State, Dept. of Revenue v. Alaska Pulp America, Inc., s. 6583

• Decision Date: 30 September 1983
• Docket Number: 6594,Nos. 6583,s. 6583
• Citation: 674 P.2d 268
• Parties: STATE of Alaska, DEPARTMENT OF REVENUE, Appellant, Cross-Appellee, v. ALASKA PULP AMERICA, INC., Alaska Lumber & Pulp Co., Inc., Sitka Housing Development Co., Inc., Harbor Seafood, Inc., Wrangell Domestic International Sales Corporation, and Sitka Domestic International Sales Corporation, Appellees, Cross-Appellants.
• Court: Alaska Supreme Court

Page 268

674 P.2d 268

STATE of Alaska, DEPARTMENT OF REVENUE, Appellant, Cross-Appellee, v. ALASKA PULP AMERICA, INC., Alaska Lumber & Pulp Co., Inc. Sitka Housing Development Co., Inc., Harbor Seafood, Inc. Wrangell Domestic International Sales Corporation, and Sitka Domestic International Sales Corporation, Appellees, Cross-Appellants.

Nos. 6583, 6594.

Supreme Court of Alaska.

Sept. 30, 1983.

Barbara Herman, Asst. Atty. Gen., Wilson L. Condon, Atty. Gen., Juneau, for appellant, cross-appellee.

Michael T. Thomas, Robertson, Mongale, Eastaugh & Bradley, Anchorage, for appellees, cross-appellants.

Before BURKE, C.J., RABINOWITZ, and MATTHEWS, JJ., and CRANSTON, Judge. ^*

OPINION

RABINOWITZ, Justice.

Alaska Lumber and Pulp Co., Inc. ["ALP"] and six subsidiary corporations ¹ were wholly owned by Alaska Pulp Co., Ltd., a Japanese corporation. ALP was incorporated in Alaska in 1953. The Department of Revenue ["Department"] claims that these seven Alaska corporations ["the taxpayers"] are liable for the Alaska Business License Act taxes that were assessed by the Department auditor in 1978 for tax years 1971 through 1974.

A formal hearing was held in 1979. The Department hearing officer affirmed the findings of the Audit Division. On appeal, the superior court affirmed the Department's decision in all respects except as to the applicability of AS 43.05.260(a). Contrary to the Department, the court held that this statute bars all assessments for tax years 1971 through 1974. On reconsideration, the superior court decided that the notice of proposed assessment for 1974 gross receipts, which was sent by the Audit Division in 1978 to three of the corporations, tolled the statute. It therefore concluded that those assessments were not barred.

The Department appeals the superior court's decision, contending that the court erred in holding that AS 43.05.260(a) bars any of the assessments it made. The taxpayers cross-appeal, contending the court erred in holding they are liable for all of the taxes that the court held were not barred by the statute. For the reasons set forth below, we agree with the Department and disagree with the taxpayers. Accordingly, we conclude that the Department's assessments were correct in all respects.

I. Applicability of AS 43.05.260(a)

AS 43.05.260(a) was enacted on May 27, 1976, and made retroactive to January 1, 1976. ² It reads:

Limitation on Assessment. (a) Except as provided in AS 43.20.200(b), the amount of a tax imposed by this title must be assessed within three years after the return was filed, whether or not a return was filed on or after the date prescribed by law. If the tax is not assessed before the expiration of the three-year period, no proceedings may be instituted in court for the collection of the tax.

The taxpayers argue that AS 43.05.260(a) bars the assessment of taxes on returns filed prior to January 1, 1976, unless the assessment was made within three years of the filing. In essence, the taxpayers argue that AS 43.05.260(a) applies retroactively.

Absent clear language indicating legislative intent to the contrary, a law is presumed to operate prospectively only. AS 01.10.090; Stephens v. Rogers Construction Co., 411 P.2d 205, 208 (Alaska 1966); Hill v. Moe, 367 P.2d 739, 742 (Alaska 1961), cert. denied, 370 U.S. 916, 82 S.Ct. 1554, 8 L.Ed.2d 498 (1962). Additionally, AS 01.10.100(a), Alaska's general saving statute, provides:

Effect of repeals or amendments. (a) The repeal or amendment of any law does not release or extinguish any penalty, forfeiture, or liability incurred or right accruing or accrued under such law, unless the repealing or amending act so provides expressly. The law shall be treated as remaining in force for the purpose of sustaining any proper action or prosecution for the enforcement of the right, penalty, forfeiture, or liability.

Nothing in the language of AS 43.05.260(a) indicates a legislative intent that it should apply to returns filed prior to its effective date. On the contrary, the legislature specifically provided that the act would operate retroactively to January 1, 1976. This indicates that the amendment does not bar assessments on returns filed prior to January 1, 1976.

The taxpayers argue that AS 01.10.100(a) only prohibits the retroactive application of a statute affecting "vested" rights, see Bidwell v. Scheele, 355 P.2d 584, 586-87 (Alaska 1960), and that the state's right to bring an action for taxes does not vest until the assessment has been completed. This analysis, however, focuses on the wrong party. The taxpayer's obligation to pay taxes accrues in the year the income is received. In accordance with AS 01.10.100(a), a period of limitations provided by a later tax act cannot release a taxpayer from that liability. ³

The taxpayers argue alternatively that barring state action not taken within three years on any return filed before the effective date of AS 43.05.260(a) does not constitute a retrospective application of the statute. They evoke an accepted tenet of statutory construction that a statute is not made retroactive merely because it draws upon antecedent facts for its operation. 2 C. Sands, Sutherland Statutory Construction § 41.02 (4th ed. 1973). In citing this canon and the cases that have employed it, however, the taxpayers have overlooked the significance of the word "merely." In each of the cited cases the court made specific findings that operation of the statute did not destroy vested rights or impair prior obligations. ⁴

Sturges v. Carter, 114 U.S. 511, 5 S.Ct. 1014, 29 L.Ed. 240 (1885), relied on by taxpayers, is distinguishable. There the Supreme Court rejected the proposition that "the taxpayer has a vested right in the fruits of his false returns," id. at 519, 5 S.Ct. at 1017, 29 L.Ed. at 243. It concluded that an amendment to an Ohio statute authorizing the county auditor to reassess the taxes on returns filed up to four years before a return determined to be fraudulent was filed did not violate a state constitutional prohibition against retroactive laws. Application of AS 43.05.260(a) to returns filed prior to January 1, 1976, would release the taxpayers from tax liabilities they incurred when they received income. This result is prohibited by Alaska's saving statute.

As the taxpayers note, we have previously held that "mere procedural changes which do not affect substantive rights are not immune from retrospective application." Matanuska Maid Inc. v. State, 620 P.2d 182, 187 (Alaska 1980). Of particular significance here is the word "mere." Although statutes of limitation are generally considered procedural, the taxpayers' argument fails for the reasons articulated by the Supreme Court of California, and previously cited by this court:

[T]he presumption against retrospective construction does not apply to statutes relating merely to remedies and modes of procedure .... In other words, procedural statutes may become operative only when and if the procedure or remedy is invoked, and if the trial postdates the enactment, the statute operates in the future regardless of the time of occurrence of the events giving rise to the cause of action. Blyer v. Hershman, 156 Misc. 349, 281 N.Y.S. 942, 944. In such cases the statutory changes are said to apply not because they constitute an exception to the general rule of statutory construction, but because they are not in fact retrospective. There is then no problem as to whether the Legislature intended the changes to operate retroactively.

This reasoning, however, assumes a clear-cut distinction between purely "procedural" and purely "substantive" legislation. In truth the distinction relates not so much to the form of the statute as to its effects. If substantial changes are made, even in a statute which might ordinarily be classified as procedural, the operation on existing rights would be retroactive because the legal effects of past events would be changed, and the statute will be construed to operate only in futuro unless the legislative intent to the contrary clearly appears.

Aetna Casualty & Surety Co. v. Industrial Accident Commission, 30 Cal.2d 388, 182 P.2d 159, 161-62 (1947) (emphasis added), cited in Matanuska Maid, Inc. v. State, 620 P.2d at 187.

The legal effect of past events would indeed be changed if AS 43.05.260(a) were applied to bar assessment of the taxpayers' 1971-74 tax liability. Thus, we cannot conclude that the three-year statute of limitation in this case is merely procedural.

Two other considerations militate against the statutory construction urged by the taxpayers. First, statutes of limitation barring the assessment and collection of taxes are strictly construed in favor of the government. ⁵ Second, although the applicability of AS 43.05.260(a) turns on statutory interpretation, and we therefore consider the statute independently of the Department's interpretation, the Department's interpretation is entitled to "some weight." ⁶ The statutory amendment under consideration was requested by the governor at the instigation of the Department. The bill was submitted with the Department's understanding that it would operate prospectively only and have no impact on public finances. We think the Department's interpretation is persuasive and hold that AS 43.05.260(a) does not bar assessment of the taxpayers' Business License Act taxes for 1971-74. ⁷

II. Taxability of Certain Transactions

The activities of the taxpayers involved here present a veritable maze of corporate enterprise. During the years in question, they collectively purchased and cut timber under contracts with the U.S. Forest Service and the State of Alaska, operated a pulp mill and two saw mills, acquired a seafood company, formed a housing development company, and incorporated two domestic international sales corporations (DISCs), which acted as sales agents for the other companies abroad.

Each corporation was a wholly owned subsidiary of another,...