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Alaska Supreme Court rules against Exxon
Affirms superior court ruling, advisory bulletin not a regulation, cannot be challenged under Alaska Administrative Procedure Act Kristen Nelson Petroleum News
In a June 11 opinion the Alaska Supreme Court affirmed a superior court ruling in a suit brought by Exxon Mobil Corp. against the Department of Revenue over an advisory bulletin on applicability of tax credits against the production tax.
Exxon had appealed a superior court ruling in the department’s favor; the Supreme Court concurred with the superior court, saying the advisory bulletin cannot be challenged under the Alaska Administrative Procedure Act because an advisory bulletin is not a regulation.
The superior court had granted summary judgment to the department; the Supreme Court agreed.
“Exxon alleged that issuing the advisory bulletin violated APA rulemaking requirements, that the bulletin is contrary to law, and that equitable estoppel should bar the Department from applying the bulletin retroactively,” the Supreme Court said.
Both parties sought summary judgment; the superior court granted the department’s summary judgment motion, concluding that Exxon’s claims were not ripe, so there was no actual controversy.
2017 advisory bulletin The issue arose over a 2017 advisory bulletin which the department issued in response to inquiries from taxpayers and holders of tax credit certificates.
The Supreme Court said for an agency’s interpretation to be a regulation under the APA it must implement, interpret or make specific law enforced or administered by the agency and, second, it must affect the public or be used by the agency in dealing with the public.
“Obvious, common sense interpretations of existing law are not regulations under the APA,” the Supreme Court said.
“We conclude that the advisory bulletin is not a regulation because it does not satisfy the second prong; the advisory bulletin does not affect the public, and the Department does not rely on the bulletin in its interactions.”
The Supreme Court said the Legislature authorized the department to issue interpretations to inform and guide producers without going through APA rulemaking procedures.
“Because we conclude that the nonbinding advisory bulletin is not a regulation under the APA, we also reject Exxon’s argument that the advisory bulletin is a prohibited retroactive regulation,” the Supreme Court said.
Claim not ripe On the issue of summary judgment, the Supreme Court said the superior court held Exxon’s claim was not ripe because the department had not yet assessed a tax and noted that Exxon would have had to exhaust administrative remedies before turning to the courts if a tax were assessed.
The Supreme Court said Exxon argued that its challenge was ripe for review because the advisory bulletin retroactively exposed the company to tax liability and civil penalties on tax filings already made, as well as exposing it to future liability, and also said the issue was fit for judicial review because it was a purely legal question that would not get more ripe.
The Supreme Court said the department’s response was that Exxon’s claim did not represent an actual controversy, and it sought relief from taxes, penalties and interest the department had not assessed. The department argued tax cases were not ripe until a tax assessment was issued following an audit.
“Exxon’s claim is not fit for judicial decision because there is no existing tax dispute between the parties, and any injury Exxon eventually may suffer is speculative,” the Supreme Court said, and noted that while Exxon presented validity of the advisory bulletin as a purely legal question, “the advisory bulletin is not the Department’s final legal determination of Exxon’s tax liability.”
“We decided that the advisory bulletin is not a binding regulation; the bulletin’s interpretation, by its terms and by statute, is not binding on the Department or Exxon,” the Supreme Court said.
There is a risk the taxing authority will disagree with the taxpayer’s interpretation of credits or write-offs and the taxpayer will be required to pay the tax plus penalties and interest.
“Exxon’s position is no different,” the Supreme Court said. “The advisory bulletin provided Exxon additional information that may have changed its risk calculation, but a nonbinding guidance document does not create a hardship if there was none before.”
As for the risk of interest and penalties, the Supreme Court said: “Exxon conceded at oral argument to us that it has another remedy if it wishes to begin the administrative process sooner - Exxon is permitted to pay production taxes under protest and then request a refund from the Department.”
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