Legislature(2003 - 2004)

02/12/2004 01:35 PM Senate L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= 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                                                               
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                                                               
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                                                               
CHAIR BUNDE  wondered if that meant  DEC would have more  work to                                                               
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                                                               
     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                                                                    
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                                                               
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.                                                                      

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