Tax appeal challenges Alaska’s fish-landing tax

A tax dispute between a single fishing company and the state of Alaska could have far-reaching consequences for fishing towns across the state.

Each year, fleets of factory trawlers and offshore processors catch millions of tons of fish in the North Pacific and Bering Sea. This happens outside the 3-mile limit that marks Alaska waters. But it isn’t practical to off-load their catch in the open ocean. So it’s almost always done in an Alaska ports or onto a transport ship anchored in state waters.

It’s at this point that the state of Alaska takes its cut. The state levies a 3 percent tax on the value of the catch. It’s a landing tax; half goes to state coffers, half is shared with local governments.

“It is very important to most all fishery-dependent communities in this area,” said Unalaska Mayor Frank Kelty.

His city is by far the largest recipient of the landing tax. It’s about 15 percent of the city’s revenue.

“If this tax went away, it would be a major hit to the community and would have repercussions on a lot of things that we do,” Kelty said. “But also, it’s the hit to the state of Alaska.”

The landing tax brought in $9,968,676 in fiscal year 2017.

A tax dispute between a Washington state-based catcher-processor recently went before an administrative law judge and is the latest effort to dismantle the 24-year-old landing tax.

Fishermen’s Finest, Inc., operates two catcher-processors in Dutch Harbor. In a legal brief obtained by KTOO, it argued that the tax violates at least two provisions of the U.S. Constitution. Company representatives, citing the confidentiality of tax appeals, declined to comment.

The Alaska Attorney General’s office is defending the tax. In its own filing, it argues that throwing out the landing tax would reopen a giant tax loophole that would allow the Alaska fleet to catch fish in international waters, bring the catch into Alaska, export it abroad – and pay nothing to the state.

Legal observers say it’s an interesting and important case.

“Everybody will be looking that’s in the fishing business to figure out a way that they don’t have to pay a landing tax on the fish that is in Alaska,” said Joe Geldhof, a commercial attorney in Juneau, who upon KTOO’s request reviewed the legal briefs. “That’s the real fight here, not just the immediate thing that appears to be between this one company and the state of Alaska.”

He agrees that if the company prevails in the hearing, it would likely be appealed.

That’s where it could go from a dispute over a tax bill to a precedent-setting case for the fishing industry.

“If a judge – state or federal – finds that the state of Alaska’s tax on the fish here is unconstitutional,” Geldhof said, “this will probably open the floodgates for a whole lot of people who say, ‘We don’t want to pay the tax either.’”

It’s not clear when the administrative judge will rule.

In the meantime, mayor of Unalaska said he’s been on the phone with the city’s lawyers and lobbyists.

“We’re going to be definitely, staying on top of this,” Kelty said.

This report originally appeared on CoastAlaska member station KTOO’s website.