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Washington State Department of Revenue: Resolve unfair taxation of local Commercial Fishermen

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I have been a commercial fisherman in Alaska for 31 years, before the birth of my first daughter. I love it, it's a good life. The hardest part is being separated from your family for eight to ten months a year. Your children grow up really fast and you don’t get to be as much a part as you would like. I have three children Jeremy (35), Stephanie (30), and Annie (28). Thankfully my beautiful wife, Laurette Buxton is very strong and always up for a challenge, and raising three children on your own for a large part of the year is definitely challenging. She’s part of the Qagan Tayagungin (Aleut) tribe of Sand Point, Alaska. It was through her family that I first began Commercial Fishing as a crew member of various relatives’ fishing boats for the first 20 years.

In 2001, I decided to buy fishing rights for Black Cod through a local broker. There are two brokers, Dock Street Brokers and Permit Master, which I worked with in Washington State to purchase Individual Fishing Quota (IFQ). IFQ’s are basically the rights to harvest certain types of fish in different areas of Alaska. The rates vary, for example, in order to harvest 10,000 pounds of Black Cod I would have to pay $50,000 at the $5.00 rate. I primarily bought in the Aleutian Islands since I fished out of the small town of Sand Point, Alaska. At this point I used equity in my home to purchase the quota so I could make more than my crew share as a deckhand on the boats I fished with. This way, when we fished my quota I would get a portion of the profits for owning the IFQ (or quota) and for being a crew member.

Late in 2001 I found a partner, went up to Canada and purchased a long lining boat, the Bravado. After seven months of repairs and upgrades we took it to Sand Point (sometimes Homer, Dutch Harbor, and Kodiak) and began long lining for Halibut and Black Cod. A small percentage of the quota (less than 20%) fished on the boat was mine at this point. The majority share was my partner’s or outside quota holders that would come on trips with us.

In 2003, I crushed my foot, requiring 40 pins and screws to piece the bones back together in an eight hour surgery. I was not allowed to spend much time on my feet and was told I may never have the full range of use of my foot in the future (no running or any activity that would put a lot of pressure on my foot). In my absence my partner maintained the boat and fished our quotas my partner decided to leave the Bravado. Eventually I was able to go back to work and alternate fishing quota with my partner.

Then in 2005, my partner opted to buy his own boat and create a schedule that allowed for more time at home with his family. Although we worked out a mutually beneficial deal it was difficult losing that much quota (close to 80%) and a few crew members to boot. Despite these surprises and a few years of struggling, I managed to acquire the F/V Bravado as sole owner and slowly build up quota over the years.

In 2007 my son Jeremy was diagnosed with cancer. At this time he was a crewmember of the Bravado. I’ll never forget the devastation I witnessed when he realized he may never get to be out on the water again. I don’t know what I would have done in his situation. He lived in Arizona and had just lost medical coverage before he was diagnosed. Laurette and I did anything and everything we had to during that period of time. Luckily he went into remission the next year at 30 years old. He couldn’t work for several years and had over $200,000 in medical debt. We tried to help him keep his home, but eventually he was forced into foreclosure. As a way to pay for his treatment, keep his home, and generally get through these tough times I had to buy and sell quota (IFQ’s). Jeremy sold his entire quota, while I mostly sold, but also traded. The way it would work is I’d sell quota for an area like Dutch Harbor because the Federal Government was going to decrease the amount you could fish in that region the next year, and purchase quota in a different area, like Sand Point. Other times I would sell 2,000 pounds of Halibut to buy a larger amount like 5,000 pounds, but I couldn’t outright afford the 5,000 pounds without the sale of the other quota I already owned. We basically were setting ourselves up for the future by putting on a bit of debt in the front end. I couldn’t figure out how to get through the hardships otherwise.

Out of the blue in 2010 any fisherman that bought, sold, or traded quota from Dock Street or Permit Master received a letter from the Washington State Department of Revenue. The letter stated that any transactions from 2007 to 2010 were going to be assessed for excise tax (despite the fact that 0% of the fish harvested were in Washington State waters). The tax would not be enforced for any transactions before 2007 or after 2010. This seemed odd, especially since the time period coincides with the bulk of my buying, selling, and trading of quota. To make matters worse, the DOR applied penalties and interest back to 2007 despite the fact that they had not notified anyone of the necessity of this fee until 2010 (3 years after the original assessment period!). Furthermore, the fishermen notified were not allowed to undo any trade or sale made during that time period. There was another issue involved but it was challenged and dropped by the DOR.

I was assessed an excise tax in the amount of approximately $90,000 and they would drop the penalties and interest (approximately $30,000). However, I did not and still do not have the funds since I did not expect to pay an excise tax for a four year period after that period had passed. The brokers were not even made aware of the excise tax until 2010 which allowed no time for budgeting or saving. I had thought they would have put us on notice that collection of the tax would begin with transactions in 2011; however, they did the opposite. So now, in 2012 after a year of appeals and three different lawyers I owe roughly $142,000 immediately or it will continue to accrue penalties and interest and that is without the payments I have made to lawyers who have not been able to appeal the claim. Apparently, other fishermen have received assessments as well but I have yet to find any of them. As far as I can tell, from speaking with my lawyers and brokers I am the only one being targeted. The DOR seems to believe I was some sort of Day Trader and am not experiencing any hardships. The DOR seems to think I have money hidden somehow/somewhere and should easily be able to pay the full amount or at the very least make payments of $1,000/month with 2% to 3% interest with the option to appeal the tax a year from now.

Unfortunately, I had a very bad season this year. My Halibut quota in 2012 was cut by 33% (again by the Federal Government) with an additional 50% cut forecasted for 2013. For example if you owned 10,000 pounds in 2010, you owned 7,700 pounds in 2011 and will potentially own 3,850 pounds in 2013. This year I had to borrow to make my bank payment for the Bravado and IFQ payments, and I was unable to borrow the full amount of what I owed on these payments… My bank agreed to loan me $92,000 and roll the $130,000 I was short (for the Bravado & IFQ payments) into the existing loan.

This effectively has brought my LTV from 63% to 79% after all business and personal payments were made for the year with credit lines and loans. I still have outstanding repairs, insurance and other miscellaneous bills remaining unpaid from this year’s season. Our Halibut and Black Cod season does not start again until May 2013, assuming I’ll still have a boat and quota with which to fish. If I lose the boat 5 crew members will lose their livelihood as well, forcing them to look to other boats to fish quota and provide for their families. After all the difficulties I have had with appealing this I was ready to declare bankruptcy and look for work elsewhere, but my loyal crewmembers deserve better. At this time I have not paid the assessment and the DOR will not negotiate with me.

I think it is important for the DOR to get to know me and my wife. We’re honest, hardworking people. I’m probably honest to a fault, telling it as I see it without all of the fluff and dancing around subjects. I’m never out to gain from someone else’s loss and I really try to look out for those I know. I am not looking for a handout from the state, I just don’t believe it is fair to assess taxes on sales years later and expect payment with little or no notice. If the DOR had notified me at the time of the trade that I had to pay an excise tax I would have. I was at no point trying to work around tax law or profit from ignoring required excise taxes. I realize WA state is in need of funding as we all are in the current economic climate, there just has to be a better way to assess excise taxes.

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