Committee chair refuses to advance gov’s fisheries tax hike

Commercial fisheries may see taxes increase, but only if other resource industries do, too.

Under a budgetary thundercloud, Gov. Bill Walker is trying to squeeze funding from any source. A commercial fisheries tax bump, part of nine such bills in the Legislature, has slowed to a crawl in committee as fishermen decry it.

Fishermen, and House Fisheries Committee chair Rep. Louise Stutes, R-Kodiak, fear Walker’s tax plan could disproportionately pinpoint the commercial fishing industry while other resource taxes die.

Stutes said during a Feb. 23 committee hearing that she’ll hold the bill in committee until further study.

“I have some reservations about passing this bill out of committee,” said Stutes. “I’ve been seeing a lot of the other resource tax bills faltering. I’m going to hold this in committee until I’m comfortable that the fishing industry is not being singled out. I would like this committee to assimilate and digest what they’ve heard.”

United Fishermen of Alaska, the state’s largest fishing industry group, brooked little opposition to the bill during a February meeting, but cracks appeared once Stutes opened the committee to public comment. The committee heard from fisherman that the tax plan seemed poorly thought out.

Richie Davis, a representative for the Seafood Producers Cooperative, said the tax bump is proof that either the Walker’s administration doesn’t fully grasp the social and economic aspects of the fishing industry, or “or somebody is using Alaska’s fiscal crisis as a springboard to cripple our industry.”

1 percent across the board

House Bill 251 would levy a 1 percent increase on commercial fisheries taxes. Current rates range from 1 percent to 5 percent, depending on the category.

Comment from two separate hearings on Feb. 18 and Feb. 23 called the tax plan too simple, too rushed, and too ignorant of the other resource taxes in the state. A 1 percent across-the-board raise, fishermen said, ignores the industry’s nuances and unique challenges.

The fisheries tax schedule is one of the more complex in Alaska tax code. The fisheries business tax and fisheries resource landings tax sprawl across different categories and sectors.

The state levies a fishery business tax and a fisheries resource landing tax, which distinguish between established fisheries and developing fisheries, each with different rates for floating processors, salmon canneries, and shore based processors. 

The 1 percent tax rate increase doesn’t make enough distinctions, industry said.

“The approach HB 251 takes is quite frankly oversimplified,” said Vince O’Shea, vice president of Pacific Seafood Processors Association.

O’Shea, along with Icicle Seafoods representative Kris Norosz, pointed out that a 1 percent increase could conceivably work for some sectors but would stress salmon canneries, which are glutted with oversupply and having trouble profiting at the current 4.5 percent cannery rate.

“There hasn’t been quite enough analysis on the proposed action,” said Norosz. “I’m not quite sure how we got to this.”

Ken Alper, director of the state’s Department of Revenue Tax Division, said the 1 percent tax rate bump aims to bridge the gap between the state’s spending on fisheries management and its revenue.

The state splits half the fisheries resource landings tax with the municipalities where the fish were landed.

According to an Institute of Social and Economic Research report, the state spent about $78.3 million to manage commercial fisheries in fiscal year 2014 while taking in about $70.2 million in its share of fisheries taxes. Local municipalities received about $50.8 million from their share of the taxes.

Combined with management and capital spending, the state spent about $96.8 million on commercial fisheries versus the $70.3 million in revenue.

Despite accusations from fishermen and committee member Rep. Charisse Millett. R-Anchorage, that the tax rate is a “dart thrown at a dartboard,” Alper said the tax rate was chosen for simplicity and to “to generate $15-$20 million of (unrestricted general funds) for the state.”

“Obviously there was no dart board,” Alper told the committee. “One percent across the board tax on developing fisheries develops $18 million.”

Taxes piled on taxes and cutbacks

Taxes, some said, will pour more economic hardship on the commercial fishing industry, along with management cuts, market factors, and tax plans in other areas such as fuel.

The Alaska Department of Fish and Game, or ADFG, has already had its budget reduced 15 percent from last year. Budget cutbacks limit resources vital to fisheries management, including field workers and stock survey study methods. Without a full breadth of surveys, ADFG will manage more conservatively and allow fewer fish for commercial harvest.

Committee members asked the public if ADFG would manage differently in the face of budget cuts. Most said it would.

“With cuts at (ADFG), it’s hard not to manage more conservatively if you think you have less data to go on,” said Norosz.

Fishermen said they will feel the state economy’s sting more harshly than other groups. The commercial fishing industry’s current market climate has created some anxiety in the industry even absent a tax hike.

“There’s literally a perfect storm in the seafood industry now,” said O’Shea.

Alaska exports 70 percent of its seafood harvest. The U.S. dollar’s strength over key export markets like Europe, China, and Japan has softened seafood prices, notably the 2015 Bristol Bay sockeye harvest for which fishermen received half the average price per pound.

New state regulations have and will squeeze this bottom line even further. A $2 per hour minimum wage hike, fishermen said, eats away revenue for processor workers and low-level crew. Further, they said, new fuel taxes will drive up operation costs for all fishermen. Fear of a potential Permanent Fund Dividend reductions and a statewide income tax lurk behind the narrowing profit margins.

Fishermen asked why the Legislature wasn’t writing a comprehensive resource taxation bill that includes other industries as well. Piecemeal legislation, they said, could combine with politics and leave fishermen to foot the bill if other taxes don’t pan out.

Equity concerned some fishermen. Many asked why Walker’s bill doesn’t include a tax on charter angler guides. Alper said Walker’s goal was to “increase what we already have” instead of creating new areas to tax.

“It was not part of the administration’s agenda for this session to try to find new areas to tax,” said Alper. “Once you’re in there, dealing with tour operators, the natural extension is to say, ‘Well what about other tour operators?’”

“Fishermen are paying for the privilege of extracting that resource,” said Jonathan Kress-Tomkins, D-Sitka. “The difference is that charter operators make their living from extracting a public resource.”

Stutes said the fisheries committee would address charter taxation at a later point.

“This committee is aware that there is a charter fleet that is not being taxed in any capacity,” she said. “That issue will be addressed,” but not in the context of Walker’s tax bill.

DJ Summers can be reached at [email protected].