Legislature(2015 - 2016)CAPITOL 120

02/18/2016 10:00 AM House FISHERIES

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10:04:37 AM Start
10:04:59 AM HB251
10:56:00 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
        HB 251-ELECTRONIC TAX RETURNS & FISHERIES TAXES                                                                     
10:04:59 AM                                                                                                                   
CHAIR STUTES announced  that the only order of  business would be                                                               
HOUSE BILL  NO. 251 "An  Act requiring the  electronic submission                                                               
of  a  tax return  or  report  with  the Department  of  Revenue;                                                               
relating to  fisheries business tax and  fishery resource landing                                                               
tax; relating to refunds to  local governments; and providing for                                                               
an effective date."                                                                                                             
10:05:30 AM                                                                                                                   
CHAIR STUTES  directed attention  to the  committee packet  and a                                                               
letter  from  the  North Pacific  Fisheries  Association  (NPFA),                                                               
dated 2/11/16.   She  said the comments  expressed, appear  to be                                                               
representative of  the responses that  are being received  by the                                                               
committee, and she paraphrased the  content, which read [original                                                               
punctuation provided]:                                                                                                          
     The  North  Pacific  Fisheries  Association  (NPFA)  is                                                                    
     commercial fishing  industry group based out  of Homer,                                                                    
     Alaska.   NPFA was  founded in 1955  and today  we have                                                                    
     over fifty  members, mainly  owners of  family oriented                                                                    
     fishing  operations that  participate in  a variety  of                                                                    
     fisheries throughout the State Of Alaska.                                                                                  
     NPFA is keenly aware of  the dire fiscal situation that                                                                    
     the State  of Alaska  is facing.   At our  February 11,                                                                    
     2016 Board  of Directors  meeting our  group recognized                                                                    
     that all  sectors of the  Alaskan economy are  going to                                                                    
     have to be  part of a solution.  First  and foremost we                                                                    
     believe that  all attempts to curtail  budgets and find                                                                    
     efficiencies  within  operations  is  imperative.    As                                                                    
     small  business  owners  we understand  first-hand  the                                                                    
     measures necessary when times get tough.                                                                                   
     NPFA  appreciates the  fact that  a plan  has been  put                                                                    
     forward.   While we  do not oppose  an increase  to the                                                                    
     fisheries  landing  tax  we  do  oppose  the  piecemeal                                                                    
     legislative  approach  that  appears to  be  occurring.                                                                    
     HB251 and SB135  are good starting points  but we would                                                                    
     much  prefer a  comprehensive  bill  that includes  all                                                                    
     resource industries excluding Oil  and Gas which is its                                                                    
     own  animal.   We  want to  contribute  as an  industry                                                                    
     along with the other sectors of the economy.                                                                               
     Additionally we would  like to see analysis  of all the                                                                    
     contributions commercial  fishing makes to  the economy                                                                    
     including  the community  revenue  sharing program  and                                                                    
     programs that  go directly to  management.  We  are the                                                                    
     beneficiaries  of  the  management  and  see  efficient                                                                    
     management as a priority for the revenue we create.                                                                        
     Finally, NPFA recognizes this is  a process and as more                                                                    
     analysis   and   information  becomes   available   our                                                                    
     position may evolve.                                                                                                       
10:07:18 AM                                                                                                                   
CHAIR STUTES  summarized her understanding  of public  opinion on                                                               
HB  251 thus  far:    the fishermen  and  fishing industry  don't                                                               
object unequivocally to  the bill, they are willing  to pay their                                                               
fair  share, and  they  would  like to  have  assurance that  all                                                               
resource entities are  united in the effort to  balance the state                                                               
CHAIR STUTES opened public testimony.                                                                                           
10:08:07 AM                                                                                                                   
VINCE   O'SHEA,  Vice   President,  Pacific   Seafood  Processors                                                               
Association,  stated opposition  to HB  251, paraphrasing  from a                                                               
prepared statement, which read [original punctuation provided]:                                                                 
     The Pacific  Seafood Processors Association is  a trade                                                                    
     association formed in 1914.   Our nine member companies                                                                    
     own  and  operate  more  than   26  shore  side  plants                                                                    
     throughout  Alaska and  three motherships  that operate                                                                    
     in   the  Bering   Sea.     Collectively  our   members                                                                    
     participate  in all  of Alaska's  fisheries.   As  such                                                                    
     they will be directly impacted by HB251.                                                                                   
     We  are  reviewing  and discussing  HB251  and  do  not                                                                    
     support it in its current form at this time.                                                                               
     Deciding how and where to  implement increased taxes on                                                                    
     the  Seafood Industry  is a  complicated issue.   HB251                                                                    
     approach is  over-simplified.  Some  have said it  is a                                                                    
     1%  tax increase;  in fact  it increases  our taxes  on                                                                    
     different fisheries  from 20% to  33%.  For  example it                                                                    
     raises  the costs  on value  added products  (including                                                                    
     canned  and frozen  salmon) when  there is  significant                                                                    
     unsold inventory  due to  market conditions  raises the                                                                    
     question of should products with  value added in Alaska                                                                    
     be taxed  at the  same rate  as products  without value                                                                    
     added here?                                                                                                                
     Alaskan  seafood processors  sell  into global  markets                                                                    
     where our  customers have many choices  of products and                                                                    
     suppliers.  As  such, we are price  takers, with little                                                                    
     or no ability to pass on additional costs.                                                                                 
     New costs  from HB251 are being  contemplated while the                                                                    
     Alaska  seafood industry  faces significant  production                                                                    
     and marketing challenges, including:                                                                                       
          26% increase in the Alaska minimum wage over the                                                                      
     past two years                                                                                                             
          20-30% U.S. currency disadvantage for us selling                                                                      
     to our major foreign markets;                                                                                              
          20%+ currency advantage to foreign suppliers                                                                          
     (e.g., farmed salmon) selling into the U.S.                                                                                
          Lack of access to Russian and Ukrainian markets,                                                                      
     especially for salmon roe.                                                                                                 
     It  has been  said the  revenue  goal for  HB251 is  to                                                                    
     close  the  gap  between  the  revenue  collected  from                                                                    
     commercial fisheries  and the  costs of  managing those                                                                    
     fisheries.  However with the  proposed new revenue from                                                                    
     increased fisheries  taxes there  is no  assurance that                                                                    
     continued   cuts  to   ADF&G   would   not  result   in                                                                    
     diminishment  of its  fisheries science  and management                                                                    
     capacity.     The  resultant   precautionary  guideline                                                                    
     harvests  would  pose   significant  opportunity  costs                                                                    
     (decreased  revenue)  to  harvesters,  processors,  and                                                                    
     coastal communities.                                                                                                       
     We  recognize Alaska's  fiscal situation  means we  all                                                                    
     will  have to  pay more.   But  new or  increased taxes                                                                    
     must  be  balanced and  equitable  to  all of  Alaska's                                                                    
     industries,  and must  consider the  total contribution                                                                    
     they  make  including  taxes  paid,  total  employment,                                                                    
     sustainability,  and  economic opportunity.    Moreover                                                                    
     they  must   consider  the  impacts  on   the  economic                                                                    
     viability of the industries being taxed.                                                                                   
     We  would  like  to  continue to  work  with  you,  the                                                                    
     Legislature, and  the Governor  to find a  path forward                                                                    
     on  proposed  increases  in revenue  from  the  seafood                                                                    
10:12:24 AM                                                                                                                   
REPRESENTATIVE FOSTER  asked what  other options  the association                                                               
would like to see considered.                                                                                                   
MR.  O'SHEA  said  understanding  the   impacts  of  any  tax  is                                                               
important,  and taxing  a commodity  producer  versus a  consumer                                                               
paying tax  means different things.   Corporate income  tax comes                                                               
from  top  profits, raw  fish  tax  begins  at  the bottom.    He                                                               
declined  to  make  a  specific suggestion,  at  this  time,  but                                                               
cautioned the  committee to scrutinize  proposals and  ensure the                                                               
result does not produce more harm than good.                                                                                    
10:15:53 AM                                                                                                                   
BOB  THORSTENSON,  JR.,   Executive  Director,  Southeast  Alaska                                                               
Seiners  Associations (SEAS),  stated  opposition to  HB 251  and                                                               
pointed out  that an  Institute of  Social and  Economic Research                                                               
(ISER) study has  not yet been completed.   Being well acquainted                                                               
with  tax  structures,  he  said  a 1  percent  increase  on  the                                                               
processors  would actually  result in  a  10 percent  tax on  the                                                               
entire sector; representing a large  burden.  He offered a number                                                               
of scenarios, conjecturing  on what the future may  look like for                                                               
the state.   A tax scheme must be appropriately  vetted, he said.                                                               
Unintended  consequences  may be  far  reaching,  he opined,  and                                                               
offered  further predictions  of the  possible ramifications.   A                                                               
major  consideration  from  association   members  has  been  the                                                               
municipal share  structure.   Many communities  in Alaska  do not                                                               
benefit  from  the tax  that  the  fishing grounds  they  support                                                               
produce, he  pointed out.   A local  fisherman, such  as himself,                                                               
may  participate  in  fishery  openings  in  Angoon,  Juneau,  or                                                               
Hoonah,  but land  the catch  in Petersburg  or Ketchikan,  which                                                               
become the municipalities receiving the share benefit.                                                                          
10:24:22 AM                                                                                                                   
REPRESENTATIVE  ORTIZ   noted  that  there  could   be  an  issue                                                               
regarding foregone harvest.  He  asked for comment on the surplus                                                               
fish  that can  exist following  fishery openings  and escapement                                                               
goal targets.                                                                                                                   
MR. THORSTENSON  concurred that there  is no doubt  a percentage,                                                               
perhaps  seven percent,  of  any  catch are  left  in the  water.                                                               
Adequate  management  is  sometimes   lacking  in  capturing  all                                                               
harvestable fish,  but in  general ADF&G does  a laudable  job of                                                               
ensuring maximum harvests.                                                                                                      
10:26:12 AM                                                                                                                   
REPRESENTATIVE HERRON  referred to  the bill,  Sec. 2,  and asked                                                               
for comment regarding the electronic reporting requirement.                                                                     
MR. THORSTENSON deferred.                                                                                                       
REPRESENTATIVE HERRON  referred to the  bill, Sec. 3 and  Sec. 4,                                                               
which delineates the  new tax rates, and asked if  it is clear to                                                               
SEAS how  the rates were  chosen, and what rationale  was applied                                                               
in the decision process.                                                                                                        
MR.  THORSTENSON said  he was  not present  at the  meetings when                                                               
determinations were  made, but attended a  presentation luncheon.                                                               
Certainly  the fishermen  are  willing  to pay  a  fair share  to                                                               
support the  state coffers, along  with the other  industries, he                                                               
10:30:36 AM                                                                                                                   
MALCOLM  MILNE, President,  North  Pacific Fisheries  Association                                                               
(NPFA), stated  opposition to HB  251, and thanked the  chair for                                                               
reading  the NPFA  letter.   He  reiterated  that the  commercial                                                               
fishermen expect to  contribute to the budget  shortfall.  Items,                                                               
such as the fuel tax, multiply  the fishing industries burden.  A                                                               
comprehensive  bill,  that   incorporates  all  fishing  resource                                                               
industries, could be supported.                                                                                                 
10:32:35 AM                                                                                                                   
REPRESENTATIVE  FOSTER offered  that  the  aviation industry  may                                                               
only  have effects  from the  proposed fuel  tax, the  bar owners                                                               
association  will  be  effected  by   the  liquor  tax,  but  the                                                               
fishermen will be effected by compounded taxes.                                                                                 
10:33:09 AM                                                                                                                   
REPRESENTATIVE HERRON asked whether  the decision for setting the                                                               
tax at 1 percent, has been explained.                                                                                           
MR. MILNE responded, no.                                                                                                        
10:34:17 AM                                                                                                                   
KEN  ALPER,  Director,  Tax   Division,  Department  of  Revenue,                                                               
explained the process for arriving  at the proposed 1 percent tax                                                               
raise.    Formulas were  considered  and  various fisheries  were                                                               
scrutinized.  The  intent was to generate $18-20  million for the                                                               
state budget.   On request from  the Chair, he agreed  to provide                                                               
the working documents, including the working model.                                                                             
[A brief  discussion regarding  the availability  of departmental                                                               
information ensued.]                                                                                                            
10:40:39 AM                                                                                                                   
REPRESENTATIVE JOHNSON  pointed out that the  administration took                                                               
the right approach in not  creating an omnibus bill, but breaking                                                               
it  out to  each department,  which  in turn  allows the  various                                                               
committees   to   hold  open   hearings   and   bring  a   deeper                                                               
understanding to bare.                                                                                                          
MR.   ALPER  agreed,   noting  that   the  approach   allows  the                                                               
legislative  committees  to  bring  expertise and  focus  to  the                                                               
different target areas.                                                                                                         
10:42:38 AM                                                                                                                   
RHONDA HUBBARD,  Kruzof Fisheries,  LLC, testified  in opposition                                                               
to HB 251,  and said additional time is necessary  to identify an                                                               
equitable way  to tax the industry,  due to its complexity.   The                                                               
taxes do need to be updated,  she agreed, but it should happen in                                                               
consultation with the stakeholders.   She suggested several areas                                                               
that could  be reformed to eliminate  inconsistencies and provide                                                               
fiscal  efficiencies including  reporting  processes for  harvest                                                               
volume, federal  fisheries, and  landing information.   Regarding                                                               
equal  tax distribution,  she  said the  charter  catch has  been                                                               
considered and in Sitka proven  viable, generating about $500,000                                                               
in  a box  assessment.    The charter  and  sport fishing  fleets                                                               
benefits from the management data  that is collected on, and paid                                                               
for  by, the  commercial fleet.   She  stressed the  need to  for                                                               
further consider taxing the charter catch industry.                                                                             
10:46:15 AM                                                                                                                   
REPRESENTATIVE  KREISS-TOMKINS  asked  whether  there  have  been                                                               
deliberations  in  the department  to  raise  revenue across  all                                                               
sectors of the fishing industry.                                                                                                
MR. ALPER  responded that informal  discussions take place  on an                                                               
on-going  basis.   However, it  would be  difficult to  morph the                                                               
existing  commercial   fish  tax  statutes  to   include  charter                                                               
10:48:58 AM                                                                                                                   
REPRESENTATIVE KREISS-TOMKINS reasoned that  raw fish represent a                                                               
taxable resource.   The commercial  fishermen are paying  for the                                                               
privilege of extracting that resource,  and charter operators are                                                               
also  making a  living from  persecuting the  same resource.   An                                                               
equitability consideration appears to be within reason, he said.                                                                
MR.  ALPER offered  that fees  could  be built  into the  charter                                                               
licensing structure  to apply to  an operator's volume  of catch.                                                               
The department would be open for discussion, he invited.                                                                        
10:50:49 AM                                                                                                                   
REPRESENTATIVE JOHNSON  offered that  a bill has  been introduced                                                               
which affects  sport fish licensing,  and big game guides.   It's                                                               
being presented  as an increase  in fees,  rather than a  tax, he                                                               
10:51:40 AM                                                                                                                   
BOB  KRUGER,   Executive  Director,  Alaska   Whitefish  Trawlers                                                               
Association, stated concern  for HB 251, and said  for the large,                                                               
trawl  vessels,  the  suite  of   taxes  being  proposed  invokes                                                               
trepidation.  The profit margin  inherent to the fleet is narrow,                                                               
and  once  imposed  a  tax  may never  be  withdrawn.    He  said                                                               
including a  date for annual  review or possible sunset  would be                                                               
helpful.   The fishing  industry is difficult  to enter  and this                                                               
may represent a disincentive to young fishermen, he opined.                                                                     
10:55:07 AM                                                                                                                   
CHAIR  STUTES closed  public testimony  after ascertaining  no on                                                               
further wished to testify.                                                                                                      
[HB 251 was held over.]                                                                                                         

Document Name Date/Time Subjects
HB251 Backup 2015 fisheries business licenses.pdf HFSH 2/18/2016 10:00:00 AM
HB 251
HB251 Backup NPFA Milne.pdf HFSH 2/18/2016 10:00:00 AM
HB 251
HB251 Backup Moir.pdf HFSH 2/18/2016 10:00:00 AM
HB 251
HB251 Back up PVOA Oppose.pdf HFSH 2/18/2016 10:00:00 AM
HB 251
HB251 Backup At Sea Processors.pdf HFSH 2/18/2016 10:00:00 AM
HB 251
HB251 Backup Trident.pdf HFSH 2/18/2016 10:00:00 AM
HB 251