STATE OF ALASKA, DEPARTMENT OF REVENUE v. NORTH PACIFIC FISHING, INC. and U.S. FISHING, LLC
Supreme Court No. S-17642
THE SUPREME COURT OF THE STATE OF ALASKA
May 7, 2021
Opinion No. 7524
Superior Court No. 3AN-18-06908 CI
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, email corrections@akcourts.us.
OPINION
Appeal from the Superior Court of the State of Alaska, Third Judicial District, Anchorage, Dani Crosby, Judge.
Appearances: Laura F. Fox, Senior Assistant Attorney General, Anchorage, and Kevin G. Clarkson, Attorney General, Juneau, for Appellant. Leon T. Vance, Faulkner Banfield, P.C., Juneau, and James E. Torgerson, Stoel Rives LLP, Anchorage, for Appellees.
Before: Bolger, Chief Justice, Winfree, Maassen, and Carney, Justices. [Borghesan,
BOLGER, Chief Justice.
I. INTRODUCTION
Two commercial fishing companies catch and process fish in the Exclusive Economic Zone off the Alaska coast but outside Alaska‘s territorial waters. Their vessels arrive at Alaska ports where they may transfer processed fish directly to foreign-bound cargo vessels or transfer processed fish to shore for storage and later loading on cargo vessels. Because the companies do not process fish in Alaska, they do not pay the taxes imposed on other processing vessels operating out of Alaskan ports, but their fisheries business activities are subject to a state “landing tax.” The fishing companies argue that this landing tax violates the Import-Export and Tonnage Clauses of the United States Constitution and
II. FACTS AND PROCEEDINGS
A. North Pacific‘s Operations
North Pacific Fishing, Inc. and U.S. Fishing, LLC (North Pacific) are Washington companies authorized to do business in Alaska. Both own fishing vessels operating in the Exclusive Economic Zone (EEZ) but outside Alaska‘s territorial waters.1 North Pacific‘s vessels are “catcher/processors,” which both harvest and process fish in the EEZ. They do not fish in Alaska, but arrive at Alaska ports to unload processed fish.
The fish product may be unloaded to warehouses on shore, to shipping containers on the docks, or directly to cargo ships waiting in port.
North Pacific exports nearly all of its fish product on foreign-flagged vessels, which are prohibited by law from delivering cargo from one United States domestic port to another.2 Sometimes a buyer is identified before processed fish is loaded onto a cargo vessel; other times the sale is not arranged until the vessel is en route to a foreign port. During the years at issue, North Pacific caught and processed fish only in the EEZ, and nearly all of its fish product was eventually transferred to foreign-flagged cargo ships. The parties agree that North Pacific‘s nominal shipments of processed fish to Washington have no impact on the issues raised in this appeal.
B. The Landing Tax
The EEZ catcher/processors like North Pacific do not catch or process fish in Alaska waters, but their operations place a burden on state resources:
The EEZ catcher/processors have a significant presence in the state, including transferring of the processed fisheries resource product, taking on and disembarking of crew, taking on of fuel and supplies, obtaining repairs, discharging waste, and making use of sheltered waters. Additional burdens resulting from the fleet presence impact the state and local communities through increased demands on educational systems, road maintenance, public safety, airports, docks, hospitals, and other programs
provided or financed by the state or local communities.3
Because North Pacific catches and processes its fish outside of Alaska waters it is not subject to the state‘s “fisheries business tax” on catching or processing fish within the state.4 “To compensate the state for the burdens that fish catcher/processors operating in the [EEZ] impose[] upon the state and local communities, as well as for the benefits the EEZ catcher/processors receive,” catcher/processors like North Pacific instead pay the “fishery resource landing tax.”5 The landing tax is “substantially equivalent” to the taxes imposed on the rest of the fishing industry, and is intended to be “a payment for the services and benefits conferred” on the EEZ catcher/processors rather than “a fee on fisheries resources simply moving through the state.”6
The landing tax applies to anyone “engag[ing] in a floating fisheries business in the state and who owns a fishery resource that is not subject to [the fisheries business tax] but that is brought into the jurisdiction of, and first landed in” Alaska.7 It provides a credit for any taxes paid in another jurisdiction that are “equivalent in nature” to the Alaska tax.8 The landing tax applies “without regard to the final destination of” the fish product.9 And like the fisheries business tax, the landing tax is based on the value of the raw, unprocessed fish as extrapolated from the value of the processed fish product the catcher/processors land.10 The landing tax is thus “designed and intended to be a compensatory tax to complement the fisheries business tax.”11
C. Legal Proceedings
In 2016 North Pacific informed the Alaska Department of Revenue (the Department) that it considered the landing tax unconstitutional as applied to its activities. North Pacific claimed the tax violated the Import-Export and Tonnage Clauses of the United States Constitution12 and requested a refund of taxes paid in previous years. The Department‘s Tax Division issued an informal decision denying all of North Pacific‘s claims.
North Pacific then appealed to the Office of Administrative Hearings (OAH), which affirmed the Tax Division‘s decision. North Pacific reiterated its constitutional arguments and additionally claimed a violation of
OAH also rejected North Pacific‘s claim that the landing tax was based on its vessels
North Pacific next appealed to the superior court, which concluded that ”Richfield remains good law and is dispositive here.” The court reversed OAH as to the Import-Export Clause, concluding that all of North Pacific‘s fish product was in the export stream when the landing tax applied, and that the tax applied directly to the processed fish. Because the court found the landing tax unconstitutional under the Import-Export Clause, it did not reach North Pacific‘s other claims.
The Department appeals, asking us to reverse the superior court and affirm the OAH on all counts. North Pacific asks us to affirm the superior court‘s decision or, alternatively, hold that the tax violates the Tonnage Clause and
III. STANDARD OF REVIEW
“When the superior court acts as an intermediate appellate court, we undertake an independent review of the agency determination, and we may affirm... on any ground supported by the record.”16 We review de novo questions of constitutional law and statutory construction and will “adopt the rule of law most consistent with precedent, reason, and policy.”17 “A presumption of constitutionality applies,” and we resolve any doubts in favor of a law‘s constitutionality.18
IV. DISCUSSION
A. The Landing Tax Does Not Violate The Import-Export Clause.
The Import-Export Clause dictates, “No [s]tate shall, without the consent of the Congress, lay any imposts or duties on imports or exports.”19 Like the Export and Commerce Clauses, it is intended to prevent friction between the states and burdens on interstate or foreign commerce.20 The same analysis therefore often applies to all three clauses.21
Import-Export cases were traditionally analyzed under the “stream of export” or “continuous route” doctrine explained in Richfield, which prohibits the states from directly taxing goods in the stream of export commerce.22 Goods and resources remain taxable until they are on a continuous route to exportation.23 The analytical focus under Richfield is thus on timing: whether definite commitment to the export stream has transformed the good into a tax-exempt export when the tax is assessed.
The Supreme Court updated its Import-Export jurisprudence in Michelin, shifting its focus to the purposes of the
In Department of Revenue v. Ass‘n of Washington Stevedoring Cos. the Court expressly extended this analysis to export goods, explaining that the first and third of the Michelin principles were implicated when a state levied a tax on exports, and recognized that Michelin had “initiated a different approach to Import-Export Clause cases.”26 But the Court declined to extend Michelin‘s purpose-driven analysis to taxes assessed directly on goods while in import or export transit, and it has never expressly overruled the stream of export cases.27
The Department argues that Richfield was functionally overruled by Michelin. It alternatively argues that if Richfield is good law, it does not control here, as the landing tax is neither imposed directly on the fish product nor assessed while that product is in the export stream. North Pacific insists that Richfield is dispositive and bars application of the landing tax to its business activities.
The Supreme Court has repeatedly signaled that Michelin represents the “modern” Import-Export Clause doctrine,28 and we begin our analysis there. But we do not assume that Richfield has been wholly abandoned, leaving to the Supreme Court “the prerogative of overruling its own decisions.”29 In any case we need not resolve which test is appropriate here as we conclude that the landing tax is permissible under both.
1. The landing tax does not conflict with the purposes of the Import-Export Clause.
To determine whether the landing tax conflicts with the purpose of the Import-Export Clause, we apply the relevant standards described in Michelin and Washington Stevedoring: (1) a tax may not interfere with the federal government‘s ability to speak with one voice on foreign trade; and (2) coastal states may not disturb interstate harmony by “levying taxes on citizens of other [s]tates by taxing goods merely flowing through their ports.”30 If these “constitutional
The landing tax does not “prevent[] the Federal Government from ‘speaking with one voice when regulating commercial relations with foreign governments.’ ”32 It creates no special tariffs and “cannot be applied selectively to encourage or discourage” exportation.33 The tax may have an incidental effect on fish prices and subsequently on the export market, but the same is true of much domestic taxation. Prevention of these sorts of incidental effects was “not even remotely an objective of the Framers.”34
Nor does the landing tax disturb interstate harmony or “tax goods merely flowing through [Alaska‘s] ports.”35 A tax will not run afoul of this proscription if it has “a reasonable nexus to the state, is properly apportioned, does not discriminate, and relates reasonably to the services provided by the state.”36 The landing tax satisfies these requirements.
First, the tax has a reasonable nexus to Alaska: North Pacific conducts its relevant commercial activities within the state, “including transfer of fishery resources or processed products, taking on and disembarking crew, taking on fuel or supplies, obtaining vessel or gear repairs, discharging wastes, seeking protection in sheltered waters, and any other related activity that makes a claim on the resources of the state.”37
Second, the landing tax is not unfairly apportioned or discriminatory against interstate or foreign commerce. It falls on activities occurring within Alaska; no activity occurring in any other state is implicated. The tax was specifically designed to achieve “equality of treatment between local and interstate commerce.”38 The state treats fish product intended for export no differently than fish product sold for local consumption, and the landing tax imposes an equal or lower rate than the fisheries business tax imposed on wholly in-state floating fisheries businesses.39
Finally, the landing tax is “fairly related to the services provided by the [s]tate.”40 The state has rationally concluded that businesses such as North Pacific benefit from state services including road maintenance, public safety, public health infrastructure, medical facilities, and educational systems.41 The state has further concluded that these businesses’ activities burden state resources.42 The landing tax is assessed to pay for these benefits and burdens. It is a measure “by which a [s]tate apportions the cost of such services as police and fire protection among the beneficiaries.”43 There is no reason a floating fisheries
The landing tax does not violate the purposes of the Import-Export Clause and therefore satisfies the Michelin standard. North Pacific does not contest this point. Instead, it argues that Michelin is inapplicable and that Richfield controls.
2. The landing tax is not assessed on goods in export transit.
Under the stream of export commerce doctrine explained in Richfield, the Import-Export Clause bars states from assessing taxes directly on goods after they enter the stream of export commerce.45 In Richfield the Supreme Court held that imposing a state sales tax on oil sold for export violated the Import-Export Clause.46 The oil was transported overland by the seller and stored on the dock in tanks owned by the seller.47 It was then pumped to a foreign-flagged tanker, completing the sale and triggering the tax, which the state characterized as being levied on merchants “for the privilege of selling tangible personal property at retail.”48 The Court determined that the tax was assessed directly on the oil and that its arrival in the hold of the tanker unequivocally committed it to export.49 Because the oil‘s delivery to the tanker also completed the sale and triggered the tax, the sales tax violated the Import-Export Clause.50
Under the Richfield line of cases, direct taxes on goods in export transit are unconstitutional regardless of whether they conflict with the clause‘s purpose. To determine whether the landing tax is permissible under Richfield, we therefore must decide two issues: (1) Is the landing tax assessed directly on the fish product, or on a separate business activity? (2) Has the fish product entered the stream of export commerce when it is taxed? We conclude that while the tax is assessed on the fish product, this occurs before it enters the stream of export. The landing tax is therefore permissible under Richfield.
a. The tax is assessed on the fish product.
Not all taxes applied during the export process fall directly on the export goods, and taxes levied on distinct business activities rather than on the goods themselves are too indirect to violate the Import-Export Clause.51 The Department argues that the landing tax is not assessed on the fish product, but on the commercial activity of operating a floating fisheries business. But the Department‘s characterization of the tax is not dispositive, and we conclude that the landing tax is imposed directly on the processed fish rather than on an associated activity.52
This issue “turns not on the characterization which the state has given the tax, but on its operation and effect.”53 Taxes that are on the sale of goods or measured by their retail value are effectively taxes on those goods.54 On the other hand, taxes on
The landing tax, on the other hand, is assessed on the value of the unprocessed fish as calculated from the weight and species of the processed fish product once landed.59 The Department describes this measure as “a proxy for the extent of [North Pacific‘s] business activities in Alaska,” but this does not change the fact that the tax is actually calculated based on the value of the fish. The sales tax at issue in Richfield could also rationally have been described as a proxy for the extent of the exporter‘s business activities in California, but it was still a tax on the export goods.60 So is the landing tax.
The measure of the landing tax is based directly on the value of the fish product, not indirectly on its volume. Further, the tax is imposed on the entity producing and selling the fish product, not a third party providing a distinct service.61 The landing tax falls on the fish product; whether this is permissible therefore turns on whether the product is in export transit when the tax takes effect.
b. The landing tax is applied before the fish product enters the stream of export commerce.
Under Richfield a tax does not violate the Import-Export Clause unless it is imposed on goods in export transit.62 If the landing tax is assessed before the fish product enters the stream of export commerce, it is permissible. North Pacific argues that the fish product enters export transit when it crosses from the EEZ to Alaska‘s territorial waters, because after that point it is merely in transit through the state and cannot be taxed. North Pacific alternatively claims that the tax is assessed simultaneously with the fish product‘s entrance to the stream of export commerce when it is unloaded from the catcher/processors. The Department responds that the fish product is not merely in transit through Alaska and that the tax is triggered by landing the fish product, which occurs before it is committed to export transit.
i. The fish product‘s movement from the EEZ to Alaska does not begin export transit.
We first conclude that North Pacific‘s fish product does not enter the stream of
The moment when the export process begins and goods become exempt from taxation “is not an easy matter to designate or define, and yet it is highly important, both to the shipper and to the state, that it should be clearly defined so as to avoid all ambiguity or question.”63 To define this moment courts consider whether the goods have been committed on a “continuous route” to export.64 And what constitutes entrance to the stream of export commerce may depend on whether the goods have entered the stream of interstate commerce.65
The Supreme Court first announced its stream of export doctrine in Coe v. Town of Errol.66 New Hampshire had taxed logs stored on a New Hampshire riverbank while on their way downstream to be exported.67 Some of the timber had been felled in
New Hampshire, some shipped from out of state.68 And in its analysis, the Court distinguished between the two sources of timber.69 It held the tax unconstitutional as applied to the out-of-state logs, which had entered the export stream when they left their state of origin and were already in transit when taxed.70 But the Court upheld the tax on the local timber, explaining that the intrastate movement of a product was not part of the export journey:
The carrying of [a product] . . . to the depot where the journey is to commence, is no part of that journey.... Until actually launched on its way to another state . . . its destination is not fixed and certain. It may be sold or other wise disposed of within the state, and never put in course of transportation out of the state. Carrying it from the farm or the forest to the depot is only an interior movement . . . . It is no part of the exportation itself. Until shipped or started on its final journey out of the state its exportation is ... not at all a fixed and certain thing.71
The logs would not become untaxable exports until being shipped to another state, “start[ing] upon such transportation in a continuous route or journey.”72 Prior movement in their state of origin was merely “partial preparation” for export and did not trigger tax exemption.73
More recent cases have relied on Coe‘s distinction between goods originating in the taxing state and those merely in transit through it. In Sumitomo Forestry Co. of Japan v. Thurston County, Washington state levied a tax on logs that had been cut in the state, transported across the state, and stored in a state harbor awaiting export.74
The Texas Supreme Court has applied a similar analysis to the import process. In Diamond Shamrock Refining & Marketing Co. v. Nueces County Appraisal District the court held that oil imported directly to Texas was subject to local taxation while en route.76 While recognizing that Richfield barred state taxes on goods in import transit, the Texas court concluded that this limitation “clearly applies only to goods in transit through the state to or from another state and not to goods merely in transit within the only state the goods ever enter.”77 It determined that the imported oil was not merely passing through Texas, because “[a]lthough still on its foreign import journey and in that sense ‘in transit,’ the oil in question here entered only the [s]tate of Texas.”78 It had therefore ceased to be a tax-exempt import.
Similarly, under Coe the landing tax‘s constitutionality depends in part on whether fish product moving from the EEZ through Alaska territorial waters to an Alaska port is already moving interstate.79 It is true that the fish product originates outside Alaska, but it is also true that Alaska is the only state it will ever enter. Unlike goods “merely passing through” multiple states on their way to export, the fish product in this case passes through no state but Alaska. We thus conclude that transporting the fish product from the EEZ to the Alaska coast is only “partial preparation” to export it and does not commence export transit.80
ii. The fish product is committed to export transit only when it reaches the hold of a cargo vessel, and the landing tax is assessed before this occurs.
The fish product enters the stream of export commerce only when it reaches the hold of a foreign-flagged cargo vessel. In finding otherwise the superior court relied largely on the “certainty of [the fish‘s] foreign destination.” But as the Supreme Court
has explained, such certainty is not enough; only physical commitment to the stream of export suffices.81
It has long been the rule that the intent of the would-be exporter is not dispositive, even if the goods were produced for or legally committed to export.82 Articles intended for export are not “relieved from the prior ordinary burdens of taxation which rest upon all property similarly situated. The exemption attaches to the export, and not to the article before its exportation.”83
Goods become tax-exempt exports only when physically committed to export transport. In Empresa Siderurgica v. County of Merced a cement plant was sold to an overseas company, which took title and was preparing the plant for export when the state
In keeping with this precedent we conclude that, as in Richfield, the fish product enters the stream of export only when it arrives on the cargo vessel which will take it out of the country.87 Once the fish product reaches the cargo vessel‘s hold, it has been definitively committed to export, as the foreign-flagged ship cannot legally deliver it to a domestic market.88 But before this occurs there remains a possibility that the fish product could be diverted, and so it is not yet an export.89
Finally, we conclude that the landing tax is assessed before the fish product has been definitely committed to export and gained tax exemption under the Import-Export Clause. Under the Alaska Administrative Code the tax applies “at the moment the act of landing begins.”90 “Landing” is statutorily defined as “the act of unloading or transferring a fishery resource.”91 The landing tax is thus triggered by the commencement, not the completion, of “the act of landing.” But the fish product is not committed to export transit until it arrives on the cargo vessel, and by this time the tax has already been assessed.92
We therefore conclude that the landing tax is permissible under Richfield as well as Michelin and does not violate the Import-Export Clause. We now turn to North Pacific‘s remaining claims.
B. The Landing Tax Does Not Violate The Tonnage Clause.
North Pacific alternatively challenges the landing tax under the Tonnage Clause, which forbids states to “lay any Duty of Tonnage” on vessels,93 or impose charges for “entering, trading in, or lying in a port,” without congressional consent.94 North Pacific argues that the landing tax is imposed directly on its vessels solely for their use of Alaska ports and navigable waters95 and is thus unconstitutional. The superior court concluded that the tax violated the Import-Export Clause and thus did not reach this
The Tonnage Clause was intended to supplement the Import-Export Clause and Commerce Clause, preventing coastal states from indirectly taxing imports and exports by taxing the vessels used to transport them.96 Although the text of the clause prohibits only taxes based on “tonnage” — a vessel‘s cargo capacity97 — it “has been deemed to embrace all taxes and duties regardless of their name or form, and even though not measured by the tonnage of the vessel, which operate to impose a charge for the privilege of entering, trading in, or lying in a port.”98
Like the Import-Export Clause, the Tonnage Clause should be read in light of its purpose: to prevent coastal states from abusing their taxing power to disadvantage their landlocked neighbors.99 However it should not be construed so as to disadvantage the coastal states themselves by giving vessels and their owners “preferential treatment.”100 It simply prohibits discriminatory taxes imposed specifically on vessels, which would effectively tax imports and exports to the detriment of landlocked states.
In keeping with this purpose, the Tonnage Clause does not bar all charges that might be imposed on vessels.101 Vessels may be taxed for general revenue purposes, provided the tax does not discriminate against vessels as such: “in order to fund services by taxing ships, a [s]tate must also impose similar taxes upon other businesses.”102 This similarity requirement discourages coastal states from indirectly taxing the citizens of neighboring states through discriminatory taxation of the import/export process. It also prevents the imposition of duties on vessels based strictly on tonnage or that operate as a charge solely for “entering, lying in, or trading in a port.”103
In the Supreme Court‘s first Tonnage Clause case since 1935, it struck down a municipal property tax on large vessels using the port of Valdez.104 The ships’ values were closely correlated with their cargo capacity and the tax was imposed directly on the vessels, thus violating the Tonnage Clause.105 The Court reiterated that the Clause was “not a ban on any and all taxes which fall on vessels.”106 But the Valdez tax ran afoul of the Tonnage Clause‘s text and purpose: it was imposed on vessels, was based on cargo capacity, was unlike any tax levied against other properties or businesses, and therefore was a discriminatory exercise of the taxing power injurious to interstate commerce.107
Unlike the Valdez tax, the landing tax is assessed on the fish product itself and is not a tax on vessels at all, putting it beyond the scope of the Tonnage Clause. Further, the
North Pacific argues that its activities in Alaska consist of “entering, trading in, or lying in a port,” and that the landing tax must therefore fall unconstitutionally on its vessels for these activities. But North Pacific is subject to the landing tax because it operates a floating fisheries business, not because it enters Alaska ports as part of that business.108 As North Pacific itself points out, the tax does not apply to other vessels “entering, trading in, or lying in” Alaskan ports, including those delivering fish to Alaskan processors or those that “simply transport the fish products through the state without unloading or transferring them.” The landing tax is assessed on fish product first landed in Alaska by floating fisheries businesses, not on the component business activity of “entering and trading in” Alaska ports.109
North Pacific also argues that the landing tax, like the tax at issue in Polar Tankers, discriminates against vessels. But unlike a property tax imposed only on large ships, the landing tax mirrors similar taxes imposed on all participants in the fish processing business, including those that operate only on land. It is “designed and intended to . . . complement the fisheries business tax”110 which is imposed on all entities processing fish within Alaska, both on-shore and off-shore.111 The landing tax does not impose a disproportionate tax rate on EEZ catcher/processors like North Pacific — to the contrary, they are taxed at an equal or lower rate than the rest of the commercial fishing industry.112 Alaska is meeting its obligation to “also impose similar taxes upon other businesses.”113
North Pacific‘s reading of the Tonnage Clause would expand it from protecting vessels and their owners from discrimination to giving them “preferential treatment vis-a-vis all other property, and its owners, in a seaboard [s]tate.”114 This is precisely what the Supreme Court cautioned against in Polar Tankers. As the Department points out, it is difficult to imagine what activities using or pertaining to vessels would remain taxable under this theory: virtually all of them involve entering, trading in, or lying in ports or navigable waters and by North Pacific‘s argument would consequently be exempt from taxation.
The landing tax is not imposed on North Pacific‘s vessels or on the act of entering, trading in, or lying in Alaska‘s ports, nor does it discriminate against vessels or impede commerce. We therefore conclude that it does not violate the Tonnage Clause.
C. The Landing Tax Does Not Violate 33 U.S.C. § 5(b).
Finally, North Pacific claims that the landing tax violates
In relevant part,
Legislative history indicates that
In contrast, in State, Department of Natural Resources v. Alaska Riverways, Inc. we struck down a purported rental fee assessed on a per-passenger basis for a tour boat operator‘s use of state-owned riverbanks.120 As the per-passenger fee was unrelated to the rental value of the land being used, it functioned as “a charge exacted specifically for the use of navigable waters.”121 We concluded that it thus violated
North Pacific argues that the landing tax, like the per-passenger fee, operates as a charge on the use of navigable waters and thus violates
We agree with the Department. The landing tax is not imposed on the vessels or their passengers or crew, nor “exacted specifically for the use of navigable waters.”122 Unlike the rental fee we previously rejected, the tax is assessed on an activity separate from the vessels or crew and rationally linked to the impact of that activity on state resources.
North Pacific‘s argument would drastically expand
V. CONCLUSION
We conclude that the landing tax does not violate the Import-Export Clause, the Tonnage Clause, or