State v. N. Pac. Fishing, Inc.

• Citation: 485 P.3d 1040
• Decision Date: 07 May 2021
• Docket Number: Supreme Court No. S-17642
• Parties: STATE of Alaska, DEPARTMENT OF REVENUE, Appellant, v. NORTH PACIFIC FISHING, INC. and U.S. Fishing, LLC, Appellees.
• Court: Supreme Court of Alaska (US)

485 P.3d 1040

STATE of Alaska, DEPARTMENT OF REVENUE, Appellant,

v.NORTH PACIFIC FISHING, INC. and U.S. Fishing, LLC, Appellees.

Supreme Court No. S-17642

Supreme Court of Alaska.

May 7, 2021

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.

OPINION

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 33 U.S.C. § 5(b). But we conclude that the tax is imposed before the fish product enters the stream of export commerce, that the tax does not constitute an "impost or duty," and that the tax therefore does not violate the Import-Export Clause. We further conclude that the tax is not imposed against the companies’ vessels in violation of the Tonnage Clause or 33 U.S.C. § 5(b).

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 in 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 33 U.S.C. § 5(b).¹³ It argued that the landing tax, as a direct tax on goods in export transit, violated the Import-Export Clause and was barred by the holding in Richfield Oil Corp. v. State Board of Equalization .¹⁴ The Department responded that the more recent decision in Michelin Tire Corp. v. Wages¹⁵ established the correct test, under which the landing tax was permissible. OAH declined to say that Richfield had been overruled but found it inapplicable, reasoning that the landing tax was imposed neither on the fish product nor during the export process. Applying Michelin OAH found no violation of the Import-Export Clause.

OAH also rejected North Pacific's claim that the landing tax was based on its vessels or its use of navigable waters in violation of the Tonnage Clause. Finally, OAH rejected the 33 U.S.C. § 5(b) challenge as derivative of the other failed arguments.

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 33 U.S.C. § 5(b).

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 Clause.²⁴ The Import-Export Clause addresses three main concerns: (1) "the Federal Government must speak with one voice when regulating commercial relations with foreign governments"; (2) "import revenues ... should not be diverted to the [s]tates"; and (3) seaboard states must be "prohibited from levying taxes on citizens of other [s]tates by taxing goods merely flowing through their ports to the other [s]tates not situated as favorably geographically."²⁵ Under Michelin only taxes contrary to these purposes are prohibited by the Import-Export Clause.

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...