Sternmen quietly gain from lobster surge

First published in the MLA Newsletter, April, 2012

As we all know, last year was a great year for lobster landings in the state. While the price limped along well below its highs of 2005 and 2007, lobstermen did make money, slightly more than $331 million in fact. For comparison, the value of lobster landed in the state just ten years ago, in 2001, was $154 million, slightly less than half of the 2011 value.

Economists have documented the flow of money from lobstermen into the local communities. Some conservative estimates put the multiplier effect of those dollars at one-to-three, meaning each dollar generated from the point of sale at the boat means an additional three dollars of local economic value. The money goes into home and boat repairs, vehicles, gear, all the trappings of day-to-day life.

Beau Warrington photo

And to the sternmen. Sternmen are the unseen beneficiaries of the boom in lobster landings. While no agency keeps track of the number of sternmen employed by Maine lobstermen, there could be as many as 3,000 based on the number of Class II and Class III licenses issued this year.

Sternmen, unlike the crew of a groundfishing vessel, are typically paid a percentage of each day’s catch. Sometimes that percentage is taken “off the bottom,” meaning after expenses for fuel and bait are deducted; sometimes that percentage is taken “off the top,” before expenses are deducted. The percentage paid to a sternman is set by the boat owner. Thus if a lobsterman pays his sternman 17 percent “off the top” and his annual landings equal $200,000, the sternman makes $34,000 (the Maine per capita income in 2010 was $37,300), according to the U.S. Bureau of Labor Statistics). The federal self-employment tax currently is 15.3 percent thus the hypothetical sternman would pay approximately $5,200 in federal tax.

Since 1976, sternmen in Maine have been considered self-employed workers by the Internal Revenue Service (IRS). That standing was achieved only through the hard work of Maine lobstermen and Senators Edmund Muskie and Bill Hathaway to prevent Maine’s small lobstering businesses from paying costly payroll taxes.

After a systematic audit of Maine lobstermen by the IRS in the early 1970s, the IRS decided that the relationship between a lobsterman and his sternman was that of employer and employee. Consequently the lobsterman would have to withhold federal income tax and Social Security taxes for the sternman. This contradicted the long-standing practice of payment via a percentage of the catch. The Maine Lobstermen’s Association president at the time, Ed Blackmore, organized a petition among lobstermen against the IRS designation. He quickly got more than 700 petition signatures and presented the petition to Senator Edmund Muskie.

Blackmore also started a letter writing campaign to enlist the involvement of other fishing organizations throughout the country, some of which were facing the same problems with the IRS. Support came from Alaska, Florida, the Gulf of Mexico, even the watermen of the Chesapeake Bay. Finally, Congressman Bill Cohen attached language to the Tax Reform Act of 1976 to exempt commercial fishing vessel owners from Social Security and federal income tax withholding if they carried nine or fewer crew who receive a portion of the daily catch as pay. An exemption from federal unemployment insurance taxes was signed into law more than ten years later.

Working as a sternman may pave the way for a young lobsterman to earn his way into the fishery. Some sternmen are enrolled in the state’s Apprentice Program and use their working time to log the hours required to complete their apprenticeship, as well as earning enough money to purchase a boat and traps. Others choose the profession because they enjoy being on the water without the responsibility of running a business. One young man in Owls Head, who asked not to be named, said “It’s good money. You work harder than hell, that’s for sure, but when it’s good, it’s pretty damn good.” He said he had no intention of applying for his own license or buying his own boat. Right now he is hoping to purchase a used snowmobile in anticipation of a future snowy winter.

No matter what the reason, working as as sternman on a Maine lobster boat provides a source of income in many parts of the coast where there are few other opportunities for lucrative employment.

 

License category              2012                  Potential number of sternmen

LC2 over 70                        163                                      163

LC3 over 70                        43                                         86

LC2                                     1500                                    1500

LC3                                     729                                      1458

Total                                    2435                                    3207

License numbers from DMR.