Home/Alaska Supreme Court/Atlantic Richfield Co. v. State

Atlantic Richfield Co. v. State

705 P.2d 418, 86 Oil & Gas Rep. 406, 1985 Alas. LEXIS 295
CourtAlaska Supreme Court
DecidedAugust 16, 1985
DocketS-52
StatusPublished
Cited by21 cases

This text of 705 P.2d 418 (Atlantic Richfield Co. v. State) is published on Counsel Stack Legal Research, covering Alaska Supreme Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Atlantic Richfield Co. v. State, 705 P.2d 418, 86 Oil & Gas Rep. 406, 1985 Alas. LEXIS 295 (Ala. 1985).

Opinion

OPINION

BURKE, Chief Justice.

This is an appeal brought by several major oil producing companies in Alaska 1 challenging the constitutionality of the Oil and Gas Corporate Income Tax, Former AS 43.21 (repealed 1982) (“the Oil Tax”). 2 The issue is whether the State of Alaska must, as a matter of constitutional law, use the formula apportionment method to determine the portion of each corporation’s worldwide oil production and pipeline transportation income that can be attributed to Alaska. During the tax years 1978 to 1981 the state used separate accounting, instead of formula apportionment, to determine taxable production and pipeline transportation income.

Various actions challenging the constitutionality of the Oil Tax were consolidated on August 27, 1980, in the superior court. 3 Appellants ARCO, Exxon, and Sohio argued below that the Oil Tax violated the commerce, due process, contract, and equal protection clauses of the United States Constitution, as well as the equal protection clause of the Alaska Constitution and the state constitutional and statutory provisions against retroactivity. They sought a refund of taxes paid under the Oil Tax.

On November 12, 1981, the state moved for summary judgment seeking a declaration that the Oil and Gas Corporate Income Tax Act is constitutional. The trial court rejected the oil companies’ claims of unconstitutionality and granted the state’s motion for summary judgment. We affirm.

I. THE OIL TAX

In 1959, Alaska adopted the three-factor apportionment formula of the Uniform Division of Income for Tax Purposes Act (UDITPA) to determine the share of income of an integrated (unitary) interstate business subject to Alaska income taxation. AS 43.20.130 (repealed 1975). 4 The apportionment formula relies on three indicators of business activity — payroll, property and sales — to compute Alaska’s share of taxable income. Id. The value of property, payroll and sales in Alaska is compared to the value of property, payroll and sales of the corporation worldwide. The resulting ratio is then multiplied by the corporation’s apportionable net income worldwide to arrive at an approximation of Alaska’s share of taxable income.

Prior to the enactment of the Oil Tax in 1978, all of the income tax liability of oil companies was determined under the formula apportionment method. Under the Oil Tax, a different methodology, separate *421 accounting, 5 was implemented to calculate the production and pipeline transportation income subject to Alaska taxation. The goal of the separate accounting method was to determine that portion of the value of a barrel of oil attributable to the oil being produced, i.e., taken from the ground. AS 43.21.020.

The separate accounting of oil production income began with the determination of gross production revenue or “gross income.” 6 The Oil Tax defined gross income as the value of the oil at the point of production, i.e., the well-head price. AS 43.21.020(b). Essentially, gross income eq-ualled the price at which the oil was sold, or could be sold, to a refinery less transportation expenses. AS 43.21.020(b). The price at which oil was sold, or could be sold, to a refinery obviously did not include refining and marketing costs and profits. These costs and profits were thus excluded in determining the gross income figure for Alaskan oil. In addition, a number of other costs were deducted from gross income. “Upstream” costs, such as exploration expenses, royalties, lease acquisition and development costs, and general overhead and administrative expenses, and “downstream” costs, such as transportation and marketing costs were deducted from gross income. AS 43.21.020(c). The end result was net production income, which was *422 taxed at the 9.4% rate applicable to all other corporate income at that time. Former AS 43.20.011 (amended, repealed and reenacted 1981).

*421

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Bluebook (online)
705 P.2d 418, 86 Oil & Gas Rep. 406, 1985 Alas. LEXIS 295, Counsel Stack Legal Research, https://law.counselstack.com/opinion/atlantic-richfield-co-v-state-alaska-1985.