312 P.3d 830
Alaska2013Background
- Tesoro challenged Alaska DOR income taxes for 1994–1998, where Alaska employed a three-factor apportionment formula on Tesoro’s worldwide income.
- ALJ found Tesoro and its subsidiaries were a unitary business and that penalties were warranted; the superior court affirmed.
- Tesoro argued only Alaska-based income should be taxed and that the overall scheme violated Due Process and Interstate Commerce Clauses; the court rejected standing to challenge the formula’s constitutionality.
- Tesoro’s business comprised five segments (E&P, R&M, Marine Services, Corporate, Finance) with centralized management and shared services, indicating functional integration across Tesoro.
- Alaska’s UDITPA-derived framework, AS 43.19.010 and AS 43.20.144, governed apportionment; Alaska later issued an advisory letter allowing a remedial three-factor formula under AS 43.19.010(18)(c) for certain oil/gas producers and shippers.
- The court upheld the external consistency of the alternative apportionment method andPenalties, while addressing internal consistency concerns and standing for Tesoro.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Constitutionality of Tesoro’s formula apportionment | Tesoro argues due process and commerce clause violations due to taxing all income | DOR contends unitary status justifies formula apportionment and Tesoro lacks standing to challenge the formula | Unitary status upheld; Tesoro lacks standing to challenge formula’s constitutionality |
| Reasonableness of the section 18 remedial formula | Remedial formula is statutorily unreasonable | Remedial formula reasonable under external consistency | Remedial formula deemed reasonable as applied to Tesoro |
| Penalties for asserted unconstitutionality | Tesoro should not be penalized under an unconstitutional scheme | Penalties valid because Tesoro continued to treat KPL as unitary and failed to amend filings | Penalties permissible; affirmed |
| Internal consistency standing and merits of internal consistency challenge | Tax scheme could be internally inconsistent leading to overtaxation | Tesoro must show actual injury; no standing demonstrated | Tesoro lacks standing; internal consistency challenge rejected |
Key Cases Cited
- Container Corp. of Am. v. Franchise Tax Bd., 463 U.S. 159 (1983) (internal consistency; apportionment fairness; flow of value across unitary enterprises)
- Alaska Gold Co. v. State, Dept. of Revenue, 754 P.2d 247 (Alaska 1983) (unitary business; centralized management; financing; shared services)
- Earth Res. Co. v. State, Dep’t of Revenue, 665 P.2d 960 (Alaska 1983) (unitary finding; centralized services; economies of scale)
- Armco Inc. v. Hardesty, 467 U.S. 638 (1984) (internal consistency concerns; broader scheme evaluation)
- Hans Rees’ Sons, Inc. v. North Carolina, 283 U.S. 123 (1931) (internal consistency concept origins; apportionment critique)
- Gulf Oil Corp. v. State, Dep’t of Revenue, 755 P.2d 372 (Alaska 1988) (reasonableness/external consistency; property/sales factors)