River fishery                                                               
for 34  years; since starting  his direct marketing business,  he                                                               
has  encountered  many  of  the  same   problems  Mr.  Zadra  had                                                               
illustrated.    Mr.  Webber  said  he  believes  Senator  Stedman                                                               
summarized  [the  problem]  well in  his  sponsor  statement  for                                                               
SB 286.   He closed by saying  HB 444 is  a good first step,  and                                                               
that the legislature needs to move  forward to empower individual                                                               
commercial fishermen.                                                                                                           
Number 1598                                                                                                                     
BRAD SAPP, Commercial  Fisherman, testified that he owns  his own                                                               
fishing  vessel,  the   Gladiator,  and  had  started   a  custom                                                               
processing/direct  marketing  business   a  few  years  ago;   he                                                               
eventually backed  out of the business  because of the taxes  and                                                               
costs that  Mr. Zadra  and Mr.  Webber had  explained in  earlier                                                               
testimony.      Noting   that   he   is   starting   his   custom                                                               
processing/direct  marketing business  back  up again,  Mr.  Sapp                                                               
asked for HB 444 to be made into law.   In response to a question                                                               
from Chair Seaton, he said he is a year-round Cordova resident.                                                                 
Number 1702                                                                                                                     
CHAIR  SEATON  noted  that  HB  444  would  cover  two  types  of                                                               
commercial   fishing   operations:     custom   processing/direct                                                               
marketing to  private individuals  or to  other, larger  licensed                                                               
fisheries.   He  asked  if Mr.  Sapp  foresees selling  his  fish                                                               
directly to private individuals by either  a mail-order system or                                                               
by  just selling  off of  the dock,  or  would sell  to a  larger                                                               
commercial-licensed  fishery  and  have  it  take   care  of  the                                                               
paperwork and tax collection.                                                                                                   
MR. SAPP said he  could see himself doing both, depending  on the                                                               
market and the opportunity.                                                                                                     
Number 1820                                                                                                                     
CHAIR SEATON highlighted the duality of HB  444, which provides a                                                               
tax  break  for  businesses  that   do  custom  processing/direct                                                               
marketing  to   either  consumers   or  other  licensed   fishery                                                               
businesses.   He  commented that  if  a custom  processing/direct                                                               
marketing business sells to individuals, it  would be responsible                                                               
for the  paperwork and tax collection; if  it sold to  a licensed                                                               
fishery, however, the larger fishery would assume that burden.                                                                  
Number 1901                                                                                                                     
CHAIR SEATON  asked if  there were further  testifiers.  He  then                                                               
closed public testimony.                                                                                                        
REPRESENTATIVE  OGG posed  a  hypothetical scenario  involving  a                                                               
fisherman who could have a vessel under 65  feet in length, go to                                                               
a cod fishery, custom  process the catch on the boat,  freeze it,                                                               
and then go to a tramp steamer and thus  avoid taxation.  He said                                                               
in essence this would make it an  offshore factory processor, and                                                               
it  might allow  the  fisherman to  compete unfairly  with  other                                                               
offshore processors.                                                                                                            
Number 1971                                                                                                                     
MR. HARLAMERT clarified  that the Department of Revenue  does not                                                               
tax any vessel that sails outside of the  three-mile [limit].  If                                                               
the vessels  were offshore three  miles or  more, they would  not                                                               
have to  pay a tax;  this wouldn't change  whether or not HB  444                                                               
passed.   He  explained that  if those  vessels  were within  the                                                               
three-mile limit, then they would pay the tax.                                                                                  
Number 2048                                                                                                                     
REPRESENTATIVE OGG asked  for further clarification based  on the                                                               
vessels' never returning  to port and, under  HB 444, paying a  3                                                               
percent  tax and  taking  their product  to an  offshore  vessel,                                                               
whereas under current  law, any other business would be  paying a                                                               
5 percent tax by using a floating processor.                                                                                    
MR. HARLAMERT  answered that the direct  market/custom processing                                                               
vessels would  have a  3 percent  tax, and  a floating  processor                                                               
would have a 5 percent tax.                                                                                                     
Number 2181                                                                                                                     
CHAIR SEATON  clarified that the 3  percent tax would only  apply                                                               
to a direct  market vessel, which could only process the  fish it                                                               
caught.  He added that there is  a distinction between a floating                                                               
processor  that buys  fish  from  other  vessels and  the  direct                                                               
market vessel that can only process its own fish.                                                                               
Number 2218                                                                                                                     
REPRESENTATIVE OGG  said he understood,  but pointed out that  an                                                               
unintended  consequence may  remove  fishery resources  from  the                                                               
coastal communities to a potentially nonresident  population.  He                                                               
said if  these direct  marketers start  using larger  processors,                                                               
then control of  Alaskan fish could be taken away  from residents                                                               
in coastal communities.  Representative Ogg asked  whether he was                                                               
reading the bill wrong or whether this possibility exists.                                                                      
MR. HARLAMERT answered  that the possibility does exist  with the                                                               
passage of HB  444, but it  currently exists by virtue  of simply                                                               
not processing  fish within the  state's territorial waters.   He                                                               
went on  to say  that the  complementary landing  tax deals  with                                                               
that possibility, and  he doesn't think HB 444  generates further                                                               
incentive to move the economic activity offshore.                                                                               
CHAIR SEATON asked for clarification on the  rate of taxation for                                                               
a catcher-processor.                                                                                                            
Number 2304                                                                                                                     
MR.  HARLAMERT  explained  that  for   a  catcher-processor  that                                                               
processes fish  within state  waters, the  rate is  5 percent;  a                                                               
catcher-processor that operates  outside of state  waters doesn't                                                               
pay  the fisheries  business tax,  but instead  pays a  fisheries                                                               
landing tax  at 3 percent.   He added  that if the vessels  don't                                                               
land or process fish  within state waters, they pay no  tax, with                                                               
some exceptions.                                                                                                                
REPRESENTATIVE OGG shared that he thought the  intent of the bill                                                               
was to  encourage local Alaskans to  directly market and to  keep                                                               
the money generated flowing through the  community.  He expressed                                                               
concern that passage  of HB 444 may remove the  fishery resources                                                               
from coastal Alaska by outside businesses' coming in.                                                                           
Number 2370                                                                                                                     
REPRESENTATIVE GUTTENBERG said he shared the  same concerns about                                                               
the unintended consequences.                                                                                                    
MR. HARLAMERT  said he  doesn't see  how the 3  percent tax  rate                                                               
would negatively impact economic activity in Alaska.                                                                            
Number 2457                                                                                                                     
REPRESENTATIVE WILSON moved to report HB 444,  as amended, out of                                                               
committee with  individual recommendations  and the  accompanying                                                               
fiscal  note.    There being  no  objection,  CSHB  444(FSH)  was                                                               
reported from the House Special Committee on Fisheries.                                                                         

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