Fishing industry: Maximize existing rates before raising taxes

Gov. Bill Walker’s fisheries tax bill is still lingering in committee as fishermen and legislators try to stave off new taxes by turning the discussion to maximizing collections at existing rates.

By this point, several of the state’s largest fishing industry trade groups — including the United Fishermen of Alaska, Alaska Salmon Alliance, and the Pacific Seafood Processors Association, or PSPA — sent letters to legislators supporting the concept of fishing taxes but calling the bill too simple and too rushed to not harm the fishing industry unfairly.

The bill would raise taxes on all segments of the commercial fishing industry by 1 percent.

During a House Fisheries Committee hearing on March 8, the conversation veered into existing tax territory, probing for more opportunities to increase existing tax revenues instead of raising rates.

“It’s really a question of auditing,” said Department of Revenue Tax Division Director Ken Alper. “This is really one of those things where we don’t want to raise our existing taxes until we know we’re getting all the taxes we could have.”

In particular, Specifically, offshore catcher processors harvesting yellowfin sole, Atka mackerel, and other groundfish are being taxed at the statewide average for those species instead of the market value specific to that vessel.

“There is an offshore catcher processor fishery that catches yellowfin sole that right when they come out of the water that value is between 12-16 cents a pound (as opposed to the statewide average of 2 cents a pound),” said Vince O’Shea, vice president of the PSPA. “So the difference is potentially 14 cents a pound. In yellowfin sole, that overall tonnage is 298 million pounds. Another species, Atka mackerel, the statewide fish price is 10 cents a pound. But there’s estimates that the at sea is 32 cents a pound. That total tonnage there is 69 million pounds.”

Nobody is gaming the system, O’Shea said. Instead, the state’s tax collection methodology creates such pockets of undervalued species.

“It’s not an issue of underreporting,” said O’Shea. “The system is set up that the Department of Revenue operates off the statewide average price list. Let’s get everyone on a level playing field and get everyone paying the same rate.”

PSPA’s notice is similar to an earlier Department of Revenue finding that a tax rate glitch let groundfish trawlers off the hook for more than $10 million of fishery taxes in the last half-decade.

The fishery resource landing tax assesses groundfish based on ex-vessel price. Processors turn flatfish caught as bycatch into low-value fishmeal, so the only known ex-vessel price for certain flatfish species is artificially low. Nine species have this price uncertainty, but most flatfish volume comes from yellowfin sole and Atka mackerel.

According to state research estimates, the state has lost out on $1.8 million to $2.5 million per year, or more than $10 million over the last five years.

“That $2 million is serious money,” in an environment of nickel and dime tax raises elsewhere, Rep. Jonathon Kreiss Tomkins, D-Sitka, said.

Alper said during the committee that the state is nearer to establishing a more reliable way tax rate for the offshore groundfish processing sector.

Committee chair Rep. Louise Stutes, R-Kodiak, also questioned the practice of bonus or retroactive pay for fishermen part of a limited liability corporation or cooperative.

“When they first deliver their fish, you get the minimum amount for your fish,” she said.

Later when fish may have sold for a higher price, fishermen can receive retroactive pay for the difference.

“That’s not a return on investment, that’s being paid for the fish,” Stutes said. “Call it whatever you want, those fish need to be accounted for tax dollar wise.”

PSPA, along with Ocean Beauty Seafoods and Icicle Seafoods, proposed an equalization of taxes for each fishery sector by setting every sector’s tax rate to 4 percent. This would be a raise for some sectors but would lower the tax rate for others, including the floating processors and canned salmon sectors.

The committee was lukewarm on the proposal; Alper insisted the administration’s intent was to support the bill as written.

“I don’t see that there’s a need in this environment to cut those taxes,” said Alper.

The bill’s next scheduled hearing on March 10 was canceled. It has not yet been scheduled for another.

DJ Summers can be reached at daniel.summers@alaskajournal.com.

Updated: 
03/09/2016 - 2:53pm

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