Legislature(2009 - 2010)BARNES 124

02/18/2010 10:15 AM FISHERIES


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10:18:08 AM Start
10:19:18 AM HB344
10:44:15 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
*+ HB 344 SALMON PRODUCT DEVELOP. TAX CREDIT TELECONFERENCED
Heard & Held
+= HCR 15 BRISTOL BAY MINING STUDY TELECONFERENCED
<Bill Hearing Postponed>
+ Bills Previously Heard/Scheduled TELECONFERENCED
           HB 344-SALMON PRODUCT DEVELOP. TAX CREDIT                                                                        
                                                                                                                                
10:19:18 AM                                                                                                                   
                                                                                                                                
CHAIR EDGMON announced  that the only order of  business would be                                                               
HOUSE  BILL NO.  344,  "An  Act relating  to  the salmon  product                                                               
development tax  credit; and providing  for an effective  date by                                                               
amending  an effective  date  in sec.  7, ch.  57,  SLA 2003,  as                                                               
amended by  sec. 4, ch. 3,  SLA 2006, and  by sec. 4, ch.  8, SLA                                                               
2008."                                                                                                                          
                                                                                                                                
10:19:24 AM                                                                                                                   
                                                                                                                                
PETER ECKLUND, Staff, Representative  William "Bill" Thomas, Jr.,                                                               
Alaska  State Legislature,  presented HB  344, paraphrasing  from                                                               
the   sponsor  statement,   which   read  [original   punctuation                                                               
provided]:                                                                                                                      
                                                                                                                                
     House  Bill   344  extends  the  deadline   for  salmon                                                                    
     processors  in  Alaska  to  receive  a  salmon  product                                                                    
     development tax credit.   The program allows applicants                                                                    
     to claim  a credit  on their annual  fisheries business                                                                    
     tax  for   50%  of  the  purchase   costs  of  eligible                                                                    
     equipment.   Credits received may  not exceed 50%  of a                                                                    
     taxpayer's annual  tax liability.   Under  current law,                                                                    
     processors can claim the credit  for the property first                                                                    
     placed into  service by December  31, 2011.   This bill                                                                    
     would extend the program's sunset  date to December 31,                                                                    
     2015, allowing processors ample  time to continue their                                                                    
     long-range investment planning.                                                                                            
                                                                                                                                
     The  salmon product  development tax  credit was  a key                                                                    
     recommendation   of   the  Joint   Legislative   Salmon                                                                    
     Industry  Task  Force.   First  enacted  in  2003,  the                                                                    
     credit  was  part  of an  effort  by  Alaska's  elected                                                                    
     leaders and the fishing  industry to develop innovative                                                                    
     value-added  salmon  products.     Since  then  it  has                                                                    
     stimulated   some   important   changes   in   Alaska's                                                                    
     commercial fishing industry.   New processing equipment                                                                    
     eligible  for  the  tax credit  enables  businesses  to                                                                    
     offer  a  more  diverse  complement  of  Alaska  salmon                                                                    
     products   which   helps  increase   overall   customer                                                                    
     acceptance.    Modern  equipment  also  helps  increase                                                                    
     efficiency  of   processing  operations   and  improves                                                                    
     output,  resulting  in  improved  quality.    Increased                                                                    
     investment  in  Alaskan equipment  encourages  in-state                                                                    
     processing of our salmon resource  which is critical to                                                                    
     job creation and retention in fishing communities.                                                                         
                                                                                                                                
     The House  Fisheries and  Finance Committees  added ice                                                                    
     machines to  the list of  investments that  qualify for                                                                    
     the  tax credit.   Having  a top  quality base  product                                                                    
     delivered to  processors is  a prerequisite  to further                                                                    
     value adding processing of salmon.                                                                                         
                                                                                                                                
     Alaska's salmon  industry is beginning to  recover from                                                                    
     years  of low  values caused  by competition  from fish                                                                    
     farming,  the recent  economic  depression, changes  in                                                                    
     the  marketplace,  and   increasing  labor  and  energy                                                                    
     costs.   Extending  the tax  credit beyond  its current                                                                    
     sunset  date  of  December  31,  2011  will  allow  the                                                                    
     industry to  continue the progress  that is  being made                                                                    
     in developing  and producing salmon products  that will                                                                    
     keep Alaska's  fisheries competitive in  world markets.                                                                    
     The state  should continue to  support one of  our most                                                                    
     important  basic  industries  by extending  the  salmon                                                                    
     product development  tax credit  through passage  of HB
     344.                                                                                                                       
                                                                                                                                
10:22:20 AM                                                                                                                   
                                                                                                                                
MR. ECKLUND directed  attention to the committee  packet, and the                                                               
Department of Revenue (DOR) handout  titled:  Alaska Tax Division                                                               
2009 Annual Report,  Figure 3 - Revenue Collections  Detail.  The                                                               
fiscal year  (FY) 2009 total  receipts, collected  from fisheries                                                               
business tax,  shows just over  $42 million, up from  $23 million                                                               
in 2003.  He opined that a  major reason for this increase is the                                                               
tax credit that the bill provides.                                                                                              
                                                                                                                                
10:23:15 AM                                                                                                                   
                                                                                                                                
CHAIR EDGMON acknowledged the intent  to extend the sunset of the                                                               
tax credit, and  noted that there may also be  interest in adding                                                               
other components.                                                                                                               
                                                                                                                                
MR.  ECKLUND  said   the  addition  of  ice   machines  has  been                                                               
requested, and is being considered by the sponsor.                                                                              
                                                                                                                                
10:24:11 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE BUCH  referred to the handout  titled "Prepared by                                                               
Department of Revenue - Tax  Division, Salmon Product Development                                                               
Credit  Expenditures,  Qualified Expenditures  and  Non-Qualified                                                               
Expenditures,   dated    2/17/2010,"   and   asked    about   the                                                               
differentiation of the items included, or excluded.                                                                             
                                                                                                                                
MR. ECKLUND indicated  that the legislation was  first drafted in                                                               
2003, but has been modified  with two amendments, and extensions,                                                               
since  enactment of  the original  bill.   He  surmised that  the                                                               
parcels on the list were part of the initial committee debates.                                                                 
                                                                                                                                
10:25:44 AM                                                                                                                   
                                                                                                                                
CHAIR EDGMON said the question  is pertinent, and a full response                                                               
will be requested for the committees benefit.                                                                                   
                                                                                                                                
10:26:18 AM                                                                                                                   
                                                                                                                                
S.   GREGORY   FISK,   Representative,   Bristol   Bay   Economic                                                               
Development  Corporation  (BBEDC),  stated support  for  HB  344,                                                               
paraphrasing  from a  prepared  statement,  which read  [original                                                               
punctuation provided]:                                                                                                          
                                                                                                                                
     Bristol  Bay Economic  Development Corporation  (BBEDC)                                                                    
     supports  passage of  HB  344 and  the  renewal of  the                                                                    
     Salmon Product Development Tax Credit.                                                                                     
                                                                                                                                
     The Tax  Credit has helped stimulate  investment in new                                                                    
     value  added  processing  equipment across  the  State.                                                                    
     Probably  most important  are  the  many salmon  fillet                                                                    
     lines now operating.  In  Bristol Bay increasing fillet                                                                    
     production is truly transforming the fishery.                                                                              
                                                                                                                                
     Unfortunately, basic salmon  quality issues continue to                                                                    
     limit  the   full  positive  economic  impact   of  the                                                                    
     investments  in   value  added  equipment.     This  is                                                                    
     particularly  acute in  Bristol Bay,  but is  certainly                                                                    
     not limited to the Bay.   It's an old problem - lack of                                                                    
     fish  chilling  capacity.    This  results  in  a  high                                                                    
     incidence  of  No. 2  fish  that  are unacceptable  for                                                                    
     filleting.  The big problems are gaping and bruising.                                                                      
                                                                                                                                
     Increasing the percentage of No.  1 grade fish is vital                                                                    
     to getting  full benefit  from other  investments under                                                                    
     the  Salmon Product  Development  Tax  Credit.   Proper                                                                    
     chilling  in   slush  ice  has  been   demonstrated  to                                                                    
     increase  the percentage  of No.  1  fish from  45%-50%                                                                    
     range to 80%-85% in Bristol Bay.                                                                                           
                                                                                                                                
     Accordingly, BBEDC  would like  to suggest that,  as HB
     344  works its  way through  the process,  you consider                                                                    
     adding  ice production  and delivery  equipment to  the                                                                    
     list  of qualified  investments  eligible  for the  tax                                                                    
     credit.     Doing  so   will  directly   contribute  to                                                                    
     achieving  the original  intent of  the Salmon  Product                                                                    
     Development Tax  Credit, by helping  to ensure  that we                                                                    
     have  the quality  salmon  needed  for effective  value                                                                    
     added processing in Alaska.                                                                                                
                                                                                                                                
     Ice Production  and Delivery Equipment  should include:                                                                    
     the   actual    ice   makers   themselves,    and   the                                                                    
     refrigeration systems  required; ice storage  systems -                                                                    
     conventional  insulated ice  houses,  tanks for  slurry                                                                    
     systems, etc.;  delivery systems  - ice  rakes, augers,                                                                    
     pneumatic systems, chutes, etc.                                                                                            
                                                                                                                                
10:29:15 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE BUCH pondered why  the request for having specific                                                               
equipment included has come recently to  the fore and late in the                                                               
session.  He questioned whether it's a shift in needs.                                                                          
                                                                                                                                
MR.  FISK responded  that what  has changed  is the  emphasis for                                                               
value-added processing.                                                                                                         
                                                                                                                                
10:31:52 AM                                                                                                                   
                                                                                                                                
TIM COTTONGIM,  Fish Group Manager,  Tax Division,  Department of                                                               
Revenue (DOR), said  that the list was generated  by the language                                                               
in  statute,   which  describes   the  qualifying   functions  of                                                               
equipment allowed  for credit under  the program.   He referenced                                                               
AS 43.75.035(j)(3),  used to generate  the list,  and paraphrased                                                               
the statute, which read [original punctuation provided]:                                                                        
                                                                                                                                
          (3) "qualified investment" means the investment                                                                       
     cost in  depreciable tangible personal property  with a                                                                    
     useful  life  of  three  years   or  more  to  be  used                                                                    
     predominantly  to perform  a processing,  packaging, or                                                                    
     product  finishing  function   that  is  a  significant                                                                    
     component  in  producing  value-added  salmon  products                                                                    
     beyond  gutting  of  the  salmon;  in  this  paragraph,                                                                    
     "property"                                                                                                                 
          (A) includes                                                                                                          
          (i) filleting, skinning, portioning, mincing,                                                                         
     forming,   extruding,   stuffing,  injecting,   mixing,                                                                    
     marinating,   preserving,  drying,   smoking,  brining,                                                                    
     packaging,   blast  freezing,   or  pin   bone  removal                                                                    
     equipment;                                                                                                                 
          (ii) new parts to convert an existing can seamer                                                                      
     to pop-top can production; and                                                                                             
          (iii) conveyors used specifically in the act of                                                                       
     producing a value-added salmon product;                                                                                    
          (B) does not include                                                                                                  
          (i) vehicles, forklifts, conveyors not used                                                                           
     specifically  in the  act  of  producing a  value-added                                                                    
     salmon product, cranes, pumps,  or other equipment used                                                                    
     to  transport   salmon  or  salmon   products,  knives,                                                                    
     gloves, tools,  supplies and materials,  equipment that                                                                    
     is  not  processing,  packaging, or  product  finishing                                                                    
     equipment,  or  other equipment  the  use  of which  is                                                                    
     incidental to  the production, packaging,  or finishing                                                                    
     of value-added salmon products; or                                                                                         
          (ii) the overhaul, retooling, or modification of                                                                      
     new  or  existing property,  except  for  new parts  to                                                                    
     convert  an   existing  can   seamer  to   pop-top  can                                                                    
     production;                                                                                                                
                                                                                                                                
10:32:51 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE   MUNOZ  opined   that   the   statute  could   be                                                               
interpreted to permit icing.                                                                                                    
                                                                                                                                
MR.  COTTONGIM  highlighted  the statutory  language  "processing                                                               
function,"  and  said that  this  term  does not  include  icing.                                                               
Because icing is  considered a task that a  fisherman can manage,                                                               
it is not considered a processing function.                                                                                     
                                                                                                                                
REPRESENTATIVE MUNOZ disagreed with  that reasoning.  She pointed                                                               
out  that  the inclusionary  language  names  blast freezing  and                                                               
preserving.  Icing,  she opined, is a method of  preserving.  The                                                               
exclusionary  language  identifies  knives,  tools,  gloves,  and                                                               
ancillary  products.    Although  she opined  that  the  language                                                               
allows for the ability to  include ice machines, she acknowledged                                                               
the department's very narrow interpretation of the statute.                                                                     
                                                                                                                                
10:34:39 AM                                                                                                                   
                                                                                                                                
CHAIR EDGMON opened public testimony.                                                                                           
                                                                                                                                
10:34:50 AM                                                                                                                   
                                                                                                                                
MARK  PALMER, President,  Ocean Beauty  Seafoods, stated  support                                                               
for HB 344,  naming the Bristol Bay fishery as  an example of why                                                               
this bill  is important,  and an  indicator for  how well  it has                                                               
worked.    He  described  the  processing  operations  that  have                                                               
increased the value-added  product coming out of  the Bristol Bay                                                               
area.  If the freezing capacity  is the limitation of a facility,                                                               
only a certain  number of pounds can be handled,  but filleting a                                                               
fish  takes  up less  freezer  space.    The program  has  worked                                                               
exactly  in the  way  that it  was intended,  he  opined.   Ocean                                                               
Beauty has  invested in fillet  and value-added capacity  in four                                                               
of their  seven Alaskan  locations.   This has  allowed increased                                                               
market prices  and promoted  the addition  of new  product lines.                                                               
He  stressed that  the bill  has  worked very  well and  fostered                                                               
investment in many areas of the industry.                                                                                       
                                                                                                                                
10:38:55 AM                                                                                                                   
                                                                                                                                
MARY  MCDOWELL,   Vice  President,  Pacific   Seafood  Processors                                                               
Association, stated  support for HB  344, and concurred  with the                                                               
previous  speakers statements,  regarding the  benefits and  need                                                               
for the legislation.   She added that investing  in the equipment                                                               
up front,  pays for itself many  times over.  The  bill serves to                                                               
improve  the  situation for  the  seafood  industry, the  coastal                                                               
communities,  and   the  state  revenues;  it   is  an  excellent                                                               
investment.                                                                                                                     
                                                                                                                                
10:41:19 AM                                                                                                                   
                                                                                                                                
BOB WALDROP, Executive Director,  Bristol Bay Seafood Development                                                               
Association (BBSDA), sated vigorous support  for HB 344, and said                                                               
the bill  represents a direct  benefit to Bristol  Bay fishermen.                                                               
He pointed  out that in  response to the tax  credit, value-added                                                               
production in Bristol  Bay is rising sharply:   fillet production                                                               
continues  to  increase, and  value-added  products  are in  high                                                               
demand on  the world market.   The  Bristol Bay fishery  is fully                                                               
productive, while  fish farms are  in crisis.  During  the plight                                                               
of the  farms, it is  important for Alaska  to fill the  void and                                                               
maintain the  leadership position,  as the  farms work  to regain                                                               
production  levels.    Investments in  equipment  upgrades,  made                                                               
possible by  the tax  credit, are investments  that will  pay big                                                               
dividends for  the entire industry.   Additionally, a  higher tax                                                               
base  will be  gained  and the  state will  recoup  costs of  the                                                               
program through the product and business tax structure.                                                                         
                                                                                                                                
10:43:49 AM                                                                                                                   
                                                                                                                                
CHAIR  EDGMON stated  that HB  344  would be  held for  continued                                                               
public testimony and committee consideration.                                                                                   

Document Name Date/Time Subjects
HB 344--Sponsor Statement.PDF HFSH 2/18/2010 10:15:00 AM
HB 344
HB 344--Qualified and Non-qualified Expenditures.PDF HFSH 2/18/2010 10:15:00 AM
HB 344
HB 344--Alaska Tax Division 2009 Detail.PDF HFSH 2/18/2010 10:15:00 AM
HB 344
HB 344--PSPA Support.PDF HFSH 2/18/2010 10:15:00 AM
HB 344
HB 344--Peter Pan Seafoods Support Ltr..pdf HFSH 2/18/2010 10:15:00 AM
HB 344
HB 344--North Pacific Seafoods Support.PDF HFSH 2/18/2010 10:15:00 AM
HB 344
HB344-REV-TAX-02-17-10 Fiscal Note.pdf HFSH 2/18/2010 10:15:00 AM
HB 344