Legislature(2003 - 2004)
02/25/2004 08:37 AM House FSH
* first hearing in first committee of referral
= bill was previously heard/scheduled
= 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 date. 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.