Smoki contends that SSRAA’s payment to the fishermen who actually caught the fish is the tax value of the salmon. Smoki emphasizes the statutory words "price paid ... to the fisherman", and argues that Webster’s5 definition of "fisherman" applies because the tax statutes do not define the term. The dictionary defines "fisherman" as "one who engages in fishing as an occupation". According to Smoki, SSRAA is not a fisherman.
Smoki further argues that a substantial part of the contract price of eleven cents per pound that Smoki paid to SSRAA was a fee for the "sourcing" services that SSRAA performed in making the salmon available, an amount over and above the value of the fish. According to Smoki, given the poor quality and late delivery of the hatchery salmon, its true market value was closer to zero than to the contact price of eleven cents per pound. Smoki contends that the part of the contract price that SSRAA paid to the fishermen who harvested the chum salmon, approximately two cents per pound, is the price to be used as the tax value under AS 43.75.290 (11) (B).
DOR contends that the tax value of the chum salmon is the full contract price that Smoki paid to SSRAA to purchase the salmon. DOR argues that the payments from SSRAA to the fishermen were to compensate the fishermen for the harvesting costs, not for the salmon. DOR contends that SSRAA, the holder of the special harvest permit, was the owner of the salmon and that the fishermen who harvested that salmon were SSRAA’s agents. DOR considers SSRAA to be the "fisherman", and the full price paid by Smoki to SSRAA to be the correct value under the FBT definition.
The starting point in analyzing how the FBT definition of value should be applied in this case is the law concerning the special harvest area entry permits. AS 16.43.400 authorizes the Commercial Fisheries Entry Commission to issue such permits only to private, non-profit hatcheries. AS 16.43.420 expressly provides that the fish caught under the authority of a special area entry harvest permit "are the property of the permit holder." That statute authorizes the permit holder to sell the fish if the proceeds of the sale are used in accordance with AS 16.10.450.
AS 16.10.450 requires a hatchery that sells salmon or salmon eggs to use the sale proceeds for operating expenses and for other fisheries activities of the regional aquaculture association, if any funds remain after paying the reasonable operating expenses. AS 16.10.450 also requires that hatchery salmon sold for human consumption be comparable in quality to fish harvested by commercial fisheries and be sold at prices commensurate with the current market.
DOR’s position is consistent with the statutory scheme described above and Smoki’s position conflicts with it. Those statutes authorize private, non-profit hatcheries to get special fishing permits to harvest fish returning to the hatchery and to sell that fish at market prices for the limited purpose of raising revenues necessary to pay the hatchery operating costs and other fishery-related expenses. The statutes expressly provide that the hatchery holding the permit is the owner of fish harvested under that permit. The statutes imply that fishermen who actually harvest the fish are the agents of the hatchery/permit holder. In the context of this case, the fishermen who harvested the Deets Bay salmon could not sell the fish themselves. SSRAA, the special permit holder and owner of the fish, was the only entity that could legally sell the fish and was required to sell at prices commensurate with local market values.
For these reasons, I have to agree with DOR that SSRAA must be considered the "fisherman" that sold the Neets Bay salmon. It follows that the contract price paid by Smoki to SSRAA was the "actual price paid for the fisheries resource by the fisheries business to the fisherman".
There are two problems with Smoki’s contention that only a part of the total contract price, the two cents per pound that SSRAA paid to the fishermen who harvested the salmon, should be considered to be the tax value of that fish. First, the contract itself specified only one price, eleven cents per pound, as the purchase price of chum salmon. The contract did not divide the contract price into separate subparts, as does Smoki, representing a sourcing fee on top of fish value.
More importantly, Smoki’s argument that only a part of the contract price should be counted as the tax value conflicts with the FBT definition of value. The statutory definition of value in AS 43.75.290(11) (B) emphasizes that the price paid by the processor to the fisherman includes the total consideration received by the fisherman:
"value" means...the actual price paid for the fisheries resource by the fisheries business to the fisherman, including indirect consideration and bonus amounts paid for fuel, supplies, gear, ice, handling, tender fees, or delivery, whether paid at the time of purchase of the fisheries resource or tendered as a deferred or delayed payment;...
The FBT thus requires that the total price paid to SSRAA, and not some component of that price, be used as the tax value of the chum salmon. While Smoki’s contention that the total contract price was much higher than the actual market value of the hatchery chums is probably true, it doesn’t help Smoki. The FBT definition of value specifies that the actual price paid for the fish is the tax value unless the processor obtains the fish from its own employee-fishermen using processor-owned boats.6 This forecloses a processor from arguing that the price paid to a fisherman in an arms-length transaction exceeded actual market value. It means that Smoki must pay the FBT and SMA taxes based on the actual price it paid to SSRAA for the chum salmon, regardless of the market value of those chums.7
CONCLUSION
For the reasons discussed above, I conclude that the correct tax value of the chum salmon that Smoki acquired from SSRAA in 1997 is the total contract price that Smoki paid SSRAA for that fish. The informal conference decision in this matter is affirmed.
This is the hearing decision of the Administrative Law Judge under AS 43.05.465 (a). Unless reconsideration is ordered, this decision will become the final administrative decision 60 days from the date of service of this decision. A party may request reconsideration in accordance with AS 43.05465(b) within 30 days of the date of service of this decision.
When the decision becomes final the decision and the record on appeal become a public record, unless the administrative law judge has issued a protective order requiring that specified parts of the record be kept confidential. See, AS 43.05.470. A motion for a protective order, showing good cause why specific information in the record should remain confidential, may be made within 30 days of the date of service of this decision.
Dated this 10th day of May 1999.
________________
Shelley Higgins
Administrative Law Judge
CERTIFICATE OF SERVICE
I certify that on _________________ 1999, I sent a copy of the decision by first class mail to:
Smoki Foods, Inc.
Attn: Rodger May
19002-13th Place, South, Bldg. #3
Seattle, WA 98148
Tim Cottongim, Appeals Officer
Department of Revenue
Income & Excise Audit Division
P.O. Box 110420
Juneau, AK 99811-0420
___________________________
Office of Tax Appeals
FOOTNOTES:
1 The parties filed a Joint Stipulation of Fact and supporting exhibits on March 17, 1999. The hearing on March 23, 1999 was for oral argument
2 AS 43.75.015.
3 AS 16.51.150.
4 AS 43.75.290 (11)(B). The FBT defines "value" differently depending on whether the resource is taken by boats owned or leased by the processor. Under AS 43.75. 290 (11)(A), when the fish is harvested by employees of the processor, using boats owned by or leased to the processor, "value" is defined as "market value." This means that DOR does not have to accept a price paid by a processor to its own fishermen-employees as the tax value but looks to the market value based on comparable arms-length sales. § 290 (11)(B) defines "value" as the "actual price paid…" when the fish is taken by fishermen who own their own boats. See the FBT regulation defining "value", 15 AAC 075.300. The "actual price" under § (11)(B) applies in this case because the fishermen that harvested the Deets Bay salmon were independent contractors and neither SSRAA nor Smoki owned the boats.
5 New Collegiate Dictionary, 1976 edition.
6 AS 43.75.290 (11); 15 AAC 075.300.
7 Of course, the statutory definition of value likewise precludes DOR from arguing that the tax value of the chum salmon is higher than the actual price paid by Smoki. In this case DOR did not argue that the tax value of the chum salmon was higher than the Smoki-SSRAA contract price. But DOR did attempt to bolster its argument with market price information. During the hearing DOR sought to introduce into the record as evidence of market value some sales price information recently compiled by the Commercial Fisheries Entry Commission for the 1997 season. DOR described the CFEC document as reflecting average chum salmon values for 1997 that varied between 9.9 cents and 34 cents per pound, depending on the type of gear and location of the fishermen. The Administrative Law Judge sustained Smoki’s objection to the admission of the CFEC document on the grounds that it was untimely and more prejudicial than probative of the tax value of the salmon that Smoki bought from SSRAA. Admission of the CFEC price information would have opened the door to an evidentiary hearing on the true market value of the chum salmon, an unnecessary exercise given the fact that the FBT defines value as the price actually paid by the processor, unless the processor acquires the fish from its own employees and company owned boats. See, note 4, infra.
Decisions
