Legislature(2003 - 2004)

04/08/2003 09:02 AM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= 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                                                            
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                                                            
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                                                            
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.                                                                             

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