Opinion ID: 1190943
Heading Depth: 3
Heading Rank: 2

Heading: the board treated conlon's depreciation deduction reasonably when it calculated his spendable weekly wage.

Text: Pioneer makes two arguments regarding the Board's treatment of depreciation and Conlon's self-employment income. First, it argues that the Board's decision in Gurth v. Cummins Masonry, No. 82-0292 (Alaska Worker's Comp. Board Dec. 19, 1982) is erroneous and internally inconsistent. [4] Second, it argues that the Gurth decision is contrary to AS 23.30.265(15). [5] The thrust of Pioneer's argument is that the Board's decision in Gurth attempts to calculate the claimant's self-employment gross wages by reducing them by all out-of-pocket expenses. It contends that depreciation reflects the out-of-pocket expense of capital asset acquisition. [6] By removing depreciation from the calculation, Pioneer concludes that the Board fails to account for the out-of-pocket expenses associated with capital asset acquisition. [7] Review of this issue presents a question of law, involving agency expertise. When a question of law implicates agency expertise, we utilize a reasonable basis standard of review. Rose v. Commercial Fisheries Entry Comm'n, 647 P.2d 154, 161 (Alaska 1982). Agency expertise and fundamental policy appear to be implicated in the Board's treatment of depreciation in self-employment cases. The Board has considerable discretion when determining the claimant's wage earning capacity. AS 23.30.210; [8] Vanney v. Alaska Packers Ass'n, 12 Alaska 284, 290 (1949) (interpreting predecessor to AS 23.30.210 with similar language). Broad discretion is also granted the Board in determining the claimant's spendable weekly wage under AS 23.30.220(a)(2). Phillips v. Nabors Alaska Drilling, Inc., 740 P.2d 457, 460 n. 7 (Alaska 1987). Given the Board's broad discretion in this area, we believe the Board's treatment of depreciation is reasonable. Depreciation is not an out-of-pocket expense. It is a device to account for the exhaustion, wear, and tear (including a reasonable allowance for obsolescence) ... of property used in a trade or business. 26 U.S.C. § 167(a). The total depreciation deduction on an asset may exceed its actual resale value. Therefore, the amount deducted for depreciation of an asset may represent an amount greater than the true out-of-pocket expense associated with the exhaustion, wear and tear of the asset. The Board's approach under Gurth is not unreasonable. If the Board's calculations were to reflect the out-of-pocket expense component of the depreciation deduction with certainty, they would have to account for the amount that actually reflects exhaustion, wear and tear of the asset and the amount that was in excess of exhaustion, wear and tear. This would complicate the Board's determination of self-employment income, undermining the Workers' Compensation Act's purpose of provi[ding] ... financial and medical benefits for victims of work-connected injuries in the most efficient, most dignified, and most certain form. Providence Washington Ins. Co. v. Grant, 693 P.2d 872, 876 n. 8 (Alaska 1985). Pioneer contends that depreciation is a benefit or payment that is not taxable; thus, it concludes depreciation should be excluded from gross earnings. However, the Board's approach in Gurth does not ignore the plain language of former AS 23.30.265(15), defining gross earnings. See supra note 5. Depreciation deductions are not a benefit or payment paid to the self-employed claimant. They are a deduction allowed to a businessman reflecting the use of a capital asset. 26 U.S.C. § 167. Conlon's CPA, Mr. David Owen, testified that depreciation was not a device to provide cash for a business and that it was not earned income but was a tax deduction. Thus, we believe the Board's treatment of depreciation is reasonable and within its discretion.