JUNEAU — Gov. Bill Walker's proposed fish tax increase has drawn attention to a loophole giving a discount of as much as $1.4 million a year to some of the big Washington-based factory trawlers that fish off Alaska's coast — and Walker's administration is working to fix it.
Price estimates used by the state to assess existing taxes on 300 million pounds of yellowfin sole are less than one-sixth of the true prices upon which the taxes are supposed to be based, according to officials at the state fish and game department.
Four other types of fish have also been discounted, some drastically, the department says, while one has been overvalued.
The trawlers have been paying all the taxes charged by the state, said Fish and Game Commissioner Sam Cotten. They've just been asked to pay too little, he said.
"The law says you're supposed to be charging them what the value is. We haven't been doing that," Cotten said in a phone interview Friday. "They've enjoyed the undervaluation for years, and so we want to correct that."
Working with the state revenue department, fish and game officials plan to revise their price estimates in time to apply them to last year's catches — a retroactive step allowed under current law and which, they say, doesn't require new legislation.
Most of the undervalued fish is caught by the Amendment 80 fleet, named for the section of federal law that authorizes it. The fleet consists of about 20 boats, some nearly 300 feet long. The fleet catches fish valued at more than $250 million each year in the Bering Sea, near the Aleutian Islands and in the Gulf of Alaska.
Groundfish Forum, the trade group that advocates for the Amendment 80 fleet, questions whether the state's new estimates are accurate. And an official at one Amendment 80 company, Fishermen's Finest, describes the move to close the tax loophole as an attack by the Walker administration on the trawl fleet after recent appointments of unsympathetic members to the U.S. North Pacific Fishery Management Council, a key regulatory board.
"This starts adding up to big dollars, and it's all coming underneath Sam's pushing," said Mike Szymanski, Fishermen's Finest's government affairs consultant and a former state legislator, referring to Cotten. "You've got to believe there's an agenda out there that is not friendly to our sector."
The Walker administration has known about the loophole for months and has been working on a fix. (It was first reported by the Alaska Journal of Commerce.)
But the problem has drawn more attention in the last few weeks as lawmakers have debated Walker's proposal to raise the state's fish taxes across the board by 1 percent — a significant increase, given that the top existing rate is now 5 percent.
The legislation is part of Walker's big financial plan for the state, which aims to close a $3.8 billion budget gap through new and increased taxes on personal income, consumption and natural resource extraction, as well as with some of the earnings of the Permanent Fund.
Some lawmakers and fishing industry representatives say the state should be collecting all the money it's owed under the existing fish tax regime before it tries to raise rates.
"It seems backwards to me to raise taxes on Alaska-based fishermen when there's a hugely lucrative Bering Sea trawl fleet, largely out of Seattle, that is not paying taxes that they already owe on fish that they're already catching," Rep. Jonathan Kreiss-Tomkins, a Democrat from the fishing port town of Sitka, said in a phone interview. "We should fix this problem as soon as possible."
The problem with the tax assessments arises from the way the trawlers operate, by catching fish offshore and processing them onboard. Much of the catch heads to Asia for additional processing before coming back to the U.S.
The state taxes assessed on the Amendment 80 fleet are based on what's called the "ex-vessel" price — what fish are worth before processing.
But with the vast majority of what fish and game officials call the six "problem species" processed at sea, the state's old price estimates were developed from purchasing reports made by onshore processors — reports that only account for a tiny fraction of the value of the overall catch.
The onshore processors typically buy the "problem species" from boats that accidentally catch them, and they're turned into fish meal, which is far less valuable than the Amendment 80 fleet's processed fish.
For yellowfin sole, which the Walker administration says accounts for about two-thirds of the lost taxes, the state was estimating prices based on onshore processors' reports that accounted for just one-tenth of 1 percent of the total catch, said Kurt Iverson, a Fish and Game analyst.
The new estimated price for yellowfin sole, which Iverson said the state calculated from the value of processed fish, is 13 cents a pound. The price the state used to calculate taxes in 2014 was 2 cents a pound, which results in about $950,000 in forgone tax revenue.
The state's low estimates date back at least five years, Iverson said.
Cotten, who was appointed fish and game commissioner when Walker took office in late 2014, said he didn't know why the problem wasn't found earlier. Officials said it's unlikely they'll try to collect additional taxes for years before 2015.
But the state's fix, he added, doesn't mean the Walker administration will abandon its legislation proposing the broader fish tax increase, which is projected to raise $18 million but has gotten little traction with lawmakers.
The state must give municipalities half the new fish tax revenue from closing the existing loophole, and tax credits could further cut into the state's portion, Cotten said.
"This is certainly not a substitute in our mind," he added. "We'd like to see the bill move."