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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. Premera Blue Cross v. State, Dept. of Commerce, Community & Economic Development, Division of Insurance (11/09/2007) sp-6191
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,
e-mail corrections@appellate.courts.state.ak.us.
THE SUPREME COURT OF THE STATE OF ALASKA
| PREMERA BLUE CROSS, a | ) |
| Washington non-profit corporation, | ) Supreme Court Nos. S-11486/11785 |
| ) | |
| Appellant, | ) Superior Court No. 3AN-99-03436 CI |
| ) Superior Court No. 3AN-99-12217 CI | |
| v. | ) |
| ) O P I N I O N | |
| STATE OF ALASKA, | ) |
| DEPARTMENT OF COMMERCE, | ) No. 6191 November 9, 2007 |
| COMMUNITY & ECONOMIC | ) |
| DEVELOPMENT, DIVISION OF | ) |
| INSURANCE, | ) |
| ) | |
| Appellee. | ) |
| ) | |
Appeal from the Superior Court of the State
of Alaska, Third Judicial District,
Anchorage, John Reese, Judge.
Appearances: Stephan H. Williams, Law Office
of Stephan Williams, Anchorage, for
Appellant. Signe P. Andersen, Assistant
Attorney General, Anchorage, and David W.
M rquez, Attorney General, Juneau, for
Appellee.
Before: Bryner, Chief Justice, Matthews,
Fabe, and Carpeneti, Justices. [Eastaugh,
Justice, not participating.]
FABE, Justice.
I. INTRODUCTION
These consolidated appeals concern Alaskas retaliatory
tax statute as applied to Premera Blue Cross, a Washington non-
profit corporation registered as a hospital and medical services
corporation in Alaska. By stipulation and by engaging Blue
Crosss refund request on the merits, the Division of Insurance
waived its right to argue that Blue Cross should be precluded
from seeking a refund because it did not pay its 1995 and 1996
taxes under formal protest. We therefore reach the merits of
this case, concluding that retaliatory taxes apply to Blue Cross.
We conclude that the Division acted reasonably in implementing
the retaliatory tax statute, and specifically, in excluding
payments that Blue Cross made to the Alaska Comprehensive Health
Insurance Association and the Alaska Small Employers Health
Reinsurance Association. The retaliatory tax statutes plain
language, the policies underlying that statute, and deference to
agency expertise and its established interpretation of the
statute, all support this outcome. Accordingly, we affirm the
ruling made by the Director of the Division of Insurance. We
also agree with the superior court that AS 21.09.270 does not
conflict with Alaskas equal protection and substantive due
process clauses.
II. FACTS AND PROCEEDINGS
Retaliatory tax statutes in effect, substitute the
general tax laws of the foreign insurers home state for the
general tax laws of the state applying the retaliatory statute
whenever the general tax laws of the foreign insurers home state
are more burdensome than the general tax laws of the state
applying the regulatory statute.1 Their principal purpose . . .
is to promote the interstate business of domestic insurers by
deterring other States from enacting discriminatory or excessive
taxes.2
Blue Cross is a Washington nonprofit corporation
registered as a hospital and medical services corporation under
chapter 21.87 of the Alaska Statutes.3 The Alaska Division of
Insurance (the Division) is the agency principally charged with
regulating insurers conducting business in Alaska, including
hospital and medical services corporations. The Division is also
charged with administering and collecting both premium taxes and
retaliatory taxes. To calculate retaliatory taxes, the Division
has used the same forms and instructions since at least 1986 and
takes the position, which Blue Cross disputes, that the forms and
instructions reflect an administrative interpretation of the
retaliatory tax statute.
Blue Cross is a member of the Alaska Comprehensive
Health Insurance Association (ACHIA) and the Small Employers
Health Reinsurance Association (SEHRA). Membership in both ACHIA
and SEHRA is a condition of doing business in Alaska.
ACHIA make[s] available to residents who are high
risk[,] eligible for and covered by Medicare, 65 years of age or
older, and eligible . . . one Medicare supplement plan that meets
. . . minimum policy standards and minimum benefit standards.4
In order to fund the plan, members share in pro rata expenses.5
If a member fails to pay its pro rata share, the director may
have the members certificate of authority revoked.6
SEHRA was enacted to promote the availability of health
insurance coverage to small employers regardless of their health
status or claims experience.7 As with ACHIA, payments are made
by members to cover the costs of the association in proportion to
each reinsuring insurers share of total premiums.8 The statutes
creating SEHRA have recently been repealed. But for the purposes
of this litigation, the parties stipulated that failure to pay a
SEHRA charge was grounds for revocation of a certificate of
authority to do business in Alaska under AS 21.09.150(a).
The State of Washington has a program similar to ACHIA,
the Washington Health Insurance Pool (WHIP), which makes adequate
levels of insurance available to residents of Washington who are
otherwise considered uninsurable or who are underinsured.9
In 1995 and 1996 Blue Cross made payments to ACHIA in
the amount of $1,502,224 and payments to SEHRA in the amount of
$43,918. Blue Cross accounted for ninety-five percent of its
ACHIA payments and 100 percent of its SEHRA payments as paid
claims on its premium tax statement. Five percent of these
payments were recorded on its books as payments of administrative
expenses and were not incorporated into the premium tax. Blue
Cross paid these taxes and fees in 1995 and 1996 without formal
protest.
In 1997 Blue Cross sent a letter to the Division
requesting a refund of excess retaliatory taxes it paid in 1995
and 1996 because it did not include the 1995 and 1996 payments it
made to ACHIA in its calculations of its retaliatory tax
obligation. On June 30, 1999, the Director of the Division10
issued an order denying Blue Crosss refund request on its merits.
For its findings of fact, the Director adopted the facts
stipulated to by the parties. When drawing its legal
conclusions, the Director considered the language of AS
21.09.270.
Alaska Statute 21.09.270(a) provides, in part:
If, under the laws of another state or
foreign country, taxes, licenses, and other
fees, in the aggregate, and fines, penalties,
deposit requirements, or other material
obligations, prohibitions, or restrictions
are or would be imposed upon Alaska insurers
. . . that are in excess of the taxes,
licenses, and other fees, in the aggregate,
or that are in excess of the fines,
penalties, deposit requirements, or other
obligations, prohibitions, or restrictions
directly imposed upon similar insurers . . .
of another state or country under the
statutes of this state . . . the same taxes,
licenses, and other fees, in the aggregate,
or fines, penalties, or deposit requirements
or other material obligations, prohibitions,
or restrictions of whatever kinds shall be
imposed by the director upon the insurers
. . . of the other state or country doing
business or seeking to do business in this
state.
And AS 21.09.270(b) contains exceptions:
This section does not apply to personal
income taxes, to ad valorem taxes on real or
personal property, or to special purpose
obligations or assessments imposed by another
state in connection with particular kinds of
insurance other than property insurance.
The Director drew a distinction between taxes,
licenses, and fees under AS 21.09.270(a), which were calculated
in the aggregate, and other obligations, which were compared only
on an item-by-item basis.
As a matter of law, the Director interpreted AS
21.09.270(a) as requiring a comparison of an aggregate
calculation of taxes, licenses, and fees between Alaska and
foreign insurers. The Director also determined that the
Divisions retaliatory tax schedules direct taxpayers to use this
aggregate calculation under AS 21.09.270(a). The Director
further concluded as a matter of law that ACHIA and SEHRA charges
are not a tax, license, or fee and therefore should not be
included in the aggregate calculation of taxes, licenses, and
fees under AS 21.09.270(a). The Director also noted that [t]o
the extent that the ACHIA and SEHRA assessments are other
material obligations under the statute, they are compared
separately with like items imposed by a foreign insurers
domiciliary state. The assessment of the Washington Insurance
Pool is a similar assessment or obligation to ACHIA.
The Director decided that, to the extent ACHIA, SEHRA,
and WHIP were special purpose obligations or assessments, the
exception in AS 21.09.270(b) operated only to exclude the
Washington charge from any comparison with similar charges
imposed in Alaska and the exception did not result in any further
retaliation under AS 21.09.270 for those kinds of charges.
Finally, the Director concluded that the exception in AS
21.09.270(b) did not apply to reduce Blue Crosss retaliation fee
because none of the aggregated taxes, licenses, and fees listed
on their Retaliatory Schedule included special purpose
obligations imposed by another state.
Following the Directors denial of Blue Crosss refund
request, Blue Cross appealed the determination to the superior
court. Blue Cross also filed a separate complaint seeking a
declaratory judgment that Blue Cross was not subject to the
retaliatory tax imposed by AS 21.09.270; that even if it were, it
did not owe any such tax for the 1998 tax year because the
statutory payments it was required to make under ACHIA and SEHRA
should have been included on the Alaska side of the retaliatory
tax calculation, thereby reducing or eliminating any retaliatory
tax it owed; and that the retaliatory tax imposed by AS 21.09.270
was unconstitutional under the equal protection, substantive due
process, and special privileges and immunities provisions of the
Alaska Constitution. Blue Cross also sought injunctive relief
prohibiting the collection of retaliatory tax against it.
The Division answered and filed a counterclaim seeking
$925,592 it claimed Blue Cross owed because it included the ACHIA
and SEHRA charges on the Alaska side of its 1998 retaliatory
schedule as a tax, license, and fee, thereby reducing its premium
tax and retaliatory tax obligation. The Division further sought
a judgment that AS 21.09.270 applies to Blue Cross and that
payments made to ACHIA and SEHRA are not included in the
aggregate calculation of taxes, licenses, and fees under AS
21.09.270.
The superior court considered summary judgment motions
from both parties and affirmed the decision of the Division and
denied Blue Cross summary judgment on its equal protection and
substantive due process claims. Blue Cross appeals. Below we
consider: (1) whether Blue Cross waived its right to a refund
when it failed to make its 1995 and 1996 retaliatory tax payments
under protest; (2) whether as a hospital and medical services
corporation Blue Cross is subject to retaliatory taxes; (3)
whether the Division properly excluded the payments Blue Cross
made to ACHIA and SEHRA under the retaliatory tax statute; and
(4) whether the retaliatory statute as applied to Blue Cross
violates Alaskas equal protection and substantive due process
clauses.
III. DISCUSSION
A. Standard of Review
When the superior court acts as an intermediate court
of appeal in administrative cases, we review the administrative
agencys decision directly.11 In questions of law involving an
agencys expertise or where an agency has made a fundamental
policy decision, a rational basis standard is applied and we
defer to an agencys determination so long as it is reasonable.12
For questions of law that do not involve agency expertise, we
substitute our own judgment, adopting the rule of law that is
most persuasive in light of precedent, reason, and policy.13
When interpreting a statute, courts look to the plain
meaning of the statute, the legislative purpose, and the intent
of the statute.14 Statutes should be construed, wherever
possible, so as to conform to the constitutions of the United
States and Alaska.15 The constitutionality of a statute and
matters of constitutional or statutory interpretation are
questions of law to which we apply our independent judgment,
adopting the rule of law that is most persuasive in light of
precedent, reason, and policy.16
A grant of summary judgment is reviewed de novo, and we
will affirm if the record contains no genuine issue of material
fact and the moving party is entitled to judgment as a matter of
law.17
B. The Division Waived Its Right To Argue that Blue Crosss
Claim Is Barred Because of Failure To Protest Its
Retaliatory Fees in 1995 and 1996.
Blue Cross has stipulated that it paid its 1995 and
1996 taxes without formal protest. In the same stipulation, the
parties also agreed that Blue Crosss request for a refund of
retaliatory taxes paid for the 1995 and 1996 tax years was timely
and [was] in all other respects properly before the Director of
the Division . . . for a decision on its merits. The Division
claims, though, that Blue Cross is not entitled to a refund of
retaliatory fees because of its failure to file a formal protest
when it paid its 1995 and 1996 retaliatory taxes. The Division
requests that we affirm the Directors order on this basis alone.
As an initial matter, we dispense with the parties
dispute over whether a formal protest was a prerequisite to
obtaining a refund. In Principal Mutual Life Insurance Co. v.
State, we ruled that even if there is no statutory requirement
that a formal protest be made prior to the recovery of a tax
refund, a taxpayer must formally protest a tax in order to
maintain a common law action in assumpsit for a tax refund.18 In
Carlson v. State, we reiterated Principals holding, noting that
we clearly held [in Principal] that both under the statute and
common law, the taxpayer must formally protest the payment of the
tax at the time of payment in order to subsequently maintain
either a common law or statutory cause of action.19
But AS 21.09.210(k) allows for a refund even if a
payment was not made under protest when a mistake or
misinterpretation has been made. It provides:
If, within three years after the date the tax
under this section was due, an insurer
discovers a mistake or misinterpretation that
resulted in an overpayment of the tax in an
amount exceeding $250 in any one calendar
year, the insurer may make a written request
to the director for a refund. If the director
determines a valid mistake or
misinterpretation has occurred, the director
shall refund to the insurer the amount of the
excess tax by granting, at the directors
discretion, a monetary refund or premium tax
credit.[20]
Blue Cross claims its failure to include the charges
was a mistake or misinterpretation within the meaning of AS
21.09.210(k), while the Division claims that Blue Cross is
challenging the validity of the Divisions interpretation and
application of the retaliatory tax statute, and therefore a
protest was required. Blue Cross notes that it invoked AS
21.09.210(k) when it requested its refund. Although Blue Cross
concedes that AS 21.09.210(k) applies only to premium taxes, it
argues that the parties agreed through the stipulation that the
Division could also provide refunds for the similar retaliatory
taxes, and like under AS 21.09.210(k), no protest would be
required. But we need not resolve the question whether Blue
Crosss refund request more properly falls within AS 21.09.210(k)
and requires no protest, or would require a payment with protest
as a challenge to the Divisions interpretation and application of
the retaliatory tax statute. Even if payment under protest were
required, the Division waived its right to raise the issue.
Under Principal, we indicated that waiver of the
payment under protest requirement is possible. At issue in
Principal was whether Principal was entitled to a refund, and we
remanded to the superior court the question whether through its
interaction with Principal the Division waived the payment under
protest requirement.21 Citing Principal, we noted in Carlson that
[t]he protest requirement may be waived by the taxing authority.22
Blue Cross argues that, even if the payment under
protest requirement would otherwise bar its claim, the express
agreement under the stipulation that the refund request was
timely and in all other respects properly before the Director . .
. for a decision on the merits constituted a waiver of the
requirement by the Division. It adds that the Director actually
made a decision respecting the refund request on its merits, and
this is further evidence of waiver.
The Division counters that the stipulation did not
result in waiver, and that the matter before the Director for
decision was Blue Crosss entitlement to a refund. It refers to
paragraph 22 of the stipulation, which states in relevant part
that the parties stipulate that the Director has the authority to
decide whether and to what extent, Taxpayer is entitled to its
requested refund of retaliatory taxes paid for the 1995 and 1996
tax years. Emphasizing the language whether, and to what extent,
it argues that there was no attempt in the stipulation to
foreclose any legal arguments, including its formal protest
argument. Addressing a later sentence in paragraph 22, which
states that Blue Cross further waives any right it may have to
request a refund of those taxes under AS 43.10.210, the Division
argues that at most the paragraphs can be read to reflect an
intent to proceed under the insurance code and not under AS
43.10.210, which addresses revenue and taxation.
But considering the plain language of the stipulation,
which states that the refund request was timely and [was] in all
other respects properly before the Director of the Division . . .
for a decision on its merits, and the Divisions subsequent
engagement of Blue Crosss refund request on its merits, we reject
the Divisions strained interpretation of the stipulations
language and conclude that the Division waived its right to argue
that Blue Cross is not entitled to a refund because it did not
make a formal protest when it paid its 1995 and 1996 retaliatory
taxes.
C. Blue Cross Is Subject to Retaliatory Taxes Under AS
21.09.270.
Blue Cross argues that because it is a hospital and
medical services corporation, it should not even be subject to
retaliatory taxes. Under AS 21.87.260, [e]very hospital and
medical service corporation doing business under this chapter
shall be taxed as provided in AS 21.09.210, which addresses
premium taxes and not retaliatory taxes. Blue Cross argues that
because no reference is made in AS 21.87.260 to retaliatory taxes
under AS 21.09.270, AS 21.87.260 should be understood to state
the clear legislative intention that Blue Cross, as an HMSC
[hospital and medical service corporation], is subject only to
premium taxes under AS 21.09.210 and not also to retaliatory
taxes under AS 21.09.270.
Blue Cross also relies on AS 21.87.030, which provides
that this title [Title 21-Insurance] does not apply to a health
care service corporation unless contained or referred to in this
chapter. It also cites, among other similar opinions, a 1979
opinion of the Attorney General which states that AS 21.87 is the
exclusive frame of reference for addressing any problems relating
to the regulation of health care service corporations in the
state.23
In response, the Division contends that AS 21.87.260
was only intended to clarify that HMSCs are not exempt from
taxation despite being non-profits, as in some other states they
are exempt. Therefore, the Division argues, AS 21.87.260 was not
intended as a limit on the Divisions authority. The Division
further argues that failure to reference a retaliatory statute,
different in nature than a tax statute, is unexceptional and no
inference can be drawn that the legislature intended to exclude
it.
The Division also counters that AS 21.87.340 renders
the HMSCs subject to retaliatory taxes. Alaska Statute 21.87.340
provides in relevant part:
In addition to the provisions contained or
referred to previously in this chapter, the
following chapters and provisions of this
title also apply with respect to service
corporations to the extent applicable and not
in conflict with the express provisions of
this chapter and the reasonable implications
of the express provisions, and, for the
purposes of the application, the corporations
shall be considered to be mutual insurers: .
. . (4) AS 21.09, except AS 21.09.090.
The Division then notes that had the legislature intended HMSCs
to be exempted from retaliatory taxes, it could have expressly
excluded them under AS 21.87.270, as it did with AS 21.09.090.
We are persuaded by the Divisions argument. Had the legislature
intended to exclude HMSCs from paying retaliatory taxes, it could
have simply included AS 21.09.270 along with AS 21.09.090 as an
exception.
We are also persuaded by the superior courts
conclusion:
The retaliatory tax statute, AS 21.87.270,
and the provision governing the taxation of
HMSCs, AS 21.87.260, are not in conflict
because they serve different purposes. The
purpose of AS 21.87.260 is to impose a
standard tax that raises revenue for the
State. To the contrary, the purpose of
section .270 is not to raise revenues, but to
create a fair playing field among insurers
from different domiciles.
Therefore, under AS 21.87.340, which provides that chapter 21,
including the retaliatory tax statute AS 21.09.270, applies to
the extent applicable and not in conflict with the express
provisions of this chapter and the reasonable implications of the
express provisions, retaliatory taxes should apply to Blue Cross.
The 1979 opinion of the Attorney General cited by Blue
Cross for the proposition that AS 21.87 is the exclusive frame of
reference for addressing any problems relating to the regulation
of health care service corporations in the state24 lends further
support to a finding that AS 21.87.260 was not intended to
exclude retaliatory taxes. The Attorney General addressed an
inquiry from Blue Cross about whether, as a foreign HMSC, Blue
Cross was required to comply with certain deposit and investment
provisions of AS 21.87. The Attorney General noted:
[O]n its face AS 21.87 allows for the
creation and recognition of only domestic
health care service corporations. There is
no provision in AS 21.87 which would be
analogous to AS 10.05.597 et seq pertaining
to foreign business corporations which would
provide for the issuance of certificates of
authority to foreign health care service
corporations. Thus, it is clear that the
legislature intended to prohibit the
operation of foreign health service
corporations in the state with one exception.
AS 21.87.350 states: A health care service
contractor registered to do business in this
state on July 1, 1966 is entitled to be
registered under this chapter, whether or not
it meets the requirements of this chapter.
This provision was specifically added to
grandfather in foreign service corporations
operating in the state at the time. [Blue
Cross] was the only such corporation and thus
the grandfather clause was designed for the
exclusive benefit of that corporation.[25]
The Attorney General also noted that [i]t is our view that,
although the question is not without some ambiguity, AS 21.87
does apply to foreign hospital and medical service corporations
to the extent that its requirements do not conflict with the
inherent characteristics of Blue Cross as a foreign corporation.26
Since AS 21.87 was intended to apply only to domestic HMSCs with
the sole exception of Blue Cross, and retaliatory taxes would
only be applicable because of the inherent characteristics of
Blue Cross as a foreign corporation, the inference can be drawn
that retaliatory taxes were not even contemplated by the
legislature when it enacted AS 21.87. Therefore, Blue Crosss
argument that AS 21.87.260 should be understood to state the
clear legislative intention that Blue Cross, as an HMSC, is
subject only to premium taxes under AS 21.09.210 and not also to
retaliatory taxes under AS 21.09.270 is unpersuasive.
D. The Division Properly Excluded Blue Crosss Payments to
ACHIA and SEHRA from Its Assessment under the
Retaliatory Tax Statute.
Having determined that Blue Cross is indeed subject to
the retaliatory tax statute, we turn now to Blue Crosss arguments
that the Divisions specific interpretation of that statute is
improper. The calculation of a retaliatory tax involves agency
discretion,27 and although we apply our independent judgment to
matters of statutory interpretation, we will defer to a
reasonable agency determination that implicates agency expertise.28
We will also apply a more deferential standard of review where an
agency action is longstanding and continuous.29 Here, the
Division has presented its longstanding interpretation, albeit
implicitly, in the schedules, forms, and instructions it has made
available to taxpayers since 1986.
Blue Cross advances more than one theory challenging
the Divisions application of AS 21.09.270. First, the company
disputes the Directors reading of subsection .270(a) to provide
for an item-by-item comparison of fines, penalties, deposit
requirements, or other material obligations even when Alaska law
imposes an obligation that lacks a counterpart in a companys
state of domicile. According to Blue Cross, this subsection must
be read instead always to require that all of the enumerated
financial burdens in subsection .270(a) factor into the Divisions
calculation. In other words, Blue Cross argues that charges
under ACHIA and SEHRA, as well as all other fines, penalties,
deposit requirements, [and] other obligations, should go into a
single sum that represents the cost of operating under Alaska
law.
Alternatively, Blue Cross questions whether the ACHIA
and SEHRA charges qualify as other material obligations under AS
21.09.270(a). Blue Cross argues that such payments are properly
classified as taxes, licenses, or fees and therefore should be
treated in the aggregate under the statute. Irrespective of the
route taken, however, Blue Cross argues that we must invalidate
the Divisions application of the statute because comparing
charges like ACHIA and SEHRA separately with like items imposed
by an out-of-state insurers domiciliary state is illogical,
produces irrational results, and has no support in the case law.
Blue Cross further takes issue with the Directors
interpretation of subsection .270(b). That section carves out an
exception for special purpose obligations or assessments imposed
by another state. In its ruling, the Division found as a matter
of law that to the extent that the assessments of ACHIA, SEHRA,
and the Washington Health Insurance Pool are special purpose
obligations or assessments, the exception in AS 21.09.270(b)
operates only to exclude the Washington assessment from any
comparison with similar assessments imposed in Alaska to
determine if retaliation is required. Blue Cross contends that
the plain language of subsection .270(b) requires that the
Division exclude only foreign state special purpose obligations.
Alaskas own special purpose obligations, according to Blue Cross,
fit within the category of other obligations or even of taxes,
licenses, and fees enumerated in subsection .270(a). Taken
together, Blue Crosss arguments amount to a claim that ACHIA and
SEHRA charges should be considered in the aggregate on the Alaska
side of the retaliatory tax calculation, while Washingtons WHIP
charges should be excluded from the Washington side.
In evaluating this argument we turn first to the
statutory text. It states that tax will be imposed to the extent
that the taxes, licenses, and fees, in the aggregate . . .
imposed upon Alaska insurers [out-of-state] exceed the taxes,
licenses, and fees, in the aggregate . . . under the statutes of
this state.30 The statute also states that tax will be imposed to
the extent that the fines, penalties, deposit requirements, or
other material obligations . . . imposed upon Alaska insurers
[out-of-state] exceed the fines, penalties, deposit requirements,
or other obligations . . . under the statutes of this state.
Nowhere does the phrase in the aggregate modify other
obligations, although it appears three times after taxes,
licenses, and fees within the text of subsection .270(a). This
language reasonably permits the Directors conclusion that other
obligations under Alaska law only offset similar foreign state
obligations and should not be considered in the aggregate. At
the same time, the language undermines Blue Crosss argument
insofar as the companys reading renders that phrase superfluous.
Blue Cross contends that the fact that those categories
of impositions are required to be considered in the aggregate
does not lead to the conclusion that other expressly included
items, such as other obligations . . . can simply be excluded
from a retaliatory tax calculation if the foreign state imposes
no similar obligation. The plain language of the statute,
however, supports that conclusion. The statute only imposes a
tax on other obligations under a foreign states law that are in
excess of the fines, penalties, deposit requirements, or other
obligations . . . under the statutes of this state.31 Just as the
statute provides no subsidy to insurers from states that have
lower aggregate taxes, licenses, and other fees, so too does it
deny an offset to insurers from states with lower fines,
penalties, deposit requirements, and other obligations.
Nor does the statute provide support for Blue Crosss
argument that ACHIA and SEHRA charges should be considered
tantamount to taxes, licenses, or fees. While most taxes,
licenses, and fees are imposed by, payable to, or collected by
the State, the ACHIA and SEHRA charges are levied by specially
created non-profit institutions. Moreover, if the Division
excluded WHIP and similar charges under subsection .270(b), while
taking the Alaskan counterparts of these charges to offset
foreign state taxes, licenses, and fees, retaliation would hardly
ever occur. Indeed, little excess would ever arise with ACHIA,
SEHRA, and several other special purpose obligations32 driving up
the Alaska side of the tax equation while subsection .270(b)
exempts their out-of-state counterparts on the other side of the
ledger. Adopting Blue Crosss interpretation hence would yield
the absurd result of rendering AS 21.90.270 a nullity. We
generally disfavor statutory constructions that reach absurd
results. Therefore, we look for another construction that avoids
the absurdity and is consistent with a reasonable interpretation
of the terms of the statute.
The Directors interpretation satisfies those criteria.
In contrast to Blue Crosss reading, the Director gives effect to
all of the language in the statute. And contrary to the
irrational results that Blue Cross predicts, the Directors
interpretation follows an intuitive logic. Retaliatory tax
statutes aim to universalize the tax and regulatory treatment of
firms across state lines.33 Applying a retaliatory tax on the
basis of another states unconventional tributary policies
involves practical difficulties.34 In light of these
difficulties, the statutory language plausibly reflects an intent
to steer foreign states away from fines, penalties, deposit
requirements, or other obligations, and towards taxes, licenses,
and other fees, because the former obligations pose the specter
of hidden taxes and administrative hassle, while the latter
charges more easily lend themselves to comparison in the
aggregate.
Case law from outside of Alaska offers some support for
Blue Crosss reading of the statute, but we do not find these
decisions persuasive. In Executive Life Insurance Co. v.
Commissioner of Revenue, the Minnesota tax court found that
assessments similar to ACHIA and SEHRA qualified as licenses or
fees, and therefore should be aggregated with other licenses and
fees when calculating the Minnesota side of retaliatory taxes.35
But the Minnesota statute contained language that materially
differed from subsection .270s terms.36 Other courts that have
interpreted more similar statutory language have either failed to
address the policy implications of adopting Blue Crosss
interpretation,37 or relied on legislative history and other
factors that lack a parallel in this case.38
In sum, Blue Cross has not convinced us that the
Divisions application of the law departs from this basic
statutory scheme laid out in AS 21.09.270. Nor do we believe
that the Division otherwise abused its discretion in implementing
the statute. We therefore affirm the judgment of the superior
court.
E. The Retaliatory Tax Statute Does Not Violate Blue
Crosss Equal Protection or Due Process Rights.
1. Equal protection applies.
Article I, section 1 of the Alaska Constitution
provides that all persons are . . . entitled to equal rights,
opportunities, and protection under the law. The equal
protection clause applies to protect those similarly situated
from disparate treatment.39 The Division makes the argument that
AS 21.09.270 does not create a discriminatory classification, and
therefore Alaskas equal protection clause is inapplicable. But
AS 21.09.270 clearly draws a distinction between insurers doing
business in Alaska, imposing retaliatory taxes only on foreign
insurers. The statute additionally imposes retaliatory taxes on
similarly situated foreign insurers doing business in Alaska
based on the tax policies of their domicile states or countries.
Because AS 21.09.270 treats foreign insurers differently than
similarly situated Alaskan insurers, and further differentiates
among foreign insurers based on the policies of their domicile
state or country, the equal protection clause applies.
2. The retaliatory tax statute implicates economic
interests and should therefore be subjected to
minimal scrutiny.
When reviewing the constitutionality of a statute under
the equal protection clause, we use a sliding scale analysis, set
forth as follows:
First, it must be determined at the outset
what weight should be afforded the
constitutional interest impaired by the
challenged enactment. The nature of this
interest is the most important variable in
fixing the appropriate level of review. . . .
Depending upon the primacy of the interest
involved, the state will have a greater or
lesser burden in justifying its legislation.
Second, an examination must be
undertaken of the purposes served by a
challenged statute. Depending on the level
of review determined, the state may be
required to show only that its objectives
were legitimate, at the low end of the
continuum, or, at the high end of the scale,
that the legislation was motivated by a
compelling state interest.
Third, an evaluation of the states
interest in the particular means employed to
further its goals must be undertaken. Once
again, the states burden will differ in
accordance with the determination of the
level of scrutiny under the first stage of
analysis. At the low end of the sliding
scale, we have held that a substantial
relationship between means and ends is
constitutionally adequate. At the higher end
of the scale, the fit between means and ends
must be much closer. If the purpose can be
accomplished by a less restrictive
alternative, the classification will be
invalidated.[40]
The parties dispute the nature of the interest impaired
by the retaliatory tax statute. The Division argues that AS
21.09.270 affects purely an economic interest, and therefore only
the lowest level of scrutiny applies.41 Blue Cross, on the other
hand, asks that a higher level of scrutiny be applied because the
retaliatory tax statute makes classifications based on residency.
We agree with the United States Supreme Court that retaliatory
statues such as AS 21.09.270 are not imposed on foreign
corporations qua foreign corporations.42 They are only imposed on
foreign insurers whose home states would impose burdens on
insurers from the retaliating state greater than the retaliating
state would otherwise impose on that states insurers. We are
therefore persuaded that AS 21.09.270 does not discriminate
against foreign insurers based solely on their domicile. Alaska
Statute 21.09.270 thus implicates only an economic interest, the
right to be free from disparate taxation. We have held that
freedom from disparate taxation[] lies at the low end of the
continuum of interests protected by the equal protection clause.43
When assessing AS 21.09.270, we therefore apply minimum scrutiny
and ask whether the states ends are legitimate and whether they
bear a fair and substantial relationship to the purposes of the
statute.44
3. The retaliatory tax statute bears a fair and
substantial relationship to its purpose.
Washington taxes non-profit health care services
contractors on two percent of all premiums and prepayments for
health care services, similar to the manner in which it taxes for-
profit health care service contractors.45 This tax rate applies
equally to foreign and domestic health care service contractors,46
and would therefore apply if an Alaskan health care services
contractor were to offer health care services in Washington.
HMSCs in Alaska are taxed at a rate of six percent of their gross
premiums less claims paid, a more favorable rate when compared to
both Washington health care services contractors and all domestic
and foreign insurers in Alaska except for HMSCs, which are taxed
at a rate of 2.7 percent.47 Since retaliatory statutes substitute
the general tax laws of the foreign insurers home state for the
general tax laws of the state applying the retaliatory statute
whenever the general tax laws of the foreign insurers home state
are more burdensome than the general tax laws of the state
applying the retaliatory statute,48 Alaskas retaliatory tax
statute has been applied to Blue Cross.
Blue Cross claims that the Divisions application of AS
21.09.270 violates equal protection when applied to Blue Cross:
(1) because it is illegitimate to retaliat[e] against Blue Cross
and the State of Washington for the Washington Legislatures
policy decision to impose a non-discriminatory tax on health
service contractors . . . similar to the premium taxes imposed on
for-profit insurers; and (2) because even if the purpose of AS
21.09.270 were legitimate, the imposition of retaliatory taxes on
Blue Cross does not fairly and substantially advance that
purpose. We address each argument in turn.
Blue Cross argues that Alaska has no legitimate
interest in attempting to coerce changes in Washingtons non-
discriminatory HMSC tax policies, which would tax a hypothetical
Alaskan HMSC doing business there in precisely the same manner,
at the same rate, as Blue Cross is taxed. But the coercive
nature of retaliatory taxation that Blue Cross deems illegitimate
is precisely that sanctioned by the United States Supreme Court
in Western & Southern Life Insurance Co. v. State Board of
Equalization of California.49 In Western & Southern, the United
States Supreme Court upheld Californias retaliatory tax as
constitutional under the federal Equal Protection Clause.50 In
upholding the statute, the Supreme Court reasoned that promotion
of domestic industry by deterring barriers to interstate business
is a legitimate state purpose and the mere fact that California
was trying to promote its insurance industry by influencing the
policies of other states through retaliatory taxation did not
render the purpose illegitimate.51 It further concluded that it
was reasonable for California to suppose that its retaliatory
taxes would induce other states to lower the burdens on
California insurers in order to spare their domestic insurers the
cost of the retaliatory tax in California.52
Here, Blue Cross acknowledges that in Alaska we tax non-
profit HMSCs in a different manner and at a lower effective tax
rate than for-profit insurers. Washington, however, chooses to
tax its non-profit health care services corporations at a
relatively higher rate, similar to its for-profit insurers.53
Applying the retaliatory tax statute to a Washington non-profit
when Washington would impose higher taxes if an Alaskan non-
profit health care services corporation were to conduct business
in Washington is thus fully consonant with the well-established
and constitutionally permissible purpose of retaliatory tax
statutes, even if the intent of Alaska is to coerce Washington
into lowering its taxes on non-profit health care services
corporations.
While the record with respect to the presence of
Alaskan insurers in Washington or other foreign jurisdictions is
sparse, according to Couch on Insurance 3d, [i]t is generally
held that the fact that there is no local company doing business
in the foreign state does not prevent the operation of the
retaliatory statute.54 That the retaliatory statute serves to
protect both established insurers conducting business across
state lines and those desirous of entering foreign jurisdictions
is underscored by the legislative history of AS 21.09.270, which
states that the statute was enacted for the protection of Alaska
insurers transacting or desiring to transact business in other
states. We therefore reject Blue Crosss claim that AS 21.09.270
was applied to Blue Cross for the illegitimate purpose of
influencing Washingtons tax policy.
We next assess whether AS 21.09.270 bears a fair and
substantial relationship to its legitimate purpose. The
retaliatory tax statute was adopted in Alaska in connection with
a comprehensive revision of Alaskas insurance laws. Its stated
purpose was to protect the domestic insurance company insofar as
getting equal treatment when it entered foreign jurisdictions.55
Blue Cross argues that because an Alaskan company would get equal
treatment in Washington when compared to Washington health care
services corporations, the retaliatory tax statute does not
advance the purpose of AS 21.09.270 of equalizing the treatment
of hypothetical Alaskan companies when they enter the
jurisdiction. But Blue Crosss narrow reading of the purpose
clause suggests that retaliatory statutes are only intended to
equalize the treatment of insurers within, and not across,
jurisdictions. Historically, their purpose has not been so
limited. As the United States Supreme Court has noted, the
principal purpose of retaliatory tax laws is to promote the
interstate business of domestic insurers by deterring other
States from enacting discriminatory or excessive taxes.56 We
therefore agree with the Division and the superior court that the
purpose clause of AS 21.09.270 should be read in harmony with
typical retaliatory statutes as intending to equalize and lower
taxes on domestic insurers across states and not just within
states, and assess the means-to-end fit with this broader purpose
in mind.
The United States Supreme Court upheld Californias
retaliatory tax statute in Western & Southern under the federal
Equal Protection Clause, applying the relatively deferential
federal rational basis test, which requires only that legislation
bear a rational relation to a legitimate state purpose.57 In the
wake of Western & Southern, state courts have upheld retaliatory
statutes in the face of equal protection challenges under
similarly deferential rational basis review. For example, the
Supreme Court of Florida upheld Floridas retaliatory tax, which
was similar in structure to the retaliatory tax that was upheld
against similar challenges in Western & Southern Life.58 The
Supreme Court of Florida noted:
Western & Southern Life also made clear that
retaliatory taxes, which have been a common
feature of insurance taxation for over a
century, are rationally related to the states
legitimate interest in promoting the
interstate business of domestic insurers by
deterring other States from enacting
discriminatory or excessive taxes. Because
it is at least fairly debatable that the
Florida legislature enacted section 624.429
with this well recognized purpose in mind,
the Equal Protection challenge . . . was
properly rejected.[59]
And according to Couch on Insurance 3d, [b]y the weight of
authority, a state has the power to protect its own domestic
insurance companies doing business in other states by imposing
regulatory requirements of equal stringency upon the insurance
companies of those states.60 Blue Cross urges that this court
depart from this authority because a higher level of scrutiny
applies under the Alaska Constitution. And Blue Cross is correct
that under Alaskas equal protection clause, we do subject
legislation to a more exacting inquiry than under the federal
rational basis test,61 requiring that classifications be
reasonable, not arbitrary, and . . . rest upon some ground of
difference having a fair and substantial relation to the object
of the legislation.62 We are persuaded, though, that even under
our more demanding test, AS 21.09.270 passes constitutional
muster. Since AS 21.09.270 was applied to Blue Cross only
because Washington would apply more onerous taxes on a
hypothetical Alaskan non-profit health care services corporation
operating in Washington, we find that the purpose of AS 21.09.270
of equalizing and lowering taxes across states is fairly and
substantially furthered by imposition of the retaliatory tax on
Blue Cross.
4. Blue Crosss substantive due process challenge also
fails.
Substantive due process is denied when a legislative
enactment has no reasonable relationship to a legitimate
governmental purpose.63 Blue Crosss substantive due process
argument also fails because we have held that AS 21.09.270 meets
our higher equal protection standard, bearing a fair and
substantial relationship to its legitimate purpose.
IV. CONCLUSION
The Division waived its right to argue that Blue Cross
is precluded from seeking a refund of its retaliatory taxes. We
therefore consider Blue Crosss claim and conclude that Blue Cross
is subject to retaliatory taxes. We also conclude that the
Division acted reasonably in implementing the retaliatory tax
statute, and specifically, in excluding payments that Blue Cross
made to the Alaska Comprehensive Health Insurance Association and
the Alaska Small Employers Health Reinsurance Association. The
retaliatory tax statutes plain language, the policies underlying
that statute, and deference to agency expertise and its
established interpretation of the statute, all support this
outcome. Accordingly, we AFFIRM the ruling made by the Director
of the Division of Insurance. Finally, because we conclude that
the retaliatory statute bears a fair and substantial relationship
to its legitimate purpose, we also AFFIRM the superior courts
determination that AS 21.09.270 is constitutional under Alaskas
equal protection and substantive due process clauses.
_______________________________
1 Lee R. Russ, Annotation, Construction, Application and
Operation of State Retaliatory Statutes Imposing Special Taxes or
Fees on Foreign Insurers Doing Business Within the State, 30
A.L.R.4th 873 1(a) (1984).
2 Western & Southern Life Ins. Co. v. State Bd. of
Equalization of California, 451 U.S. 648, 668 (1981).
3 The facts in this case are not in dispute. In
connection with Blue Crosss tax refund request before the
Director of the Division of Insurance, the parties entered into a
stipulation of facts with respect to that refund request and any
related judicial appeals or proceedings.
4 AS 21.55.100.
5 AS 21.55.220(c).
6 AS 21.55.220(d).
7 Ch. 39, 1, SLA 1993.
8 AS 21.56.050(d).
9 Wash. Rev. Code 48.41.020.
10 The Division of Insurance, as a party to this
proceeding, will be referred to as the Division. When referring
to the tax refund proceedings before the Director of the Division
of Insurance below, the terms Director of the Division or the
Director will be used.
11 Alaska Trademark Shellfish, LLC v. State, 91 P.3d 953,
956 (Alaska 2004).
12 Alyeska Pipeline Serv. Co. v. DeShong, 77 P.3d 1227,
1231 (Alaska 2003).
13 Id.
14 W. Star Trucking v. Big Iron Equip., 101 P.3d 1047,
1050 (Alaska 2004).
15 Alaska Transp. Commn v. Airpac, Inc., 685 P.2d 1248,
1253 (Alaska 1984) (citing McCracken v. State, 518 P.2d 85, 88
(Alaska 1974)).
16 State Commercial Fisheries Entry Commn v. Carlson, 65
P.3d 851, 858 (Alaska 2003).
17 Briggs v. Newton, 984 P.2d 1113, 1117 (Alaska 1999).
18 780 P.2d 1023, 1030 (Alaska 1989).
19 798 P.2d 1269, 1280 (Alaska 1990) (quotation marks
omitted).
20 AS 21.09.210(k).
21 780 P.2d at 1029.
22 798 P.2d at 1280.
23 1979 Informal Op. Atty Gen. No. J-66-361-79, 1979 WL
22800, at *1 (Apr. 17, 1979).
24 Id. at *1.
25 Id. at *1-2.
26 Id.
27 See Metro. Life Ins. Co. v. Ins. Commr, Md., 473 A.2d
933, 942 (Md. App. 1983) (upholding retaliatory tax statute
against non-delegation clause challenge and noting that the
complex and varying fact patterns that justify administrative
flexibility in implementing regulatory statutes are also a
problem in the enforcement of tax laws).
28 Alyeska Pipeline Serv. Co. v. DeShong, 77 P.3d 1227,
1231 (Alaska 2003).
29 Bullock v. State, Dept of Cmty. & Regl Affairs, 19 P.3d
1200, 1210 (Alaska 2001).
30 AS 21.09.270(a).
31 Id.
32 See AS 21.80.060 (assessments imposed on insurers by
the Alaska Insurance Guaranty Association for property and
casualty insurers); AS 21.79.070 (assessments imposed on insurers
by the Alaska Life and Health Insurance Guaranty Association); AS
23.30.040 (Second Injury Fund assessment).
33 See Western & Southern Life Ins. Co. v. State Bd. of
Equalization of California, 451 U.S. 648, 668 (1981) (noting that
some states consider only items of tax on premium income and fees
paid and disregard other burdens because of practical
difficulties involved in computing and comparing exactions).
34 State Farm Mut. Auto. Ins. Co. v. Long, 497 S.E.2d 451,
455 (N.C. App. 1998); see also Metro. Life Ins. Co., 473 A.2d at
462-63 (enumerating the difficulties of retaliating against local
taxes imposed in a foreign state).
35 No. 5460, 1991 WL 149137 (Minn. Tax. Ct. 1991).
36 See id. at *7.
37 See Fla. Dept of Revenue v. Liberty Natl Ins. Co., 667
So. 2d 445 (Fla. Dist. App. 1996).
38 See Aetna Life Ins. Co. v. Dir., Div. of Taxation, 20
N.J. Tax 87 (N.J. Tax Ct. 2002).
39 See, e.g., Fairbanks N. Star Borough Assessors Office
v. Golden Heart Utils., Inc., 13 P.3d 263 (Alaska 2000).
40 Alaska Pac. Assur. Co. v. Brown, 687 P.2d 264, 269-70
(Alaska 1984).
41 Eldridge v. State, Dept of Revenue, 988 P.2d 101, 103
(Alaska 1999).
42 Western & Southern Life Ins. Co., 451 U.S. at 670 n.23.
43 Atlantic Richfield Co. v. State, 705 P.2d 418, 437
(Alaska 1985).
44 Ranney v. Whitewater Engg, 122 P.3d 214, 223 (Alaska
2005).
45 Wash. Rev. Code 48.14.0201(2).
46 Id.
47 AS 21.09.210(b).
48 Russ, Construction, Application and Operation of State
Retaliatory Statutes, 30 A.L.R.4th 873 1(a).
49 451 U.S. at 674.
50 Id.
51 Id. at 669-74.
52 Id. at 672.
53 Wash. Rev. Code 48.14.0201(2).
54 1 Lee R. Russ & Thomas F. Segalla, Couch on
Insurance 3D 3.38, at 3-58 (1995).
55 1966 House Journal Supp. 12, at 26 (Mar. 3, 1966).
56 Western & Southern Life Ins. Co., 451 U.S. at 668
(emphasis added).
57 Id.
58 Gallagher v. Motors Ins. Corp., 605 So. 2d 62, 70 (Fla.
1992).
59 Id. at 71 (quotation marks omitted); see also Mut. Life
Ins. Co. of N.Y. v. Washburn, 561 N.E.2d 29, 37-38 (Ill. 1990)
(relying on Western & Southern and noting that its retaliatory
tax statute was rationally related to deterring other States from
enacting discriminatory or excessive taxes); Prudential Ins. Co.
of Am. v. Commr of Revenue, 709 N.E.2d 1096, 1103 (Mass. 1999);
TIG Ins. Co., Inc. v. Dept of Treasury, 629 N.W.2d 402, 407
(Mich. 2001) (noting that Michigans equal protection clause was
coextensive with the federal equal protection clause, and
commenting, [i]n light of Western & Southern, the general
constitutionality of Michigans retaliatory tax is clear).
60 1 Russ & Segalla, Couch on Insurance 3D 3:35, at 3-52.
61 See, e.g., Herricks Aero-Auto-Aqua Repair Ser. v.
State, Dept of Transp. & Pub. Facilities, 754 P.2d 1111, 1114
(Alaska 1988) ([T]he minimum burden that the state must meet when
defending legislation challenged on equal protection grounds
under the Alaska constitution is greater than that required under
the United States Constitution.).
62 State v. Planned Parenthood of Alaska, 35 P.3d 30, 44
(Alaska 2001) (citations omitted).
63 Concerned Citizens of S. Kenai Peninsula v. Kenai
Peninsula Borough, 527 P.2d 447, 452 (Alaska 1974).
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