Legislature(2003 - 2004)
03/13/2003 01:32 PM L&C
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
SB 82-ALCOHOLIC BEVERAGE TAX FOR WINE & OTHERS CHAIR BUNDE announced SB 82 to be up for consideration. MR. DOUG LETCH, Chief of Staff for Senator Gary Stevens, said SB 82 replaces the federal yearly sales eligibility excise tax limit of 100,000 gallons a year with an exemption of 3,000 gallons per year. He explained: Currently, wineries are taxed at the rate of $2.50 per gallon. This reduction would decrease the impact on state revenues while at the same time stimulating and supporting small Alaska wineries, which currently number four. Two of them are on Kodiak Island, one in Haines and a fourth in Anchorage. This burgeoning Alaska industry needs support to prosper and contribute to the state's changing economy and SB 82 is one means of assisting them. CHAIR BUNDE said there is some concern about fairness and that wines be taxed equally with beer. MR. LETCH responded that's the impetus behind this bill. Some Kodiak constituents believe that breweries are being given a break that isn't available to wineries. CHAIR BUNDE said the state will lose $50,000 in revenue with this proposal and asked how he proposed to make it up. MR. LETCH said he would defer to wiser minds than his. SENATOR FRENCH asked where the micro-breweries are addressed and how this legislation treats wineries like micro-breweries. MR. LETCH replied that breweries receive an exemption of $1.50 versus $2.50 up to a certain amount. The Department of Revenue is concerned if the wineries have an exemption as well it would open the flood gates to wineries all over the place. SENATOR FRENCH asked if the micro-breweries get a break on the first certain number of barrels produced. MR. LETCH replied that is correct. SENATOR FRENCH said he has several micro-breweries in his district and no wineries but he's sensitive to the argument that the two should be treated fairly. He wanted to know what statute contains the exemption for the first so many barrels of beer and to compare it to the language in the bill. MR. CHUCK HARLAMERT, Chief of Operations, Tax Division, Department of Revenue, said Title 43, section 60 provides for a lower rate on the first 60,000 barrels of beer produced by a small brewery. He indicated that the difference between the tax differential for a small brewery and the proposal in SB 82 is large. The tax treatments are completely different. The beer and wine industries are very different and Alaska has many more small wineries than small breweries. SENATOR FRENCH asked if there are more beer or wine producers in the state. MR. HARLAMERT replied that small brewers in Alaska represent a greater percent of the small brewery market than the small wineries represent a share of the wine market. He said you have to grant breaks in a way that doesn't discriminate against folks who are brewing beer or pressing wine out of state. If the legislature grants the same tax break to small wineries that it gives to small breweries, there would be a much greater proportion of the tax benefit flowing out of state versus the targeted beneficiaries. The approach [in SB 82] focuses on the taxpayer with the hope of retaining constitutionality. It focuses the tax benefits on Alaska taxpayers more so than the exemption for small breweries. SENATOR FRENCH asked if the state would assess a tax on only that beer, wine and alcohol produced in state or whether it also assesses a tax on beer, wine and alcohol produced out of state and sold in the state. MR. HARLAMERT replied that it imposes a tax on beer sold or produced for sale in Alaska, either way. SENATOR SEEKINS asked if, based on AS 60.010 (c), a brewer pays a tax rate of 35 cents per gallon on the first 60,000 barrels of beer (about 31 gallons per barrel) and after that pays $1.07. However, a winery always pays $2.50 per gallon. MR. HARLAMERT explained that currently wine is taxed at a flat rate of $2.50 a gallon. There is no threshold for taxability or lower rate for incremental gallons. SENATOR SEEKINS asked what the rationale is behind the tax reduction for the first 60,000 barrels of beer. CHAIR BUNDE speculated that it was done years ago to give small Alaskan brewers a competitive edge through a subsidy. Senator Gary Stevens wants to see small wineries be given a competitive edge too. SENATOR STEVENS agreed. SENATOR FRENCH asked if the effect of the bill would be to exempt the first 3,000 gallons or to apply a lower rate as with micro-breweries. MR. HARLAMERT replied that this bill exempts the first 3,000 gallons as opposed to having a reduced rate for some threshold. MR. STEVEN THOMSEN, Alaskan Wilderness Wines, said he is a local part-time vintner and hopes his winery becomes his retirement business. He told members, "Having the same kind of benefit the breweries have would help me stay in business a lot easier...." He said that wineries are not asking for the same kind of discount that breweries have. The brewery amount of 60,000 barrels comes from the federal discount amount. The federal discount for wineries is 100,000-gallons but he doesn't think that is necessary. He cut it down to 3,000 gallons based on keeping his business viable and still being able to afford to pay the tax. CHAIR BUNDE asked what volume he is producing now. MR. THOMSEN replied about 300 gallons per year. SENATOR STEVENS said Mr. Thomson produces a fine wine and asked him to comment on the other wineries in the state and the potential he sees for those operations. MR. THOMSEN related that last year numerous parties interested in his wild berry products contacted him; he sold 11,000 pounds of berries. SENATOR STEVENS asked where the other wineries are located. MR. THOMSEN replied the other wineries are Kodiak Winery, Alaska Great Land in Haines and Denali Winery, which is a little different in that people buy kit wines and produce them. MR. DAVE MENAKER, Great Land Wines, Haines, supported Mr. Thomsen's testimony. He said at the end of the year he might have a total of 500 gallons and he has no problem with 85 cents per gallon. CHAIR BUNDE said there is a projected tax savings of $7,500 and asked if that is the potential savings or whether it is the actual amount of tax they are paying now. MR. LETCH replied that is based on the wineries hitting the 3,000-gallon threshold. CHAIR BUNDE asked if any winery in Alaska is producing more than 3,000 gallons. MR. LETCH replied he didn't believe so. He thought 3,000 gallons was a starting point that he and Mr. Thomsen came up with as a goal that their businesses might grow to. 1:58 p.m. SENATOR SEEKINS asked if this bill gives the exemption to everyone who imports to or produces wine in Alaska. MR. LETCH replied that is correct. He thought the 3,000-gallon figure opens up some unintended consequences and that the bill needs more work. CHAIR BUNDE said anything he could do to reduce the fiscal note would be a positive step. He said he would hold the bill for further work.