BEFORE THE OFFICE OF TAX APPEALS

STATE OF ALASKA

IN THE MATTER OF:

YAMAYA SEAFOODS

Fisheries Business Tax 9712

Case No. 25-OTA-99

FINAL DECISION

Introduction

On February 26, 1999, Yamaya Seafoods, a fish processor located in Anchorage, filed this appeal from an informal conference decision that upheld a Fisheries Business Tax¹ assessment for 1997. Yamaya denies liability for the Fisheries Business Tax ("FBT") on live crab that Yamaya purchased in 1997 from another fisheries business. Yamaya contends that its supplier, not Yamaya, is liable for the tax.

A scheduling conference was held on May 17, 1999. On June 1, 1999 the parties filed a joint stipulation of facts and exhibits in accordance with the scheduling order. The record closed on June 23, 1999 when the parties agreed to waive written argument and submit the case for decision based on the existing record.

On October 15, 1999 the administrative law judge issued a decision holding that Yamaya was liable for the disputed 1997 fisheries business tax on the crab. Yamaya requested reconsideration. The ALJ granted reconsideration to clarify the basis and scope of the original decision. This final decision has been modified for clarity but does not change the holding that Yamaya is liable for the 1997 tax.

Masahide Yamada, a corporate officer, represented Yamaya Seafoods. Tim Cottongim, Appeals Officer, represented the Department of Revenue (DOR).

The material facts are not disputed. On December 23, 1996, Yamaya Seafoods applied to the Department of Revenue for a 1997 Alaska Seafood Processor and Exporter License and Permit. In that application Yamaya stated that it intended to process salmon, crab, and other fisheries resources at its shore-based plant in Anchorage and to sell unprocessed fish in Anchorage and Japan.

Yamaya filed a 1997 FBT return indicating that Yamaya did not process any seafood in 1997 and owed no tax. But Prime Alaska Seafoods ("Prime"), another processor, reported on its 1997 FBT return², selling 5,057 pounds of unprocessed red king crab to Yamaya.

Based upon the information provided by Prime, DOR issued an assessment against Yamaya in July 1998 for fisheries business tax in the amount of $493.00, plus interest, on 5,057 pounds of red king crab. To determine the total tax value of that crab, DOR used the average price reported to the state for sales of red king crab in Dutch Harbor in 1997. The average reported price was $3.25 per pound. DOR applied the statutory three percent tax rate for shore-based processors to the total crab value to compute the tax due from Yamaya.

On July 29, 1998, Yamaya requested an informal conference with DOR concerning the FBT assessment. Yamaya stated on Request for Informal Conference form:

On February 16, 1999 DOR issued an informal conference decision that upheld the tax and interest assessment. The informal conference decision concluded that Yamaya was liable on two different grounds for the tax on the red king crab. DOR concluded that Yamaya was liable for the tax on live crab that Yamaya cooked and then sold in Alaska because Yamaya was the first processor. In addition, DOR concluded that Yamaya was liable for the tax on live crab shipped to Japan because a fisheries business that transports unprocessed resources outside Alaska is liable for the tax.

In this appeal from the informal conference decision, Yamaya admits purchasing 5,057 pounds of live red king crab during 1997 from Prime in Dutch Harbor. Yamaya cooked all of the crab and then resold it to a local restaurant in Anchorage. Yamaya did not transport any of the crab to Japan.

Yamaya denies liability for the fisheries business tax on the red king crab that Yamaya purchased from Prime. Yamaya contends that Prime is liable for the tax because Prime was the primary buyer. Prime bought the crab directly from the fishermen who caught it and signed fish tickets for the crab.

Yamaya contends that "selling live" is considered a processing activity under the Alaska Processor and Exporter Permit and that the sale of live crab by a processor should similarly be considered processing activity for purposes of applying the fisheries business tax. Yamaya argues that live crab trading is common in the fisheries business and the first processor making a live crab sale should be responsible for paying the tax.

Yamaya makes some good arguments for requiring the fist processor that sells live crab to pay the fisheries business tax. Crab, unlike salmon, is marketed live to consumers. It would make sense, as a matter of tax policy, to distinguish between seafood that is traded live and fish that is not traded live in defining "processing" for the purpose of applying the fisheries business tax to prevent live seafood sales from escaping tax. It also makes sense, as Yamaya argues, to collect the tax from the primary buyer because the primary buyer has the fish tickets that document the actual price paid to the fishermen that harvested the crab³.

On the other hand, DOR argues that Yamaya must pay the tax on the crab because Yamaya was the first fisheries business that actually processed the crab in Alaska. Review of the FBT statutes and regulations indicates that DOR has correctly interpreted and applied the existing tax law in requiring the first in-state processor of the resource to pay the tax.

DOR's position is consistent with the language of AS 43.75.015, the statute that imposes the fisheries business tax. AS 43.75.015 (c) expressly provides that the fisheries business that "first actually and physically processes the fishery resource" is liable for the entire tax⁴.

The FBT regulations define "processing" as any activity that modifies the physical condition of the resource. The regulations, like the statute, contain one definition of processing that applies to all fisheries resources:

DOR correctly applied the definition of processing in the FBT regulations to the facts of this case in concluding that Yamaya was the first processor. Yamaya admits to purchasing live red king crab and then cooking the crab before reselling it. Since "cooking" is expressly included in the definition of processing, Yamaya did process the crab. It is also evident that the primary buyer's handling of the live crab before the sale to Yamaya was not processing under this definition because there was no change in the physical condition of the live crab until Yamaya cooked it.

DOR's position regarding application of the fisheries business tax in this case is also consistent with AS 43.75.100, another part of the fisheries business tax statutes. AS 43.75.100 imposes the tax on a person who transports fisheries resources outside the taxing jurisdiction of the state for sale or subsequent processing.⁶ The apparent purpose of this statute is to prevent processors from avoiding the fisheries business tax by exporting unprocessed resources outside Alaska.⁷

AS 43.75.100 expressly requires a processor to pay the tax on resources that the processor takes outside Alaska before processing. It does not address taxation of unprocessed resources that remain in Alaska.

For the reasons discussed above, I conclude that Yamaya is liable for the fisheries business tax on the red king crab that Yamaya purchased and processed in 1997. The informal conference decision in this matter is affirmed on the ground that Yamaya performed the first processing of the crab by cooking it.

This is the final decision of the Administrative Law Judge under AS 43.05.465 (a).

This decision may be appealed to superior court by filing a notice of appeal in accordance with Rule 602 of the Alaska Rules of Appellate Procedure.

¹ AS 43.75.015.
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² Schedule 7 of the 1997 FBT return instructs a fisheries business to report all fisheries resources sold unprocessed inside Alaska. Schedule 7 requires a fisheries business that has sold unprocessed fish or seafood in Alaska to report the purchaser's name, address and fisheries business license number, and the species and pounds sold. It does not require the seller of unprocessed resources to report price information.
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³ The record in this appeal does not contain any documentation regarding the price that Prime paid to acquire the crab or Prime's selling price to Yamaya. Instead of using the price actually paid for the red king crab to establish its tax value, DOR used the average price reported to the state for all red king crab sales in Dutch Harbor during 1997. That average reported price may be higher, or lower, than the price that was actually paid for the crab at issue here.
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⁴ AS 43.75.015 (c) states:

Under this statute the first processor is liable for the fisheries business tax except when the first person who actually processes the resource is (1) a commercial fisherman who catches the resource and then sells it to a licensed fisheries business in Alaska; or (2) a fisheries business that processes the resource for another licensed fisheries business in Alaska. These exceptions to tax liability for fisherman and custom-processors do not apply in this case.
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⁵ 15 AAC 75.300 (4).
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⁶ AS 43.75.100. TAX IMPOSED ON TAKING OF FISHERY RESOURCE. (a) A person taking, purchasing, or otherwise acquiring a fishery resource covered by this chapter which has not been subject to the tax imposed in AS 43.75.015 is subject to the tax levied in AS 43.75.015 on the value of the fishery resource if the person

1. transports the fishery resource to a point outside the taxing jurisdiction of the state for subsequent processing or sale outside the taxing jurisdiction of the state;
2. sells the fishery resource outside the taxing jurisdiction of the state; or
3. has the fishery resource processed by a fisheries business in the state.

The informal conference decision in this case mistakenly assumed that Yamaya transported some live crab to Japan and was liable for the tax on the exported crab under AS 43.75.100. In fact Yamaya did not export any of the crab from Alaska so AS 43.75.100 does not apply here.
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⁷ Yamaya's request for reconsideration sought clarification concerning who would pay the fisheries business tax if Yamaya purchased live crab and then sold the live crab, without any processing, to a retail store in Alaska. Because those facts are not presented in this case, this decision does not address that issue. This decision is properly limited to resolving the narrow issue of Yamaya's fisheries business tax liability in 1997 for the crab that Yamaya purchased live and processed before selling to an Anchorage restaurant. However, this appeal and the request for reconsideration indicate confusion concerning the application of the fisheries business tax to live seafood sales in Alaska and a real need for the Department of Revenue to clarify this area of tax law.
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