Alaska Supreme Court upholds ML&P decision

Utility doesn’t have to pay state tax on gas used to produce electricity

Petroleum News

The Alaska Supreme Court said in a Dec. 23 decision that it upholds a superior court decision finding that Anchorage Municipal Light & Power is exempt from paying the state’s gas production tax on gas it produces for its own use in generating electricity.

ML&P is a department of the Municipality of Anchorage which provides electric service to Anchorage. In 1996 ML&P purchased a one-third interest in the Beluga River gas field from Shell Oil. ML&P uses part of the gas to supply third parties. It uses some 18 to 25 percent of the gas to generate electricity for sale in Anchorage.

The Alaska Department of Natural Resources had to approve the Beluga sale to ML&P, and ML&P proposed not paying conservation and production taxes for the gas it used for municipal purposes.

“As a condition of approval,” the court said, “DNR ultimately imposed production taxes for gas ML&P sold to third parties but left open the question whether production of gas used to generate electricity would be similarly taxes.”

ML&P paid production and conservation taxes to the Alaska Department of Revenue for all gas produced from its one-third interest in the Beluga River gas field, but filed a refund claim in December 1999 for taxes it paid on gas it used to generate electricity in Anchorage. Revenue denied the refund claim, and ML&P appealed, ultimately to the Alaska Office of Tax Appeals, which ruled in favor of Revenue.

ML&P appealed to the Alaska Superior Court, which reversed, holding that under rules of statutory interpretation, Alaska’s gas production tax did not apply to ML&P’s gas production at Beluga when read in conjunction with Alaska’s municipal tax exemption statute. Revenue appealed the superior court’s decision.

The Supreme Court said Alaska statute requires that, “in order to tax a municipality, a state law must ‘expressly’ provide that it taxes the municipality.”

Revenue argued that the state’s gas production tax statute expressly taxes “all gas produced,” exempting only “any ownership interest of the federal government or the state.”

The Supreme Court said the tax statute “does not state expressly that it taxes municipalities. It does not mention municipalities at all.” This does not provide the express provision required in law, the court said.

The court said state statute not only provides that a municipality may not be assessed or taxed without express provision but also says “it will not be ‘construed to assess or tax’ a municipality unless it expressly provides for municipal taxation. The statute is the legislature’s self-imposed blanket prohibition to prevent an unintended taxation of municipal interests or activities… (and) leaves no room for taxing a municipality by statutory interpretation founded on implication or inference.”