Legislature(2003 - 2004)
04/08/2003 09:02 AM FIN
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
CS FOR SENATE BILL NO. 82(L&C) "An Act relating to the state alcoholic beverage tax for certain wine and other beverages." This was the first hearing for this bill in the Senate Finance Committee. Co-Chair Wilken explained this bill "exempts from the State tax on alcoholic beverages, wine in the amounts sold in, or consigned for shipment into the State that does not exceed 100 gallons a month." DOUG LETCH, Staff to Senator Gary Stevens, testified this bill would replace the federal yearly sales eligibility excise tax limit of 100,000 gallons with a tax exemption of 100 gallons per month. He informed that currently wineries are taxed at a rate of $2.50 a gallon. He stated that this reduction would decrease the impact on State revenues by approximately $18,600 annually, however "at the same time stimulating and supporting small Alaska wineries." Mr. Letch reported that two of the wineries impacted are located on Kodiak Island, another is located in Haines and a fourth operates from Anchorage. He expressed, "this burgeoning Alaska industry does need the support of our Legislature to prosper while continuing to contribute to the State's changing economy." He surmised that this legislation would provide one form of assistance. He predicted that although revenue would be lost to the State under the provisions of this bill, all revenue from this source could be lost without the tax exemption. SFC 03 # 42, Side B 09:52 AM Mr. Letch indicated winery operators would present testimony to the bill. Co-Chair Wilken commented that the sponsor statement does not address the issue and asked the motivation of this legislation. Mr. Letch shared that the winery operators located on Kodiak Island approached Senator Gary Stevens and requested assistance in mitigating the impacts of the increased alcohol tax passed the previous legislative session. Mr. Letch told of the efforts, in conjunction with the Department of Revenue, to draft this legislation to accommodate the needs of the growing winery industry in Senator Gary Steven's election district. He stated this legislation attempts to exempt local wineries in a similar manner as Alaska breweries are exempted from the increased taxation. Co-Chair Wilken referenced the sponsor statement indicates an exemption of 100,000 gallons of wine per year, although the witness testified the exemption would be 100 gallons per month. Mr. Letch responded the sponsor statement was in error. Co-Chair Wilken asked about the federal eligibility excise tax mentioned in the sponsor statement. Mr. Letch explained the federal exemption is limited to 100,000 gallons per year. Co-Chair Wilken clarified that the alcohol tax would not be required for the first 100 gallons of wine produced each month. Mr. Letch affirmed this is the intent of the legislation. Co-Chair Wilken asked if this would "set aside the liability for the excise tax under the federal government." CHUCK HARLAMERT, Juneau Section Chief, Tax Division, Department of Revenue, testified the exemption proposed in the bill is "completely unrelated" to the federal tax credit. Senator Olson understood the struggles of new businesses and asked the annual production of the wineries in question. Mr. Letch could only speak to two wineries and listed the average monthly production of one winery as 120 gallons, during the busier months, noting the business is seasonal dependant. The other winery, he stated produced approximately 350 gallons total the previous year. Senator Olson questioned the mathematics, noting the wineries produce more than 100 gallons per month and would not be completely exempt from the alcohol tax. Mr. Letch replied that this bill attempts to promote wineries as a growth industry "and give them room to grow". He told of hearings on this bill in the Senate Labor and Commerce Committee in which an annual production total of 1,000 gallons per year was considered. However, he stated the monthly calculations would be more conducive for the Department of Revenue administration of the alcohol tax. He qualified he has not had input on the current proposed exemption structure from the wineries. Senator Olson asked if the wineries are in "danger" of going out of business if an exemption is not provided. Mr. Letch stated that such "inference" has been received. Mr. Harlamert stated that the current calculation structure was "designed to maximize the impact on Alaska producers and minimize the unintended tax benefits flowing to other wineries." He explained that several methods exist to calculate an exemption, however, exemptions could not be limited to in-state producers. Therefore, he stated the "trick" is to structure the tax exemption to benefit local producers, without extending the exemption to wineries located outside Alaska. He assured the proposed method would best accomplish this. Senator Olson asked if the Department of Revenue supports this legislation. Mr. Harlamert remarked that the Department of Revenue has not taken a position on the tax exemption matter. Co-Chair Wilken asked if the language "on amounts sold in or consigned for shipment into the state that exceed 100 gallons a month" inserted by this legislation into AS 43.60.010(a)(3), on page 2, lines 2 and 3 of the committee substitute speaks to the federal tax exemption. Mr. Harlamert answered that this language is unrelated to the federal constitutional restriction prohibiting states from discriminating against interstate commerce. He explained that the language clarifies that any entity that brings alcohol into the State for sale or produces alcohol in the State is a "taxpayer". Senator Bunde understood during hearings on this bill in the Senate Labor and Commerce Committee that this legislation is an "attempt at fairness" because microbreweries had received some tax exemption for which the wineries did not qualify. He commented that although he did not generally support tax exemptions, he would support this legislation based on the issue of fairness in comparison to the breweries operating in the State, as well as the unlikelihood that the winery industry would expand to the extent that it could significantly contribute to the State's general fund. DAVE MENAKER, Great Land Wines, testified via teleconference from an off-net location that the annual taxes and permit fees for his operation is approximately $2,200 not including taxes imposed on any wine produced, and sold. He expressed this is a significant amount for small business. He appreciated any assistance in securing some tax relief. Senator Bunde asked number of gallons the Great Lands winery produced per year. Mr. Menaker informed that the facility has approximately 450-500 gallons currently on site in various stages of fermentation or packaging. He commented that with the "economic spiral down" in Haines, business was "not good", although he expected the situation to improve. He estimated the winery produces between 200 and 250 gallons during the season, which occurs in late summer and early fall, at the time blueberries and other wild fruit ripen. Senator Bunde clarified the annual production is 300 to 500 gallons of wine. Mr. Menaker affirmed, "If I'm lucky, that would be the maximum." Co-Chair Wilken asked for clarification of the imposition of the tax, specifically whether the production limits are calculated monthly or commemoratively. Mr. Menaker stated the tax would be levied upon the sale of the product. He explained that the wine he produces today would not be ready for sale for one year. Co-Chair Wilken gave a scenario of 100 gallons sold one month and 150 gallons sold the next month and asked if all but 50 gallons would be exempt from the tax under the proposed legislation. Mr. Menaker understood this to be correct. STEVE THOMSEN, Alaskan Wilderness Wines, testified via teleconference from Kodiak that the matter arose with the increased alcohol tax passed under HB 25 the previous legislative session, which raised the tax from 85 cents per gallon to $2.50 per gallon. He noted that breweries were exempted for the first 60,000 barrels produced per year, based on the federal "reduction amount". He stated that this exemption is inequitable for wineries. Because wineries are a similar trade, he opined they should receive a similar tax discount. He expressed the need to assist wineries in Alaska without significantly impacting State revenue. Mr. Thomsen informed that occasionally monthly sales from a winery would exceed the exemption limit, although predicted this would be infrequent. He listed his total annual sales of 300 gallons the previous year, with approximately one-third of the sales occurring over the Christmas holiday season. Co-Chair Wilken noted the negative fiscal note indicating it would be discussed further. Co-Chair Wilken ordered the bill HELD in Committee.