Legislature(2003 - 2004)

03/24/2004 09:04 AM Senate FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
     CS FOR SENATE BILL NO. 286(L&C)                                                                                            
     "An Act relating  to direct marketing fisheries  businesses, to                                                            
     the  fisheries business  tax, and to  liability for payment  of                                                            
     taxes  and  assessments  on the  sale  or transfer  of  fishery                                                            
     resources; and providing for an effective date."                                                                           
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
Co-Chair Wilken  explained that this  legislation would reduce  "the                                                            
fisheries business tax  rate for direct marketers from five to three                                                            
percent." A  direct marketer is defined  "as a fisherman  who owns a                                                            
vessel  of at  least 65-feet  or less  and catches,  processes,  and                                                            
sells both processed and  unprocessed fish product" in or outside of                                                            
the State.                                                                                                                      
Senator  Bunde moved  to  adopt the  Finance  committee substitute,                                                             
Version 23-LS0738\Z as the working document.                                                                                    
Co-Chair Wilken objected for explanation.                                                                                       
SENATOR  BERT  STEDMAN,  the bill's  sponsor,  explained  that  this                                                            
legislation  would affect  the direct marketing  business sector  of                                                            
the fishing industry. The  fisheries business, which was implemented                                                            
in 1913,  is the oldest  tax in Alaska.  Currently, a three-percent                                                             
tax is assessed on the  "the grounds price," which is the price paid                                                            
upon delivery of raw fish  to the dock. The tax rate on fish sold to                                                            
a floating processor, "which  is a large mobile processing facility"                                                            
is  currently  five-percent.  This  bill  focuses  on the  group  of                                                            
fishermen  who no  longer  fit these  "old" fisheries  business  tax                                                            
definitions, for, as the  industry has developed, circumstances have                                                            
changed and  more independent, small  boat fishermen are  conducting                                                            
their own processing and  marketing. Unlike the large scale floating                                                            
processors,   these  business  "are   primarily  Alaskans   resident                                                            
fishermen who operate out  of our ports, buy our fuel, and supplies"                                                            
and own property in the State.                                                                                                  
Senator  Stedman stated  that this  bill would  correct current  tax                                                            
inequities  by  charging  these small  direct  marketing  vessels  a                                                            
three-percent  rather than five-percent  fisheries business  tax. It                                                            
would also alter  the value upon which the direct  marketers' tax is                                                            
based. Rather than the  value being determined by the grounds price,                                                            
which is the  floating processors'  first point of sale,  the direct                                                            
marketers'  "first point of sale is  the second wholesale  or retail                                                            
price  because   these  businesses   are   selling  their   fish  to                                                            
supermarkets, restaurants,"  or directly to the customer. Therefore,                                                            
this bill  would clarify  "that direct marketers  would be  taxed on                                                            
the 'prevailing' ground price."                                                                                                 
Senator Stedman  stated that, while  some fisheries are required  to                                                            
pay taxes on  a monthly basis, this  legislation would specify  that                                                            
all taxes  due  by direct  market vessels  would be  due each  April                                                            
first  in order  to allow  them to take  care  "of their  accounting                                                            
comprehensively at the end of the season."                                                                                      
Senator Stedman  summarized that this legislation  would "remove the                                                            
current  disincentive in  our tax  system" by  recognizing that  the                                                            
direct marketing  industry  is providing quality  fish products,  is                                                            
responding to  marketing demands, and is taking more  responsibility                                                            
to ensure the success of  their operation. He stated that passage of                                                            
this  legislation would  provide  a level  playing  field to  direct                                                            
marketers by providing  tax fairness. He reiterated that the vessels                                                            
addressed in this legislation are less than 65 feet in length.                                                                  
IAN FISK,  Staff to  Senator Bert  Stedman,  informed the  Committee                                                            
that the Version "Z" differs  from the previous bill version in that                                                            
it adds the word "unprocessed"  into the definition of value in Sec.                                                            
5, page four, line five as follows.                                                                                             
     (A) the market  value of the fishery resource  as determined by                                                          
     the  prevailing price  paid to  fishermen  for the unprocessed                                                           
     fishery  resource  of the same  kind and  quality by  fisheries                                                          
     business  in the same region or market areas  where the fishery                                                          
     resource was taken if                                                                                                    
     New Text Underlined [DELETED TEXT BRACKETED]                                                                             
Co-Chair Wilken removed his objection.                                                                                          
There  being  no  further  objection,  the  Version   "Z"  committee                                                            
substitute was ADOPTED as the working draft.                                                                                    
Co-Chair  Wilken  noted  that  the sponsor  has  provided  a  "Short                                                            
Definitions  of Terms" handout [copy  on file] that defines  fishing                                                            
Senator Olson  inquired to the reason that April first  is specified                                                            
as the date the  tax would be due. That date might  place a hardship                                                            
on the fishing industry.                                                                                                        
Mr. Fisk responded  that, historically,  the Fisheries Business  Tax                                                            
has  been due  on  April first,  due  to the  fact  that  oftentimes                                                            
"fishermen  receive  retroactive  payments over  the  course of  the                                                            
winter."  In  an  effort  to  make  taxation   filing  easier,  this                                                            
legislation  would consolidate  a  variety of  taxes, including  the                                                            
hatchery  assessment  tax  and the  marketing  tax, by  making  them                                                            
uniformly due at the same time.                                                                                                 
Senator Olson  asked what impact would occur were  the price of fish                                                            
to lower and negate the retroactive payments.                                                                                   
Mr. Fisk  could not  recall any  situation wherein  a fisherman  was                                                            
required to pay back a company due to a reduction in price.                                                                     
Senator   Olson  asked  the   burden  were   no  retroactive   funds                                                            
forthcoming during the winter months.                                                                                           
Mr.  Fisk  responded   that  absent  any  retroactive   checks,  the                                                            
fisherman would be required  to pay based upon the price received at                                                            
the time of delivery.                                                                                                           
KATHY  HANSEN,  Executive  Director,  Southeast  Alaska Fishermen's                                                             
Alliance, testified  in support of  the bill as it would  address "a                                                            
tax clarity  and tax  fairness issue."  Noting that  she had  been a                                                            
participant in the development  of this legislation, she shared that                                                            
the bill is "a  tightly woven compromise" resulting  from discussion                                                            
"between  the industry, processors,  and all  the agencies  that are                                                            
involved in direct marketing licensing."                                                                                        
Co-Chair Wilken noted that  Members' packets contain several letters                                                            
in support  of the  legislation,  including one  from the  Alliance,                                                            
[copy on file] dated March 22, 2004.                                                                                            
Senator  Stedman  noted  that  the  legislation  was  initiated  and                                                            
furthered by the Salmon  Task Force, which is comprised of fishermen                                                            
and  processors.  This  issue has  required  attention  for  several                                                            
Co-Chair  Green  asked whether  the  legislation's  new subsections                                                             
contain any further language that should be addressed.                                                                          
Senator Stedman  responded in the negative. He stated  that work has                                                            
been conducted in regards  to this issue for several years. Both the                                                            
fishing and processing industries support it.                                                                                   
Co-Chair  Green asked  whether the  new language  in the bill  would                                                            
disadvantage any agency or group.                                                                                               
Senator Stedman  responded no. The  intent of the legislation  is to                                                            
"conceptually  enhance" the State's value-added fisheries  products,                                                            
assist the industry  in their modernization efforts  and response to                                                            
market conditions,  enhance the product price, and  address some tax                                                            
reporting  issues. The hope  is that these  efforts would result  in                                                            
increased revenue to both the State and the industry.                                                                           
Senator  Dyson  moved  to  report  the  bill   from  Committee  with                                                            
individual recommendations and accompanying fiscal notes.                                                                       
There  being  no  objection,  CS SB  286  (FIN)  was  REPORTED  from                                                            
Committee with  indeterminate fiscal note #1 from  the Department of                                                            
Revenue  and zero fiscal  note #2  from the Department  of Fish  and                                                            

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