Legislature(2003 - 2004)
02/12/2004 01:35 PM Senate L&C
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
SB 286-DIRECT MARKETING FISHERIES BUSINESS CHAIR CON BUNDE called the Senate Labor and Commerce Standing Committee meeting to order at 1:35 p.m. Present were Senators Gary Stevens, Hollis French and Chair Con Bunde. Senators Bettye Davis and Ralph Seekins were excused. The first order of business to come before the committee was SB 286. SENATOR GARY STEVENS moved to adopt CSSB 286(L&C), version \B, Utermohle. There were no objections and it was so ordered. SENATOR BERT STEDMAN, sponsor, said the Salmon Task Force inspired SB 286. He said that the salmon tax was instituted in 1913 and is the oldest tax in the state. As the fisheries have developed, the tax situation has changed to keep up with it. Currently, value-added fish products have a 5 percent tax and this bill lowers it to 3 percent. Off-shore processors are still charged the 5 percent rate; on shore processors are taxed at the 3 percent. The proposed lower tax applies to vessels of 65 ft. or less and is equal to what onshore processors are paying now. Currently, the valued-added tax is calculated at the point of sale. The proposed lower tax would be calculated on the value of the fish as it comes over the rail (instead of when it is sold as product). CHAIR BUNDE asked him how that compared to fees for onshore processing. SENATOR STEDMAN replied that onshore processing fees are calculated at the same point, when the raw fish is delivered. CHAIR BUNDE asked what fish price would be used to determine the 3 percent tax. SENATOR STEDMAN replied, "The average within the industry for that particular fishery." CHAIR BUNDE asked if a fisherman retails his catch himself, would there be a paper trail of his transactions. He noted a head in the audience shaking yes. CHAIR BUNDE asked how fishermen report to the state that their taxes are paid. SENATOR STEDMAN replied that numerous fishermen sell [fish] product from their boats in the harbor. Typically, the purchaser would be responsible for paying the tax, but most local people don't even know about it. This bill would close that loophole by making the fishermen responsible for recording and collecting the tax. CHAIR BUNDE asked if that would mean when he drives out to Auke Bay and buys a crab off a boat, he would pay the tax. SENATOR STEDMAN responded if the crab had been processed and Senator Bunde bought that product, he would be responsible for paying the tax. Under this bill, the fishermen would be responsible. SENATOR HOLLIS FRENCH said he was encouraged to know that SB 286 is unanimously supported by the Joint Legislative Salmon Industry Task Force. He understood it to be a tax break from paying 5 percent of retail value of fish product to paying 3 percent of wholesale value. SENATOR STEDMAN replied that is correct adding that it could also be viewed as a stimulus to encourage the industry to do value added processing. "Hopefully, it's going to increase the revenue into the state by more compliance and more involvement in the value-added processing." SENATOR FRENCH asked if he could estimate what percent of the market would be affected. SENATOR STEDMAN estimated that there would be 300 to 400 additional returns. SENATOR GARY STEVENS commented that he served on the Task Force with Senator Stedman and continually heard about how the salmon industry is in crisis. He related: Not only are the prices low, the catches are low and all of those together are having an enormous impact on our industry. So, any time we can find a new and innovative way to help fishermen become direct marketers is probably for the good. I realize this is a substantial change as you've indicated, Senator French, but we're in a position where anything we can do to raise the quality of our product, which this would do, is very important. He asked if fishermen who chose to do valued added processing would come under the same rules as a processor, as far as facility standards. SENATOR STEDMAN replied that is his understanding. CHAIR BUNDE asked if state officials would have to inspect the fishermen's facilities, which would lead to a fiscal note. SENATOR STEDMAN replied that is a non issue. He also added that making the tax more user-friendly encourages more people to comply with the regulations. MS. SUE ASPELUND, Federal Management Research Coordinator, Alaska Department of Fish and Game (ADF&G), said they are extremely excited about the positive steps of the Salmon Task Force to try to work on the direct marketing issues, but all existing fish and game regulations and statutes that are in place will continue to apply to direct marketers. She emphasized that this legislation simply addresses the tax equity issues. She did not want to comment on the committee substitute until she better understood its intention. CHAIR BUNDE responded that rather than have her speculate, this bill would have another hearing next week, which would give her an opportunity to talk to the sponsor. MS. ASPELUND replied that is fine. CHAIR BUNDE said that this legislation would create 300 to 400 new processors and asked how they would be required to be in compliance with the law. He used the example of a deckhand who removed the carapace for him after he bought a crab off a boat in the harbor. Currently, removing the carapace for a customer is technically illegal. MS. ASPELUND replied that issue concerned Department of Environmental Conservation (DEC) regulations. The new processors would not be new catcher sellers within ADF&G's system since the department currently issues their licenses, but their tax reporting standards would be new to the Department of Revenue (DOR). CHAIR BUNDE wondered if that meant DEC would have more work to do. MS. KATHY HANSEN, Executive Director, Southeast Alaska Fishermen's Alliance (SEAK), said she had been trying to improve direct marketing regulations for over eight years and SB 286 is really a major step. She said that 300 to 400 catcher sellers are currently licensed under ADF&G and they will continue to be able to do everything they do now. She explained that a catcher seller can only handle an unprocessed product; they cannot process. The only difference in the proposed legislation is that they will be liable for paying the taxes on their product that has been the buyers' responsibility in the past. CHAIR BUNDE questioned how a troll caught King salmon is gutted and gilled and yet, that isn't processing. MS. HANSEN replied that one of the complications in dealing with direct marketing is that the term "processing" has three definitions in statute. ADF&G, DOR and DEC all have a different definition of processing that meets their unique needs. A troll- dressed King salmon is not considered processing by DEC in this particular instance. She explained that under state law, a crab fisherman will never be able to legally remove a carapace for a buyer. DEC statute flat out says he can't. Catcher processors, who head and freeze King salmon on board their vessels, currently get inspected by the DEC. The skipper writes the fish ticket and submits it to ADF&G. The value of the fish would be indicated when his year- end revenue returns are done. MS. HANSEN explained that two existing taxes have not been getting paid - the hatchery enhancement tax (for areas with hatcheries) and the Alaska Seafood Marketing Institute (ASMI) 1 percent marketing tax. The buyer was responsible for those taxes in the past, but anyone who walked down the dock and bought an unprocessed fish didn't know about it and, therefore, those taxes were just not collected by the state. This bill makes the catcher sellers responsible for paying the tax. They will now have to fill out a year-end DOR form that they have not had to do in the past. MS. HANSON explained that an exporter is a person who sells unprocessed product out of the state and needs the DOR Fishery Business Tax License (for shipping out of state) and the DEC license because of food safety issues during the process of boxing and shipping. The exporter already pays 5 percent on the higher value product. A catcher processor is a vessel that is allowed to do limited on-board processing - headed and frozen product, and, in some cases, dressed. These businesses currently have to pay tax on the price the salmon is sold for at the point of sale (possibly out of state), but SB 286 changes their tax to the lower rate. Under this legislation, they will pay a tax on the value of the salmon when it is sold to the processor, not at the point of sale of the processed product. MS. HANSEN pointed out that SB 286 tightens up enforcement so that product which has been significantly undervalued will be taxed at fair value. For instance, trollers might have used a seine vessel King salmon price to value their catch, an approximate difference of $1.50 versus 20 cents. That difference would make up the estimated expenditures for the changes and that is why the fiscal note is zero. CHAIR BUNDE wanted to make sure this measure did not legitimatize people who come to Alaska in their campers to fish and send their catch down south. MS. HANSEN replied that it wouldn't do that. SENATOR STEVENS said the Salmon Task Force heard from a Dillingham fisherman who had developed markets in Anchorage, but found that the heads of his fish, accounting for about a third of their weight, couldn't legally be removed before shipping. Shipping that extra weight made his plan impractical, but SB 286 fixes that. He applauded Ms. Hansen for the work her organization is doing. CHAIR BUNDE said a number of people had signed up to testify and asked Bruce Schactler to present his remarks. MR. BRUCE SCHACTLER, President, United Salmon Association (USA), thanked everyone for the work they had done and supported SB 286. As the market expands for value added product, using a shore-based plant is the only possible way fishermen could deal with the processing volume. MR. KEN DUCKETT, Executive Director, United Southeast Alaska Gillnetters Association (USAG), supported SB 286. He contended that: The individual fisherman needs the opportunity to be able to market a portion of his product in order to have a successful business and the legislation you have before you will go a long ways in helping that to happen. MS. PAGE HERRING, Executive Director, Cordova District Fishermen United (CDFU), supported SB 286. She echoed Ms. Hansen's comments and added: "Direct marketers are a growing part of the seafood industry and exemplifies the can-do attitudes of Alaska's small businesses." MR. ALAN REEVES, Wrangell fisherman, thanked everyone for their work on this issue. He supported SB 286 fully. MR. JIM SMITH, Wrangell fisherman supported SB 286 saying it clarified a lot of gray areas and simplified things for the fisherman. MR. BRENNON EAGLE, Wrangell fisherman, supported SB 286 saying that he had been a successful direct marketer of shrimp for about 14 years and felt that this bill would give the salmon industry incentive to start direct marketing, too. CHAIR BUNDE thanked everyone for their testimony and said he would bring CSSB 286 before the committee again next week.