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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. State, Dept. of Revenue v. Municipality of Anchorage (12/23/2004) sp-5855

State, Dept. of Revenue v. Municipality of Anchorage (12/23/2004) sp-5855

     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,


MENT OF REVENUE,              )    Supreme Court No. S-11011
             Appellant,            )    Superior Court No. 3AN-02-
5667 CI
     v.                       )    O P I N I O N
MUNICIPALITY OF ANCHORAGE     )    [No. 5855 - December 23, 2004]
POWER DEPARTMENT, a           )
municipality of the State of Alaska,    )
             Appellee.             )

          Appeal  from the Superior Court of the  State
          of    Alaska,   Third   Judicial    District,
          Anchorage, Sen K. Tan, Judge.

          Appearances:   Martin T.  Schultz,  Assistant
          Attorney  General, Anchorage,  and  Gregg  D.
          Renkes,   Attorney   General,   Juneau,   for
          Appellant.  Roger R. Kemppel and John  Andrew
          Leman,  Kemppel,  Huffman  and  Ellis,  P.C.,
          Anchorage, for Appellee.

          Before:   Bryner,  Chief  Justice,  Matthews,
          Eastaugh, Fabe, and Carpeneti, Justices.

          EASTAUGH, Justice.

          Anchorage  Municipal Light & Power (ML&P), a subsidiary

of  the Municipality of Anchorage, produces natural gas, some  of

which it uses to generate electricity it sells to ML&P customers.

Alaska Statute 43.55.016(a) levies upon the producer of gas a tax

for  all  gas produced from each lease or property in the  state,

less  any  gas  the ownership or right to which  is  exempt  from

taxation.  But per AS 29.71.030, a municipality is not subject to

a  state tax unless the law or regulation expressly provides that

the municipality is to be assessed or taxed by the particular law

or regulation.  (Emphasis added.)  Does AS 43.55.016(a) expressly

provide  that municipalities are to be taxed?  Because  its  text

does  not  state  that it taxes municipalities  and  because  the

legislative history does not imply an intention to levy  the  gas

production   tax   on  municipalities,  we   conclude   that   AS

43.55.016(a) does not apply to the gas ML&P produces for its  own

use  in generating electricity.  We therefore affirm the superior

court  decision holding that ML&P is exempt from paying  the  gas

production tax.


          ML&P  is a department of the Municipality of Anchorage;

it   provides  electric  service  to  Anchorage.   In  1996  ML&P

purchased  a  one-third interest in the Beluga River  Gas  Field,

consisting of federal and state leases held by Shell Oil Company.

ML&P,  which operates for profit,1 uses the gas produced  in  the

Beluga River Gas Field for two purposes.  It uses part of the gas

to  supply third parties, and it uses part of the gas to generate

electricity  for  sale  in  Anchorage.  ML&P  used  approximately

eighteen to twenty-five percent of its monthly gas production for

the latter purpose from November 1996 through December 1997.

          For  the  transfer of the state leases to ML&P  to  be

effective, the Alaska Department of Natural Resources (DNR)  had

to   approve   the  transaction.   ML&P  proposed   not   paying

conservation  and  production  taxes  for  gas  ML&P  used   for

          municipal purposes, i.e., gas it did not sell to third parties.

As  a  condition of approval, DNR ultimately imposed  production

taxes  for  gas  ML&P sold to third parties but  left  open  the

question  whether production of gas used to generate electricity

would  be  similarly taxed.  ML&P conceded during oral  argument

before us that it does not seek a refund for or contend that  it

is exempt from the taxes paid for gas produced and sold to third

parties, per its agreement with DNR.

          ML&P  paid  production and conservation  taxes  to  the

Alaska  Department  of Revenue (DOR) for all  gas  produced  from

ML&Ps  interest in the Beluga River Gas Field but filed a  refund

claim in December 1999 for those taxes it paid for gas it used to

generate electricity for Anchorage.  When DOR denied ML&Ps refund

claim  for taxes paid for gas ML&P produced and used to  generate

electricity,   ML&P  administratively  appealed   the   decision,

ultimately  to the Alaska Office of Tax Appeals.  The  Office  of

Tax  Appeals  held on summary judgment that ML&P was  responsible

for  the  production taxes at issue.  ML&P appealed this decision

to  the superior court.  It reversed, holding that under rules of

statutory interpretation, AS 43.55.016(a), Alaskas gas production

tax statute,2 did not apply to ML&Ps gas production on its leases

at  the  Beluga  Gas  Field  when read  in  conjunction  with  AS

29.71.030, Alaskas municipal tax exemption statute.  DOR  appeals

the superior courts decision.3


          We    independently   review   the   merits   of    the

administrative  decision  when the  superior  court  acts  as  an

intermediate court of appeal.4  We apply our independent judgment

to  questions  of  law  such  as statutory  interpretation  if  a

decision  does  not  involve  an  agencys  special  expertise  or

determination  of  fundamental policies.5   When  interpreting  a

statute,  we apply a sliding scale approach in which the  plainer

the  meaning  of the statutory language, the more convincing  any

contrary legislative history must be.6  We construe the statutory

          language according to its common usage unless the word or phrase

at  issue has acquired a peculiar meaning, by virtue of statutory

definition or judicial construction.7

          Because  the  issue whether municipalities  are  exempt

from  gas  production taxes is one of first impression, we  adopt

the  rule  of law that is most persuasive in light of  precedent,

reason, and policy.8


     A.   Alaska  Statute  43.55.016(a)  Does  Not  Satisfy   the
          Expressly  Provides  Requirement of  AS  29.71.030  for
          Taxation of Municipalities.
          The  question here is whether ML&P, as a department  of

the  Municipality of Anchorage, is subject to the gas  production

tax imposed by AS 43.55.016(a).  Whether it is depends on whether

the  statute satisfies the requirement of AS 29.71.030  that,  in

order  to tax a municipality, a state law must expressly  provide

that it taxes the municipality.

          DOR argues that AS 43.55.016(a), the gas production tax

statute,  imposes a tax on ML&P for the gas it produced and  used

to  generate  electricity.   DOR  reasons  that  AS  43.55.016(a)

expressly  levies  a  tax  for all gas  produced,  and  that,  by

application  of  AS  43.55.900(13),  AS  43.55.016(a)   therefore

expressly  exempts only production from interests  owned  by  the

federal government or the state.

          Alaska Statute 43.55.016(a) provides in pertinent part:

There  is  levied  upon the producer of gas a  tax  for  all  gas

produced from each lease or property in the state, less  any  gas

the  ownership or right to which is exempt from taxation.  Alaska

Statute  43.55.900(13) defines ownership or  right  to  which  is

exempt  from  taxation as any ownership interest of  the  federal

government  or  the  state.   Alaska  Statute  43.55.016(a)  thus

imposes  a  tax  for all gas produced except  gas  to  which  the

ownership  or the right is exempt.  Alaska Statute 43.55.900(13),

which  defines  the  exempted ownership and rights  to  which  AS

43.55.016(a)  refers, does not state that it  includes  ownership

          interests of municipalities.  DOR consequently concludes that gas

produced  by  the  municipality is not  exempted  from  taxation,

making it subject to the express tax on all gas produced.

          ML&P  contends, however, that it is not liable for  gas

production  taxes  because  the plain language  of  AS  29.71.030

generally  exempts municipalities from taxation  unless  the  law

expressly provides for taxing municipalities, and AS 43.55.016(a)

fails to do so.

          Alaska  Statute  29.71.030  states:   A  state  law  or

regulation  may not assess or tax, or be construed to  assess  or

tax,  a  municipality  unless  the law  or  regulation  expressly

provides that the municipality is to be assessed or taxed by  the

particular law or regulation.  (Emphasis added.)

          The  superior court declined to interpret expressly  in

section  .030  to include laws or regulations whose  construction

implicitly allows for taxation of a municipality:

          The  term  expressly is not a term  that  has
          acquired    a   peculiar   meaning    through
          legislative  or  judicial definition.   As  a
          result,  it  is appropriate to use  a  common
          meaning  of  the  word when interpreting  the
          statute.     Websters   Revised    Unabridged
          Dictionary  defines express as;  (1)  exactly
          representing;   exact,   (2)   directly   and
          distinctly  stated; declared  in  terms;  not
          implied   or   left   to   inference;    made
          unambiguous by intention and care; clear; not
          dubious.    That   same  dictionary   defines
          expressly as; in an express manner; in direct
          terms;  with  distinct purpose; particularly.
          Alaska  cases  have consistently  interpreted
          express  provisions as those that are  stated
          in legislation.
(Citations omitted.)

          We  addressed  in   Alaska  Housing  Finance  Corp.  v.

Salvucci 9 the question of what constitutes express in context of

statutory  imposition  of a burden.  The issue  in  Salvucci  was

whether   the  Whistleblower  Act,  which  prohibits  retaliatory

actions  by  a public employer against an employee, contains  the

express  and specific statutory authority required to  rebut  the

          presumption against assessing punitive damages  against

governmental   entities.10   The  pertinent   Whistleblower   Act

provision  states,  A  person who alleges  a  violation  of  [the

Whistleblower  Act] may bring a civil action and  the  court  may

grant  appropriate relief, including punitive damages.11  Because

the language of the statute did not expressly state that punitive

damages  were  authorized against public employers  (rather  than

against  individual government employees), we held that  punitive

damages,  although mentioned by the statute, were  not  available

against public entities in Whistleblower Act claims.12

          Alaska  Statute 43.55.016(a) similarly does  not  state

expressly  that  it taxes municipalities.  It  does  not  mention

municipalities  at  all.  To construe AS 43.55.016(a)  as  taxing

municipalities,   one   would  have  to   refer   first   to   AS

43.55.900(13),  note that its listed exemptions  do  not  include

municipal interests, and then conclude by negative inference that

municipalities are not exempted.  This inference, while  logical,

is not the express provision required by AS 29.71.030.

          DOR  reminds us that tax exemptions should be  strictly

construed  in  favor  of  tax  liability,13  but  this  rule   of

construction  does  not  apply here.   Alaska  Statute  29.71.030

states  not only that a law or regulation may not assess  or  tax

without expressly providing that the municipality will be  taxed,

but that it will not be construed to assess or tax a municipality

unless it expressly provides for municipal taxation.  The statute

is  the  legislatures self-imposed blanket prohibition to prevent

an  unintended  taxation  of municipal interests  or  activities;

section  .030  leaves  no  room  for  taxing  a  municipality  by

statutory interpretation founded on implication or inference.

          The  parties  have not referred us to  any  legislative

history of AS 43.55.016(a) suggesting that municipalities  should

be exempt from the gas production tax statute.  Likewise, nothing

in  the legislative history of AS 43.55.900(13) suggests, as  DOR

argues,  that  it  contains  an  exhaustive  list  of  exemptions

          applicable to AS 43.55.016(a).  Because it appears that

municipalities  have only recently become involved  in  producing

natural  gas, it is not surprising that the parties have produced

for  us  no  indication the legislature ever  considered  whether

municipalities  should be exempt from production  taxes  when  it

enacted the definition of exempted interests in 1973.14

          Because no intent contrary to the plain meaning of  the

statutory  language is evident and because AS  43.55.016(a)  does

not  mention  municipalities at all, we hold that AS 43.55.016(a)

does  not  satisfy AS 29.71.030s requirement that  statutes  must

expressly impose a tax on municipalities.

     B.   Alaska  Statute  29.71.030 Applies even  if  ML&Ps  Gas
          Production Is Commercial.
          The  plain  meaning of AS 29.71.030  requires  that  to

impose  a  tax on a municipality, the law must expressly  provide

that  municipalities  are to be taxed.   Section  .030  draws  no

distinction  between  commercial  and  noncommercial  activities.

Assuming ML&Ps production of gas used to generate electricity for

Anchorage  were  commercial in nature, AS 29.71.030  contains  no

exception that would excuse its application to the gas production

tax statute.

          DOR  urges,  however, that existing precedent  and  the

Alaska  Constitution  support taxing  municipalities  engaged  in

commercial enterprise.  It relies on article IX, section 4 of the

Alaska Constitution, which states in part:

          The  real and personal property of the  State
          or its political subdivisions shall be exempt
          from taxation under conditions and exceptions
          which  may be provided by law.  All,  or  any
          portion of, property used exclusively for non-
          profit  religious, charitable,  cemetery,  or
          educational  purposes,  as  defined  by  law,
          shall be exempt from taxation.
This  provision, however, exempts certain property from taxation,

not  activities.   Even  assuming that  the  gas  production  tax

operates  like a property tax, the constitution contains  no  use

restrictions for exemptions afforded to public property.  Section

4s  first clause, which states that all property belonging to the

State  and  its subdivisions shall be exempt from taxation,  does

not on its face address  much less impose  conditions on use.  In

contrast, the second clause explicitly lists exemptions based  on

the nature of use.  Charitable purposes cases relied upon by DOR,

such  as Evangelical Covenant Church of America v. City of  Nome,

do not involve the type of statutory exemption asserted by ML&P.15

Other  cases  cited  by  DOR  to support  its  claim  that  other

jurisdictions tax municipalities for their commercial  activities

relate  to statutes that either explicitly address municipalities

engaged  in  private  business or explicitly  provide  exemptions

based  on  the propertys use rather than its ownership.16   These

cases do not support nullifying the tax exemption afforded by  AS

29.71.030 merely because the activity may be commercial.

          The  parties  have  not brought to  our  attention  any

indication of a legislative intent to adopt an exception that  is

not  found  in  the  plain words of the statute.   Public  policy

considerations also do not support an interpretation  that  would

change  the  meaning of AS 29.71.030.  Such arguments  should  be

addressed  to the legislature.  Public policy cannot  justify  an

interpretation  nowhere supported in the words or  history  of  a



          Because we conclude that the gas production statute, AS

43.55.016(a),  does not expressly tax municipalities,  we  AFFIRM

the  superior  courts decision without reaching  the  alternative

arguments raised by ML&P.

     1     Anchorage Municipal Charter 19.14; Anchorage Municipal
Code  (AMC) 26.10.060 (1996) (Utilities owned by the municipality
.  .  .  shall  be  operated in such a manner  as  to  provide  a
reasonable  profit in accordance with applicable  regulations  of
the state public utilities commission . . . .).

     2     Effective  July 1, 1999, the legislature  repealed  AS
43.57.010,  the  similarly worded oil and  gas  conservation  tax
statute.  Ch. 34,  6, SLA 1999.  This appeal thus concerns  ML&Ps
gas  conservation  tax  liability prior to that  effective  date.
Because  the analyses for 1996-1997 tax liability under  both  AS
43.57.010 and AS 43.55.016(a) are effectively the same,  we  will
refer  for  simplicity  only to production (or  severance)  taxes
imposed under AS 43.55.016(a).

     3     ML&Ps  original  refund claim covered  taxes  for  gas
produced  from  November 1996 through November  1999.   ML&P  has
since  withdrawn its claim for taxes paid in 1996.   This  appeal
therefore  pertains to taxes underlying ML&Ps 1997 refund  claim.
The  1998 and 1999 refund claims are pending resolution  of  this

     4    Fairbanks N. Star Borough v. Golden Heart Utils., Inc.,
13  P.3d 263, 266 (Alaska 2000); Thompson v. United Parcel Serv.,
975 P.2d 684, 687-88 (Alaska 1999).

     5     Municipality of Anchorage v. Suzuki, 41 P.3d 147,  150
(Alaska  2002); State, Dept of Revenue v. Dyncorp & Subsidiaries,
14  P.3d 981, 985 (Alaska 2000); Thompson, 975 P.2d at 688;  Natl
Bank  of  Alaska  v. State, Dept of Revenue, 642  P.2d  811,  815
(Alaska 1982).

     6     Coughlin v. Govt Employees Ins. Co. (GEICO),  69  P.3d
986, 988 (Alaska 2003).

     7      Muller v. BP Exploration (Alaska) Inc., 923 P.2d 783,
788 (Alaska 1996).

     8    Id. at 787.

     9     Alaska  Hous. Fin. Corp. v. Salvucci,  950  P.2d  1116
(Alaska 1997).

     10     Id.  at 1124 (citing Johnson v. Alaska State Dept  of
Fish & Game, 836 P.2d 896, 906 (Alaska 1991)).

     11    Id. (quoting AS 39.90.120(a)).

     12     Id. at 1125 (Instead of being express and specific as
to  whether  punitive  damages  can  be  awarded  against  public
employers,  the  statute is noncomittal  and  ambiguous  on  this

     13    Ketchikan Gateway Borough v. Ketchikan Indian Corp., 75
P.3d  1042, 1045 (Alaska 2003); Sisters of Providence  in  Wash.,
Inc.  v.  Municipality of Anchorage, 672 P.2d  446,  447  (Alaska

     14    Ch. 4,  3, FSSLA 1973.

     15       Evangelical Covenant Church of Am. v. City of Nome,
394 P.2d 882 (Alaska 1964).

     16     City  of  Phoenix v. Moore, 113 P.2d 935, 937  (Ariz.
1941)   (referring  to  statute  stating  that  person   includes
municipal  corporations); Dept of Treasury v. City of Evansville,
60  N.E.2d  952, 953 (Ind. 1945) (addressing statutory  amendment
which  changed definition of taxable person to include any.  .  .
municipal  corporation.  . . engaged in  private  or  proprietary
activities  or business); City of Liberal v. Seward  County,  802
P.2d 568, 570 (Kan. 1990) (finding that royalty interests on city
property leased to commercial oil and gas producers were not  tax
exempt  under provisions exempting all property used  exclusively
by the municipality).

     17     Wold v. Progressive Preferred Ins. Co., 52 P.3d  155,
161  (Alaska  2002)  ([S]tatutes themselves  reflect  the  states
public policy; hence, we have recognized that public policy . . .
cannot override a clear and unequivocal statutory requirement.  )
(quoting  Curran v. Progressive Northwestern Ins.  Co.,  29  P.3d
829,  833  (Alaska 2001)); Tipton v. ARCO Alaska, Inc., 922  P.2d
910, 913 (Alaska 1996).