By JAMES BROOKS
Alaska Beacon
The Alaska Supreme Court has ruled in favor of the Alaska Department of Revenue and against a multinational corporation that sought to overturn a state law limiting corporations’ ability to hide assets in international tax havens.
On Aug. 5, the court ruled that the law does not violate either the Commerce Clause or Due Process Clause of the U.S. Constitution, as alleged by Nabors International Finance, a corporation that provides oilfield services in Alaska.
The high court remanded the case back to Anchorage Superior Court for further proceedings.
Joseph Felkl, legislative liaison to the Alaska Department of Revenue, said that while the department can’t disclose taxpayer information, it estimates that the law generates “roughly $1 million or less” in revenue to the state per year.
“The case is more about the principle,” he said.
Under state law, Alaska taxes a corporation and its subsidiaries as a single entity as long as both are part of a “unitary business.”
To tax the corporation, Alaska looks at the tax base of the entire corporation, then the share of its business done in Alaska when applying taxes.
For corporations that aren’t in the oil, gas or pipeline business, Alaska examines the corporation’s assets in the United States and foreign subsidiaries located in “tax haven” countries.
When the Department of Revenue audited Nabors in the early 2010s, it concluded that the company needed to pay additional taxes.
“The tax haven issue usually comes up in audits of large multinational corporations. Rarely do these entities voluntarily report tax haven corporations, so it is picked up in the audit process,” Felkl said.
Nabors challenged the audit, saying the state’s tax practices discriminate against foreign commerce, violating the U.S. Constitution.
The company appealed the Revenue decision to the state’s Office of Administrative Hearings, where a judge said in 2018 that Nabors failed to meet the needed standard of review.
Nabors appealed that decision to Anchorage Superior Court, where a judge ruled two years later partly in the corporation’s favor.
Both the state and the corporation then appealed to the Alaska Supreme Court.
Among their arguments, attorneys for Nabors noted that under the state’s tax-haven standard, 87% of the world’s nations would be considered tax havens and contends that the law amounted to economic protectionism.
The justices disagreed, saying that the law does not favor “Alaskan interests or domestic interests generally over foreign interest, which likely would constitute economic protectionism.”
Nabors also argued that the law creates more burden than benefit, but justices also rejected that argument.
https://alaskabeacon.com/author/james-brooks
