Legislature(2003 - 2004)

03/13/2003 01:32 PM L&C

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

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