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Bullock v. State; DCRA (3/23/01) sp-5376
Bullock v. State; DCRA (3/23/01) sp-5376
Notice: This opinion is subject to correction before publication in
the Pacific Reporter. Readers are requested to bring errors to the attention of
the Clerk of the Appellate Courts, 303 K Street, Anchorage, Alaska 99501, phone
(907) 264-0608, fax (907) 264-0878.
THE SUPREME COURT OF THE STATE OF ALASKA
DONALD MACKENZIE BULLOCK, )
JR., ) Supreme Court No. S-9092
)
Appellant, ) Superior Court No.
) 1KE-98-180 CI
v. )
) O P I N I O N
STATE OF ALASKA, DEPARTMENT )
OF COMMUNITY AND REGIONAL ) [No. 5376 - March 23, 2001]
AFFAIRS, MIKE IRWIN, )
COMMISSIONER; STATE OF )
ALASKA, DEPARTMENT OF )
REVENUE, WILSON L. CONDON, )
COMMISSIONER; CITY OF )
VALDEZ; and NORTH SLOPE )
BOROUGH, )
Appellees. )
______________________________)
Appeal from the Superior Court of the State of
Alaska, First Judicial District, Ketchikan,
Michael A. Thompson, Judge.
Appearances: Donald M. Bullock, Jr., on his
own behalf, Douglas, Appellant. Stephen C. Slotnick and Marjorie
L. Vandor, Assistant Attorneys General, and Bruce M. Botelho,
Attorney General, Juneau, for Appellee State of Alaska. William M.
Walker, Walker, Walker, Wendlandt & Osowski, L.L.C., Anchorage, for
Appellee City of Valdez. Susan A. Burke and Avrum M. Gross, Gross
& Burke, P.C., Juneau, for Appellee North Slope Borough.
Before: Matthews, Chief Justice, Eastaugh,
Fabe, Bryner, and Carpeneti, Justices.
FABE, Justice.
MATTHEWS, Chief Justice, dissenting.
I. INTRODUCTION
In this appeal we address two tax statutes, AS 29.45.080
and AS 29.45.100, that apply to municipalities with significant oil
and gas properties. With respect to AS 29.45.080, we must
determine whether to defer to the Department of Revenue's and the
Department of Community and Regional Affairs's interpretation to
allow municipalities to reduce all taxable property on a pro-rata
basis when the value of such property exceeds the cap imposed by AS
29.45.080(c). Because we conclude that the Department's
interpretation is continuous, long-standing, and not arbitrary or
capricious, we affirm the superior court's decision that AS
29.45.080(c) supports the pro-rata reduction method. Next, we
address a municipality's authority to tax for the repayment of
bonded indebtedness under AS 29.45.100. Because that provision
states that no limitation should apply to a municipality's ability
to tax for debt service, we affirm the superior court's decision
that the limitations contained in AS 29.45.080 do not abridge that
authority.
II. FACTS AND PROCEEDINGS
A. Relevant Facts and Background
The tax statutes at issue here relate to the state's and
municipalities' authority to tax property used in the exploration,
production, and pipeline transportation of oil and gas in Alaska.
In its 1973 Special Session the legislature created the State
Property Tax (AS 43.56) [Fn. 1] and established limitations on a
municipality's authority to tax oil and gas property. [Fn. 2] Such
property, defined in AS 43.56.210(7)(A), includes drilling rigs,
wells, tank farms, tanker terminals, the Trans-Alaska Pipeline, and
other related property (43.56 property).
In large part, this appeal asks us to interpret AS
29.45.080(c), which imposes a valuation cap on the total property
value that municipalities may tax. Two interpretations are at
issue. One, advocated by Donald Bullock, is that in cases where
the municipality's total tax base exceeds the limit imposed by AS
29.45.080(c), the municipality should tax 100% of locally assessed
property and only tax a portion of oil and gas property. Under the
other interpretation, advocated by the North Slope Borough (NSB),
the City of Valdez (Valdez), and the State of Alaska (State), when
a municipality's total property value exceeds the level set by AS
29.45.080(c), the municipality should reduce both the value of oil
and gas property and locally assessed property, in equal
proportion. NSB, Valdez, and the State currently adhere to this
interpretation.
This appeal also concerns AS 29.45.100, [Fn. 3] which
addresses a municipality's authority to tax for the repayment of
bonds (debt service).
1. Alaska Statute 43.56: oil and gas exploration,
production and pipeline transportation property taxes
Alaska Statute 43.56, found within the state's revenue
and taxation title, addresses the taxation of oil and gas property.
[Fn. 4] This statute authorizes both the state and municipalities
to tax oil and gas property for their operating budgets.
Specifically, AS 43.56.010(a) authorizes the state to levy an
annual twenty mill tax on "the full and true value of" oil and gas
property (43.56 property); AS 43.56.010(b) requires municipalities
to tax 43.56 property at the same rate that they apply to other
taxable property; AS 43.56.010(c) provides that the Department of
Revenue ("Department") shall "designate the portion of the tax base
against which the local tax may be applied" in cases where the
total value of assessed property in a municipality exceeds the
limit imposed by AS 29.45.080(c); and AS 43.56.010(d) provides that
oil and gas taxpayers who pay municipal taxes under AS 29.45.080
shall receive a state tax credit for the amount of municipal taxes
they pay.
2. Alaska Statute 29.45.080: municipal taxation and
the tax on oil and gas production and pipeline property
In enacting the statutes at issue here, the legislature
has attempted to strike a balance between the municipalities and
the state. The statutes therefore impose limits on municipalities'
authority to tax oil and gas property so that the state may also
benefit from taxing oil and gas property. Specifically, AS
29.45.080(b) imposes a cap on the total tax revenue the
municipality can recover, and AS 29.45.080(c) caps the total value
of property the municipality may tax.
a. Alaska Statute 29.45.080(b): mill rate based
on maximum taxable revenue under the $1,500 per capita limitation
Alaska Statute 29.45 addresses municipal taxation, and
subsection .080 specifically addresses oil and gas taxation as
provided for in 43.56, discussed above. This section describes the
two methods by which municipalities may levy and collect taxes on
43.56 property. Alaska Statute 29.45.080(b) describes the first
method by which municipalities may tax oil and gas property. This
method is based on the total tax revenue that the municipality may
collect in a given year. It imposes a $1,500 a year per-person cap
on revenue:
A municipality may levy and collect a tax on
the full and true value of taxable property taxable under AS 43.56
as valued by the Department of Revenue at a rate not to exceed that
which produces an amount of revenue from the total municipal
property tax equivalent to $1,500 a year for each person residing
in its boundaries.
Thus, this section requires municipalities to adjust mill rates
such that the total tax revenue from 43.56 property and other
taxable property does not exceed $1,500 per person. Moreover, AS
43.56.010(b), discussed above, requires the municipality to tax the
43.56 property at the same rate that it applies to other taxable
property.
b. Alaska Statute 29.45.080(c): mill rate based
on maximum property value under the 225% valuation limitation
The more ambiguous provision is AS 29.45.080(c) which
imposes a limit on the total property value that a municipality may
tax. This section, which is the primary subject of this appeal,
limits the total taxable property value to 225% of the average per
capita value of property in the state, times the number of
residents in the municipality. When the total property value in
the municipality exceeds this value, the municipality must reduce
the total taxable property value in order to bring the
municipality's total tax base within the limit imposed by the 225%
valuation cap. The statute does not make clear how the municipality
should make this reduction, however, and the present case asks us
to settle this confusion.
Subsection .080(c) provides:
A municipality may levy and collect a tax on
the full and true value of that portion of taxable property taxable
under AS 43.56 as assessed by the Department of Revenue which
value, when combined with the value of property otherwise taxable
by the municipality, does not exceed the product of 225 percent of
the average per capita assessed full and true value of property in
the state multiplied by the number of residents of the taxing
municipality.
Thus, the equation to find the maximum taxable property value is
2.25 X (average per capita property value) X (n residents).
For example, if the average state-wide property value per
capita were $50,000 and a municipality contained 10,000 people, the
maximum tax base in the municipality would equal
(2.25)($50,000)(10,000) = $1,125,000,000. If the actual tax base
were in fact $2 billion, then the municipality would have to reduce
that value by $875 million to comply with the 225% valuation cap.
The critical issue is how the municipality should make that
reduction -- whether it should reduce the oil and gas property
value by the full $875 million, or whether it should reduce both
oil and gas property and other locally assessed property
proportionately to fall within the limit.
There are two proposed approaches for reducing the total
assessed value to comply with the 225% formula cap. Bullock's view
is that the statute requires the municipality to reduce the value
of only oil and gas property such that, when that portion is added
to the full and true value of all other taxable property, the total
amount does not exceed the maximum value under the 225% valuation
cap. Thus, continuing with the above example, if the assessed
value of both the local property and the 43.56 property were each
$1 billion, the total taxable property would consist of the full $1
billion of locally assessed property but only $125 million of the
43.56 property. [Fn. 5] The oil and gas taxpayer would then
receive a credit against its state taxes for the amount of taxes it
paid on the $125 million in taxable property, and the state could
tax the remaining $875 million of 43.56 property in full.
The State, NSB, and Valdez advocate a different approach.
Their method, which NSB and Valdez have been applying since 1978,
and which the State of Alaska has consistently supported, is to
reduce the assessed value of all the property in the municipality
proportionately in order to arrive at the maximum value under the
225% formula cap. A municipality using this approach taxes a
greater portion of oil and gas property than it would tax using
Bullock's method.
The following arithmetic example illustrates the method
that NSB and Valdez use in calculating the "reduction factor" --
the proportion by which the pro-rata method reduces the values of
both the 43.56 property and the locally assessed property:
(2.25)(average property value)(n residents)
(43.56 property value) + (locally assessed property value)
Substituting numbers from the above example reveals:
(2.25)($50,000)(10,000) = 0.5625.
$1,000,000,000 + $1,000,000,000
Thus, under this interpretation of AS 29.45.080(c), the
municipality should only include 0.5625 of the 43.56 property and
the locally assessed property. The sum of the resulting values of
the two types of property should be less than or equal to the
maximum tax base, $1,125,000,000 in this example. Arithmetically:
(.5625 X $1,000,000,000) + (.5625 X $1,000,000,000)
= $1,125,000,000.
The value of the taxable property for both the 43.56 property and
the locally assessed property is $562,500,000. [Fn. 6] This figure
represents roughly fifty-six percent of the full value of each of
the two types of property. Contrast this result with that which
Bullock's method generates: $375,000,000 for the 43.56 property --
which represents 12.5% of the full value -- and $1,000,000,000 for
the locally assessed property -- which represents 100% of the full
value.
The pro-rata method also results in a lower state tax
collection under AS 43.56.010(a), since oil and gas taxpayers are
allowed a credit against state tax for the municipal taxes they pay
under AS 29.45.080. [Fn. 7] And oil and gas taxpayers pay more
municipal taxes, and hence have a larger credit, under the pro-rata
method than under the Bullock method.
B. Procedural History
Donald Bullock, a former employee of the State of Alaska,
initially filed his complaint against the State of Alaska in May
1998 along with the Ketchikan Gateway Borough (KGB), for whom he
now works as a legislative liaison. The complaint challenged the
State's interpretation of AS 29.45.080(c), which, as explained
above, proportionately reduces the assessed valuation of both 43.56
property and locally assessed property in order to comply with the
225% valuation cap. NSB and Valdez moved to intervene as
defendants, and Superior Court Judge Michael A. Thompson granted
their motions.
Bullock and KGB argued that the Department of Revenue's
interpretation of the statutes is wrong and that, when a
municipality's total tax base exceeds the maximum property value
limitation produced by the 225% formula, only the 43.56 property
values should be reduced to achieve compliance with the cap. In a
second claim, Bullock and KGB argued that limitations apply to a
municipality's authority to tax 43.56 property for purposes of debt
repayment under AS 29.45.100.
KGB withdrew from the case prior to oral argument
pursuant to a stipulation that all parties signed. The superior
court granted summary judgment for the State, NSB, and Valdez.
This appeal followed.
III. STANDARD OF REVIEW
When the issue before us implicates "agency expertise or
the determination of fundamental policies within the scope of the
agency's statutory functions," we review the agency's
interpretation under the reasonable basis standard. [Fn. 8] We
believe that in this case, determining the appropriate "portion" of
the "tax base" that municipalities may tax is a matter that
involves agency expertise. In addition, both AS 43.56.010 and AS
29.45.080 reveal the legislature's intention to leave such
determinations up to the Department. Alaska Statute 43.56.010
provides: "[i]f the total value of assessed property of a
municipality taxing under AS 29.45.080(c) exceeds [the 225%
valuation cap] . . . the department shall designate the portion of
the tax base against which the local tax may be applied." [Fn. 9]
And AS 29.45.080 provides in relevant part: "[a] municipality may
levy and collect a tax on the full and true value of taxable
property taxable under AS 43.56 as valued by the Department of
Revenue." This language evinces the legislature's intent to allow
the Department to "utilize its expertise to decide" how to
determine the municipal tax base under AS 29.45.080(c). [Fn. 10]
Thus, because the statute involves agency expertise, and because
the legislature intended to place the decision in the hands of the
Department, [Fn. 11] we apply the reasonable basis standard.
In applying the reasonable basis standard, we "consider
factors of agency expertise, policy, and efficiency in reviewing
discretionary decisions." [Fn. 12] And this standard of review,
which is highly deferential to the Department, is similar to the
"unreasonable, arbitrary and capricious" standard. [Fn. 13] With
this standard for guidance, we turn now to the question whether the
Department's pro-rata interpretation is reasonable.
IV. DISCUSSION
This appeal involves two major issues: first, whether AS
29.45.080(c) requires municipalities to reduce only the portion of
oil and gas property such that that amount, when added to the full
value of other locally assessed property, falls within the 225%
valuation cap; and second, whether municipalities must apply the
225% tax base limitation to taxes for repaying bonded indebtedness
under AS 29.45.100.
A. When the Full and True Value of Property in a
Municipality Exceeds the Limit Imposed by the AS 29.45.080(c) 225%
Valuation Cap, the Municipality May Reduce the Value of All Taxable
Property on a Pro-Rata Basis.
1. Statutory construction
Although AS 29.45.080(c) limits the value of property
that a municipality may tax, it provides no guidance for how to
reduce the total property value when that amount exceeds the value
imposed by the statute's 225% cap. In arguing that the statute
requires a reduction in only 43.56 property, Bullock relies
essentially on a plain language analysis. Although the plain terms
of the statute may make Bullock's position plausible, we have
rejected the plain meaning rule in favor of a rule wherein
"[s]tatutory construction begins with an analysis of the language
of the statute construed in light of its purpose." [Fn. 14] We
have explicitly
rejected that formulation of the plain meaning
rule which mandates that we must disregard all legislative history
if the statute's wording is clear and unambiguous on its face. To
do so would overly restrict our inquiry, since reference to
legislative history may provide an insight which is helpful to
making a judgment concerning what a statute means, and since words
are necessarily inexact and ambiguity is a relative concept.[ [Fn.
15]]
This court will generally construe "statutes in pari
materia where two statutes were enacted at the same time, or deal
with the same subject matter." [Fn. 16] Moreover, "[i]t is an
established principle of statutory construction that all sections
of an act are to be construed together so that all have meaning and
no section conflicts with another." [Fn. 17] Because subsection
.080(c) relates to, and is incorporated in, the oil and gas
taxation act, AS 43.56, [Fn. 18] we look to AS 43.56 for guidance
in determining the method for apportioning the tax base under
subsection .080(c).
In particular, AS 43.56.010(c) sheds light on this issue.
That provision states:
If the total value of assessed property of a
municipality taxing under AS 29.45.080(c) exceeds the [225%
valuation cap], the department shall designate the portion of the
tax base against which the local tax may be applied.
(Emphasis added.) In referring to the "total value of assessed
property," this section does not distinguish between 43.56 property
and other, locally assessed property. "[T]otal value of assessed
property" clearly refers to the total taxable property within the
municipality.
The section then refers to the "portion of the tax base"
that the municipality may tax. The "tax base" must include all of
the taxable property within the municipality, and not merely the
43.56 property. It is not logical for 43.56 property alone to
comprise the entire "tax base," because the statutory scheme
contemplates the taxation of local, non-43.56 property. [Fn. 19]
Based on this language, it is reasonable to read AS 43.56.010(c) to
mean that when a municipality's total property value exceeds the
225% valuation cap, the entire tax base is subject to reduction,
and not merely the 43.56 property. This construction of AS
43.56.010(c) suggests that AS 29.45.080(c)'s paired phrases --
"full and true value of that portion of taxable property taxable
under AS 43.56 as assessed by the Department of Revenue" and "the
value of property otherwise taxable by the municipality" -- refer
to the values of the two components of "the portion of the tax
base" (with "tax base" meaning total tax base) in AS 43.56.010(c).
Alaska Statute 43.56.010(c) requires the Department to designate
these two components as locally taxable when the total value of
assessed municipal property exceeds the valuation tax cap. The
first tax base component, then, referred to in the first statutory
phrase of AS 29.45.080(c), is 43.56 property value; the second
component, referred to in the second phrase, is locally assessed
property value. And, as designated by the Department under AS
43.56.010(c), each of these tax base components will reflect the
pro rata reduction necessary to achieve compliance with the 225%
valuation tax cap. Bullock's proposal to reduce only the 43.56
property is inconsistent with such a reading. Although we do not
believe that this is the only interpretation that the statutory
language will support, at the very least the language of these two
provisions -- AS 29.45.080(c) and AS 43.56.010(c) -- creates
ambiguity. And when the meaning of a statute is ambiguous or in
doubt, the Department's interpretation "is entitled to great
weight." In this case the Department's pro-rata interpretation of
these statutes has been long-standing, consistent, and widely
known; thus we afford it great weight.
2. The Department has long interpreted subsection
.080(c) to allow for a pro-rata reduction in oil and gas property
and other locally assessed property.
Since 1978 the Department of Revenue has interpreted
subsection .080(c) to allow for the pro-rata reduction of both
43.56 property and locally assessed property.
In determining that there is a long-standing agency
interpretation of subsection .080(c), we conclude first that the
Department has interpreted subsection .080(c), and second that this
interpretation is long-standing.
We first determine that the Department of Revenue has, in
fact, interpreted subsection .080(c) to permit municipalities to
reduce total property using a pro-rata method. In 1978 the
Department of Revenue sent a letter to the mayor of NSB,
specifically applying the pro-rata method of the 225% formula cap
to NSB's factual situation. The Deputy Commissioner of the
Department of Revenue, John R. Messenger, concluded the letter by
stating that the Department planned "to formalize this ruling in a
form of a regulation in the near future." Although the Department
never did codify the pro-rata interpretation as a formal
regulation, it clearly ruled that it would "require a pro-rata
reduction." [Fn. 20]
Further evidence of the Department's long-standing
interpretation comes from a Report to the Senate Community and
Regional Affairs Committee that was submitted in January 1990 by
the Senate Select Advisory Committee on Municipal Taxation of Oil
and Gas Properties (the Select Committee). In that report, the
Select Committee requested a regulatory change to clarify the
appropriate procedure when the actual tax base of a municipality
exceeds the 225% cap. The report stated that "[t]he regulations
should incorporate existing and past state practice and provide
that the reduction of the actual tax base total shall be made
through a pro-rata reduction of both oil and gas property and other
property within the municipality." (Emphasis added.)
The next question is whether the Department's
interpretation has been long-standing. We have never specified a
standard for what constitutes "long-standing." But here, the
Messenger letter was written twenty-three years ago, and we
conclude that twenty-three years easily qualifies as long-standing.
In addition, the Attorney General wrote a letter
embracing the pro-rata interpretation. When an executive
interprets legislation, that interpretation "is entitled to be
given weight by the court in construing the intent of the statute."
And the Attorney General's opinions, while not controlling, are
entitled to some deference in matters of statutory construction.
In this case, Attorney General Norman C. Gorsuch sanctioned the
Department's pro-rata interpretation of the 225% cap when he wrote
to the mayor of NSB in 1985 that "we have reviewed the [pro-rata]
methodology and find that it comports with the method approved by
the Department of Revenue for the North Slope Borough in 1978. As
such, we find that it is a reasonable and defensible interpretation
of the statute." The Gorsuch letter independently approves of the
pro-rata method used by NSB and Valdez. Perhaps more importantly,
however, it is more evidence that the Department has, in fact, long
interpreted subsection .080(c) to permit municipalities to
calculate the municipal tax base using the pro-rata method.
In his argument against the Department's pro-rata
interpretation, Bullock points to a 1988 letter from State Assessor
Mike Worley. This letter, which Worley submitted to the director
of his division in the Department of Community and Regional Affairs
(DCRA), concluded that subsection .080(c) required municipalities
to levy against 100% of the locally assessed value. But Worley's
letter simply recommended that his concerns be pointed out to the
Select Committee, which the senate had recently convened to review
proper methods for municipal taxation of oil and gas properties.
The Select Committee eventually recommended clarifying the law
through legislation or regulations to conform with the existing
pro-rata practice of NSB and Valdez. Furthermore, in a memorandum
explaining his position to the commissioner of DCRA, Worley
expressly recognized that the current method of taxation had been
approved by the Department of Revenue since 1978, and he
specifically acknowledged that the DCRA had no authority to alter
the Department of Revenue's interpretation of the correct method of
taxation: "It is not within the statutory authority of my office
to take any action with regard to decisions made by other state
agencies."
Moreover, we observe that in addition to being a long-
standing practice of the Department, the pro-rata reduction method
does not appear to conflict with the legislature's intentions.
Indeed, the legislature has demonstrated continued deference to the
Department's interpretation.
First, in drafting the statutes themselves, the
legislature gave the Department "a generous amount of leeway in
implementing these statutory schemes."
Also, in 1982 the legislature passed an amendment to the
current subsection .080(c), then subsection .045(b), in an attempt
to clarify the language. The proposed change provided:
A municipality may levy and collect a tax on
the full and true value of that portion of property taxable under
this chapter and under AS 43.56 as assessed by the Department of
Revenue which value, when combined with the value of property
otherwise taxable by the municipality, does not exceed the product
of 225 percent of the average per capita assessed full and true
value of property in the state multiplied by the number of
residents of the taxing municipality.[]
This amendment, although ultimately vetoed by the governor for
unrelated reasons, specified that both other property and AS 43.56
property were to be apportioned. It therefore indicates that the
legislature intended to defer to the Department's pro-rata
interpretation.
Moreover, the legislature appeared to endorse the pro-
rata interpretation in its letter of intent to the current
subsection .080(c):
It is not the intent of the House Community
and Regional Affairs Committee in adopting AS 29.53.045 as the
renumbered section 29.45.080 in CSHB 72 (C&RA) to alter the
substance or effect of that provision.[]
Since the "effect" of the 225% cap had been to permit NSB and
Valdez to calculate their tax base using the pro-rata method, this
letter of intent further evidences the legislature's intent to
defer to the Department's application of subsection .080(c), which
was to reduce both types of property proportionately pursuant to
the Department's interpretation.
A final piece of evidence that suggests that the
legislature intended to defer to the Department's interpretation is
a letter written by Senator Mike Szymanski, Chairman of the Senate
Community & Regional Affairs Committee. He stated that "the
present interpretation of [the 225% cap] is both appropriate and
reasonable. In addition, the present system for taxing oil and gas
properties is an integral part of the existing mechanism for
municipal funding in the state."
The Messenger letter, the Gorsuch letter, the Worley
correspondence, and the Report to the Senate Community and Regional
Affairs Committee all demonstrate that the pro-rata reduction
method is a continuous and long-standing Department interpretation.
In addition, the legislature has deferred to that interpretation at
least since 1982, when it first formally addressed the issue.
Thus, the Department has consistently interpreted subsection
.080(c) since 1978, and that interpretation does not conflict with
legislative intentions. We therefore conclude that the
Department's pro-rata interpretation, which permits a reduction in
both 43.56 property and other property, is entitled to deference.
3. The pro-rata method does not violate the
requirement to assess non-oil-and-gas property at full and true
value or exceed the exemptions authorized by statute.
Bullock argues that the pro-rata method fails to assess
non-43.56 property at full and true value as required by AS
29.45.110(a), and exceeds the exemptions authorized by AS
43.56.010(b). But as the State points out, assessments and
exemptions are different matters than inclusion in the tax base.
For, in apportioning the property that is included in the tax base
under subsection .080(c), all property is assessed at full and true
value and reduced in equal proportion. This method of calculating
the municipal tax base does not under-assess or exempt any
property.
B. The 225% Limitation Does Not Apply to Taxes Imposed to
Repay Bonded Indebtedness.
The second major question in this appeal is whether the
tax base limitation contained in subsection .080(c) extends to the
imposition of taxes for debt service under AS 29.45.100. That
section provides:
The limitations provided for in AS 29.45.080 -
29.45.090 do not apply to taxes levied or pledged to pay or secure
the payment of the principal and interest on bonds. Taxes to pay
or secure the payment of principal and interest on bonds may be
levied without limitation as to rate or amount, regardless of
whether they are in default or in danger of default.
Since 1973 NSB has imposed taxes for the repayment of debt service
on 100% of all taxable property within the municipality -- both
43.56 property and "property otherwise taxable."
Alaska Statute 29.45.100 specifically states that the
limitations provided for in AS 29.45.080-.090 do not apply to taxes
levied to pay the principal and interest on bonds. And we stated
in North Slope Borough v. Sohio Petroleum Corp. that the
legislative history "is consistent with and distinctly supportive
of a literal interpretation of [this section]." We concluded in
Sohio that the legislature did not intend to imply any limitations
on a municipality's authority to tax for debt financing, and that
no limitations should therefore be read into the statute. Our
decision in Sohio supports the conclusion that subsection .080(c)'s
tax base limitation does not apply to a municipality's authority to
levy taxes for debt service.
Moreover, in its Report to the Senate Community &
Regional Affairs Committee, the Senate Select Advisory Committee
requested "a regulation clarifying that the limits set out in AS
43.56(b), AS 43.56(c) and AS 29.45.090, do not apply to taxation of
oil and gas property for the purpose of repayment of bonded
indebtedness." Also, Attorney General Norman Gorsuch emphasized
that the limitations of AS 29.45.080 and .090 apply only to
operating expenses. His opinion stated:
AS [29.45.080(a)] in turn requires that a
municipality which imposes a tax on AS 43.56 property must do so
under the limitations set forth in subsection (b) and (c) of that
section. These limitations, however, apply to operating expenses
only and are, in effect, suspended by [AS 29.45.100].
. . . .
The limitations provided for in [AS 29.45.080]
or [29.45.090] do not apply to taxes levied or pledged to pay or
secure the payment of the principal and interest on bonds.
. . . .
This section, along with AS 29.58.180(a),
authorizes taxes to pay for municipal bonds independent of the
limitations of [AS 29.45.080].
. . . .
The municipal tax on AS 43.56 property is
limited only by [AS 29.45.080]. However, the limitations in
subsections (b) and (c) of that section apply to operating revenues
only. They do not apply to debt financing, which is covered by [AS
29.45.100].
(Emphasis added.)
Given our decision in Sohio and the expressed intent of
the Senate Committee and the Attorney General, we conclude that AS
29.45.100 allows municipalities to tax 100% of all taxable property
for purposes of debt service.
V. CONCLUSION
Because we determine that the Department's pro-rata
interpretation is consistent and long-standing and is not arbitrary
or capricious, we AFFIRM the superior court's decision to read AS
29.45.080(c) to allow the pro-rata reduction method. Furthermore,
because AS 29.45.100 specifically states that no limits apply to a
municipality's authority to tax for debt financing, and because we
have interpreted that provision to mean what it says, we also
AFFIRM the superior court's decision that the tax base limitation
contained in subsection .080(c) does not apply to taxes for the
repayment of bonded indebtedness.
MATTHEWS, Chief Justice, dissenting.
Out of deference to the state's longstanding interpreta-
tion of the Oil and Gas Property Tax Act, today's opinion affirms
the state's method of pro-rata reduction of "other" property. But
deference to an agency interpretation is appropriate only when the
interpretation is reasonable. [Fn. 1] In my judgment the pro-rata
reduction interpretation is not reasonable. It conflicts with AS
29.45.080(c)'s exclusive formula for determining the portion of oil
and gas property taxable by a municipality. It violates the
requirement that municipalities tax oil and gas property at the
same rate that they tax other property, and, alternatively, it
violates the requirement that municipalities limit other property
exemptions from taxation to those expressed in AS 29.45.030, .050
and AS 43.56.020. For these reasons, I dissent.
Background
The Oil and Gas Property Tax Act was passed by the
legislature in special session in 1973. Oil and gas, and thus oil
and gas property, were regarded as resources which should benefit
all Alaskans. Because oil and gas production and transportation
property was concentrated in a limited area of the state, the
legislature believed that the state should tax this property for
the benefit of all Alaskans, while still allowing the
municipalities whose boundaries encompassed oil and gas property to
directly benefit from it to some degree. Governor Egan set the
context of the special session in his opening remarks: "The
extremely difficult problem we face is this: When vast amounts of
taxable oil and gas property are situated unequally throughout the
State, what manner of distributing tax revenues derived is fairest,
both to the local governments involved and to the rest of the
State?" [Fn. 2]
The disproportionate tax base in the North Slope Borough
and in Valdez was of paramount concern. The Senate Committee on
Community and Regional Affairs report of November 3, 1973, stated:
Even though the North Slope Borough will have
both temporary and permanent impact, still the tax base available
to them . . . would be so disproportionate to the rest of the State
as to produce a shocking inequity. For example, upon completion of
the pipeline, the North Slope Borough would have as a minimum
approximately 3/4 billion dollar tax base . . . . With a
population of 4,000 persons, the borough would have a tax base of
$187,500 per capita. The State average tax base is $12,000 per
capita. Anchorage, for example, is $17,500 per capita. Both the
House and the Senate bills adopted the same mechanism and limited
the per capita revenues. In the House it was limited to $1,000 per
person and in the Senate $2,000 per person. . . . The figures
suggested by either the House or the Senate provided per capita
revenues . . . greatly in excess of those received by any other
community in the state. Anchorage, for example, has total tax
revenues of approximately $350 per person. The higher $1,000 (or
possibly $2,000) figure can be justified for the North Slope
Borough because of the higher living costs in the North Slope
Borough, the excessive construction costs for such things as
sewers, schools, etc., and also because the North Slope Borough
covers the gigantic Arctic North Slope Plain, extending from Canada
on the east to the Chukchi Sea on the west. Although the $1,000 or
perhaps even the $2,000 may be rational as a per capita limit on
the North Slope, neither of these figures is rational as a per
capita limitation in Valdez.[ [Fn. 3]]
As enacted in 1973, the Oil and Gas Property Tax Act had
six sections, only four of which are important to the present
issue. In discussing the act, I will describe it as it now exists,
for no changes important to this case have been made since the
original enactment. [Fn. 4]
In section 1 of the act, AS 43.56.010(a) provides that
the state may tax oil and gas property at an annual rate of 20
mills. Subsection (b) of .010 provides that municipalities may
also tax oil and gas property under AS 29.45.080. Subsection (d)
provides that taxes on oil and gas property paid to a municipality
under AS 29.45.080 are to be credited against state taxes levied
under subsection .010(a).
In order to constrain municipal taxation of oil and gas
property and thus prevent an undue drain on state tax revenues,
important limitations are built into the act. The first is the
equal rate requirement. Alaska Statute 43.56.010(b) provides that
a municipality's tax on oil and gas property "shall be levied at a
rate no higher than the rate applicable to other property taxable
by the municipality." The reason for this limitation is obvious.
If municipalities could tax oil and gas property at a rate higher
than other property they would have little or no reason not to do
so. The owners of oil and gas property are not well represented
among municipal voters, and the state -- which ultimately pays the
municipal tax under the crediting mechanism of subsection .010(d)
-- is not part of the municipal body politic. Thus municipalities
would tend to tax oil and gas property at maximum rates, while
taxing other property either minimally or not at all. By imposing
an equal rate requirement, the legislature hoped that the downward
pressure imposed by the reluctance of owners of other property to
pay higher levels of taxes would constrain municipalities from
diverting to themselves state tax revenues from oil and gas
property. We have confirmed this view of the purpose of the equal
rate requirement:
This limitation was apparently intended to
prevent a borough from shifting its fiscal responsibilities away
from its general property owners and onto the shoulders of the oil
and gas industry, and ultimately, due to the credit against state
taxes, onto the state government. In other words, local residents
should pay their fair share of the cost of local government rather
than casting the burden disproportionately onto the people of the
state.[ [Fn. 5]]
Hand in glove with the equal rate limitation is a
prohibition on the exemption of other property from taxation.
Exemptions must be limited because otherwise a municipality might
exempt a high percentage of other property -- say 90% of value --
while taxing the remainder -- in my example 10% -- at the same rate
that it taxed the portion of oil and gas property it was permitted
to tax. In this way a municipality would be able to argue that it
was complying with the equal rate limitation, while in fact the
effective rate for other property would be only 10% of the rate at
which the municipality taxed oil and gas property. [Fn. 6] To
close this loophole, AS 43.56.010(b) limits exemptions to those
already authorized by statute, with one exception, which is
contained in section 2 of the act. This amends AS 29.45.050(a),
permitting a $10,000 exemption for each residence.
Section 3 of the act enacted a new section, AS 29.45.080,
which contains two alternative methods under which municipalities
may impose taxes on oil and gas property. These methods are
exclusive in the sense that they are the only methods by which
municipalities may tax oil and gas property. [Fn. 7] The first
alternative uses a revenue cap; the second, a property cap. The
revenue cap method in subsection .080(b) allows a municipality to
tax the full and true value of all oil and gas property within the
municipality, but limits the tax rate to that which, when applied
to all oil and gas property in the municipality and all other
property, produces revenues of no more than $1500 per person. [Fn.
8]
Our concern in this case is with the property cap method.
Alaska Statute 29.45.080(c) caps a municipality's property tax base
at 2.25 times the state per capita average. When the cap is
exceeded by the sum of the value of oil and gas property and other
property, subsection .080(c) permits a municipality to tax only a
portion of the value of oil and gas property. How this portion of
value is to be calculated is the nub of this case. The portion of
value of oil and gas property taxable by a municipality is somewhat
dauntingly described in .080(c) as "which value, when combined with
the value of property otherwise taxable by the municipality, does
not exceed the product of 225 percent of the average per capita
assessed full and true value of property in the state multiplied by
the number of residents of the taxing municipality." [Fn. 9]
The property cap method was advocated in preference to
the revenue cap method by the Department of Community and Regional
Affairs. Commissioner Mallott explained its advantages:
The average per capita assessed valuation
index is suggested as a compromise between those who would have the
State assume exclusive authority for levy of an ad valorem tax on
property used in conjunction with oil activity and those who have
claimed that removal from municipalities of authority to levy on
that property in support of services required would sharply
restrict local capacity to act. The index chosen as the
restricting factor -- double the State average assessed valuation
of property per capita -- is offered that the existing range of
averages of particular municipalities is not unduly affected, but
that future variations are held within tolerable limits, in light
of essential local revenue needs as determined by elected officials
in the municipalities concerned.[ [Fn. 10]]
Commissioner Mallott proposed the property cap method
because he questioned whether the revenue cap "is, and will remain,
an upper limit sufficient to allow recovery of revenues for
essential public services in municipalities affected."
To cite the North Slope Borough as an example,
a limit of $1,000 per capita revenue return in ensuing fiscal years
may not reasonably allow that unit of government to recover
revenues sufficient to defray costs of constructing public
facilities, operating schools, assuming responsibilities for public
works and utilities, and addressing other public needs which its
citizens may demand.[ [Fn. 11]]
Commissioner Mallott also noted that the $1000 revenue cap method
would result in unusually low maximum mill rates in the oil and gas
property advantaged communities of the North Slope Borough and
Valdez. In each case the maximum mill rate would be under 3 mills
after 1977.
Because the House of Representatives favored the revenue
cap method and some senators favored the property cap method, both
methods were included in the act. The free conference committee
reached this resolution after a Department of Revenue official
predicted that the difference between the two methods would not be
great, about $1 million in the early years, increasing to about $3
or $4 million later. [Fn. 12]
Once the act was passed, the State Department of Revenue
initially construed the property cap method to require a reduction
in the taxable portion of only oil and gas property -- and not
other property -- when the total value of oil and gas property and
other property in a municipality exceeded the 225% cap. This point
is made clear in a February 1977 report prepared by the State
Department of Revenue and transmitted by Commissioner of Revenue
Gallagher to Governor Hammond:
If the assessed value of taxable oil and gas
properties would result in a total assessed valuation exceeding
this product (225% of average per capita statewide assessed value
multiplied by the number of the municipality's residents) when
added to the assessed valuation of other property in the
municipality, then the Department of Revenue designates what
portion of the oil and gas assessment the municipality may tax. AS
43.56.010(c).[ [Fn. 13]]
But in 1978 this interpretation changed. Deputy
Commissioner of Revenue Messenger, in a letter to the mayor of the
North Slope Borough, described how the department "has modified its
earlier position regarding the [225% cap]." Instead of designating
"what portion of the oil and gas assessment the municipality may
tax," as in the Gallagher report, the department under Messenger's
method "will require a pro-rata reduction in the assessed value of
all property in the municipality so that it comes within the
limitation."
Although the Messenger letter proceeded to illustrate the
pro-rata methodology, it did not analyze the language of the act.
Nonetheless, the interpretation set out in the Messenger letter has
been consistently applied since 1978. In late 1988 the state
assessor issued a lengthy report critical of, among other things,
the pro-rata reduction method. This report triggered the
appointment of a select advisory committee to the Senate Committee
on Community and Regional Affairs. The select committee issued a
report that defended the pro-rata method and recommended regulatory
changes and constraints on the authority of the state assessor. No
action was taken on the report.
Calculating the Portion of Oil and Gas Property Taxable By a
Municipality -- A Plain Reading of the Act
Alaska Statute 43.56.010(c) provides that where the
"total value of assessed property of a municipality taxing under AS
29.45.080(c)" exceeds the 225% cap, the Department of Revenue
"shall designate the portion of the tax base against which the
local tax may be applied." Subsection .010(c) does not itself
include a formula that would control how the Department of Revenue
chooses to designate the taxable portion of the local tax base.
But subsection .010(c) applies only to municipalities taxing under
AS 29.45.080(c), and subsection .080(c) does contain such a
formula.
Shortened for ease of understanding, AS 29.45.080(c)
provides: "A municipality may levy . . . a tax on the . . . value
of that portion of [oil and gas property] which value, when
combined with the value of property otherwise taxable by the
municipality does not exceed [the 225% cap]." This describes in
plain language the formula for determining what portion of oil and
gas property is taxable by a municipality. From the 225% cap
subtract "the value of property otherwise taxable." The remainder
is the portion of oil and gas property taxable by a municipality.
Expressed mathematically the equation is [portion of value of oil
and gas property taxable by municipality] = [225% cap] - [value of
property otherwise taxable].
Once the portion of oil and gas property taxable by a
municipality is determined, it becomes a simple matter for the
Department of Revenue to designate the portion of the tax base
against which the local tax may be applied under AS 43.56.010(c).
The Department arrives at that figure by adding the "value of
property otherwise taxable by the municipality" to the value of the
portion of oil and gas property taxable by the municipality, the
latter of which has already been determined under AS 29.45.080(c).
The sum of these two figures is the portion of the total tax base
that the municipality may tax. Mathematically this equation is
[tax base] = [portion of value of oil and gas property taxable by
municipality] + [value of property otherwise taxable].
The fact that AS 29.45.080(c) clearly supplies a formula
for determining the portion of oil and gas property taxable by a
municipality does not necessarily mean that the plain language of
that subsection is controlling. We have rejected the aspect of the
"plain meaning" rule that bars a court from considering legislative
history as an interpretative aid if a statute's meaning is facially
"plain." [Fn. 14] Nonetheless, the literal meaning of a statute
will control unless it is convincingly contradicted by evidence of
legislative intent. "Although we normally give unambiguous
language its plain meaning, we may rely on legislative history as
a guide to interpreting a statute. But 'the plainer the language
of a statute, the more convincing contrary legislative history must
be' to interpret a statute in a contrary manner." [Fn. 15]
In this case, the literal or plain meaning of the formula
expressed in .080(c) is in harmony with the legislative history of
the Oil and Gas Property Tax Act. The act was intended to permit
the state to raise revenue from a property tax on oil and gas
property, while also permitting municipalities whose boundaries
encompassed oil and gas property to tax it for local revenue needs.
The formula expressed in subsection .080(c) accomplishes this
purpose. [Fn. 16] Therefore, the literal meaning of this
subsection is controlling.
Calculating the Portion of Oil and Gas Property Taxable
By a Municipality -- How Pro-Rata Reduction Conflicts with the
Language of AS 29.45.080
In this part of this dissent I will explain why the pro-
rata reduction method cannot reasonably be squared with the
language of AS 29.45.080. For ease of understanding I set out here
the pertinent language of that section, underlining for emphasis
the words and phrases discussed in the following paragraphs.
Alaska Statute 29.45.080 provides in relevant part:
(a) A municipality may levy and collect
taxes on taxable property taxable under AS 43.56 only by using one
of the methods set out in (b) or (c) of this section.
(b) [sets out the $1,500 annual per
capita revenue method]
(c) A municipality may levy and collect a
tax on the full and true value of that portion of taxable property
taxable under AS 43.56 as assessed by the Department of Revenue
which value, when combined with the value of property otherwise
taxable by the municipality, does not exceed the [225% property
cap].
I believe that "the value of property otherwise taxable"
in subsection .080(c) plainly refers to all taxable property other
than oil and gas property taxable under 43.56. Under a plain
language interpretation of .080(c), that subsection calls for the
taxation of (1) the entire value of taxable property other than oil
and gas property taxable under 43.46, and (2) whatever portion of
oil and gas property would, when added to the value of property
otherwise taxable, not exceed the 225% cap. But because the pro-
rata method taxes a larger amount of oil and gas property than is
taxable under the plain language interpretation, the amount of
"property otherwise taxable" that can be taxed must be reduced in
order to keep the total taxable value of property within the 225%
cap. To sustain the Department of Revenue's pro-rata reduction
method, therefore, "the value of property otherwise taxable" must
be read as referring only to a portion of taxable property other
than oil and gas property taxable under 43.56.
Although this interpretation is required by the pro-rata
reduction method, it is contradicted by the language of .080(c).
In subsection .080(c), the word "portion" is only used to modify
"property taxable under 43.56." It is not used to modify "property
otherwise taxable." This pointed omission clearly implies that all
-- and not merely a portion -- of "property otherwise taxable" is
to be used in determining the portion of 43.56 property taxable by
a municipality. Because the Department's pro-rata reduction method
taxes only a portion of property otherwise taxable, it runs counter
to the language of .080(c).
When the lead-in language of subsection .080(a) is
examined, two additional inconsistencies between pro-rata reduction
and the language of .080(c) become apparent. Subsection .080(a) is
explicit in stating that municipalities may tax 43.56 property
"only by using one of the methods set out in (b) or (c) . . . ."
This language is important for two reasons. First, it indicates
that subsection (c) sets out a method under which municipalities
may tax oil and gas property. Second, it states that the method
set out in subsection (c) is the only method under which
municipalities may tax oil and gas property. [Fn. 17]
Turning to the first of these reasons, if "the value of
property otherwise taxable" in subsection .080(c) is read to refer
to the entire value of "property otherwise taxable," then
municipalities and the Department can plug that amount into the
formula provided by .080(c) and determine exactly how much 43.56
property is taxable. Subsection .080(c) would thus fulfill its
mandated purpose of setting out a method under which a municipality
may tax oil and gas property. But if "the value of property
otherwise taxable" is read to refer only to a portion of the value
of "property otherwise taxable," the formula provided by the
statute would not yield any particular result. Instead, the amount
of 43.56 property that could be taxed would depend on what portion
of "property otherwise taxable" could be taxed. But subsection
.080(c) does not provide any method for determining what portion of
"property otherwise taxable" can be taxed. As a result, continuing
with the assumption that "value of property otherwise taxable"
refers only to a portion of such value, subsection .080(c) would
not provide a method for the taxation of 43.56 property. It would
therefore fail to fulfill its explicit purpose. The interpretation
of .080(c) required by the pro-rata reduction method thus cannot be
correct, as that interpretation would leave this subsection
unusable in determining how municipalities may tax 43.56 property.
Turning to the point that the .080(c) method is
exclusive, it is clear that pro-rata reduction is not the method
prescribed by subsection .080(c) for determining what portion of
oil and gas property may be taxed. Because the method specified by
subsection .080(c) is explicitly the "only" method under which
municipalities availing themselves of the property cap alternative
may tax oil and gas property, pro-rata reduction is not a
permissible option.
Pro-Rata Reduction Violates the Equal Rate Requirement
The only formula set out in the Oil and Gas Property Tax
Act under which one may determine the portion of oil and gas
property that a municipality may tax is that expressed in AS
29.45.080(c). Since the formula in subsection .080(c) conflicts
with the pro-rata reduction method, the latter method, in my
judgment, necessarily violates the statute. But there is another
reason why pro-rata reduction is wrong: pro-rata reduction
violates the requirement that the portion of oil and gas property
taxable by a municipality be taxable at the same rate as other
property.
This can be illustrated by using the assumptions and the
explanation of the pro-rata reduction method expressed in the 1978
Messenger letter. I quote here the Messenger letter assumptions
and calculations:
Assumptions
Average per capita assessed full
and true value of property in
Alaska (assumed)................ $30,000
North Slope Borough residents
(assumed)....................... 10,000
Assessed Value of AS 43.56 property
within North Slope Borough
(assumed).......................2,500,000,000
Assessed Value of non-AS 43.56
property within North Slope Borough
(assumed)....................... 500,000,000
Total assessed value of all
property within North Slope Borough
................................3,000,000,000
Calculation
1. ($30,000) x (225 percent) x (10,000) =
$675,000,000
($675,000,000 is the total assessed value
of property in the North Slope Borough that
can be taxed.)
2. 3,000,000,000 > 675,000,000
(Apportionment of the tax base is
necessary.)
3. 3,000,000,000
= .225
_____________
675,000,000
(The entire tax base must be reduced to
22.5 percent of its full value to come within
the 675,000,000 limit.)
4. 2,500,000,000 x .225 = 562,500,000
(Value of AS 43.56 property
that can be taxed)
500,000,000 x .225 = 112,500,000
(Value of other property
that can be taxed)
____________
675,000,000
Expressed textually, the Messenger calculations tell us
that under the assumptions used the 225% cap is $675,000,000. Pro-
rata reduction of oil and gas property and other property requires
that each element of the tax base be reduced to 22.5% of full
value. This results in a figure of $562,500,000 as the portion of
oil and gas property taxable by the municipality. Messenger
describes this as the "value of AS 43.56 property that can be
taxed."
Now assume that the municipality levies a tax of 20
mills. This is levied on the tax base as limited, $675,000,000.
The municipality receives $13,500,000. Of this sum, the
municipality receives $11,250,000 (.02 x 562,500,000) from the
owners of oil and gas property. The owners are indifferent to this
tax, for it will be paid by a credit on their tax bill to the
state. It is thus accurate to say that the $11,250,000 comes from
diverted state revenues. The municipality receives $2,250,000 (.02
x 112,5000) from the owners of other property.
What is the actual rate paid by the owners of other
property in this scenario? The municipality imposes the 20-mill
tax on only 22.5% of the value of other property using the
Messenger calculations. This means that the tax rate on other
property is actually not 20 mills, but is instead only 4.5 mills
(.225 x 20 = 4.5). So an owner of taxable other property worth
$100,000 in this municipality would pay property taxes of $450
($100,000 x .225 x .02), which is the tax that would be produced by
a 4.5-mill rate. By contrast, if the tax were actually 20 mills,
the owner would pay a tax of $2,000.
But the $562,500,000 of oil and gas property -- in
Messenger's words, "the value of AS 43.56 property that can be
taxed" -- would in fact be taxed by the municipality at the rate of
20 mills. Therefore the municipality would not be taxing the
portion of oil and gas property that it is permitted to tax at the
same rate of taxation that it applies to other property. This
demonstrates that the pro-rata reduction method results in a
violation of the equal rate requirement.
It is worthwhile, by contrast, to show what the result
would be under AS 29.45.080(c)'s formula for determining the
portion of oil and gas property taxable by a municipality. Again
using the Messenger assumptions, the 225% tax cap would still be
$675,000,000 and this would still be the tax base. Imposing taxes
under the literal statutory formula at 20 mills, the municipality
would still receive the same amount of revenue as it received under
the pro-rata method, $13,500,000. But the makeup of the tax base
would be different. From the 225% property cap of $675,000,000,
the value of other property, $500,000,000, would be subtracted,
leaving $175,000,000 of oil and gas property that could be taxed by
the municipality. The tax base would thus consist of
- value of oil and gas property that
can be taxed = $175,000,000
- value of other property that can
be taxed = $500,000,000
____________
- 225% property cap $675,000,000
Applying a 20-mill tax to these elements, $10,000,000 of total
revenues would come from the owners of other property (who in this
case are paying taxes at a 20-mill rate of assessment) and
$3,500,000 would come from oil and gas property tax revenue
diverted from the state treasury.
In summary, using the Messenger assumptions the state
pays almost $8,000,000 more to the municipality under the pro-rata
method than it would using the formula expressed in AS
29.45.080(c). Use of the pro-rata formula, in other words, causes
exactly what the equal rate limitation was designed to prevent, a
"shifting" of a municipality's "fiscal responsibilities away from
its general property owners and onto the shoulders of the oil and
gas industry, and ultimately, due to the credit against state
taxes, onto the state government." [Fn. 18] In this respect the
pro-rata reduction method conflicts with the state revenue-raising
purposes of the act. The objective of the equal rate requirement,
that "local residents should pay their fair share of the cost of
local government rather than casting the burden disproportionately
onto the people of the state," is thereby lost. [Fn. 19] And the
constraint on high taxation of oil and gas property that would
exist if the tax rates were equal is also lost, for the owners of
other property pay taxes at a rate that is less than a fourth of
the rate on oil and gas property. [Fn. 20]
Alternatively, the Pro-Rata Reduction Method Exempts Other
Property from Taxation in Violation of the Exemption Limitations
Contained in the Act
In enacting the Oil and Gas Property Tax Act, the
legislature took pains to restrict the exemptions that
municipalities could offer to the owners of other property. [Fn.
21] This was done to prevent an end run around the equal rate
requirement. But as is demonstrated by the Messenger letter
calculations, the effect of pro-rata reduction is to exempt from
taxation a certain percentage of the value of other property. In
the Messenger calculation the exemption amounts to 77.5% of the
value of other property. This exemption permits a facially equal
tax rate to have a distinctly unequal effect. In the words of
Commissioner Mallott, this permits the "fiscal equity" inherent in
the equal rate requirement to be "frustrated." [Fn. 22]
In passing the act the legislature intended that no
portion of otherwise taxable property in advantaged municipalities
should go untaxed, for this would occur at the expense of the rest
of the state. The legislature built the prohibition on exemptions
into the act in order to prevent exactly this result. The act was
a response to what one legislative committee described as "a
shocking inequity" between oil and gas property advantaged
municipalities and other municipalities. [Fn. 23] Its purpose was
to reduce this inequity by sharing tax revenues from oil and gas
property statewide. No part of this purpose entailed state-funded
tax relief to the owners of locally assessed property in tax
advantaged municipalities. But by insulating a portion of locally
assessed property from taxation, that is the effect of the pro-rata
reduction method.
Conclusion
I would reverse the judgment of the superior court with
respect to the pro-rata reduction issue. Although the pro-rata
reduction method is longstanding, it has never been reasonable. It
is contradicted by the plain language of AS 29.45.080(c), which, in
turn, accords with the purposes of the act, while the pro-rata
reduction method does not. The pro-rata reduction method also
demonstrably violates the equal rate requirement of AS 43.56.010(b)
and, alternatively and equally demonstrably, violates the
limitation on exemptions to other property imposed by the same
subsection. The result is a prohibited shifting of the tax burden
in tax advantaged municipalities from the owners of other property
to the state as a whole.
FOOTNOTES
Footnote 1:
Ch. 1, sec. 1 FSSLA 1973.
Footnote 2:
Those municipal limitations, contained in AS 29.45.080 and AS
29.45.090, were originally enacted AS 29.53.045 and AS 29.53.050,
respectively, Ch. 1, sec.sec. 1, 3, 4 FSSLA 1973.
Footnote 3:
This statute was originally enacted as AS 29.53.055. See Ch.
1, sec. 5 FSSLA 1973. This opinion shall refer to the provisions
contained in AS 29.45 repeatedly. The following table shows the
current statute numbers, effective January 1, 1986, see Ch. 74,
sec.
12 SLA 1985, and their corresponding former numbers as originally
enacted in 1973:
CURRENT LAW PRIOR LAW
AS 29.45.080 AS 29.53.045
AS 29.45.090 AS 29.53.050
AS 29.45.100 AS 29.53.055
Footnote 4:
AS 43.56.010 provides in relevant part:
(a) An annual tax of 20 mills is levied
each tax year beginning January 1, 1974, on the full and true value
of taxable property taxable under this chapter.
(b) A municipality may levy and collect
a tax under AS 29.45.080 at the rate of taxation that applies to
other property taxed by the municipality. The tax shall be levied
at a rate no higher than the rate applicable to other property
taxable by the municipality. . . .
(c) If the total value of assessed
property of a municipality taxing under AS 29.45.080(c) exceeds the
product of 225 percent of the average per capita assessed full and
true value of property in the state, to be determined by the
department and reported to each municipality by January 15 of each
year, multiplied by the number of residents of the taxing
municipality, the department shall designate the portion of the tax
base against which the local tax may be applied.
(d) A tax paid to a municipality under
AS 29.45.080 or former AS 29.53.045 on or before June 30 of the tax
year shall be credited against the tax levied under (a) of this
section for that tax year. . . .
Footnote 5:
$1,125,000,000 - $1,000,000,000 = $125,000,000. This figure
represents only 12.5% of the total value of the 43.56 property.
Footnote 6:
(0.5625) X ($1,000,000,000) = $562,500,000.
Footnote 7:
See AS 43.56.010(d) ("A tax paid to a municipality under AS
29.45.080 or former AS 29.53.045 . . . shall be credited against
the tax levied [by the state] for that tax year."); Kenai Peninsula
Borough v. State, Dep't of Community & Reg'l Affairs, 751 P.2d 14,
15 (Alaska 1988) ("The [oil and gas] taxpayer is entitled to a
credit against its state tax for tax paid to a borough.").
Footnote 8:
Matanuska-Susitna Borough v. Hammond, 726 P.2d 166, 175
(Alaska 1986).
Footnote 9:
AS 43.56.010(c) (emphasis added).
Footnote 10:
Matanuska-Susitna, 726 P.2d at 175-76; see also Storrs v.
State Med. Bd., 664 P.2d 547, 552 (Alaska 1983), cert. denied, 464
U.S. 937 (1983) ("[S]tatutory construction adopted by those
responsible for administering a statute should not be overruled in
the absence of 'weighty reasons.'").
Footnote 11:
See Matanuska-Susitna, 726 P.2d at 175.
Footnote 12:
Id. at 176.
Footnote 13:
See id.
Footnote 14:
Borg-Warner Corp. v. AVCO Corp., 850 P.2d 628, 633 n.12
(Alaska 1993).
Footnote 15:
State, Dep't of Natural Resources v. City of Haines, 627 P.2d
1047, 1049 n.6 (Alaska 1981) (internal citations omitted); see alsoDillingham v. CH2M Hill Northwest, 873 P.2d 1271, 1276 (Alaska
1994) ("Though we give unambiguous statutory language its ordinary
and common meaning, we have rejected the 'plain meaning' rule as an
exclusionary rule, and we may look to legislative history as a
guide to construing a statute's words.").
Footnote 16:
Underwater Constr., Inc. v. Shirley, 884 P.2d 150, 155 (Alaska
1994).
Footnote 17:
In re Hutchinson's Estate, 577 P.2d 1074, 1075 (Alaska 1978).
Footnote 18:
[Fn. 21]
See AS 29.45.080(a)-(c); AS 43.56.010(b)-(d).
Footnote 19:
See AS 29.45.080(c).
Footnote 20:
See Wien Air Alaska, Inc. v. Department of Revenue, 647 P.2d
1087, 1093-94 (Alaska 1982) (stating that the Department of Revenue
may issue a ruling by means of a letter, "a written statement
issued to a taxpayer or his authorized representative . . . which
interprets and applies the tax laws to a specific set of facts,"
and that "[r]evenue rulings arise from various sources, including
rulings to taxpayers, [and] technical advice to district offices").
Footnote 21:
Flisock v. State, Div. of Retirement & Benefits, 818 P.2d 640,
645 (Alaska 1991).
FOOTNOTES (Dissent)
Footnote 1:
See Totemoff v. State, 905 P.2d 954, 968 (Alaska 1995);
Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc.,
467 U.S. 837, 843 (1984) (holding that deference may be given to
agency interpretation only if it is based on permissible
construction of statute).
Footnote 2:
Senate Journal Supp. No. 1 at 3-4, 1973 Senate Journal Special
Session.
Footnote 3:
1973 Senate Journal Special Session 77-78.
Footnote 4:
The act, updated to reflect renumbering and minor amendments,
provides:
Section 1. AS 43 is amended by adding a new
chapter to read:
CHAPTER 56. OIL AND GAS EXPLORATION,
PRODUCTION AND PIPELINE TRANSPORTATION
PROPERTY TAXES.
Sec. 43.56.010. LEVY OF TAX. (a) An
annual tax of 20 mills is levied each tax year
beginning January 1, 1974, on the full and
true value of taxable property taxable under
this chapter.
(b) A municipality may levy and collect a
tax under AS 29.45.080 at the rate of taxation
that applies to other property taxed by the
municipality. The tax shall be levied at a
rate no higher than the rate applicable to
other property taxable by the municipality. A
municipality may not exempt from taxation
property authorized to be taxed under this
chapter. Exemptions shall be limited to those
in AS 29.45.030, 29.45.050, and AS 43.56.020.
(c) If the total value of assessed
property of a municipality taxing under AS
29.45.080(c) exceeds the product of 225
percent of the average per capita assessed
full and true value of property in the state,
to be determined by the department and
reported to each municipality by January 15 of
each year, multiplied by the number of
residents of the taxing municipality, the
department shall designate the portion of the
tax base against which the local tax may be
applied.
(d) A tax paid to a municipality under AS
29.45.080 or former AS 29.53.045 on or before
June 30 of the tax year shall be credited
against the tax levied under (a) of this
section for that tax year. If, however, a tax
is not paid to a municipality until after June
30 of the taxable year, the department upon
application shall refund to the taxpayer the
amount of tax paid to the municipality under
AS 29.45.080 or former AS 29.53.045. The
credit or refund of taxes paid to a
municipality may not exceed the total amount
of tax levied by the department upon the
taxpayer for the tax year, under (a) of this
section.
. . . .
Section 2. AS 29.45.050 is amended to read:
(a) A municipality may exclude or exempt
or partially exempt residential property from
taxation by ordinance ratified by the voters
at an election. An exclusion or exemption
authorized by this section may not exceed the
assessed value of $10,000 for any one
residence.
. . . .
Sec. 3. AS 29.45 is amended by adding a new
section to read:
Sec. 29.45.080. TAX ON OIL AND GAS
PRODUCTION AND PIPELINE PROPERTY. (a) A
municipality may levy and collect taxes on
taxable property taxable under AS 43.56 only
by using one of the methods set out in (b) or
(c) of this section.
(b) A municipality may levy and collect a
tax on the full and true value of taxable
property taxable under AS 43.56 as valued by
the Department of Revenue at a rate not to
exceed that which produces an amount of
revenue from the total municipal property tax
equivalent to $1,500 a year for each person
residing in its boundaries.
(c) A municipality may levy and collect a
tax on the full and true value of that portion
of taxable property taxable under AS 43.56 as
assessed by the Department of Revenue which
value, when combined with the value of
property otherwise taxable by the
municipality, does not exceed the product of
225 percent of the average per capita assessed
full and true value of property in the state
multiplied by the number of residents of the
taxing municipality.
. . . .
Sec. 4. AS 29.45.090 is amended by adding a
new subsection to read:
(b) A municipality, or combination of
municipalities occupying the same geographical
area, in whole or in part, may not levy taxes
(1) that will result in tax revenues from
all sources exceeding $1,500 a year for each
person residing within the municipal
boundaries; or
(2) upon value that, when combined with
the value of property otherwise taxable by the
municipality, exceeds the product of 225
percent of the average per capita assessed
full and true value of property in the state
multiplied by the number of residents of the
taxing municipality.
Footnote 5:
Kenai Peninsula Borough v. State, Dep't of Community and Reg.
Affairs, 751 P.2d 14, 16 (Alaska 1988).
Footnote 6:
See Letter of Commissioner Mallott of the Department of
Community and Regional Affairs, 11/2/73. ("[B]roader residential
exemptions" would shift the tax burden. "In this manner, the
fiscal equity sought by [the proposed act's] requirement that a
local property tax 'shall be levied at a rate no higher than the
millage rate, using the same assessment methods, applicable to
other property taxable by the municipality' may be frustrated.").
Footnote 7:
See AS 29.45.080(a).
Footnote 8:
Originally the limit was $1000 per person.
Footnote 9:
A 3% (30 mill) tax cap on the taxation of property by a
municipality pre-existed the enactment of the Oil and Gas Property
Tax Act. This was not changed by the 1973 act and is contained in
AS 29.45.090(a). But section 4 of the 1973 act added a new section
(b) to AS 29.45.090, which reiterated the alternative methods set
out in AS 29.45.080(b) and (c).
Footnote 10:
See supra note 6.
Footnote 11:
See supra note 6.
Footnote 12:
Free Conference Committee Minutes, November 10, 1973. The
alternative cap methods now yield very different results. Using
rounded figures for 1997, Valdez's operating revenue under the
property cap method was $16 million; under the revenue cap it would
have been $6 million; for the North Slope Borough the corresponding
figures were $60 million and $19 million.
Footnote 13:
February 1977 Report (language in parentheses is contained in
the Department of Revenue report) (emphasis added).
Footnote 14:
See City of Dillingham v. CH2M Hill Northwest, Inc., 873 P.2d
1271, 1276 (Alaska 1994).
Footnote 15:
In re Johnstone, 2 P.3d 1226, 1231 (Alaska 2000) (quoting City
of Dillingham v. CH2M Hill Northwest, Inc., 873 P.2d at 1276).
Footnote 16:
It is important to note that a municipality's total tax base
is the same under the formula expressed in subsection .080(c) and
under the pro-rata reduction method. Thus local revenue needs can
equally well be satisfied under the .080(c) method as under the
pro-rata reduction method. The difference is that under pro-rata
reduction tax advantaged municipalities are able to shift much of
the burden of paying taxes from local property owners to the state.
Footnote 17:
Other than the revenue cap method expressed in subsection (b)
which is not at issue in this case.
Footnote 18:
Kenai Peninsula Borough v. State, Dep't of Community and
Regional Affairs, 751 P.2d 14 (Alaska 1988).
Footnote 19:
Id.
Footnote 20:
The Messenger assumptions are no longer realistic. For the
tax year 1997 -- the most recent year in which figures are
developed in the record before us -- the basic data appear to be as
follows for the North Slope Borough. I use rounded figures.
225% cap, $2,200,000,000.
Oil and gas property, $11,500,000,000.
Other property, $300,000,000.
Using the Messenger pro-rata reduction method other property is
reduced to .1864 of its value before it is taxed. As might be
predicted there is little incentive not to impose taxes at near
maximum rates, and the 1997 rate was about 28 mills. This amounts
to an effective rate on the owners of other property of about 5
mills, shifting about $7,000,000 in payments from these owners to
the state.
Footnote 21:
See AS 43.56.010(b); AS 29.45.050(a).
Footnote 22:
See supra note 6.
Footnote 23:
See supra page 28.
