Commercial fishing companies that harvest seafood on behalf of Western Alaska villages might collectively owe tens of millions of dollars in back taxes for business activities beyond the scope of their nonprofit status.
Executives for the six companies are asking members of the Alaska congressional delegation to sponsor legislation to block taxes on their Bering Sea fishing income.
The outcome could affect how much economic development money is available for villages and the pace at which the companies are gradually taking over key parts of Alaska's huge fishing industry.
The six companies operate under the Community Development Quota program, a federal initiative begun in 1992. The program aims to benefit 65 coastal villages by vesting them with up to 10 percent of the lucrative Bering Sea fish and crab harvests.
The six companies, each representing groups of villages stretching from Nome to Naknek and out the Aleutian chain, arrange to catch the fish and convert it to cash. Company executives say they use proceeds from the catch to make further industry investments, create jobs, build processing plants, and provide scholarships and other benefits for often impoverished villagers.
For some years, however, debate has swirled within the CDQ program about whether company profits should be taxed, especially as the six firms have ramped up investments in some of the largest fishing ships and fish-processing plants in Alaska.
The CDQ companies have been tremendous wealth-builders.
In 2007, they generated nearly $170 million in revenue and had combined assets of more than $543 million, according to a report from the Western Alaska Community Development Association, the umbrella group representing the six companies.
The tax issue recently took on new intensity among the companies when one broke ranks and disclosed large tax settlements with the federal and state governments.
Norton Sound Economic Development Corp., which represents Nome and surrounding villages, has paid $8.1 million in back taxes, interest and penalties to the Internal Revenue Service for the years 2005 through 2007, and $2.4 million to the state, said company chief executive Janis Ivanoff.
The company also plans to pay undetermined taxes for 2008, and it has registered a for-profit subsidiary with the state, the Siu Alaska Corp., to hold Norton Sound assets such as its large stake in Glacier Fish Co., a Seattle-based operator of top Bering Sea pollock fishing ships.
Asked why Norton Sound decided to pay the taxes, Ivanoff replied by e-mail that the company did so after consulting with "our outside legal advisers."
"This is as much information as I can give you at this point," she said.
SOCIAL PROGRAMS AT RISK?
Other CDQ companies are divided on the tax question.
Larry Cotter, chief executive of the Aleutian Pribilof Island Community Development Association, applauded Norton Sound's tax settlement, saying his own company always felt obliged to pay taxes and was unique in forming a for-profit subsidiary after the CDQ program began.
Other CDQ company executives, however, say they believe their firms, as nonprofit social improvement organizations under the Internal Revenue Code, shouldn't have to pay taxes.
Philip Lestenkof, president of the Central Bering Sea Fishermen's Association, said his company invests in projects such as improving the port on remote St. Paul Island, and buying halibut from local fishermen.
"The profit we make we use for programs like that," Lestenkof said.
Robin Samuelsen, head of the Dillingham-based Bristol Bay Economic Development Corp., said he was troubled by Norton Sound's tax settlement.
"Maybe they felt like good Samaritans, I don't know," said Samuelsen, who chairs the CDQ umbrella association. "It would be devastating for us to pay taxes as a nonprofit on the social programs we're delivering to the people in our region."
Raising money from fishing is no different from nonprofits such as United Way raising millions of tax-free dollars through other means, Samuelsen said.
"Do we want to start taxing the Red Cross? I don't think so. All we have is fishing," he said.
SOME PROFITS TAXABLE
An IRS spokeswoman said the agency can't comment on individual taxpayers and settlements.
But generally, even though an organization is recognized as tax exempt, the IRS can collect taxes on business or trade activities deemed "not substantially related" to the organization's core charitable, educational or other mission.
Aides for Alaska's three members of Congress generally said they were unable to comment so soon on the Jan. 30 letter and sample legislation the six CDQ companies submitted to "assist us in confirming the tax status" of the firms.
U.S. Rep. Don Young, who has sponsored CDQ-related legislation in the past, would rather not comment "until we have a chance to fully review the proposed legislative language," spokeswoman Meredith Kenny said.
Find Wesley Loy's commercial fishing blog online at adn.com/highliner or call 257-4590.