Opinion ID: 2637340
Heading Depth: 3
Heading Rank: 4

Heading: The Division Properly Excluded Blue Cross's Payments to ACHIA and SEHRA from Its Assessment under the Retaliatory Tax Statute.

Text: Having determined that Blue Cross is indeed subject to the retaliatory tax statute, we turn now to Blue Cross's arguments that the Division's specific interpretation of that statute is improper. The calculation of a retaliatory tax involves agency discretion, [27] and although we apply our independent judgment to matters of statutory interpretation, we will defer to a reasonable agency determination that implicates agency expertise. [28] We will also apply a more deferential standard of review where an agency action is longstanding and continuous. [29] Here, the Division has presented its longstanding interpretation, albeit implicitly, in the schedules, forms, and instructions it has made available to taxpayers since 1986. Blue Cross advances more than one theory challenging the Division's application of AS 21.09.270. First, the company disputes the Director's reading of subsection .270(a) to provide for an item-by-item comparison of fines, penalties, deposit requirements, or other material obligations even when Alaska law imposes an obligation that lacks a counterpart in a company's state of domicile. According to Blue Cross, this subsection must be read instead always to require that all of the enumerated financial burdens in subsection .270(a) factor into the Division's calculation. In other words, Blue Cross argues that charges under ACHIA and SEHRA, as well as all other fines, penalties, deposit requirements, [and] other obligations, should go into a single sum that represents the cost of operating under Alaska law. Alternatively, Blue Cross questions whether the ACHIA and SEHRA charges qualify as other material obligations under AS 21.09.270(a). Blue Cross argues that such payments are properly classified as taxes, licenses, or fees and therefore should be treated in the aggregate under the statute. Irrespective of the route taken, however, Blue Cross argues that we must invalidate the Division's application of the statute because comparing charges like ACHIA and SEHRA separately with like items imposed by an out-of-state insurer's domiciliary state is illogical, produces irrational results, and has no support in the case law. Blue Cross further takes issue with the Director's interpretation of subsection .270(b). That section carves out an exception for special purpose obligations or assessments imposed by another state. In its ruling, the Division found as a matter of law that to the extent that the assessments of ACHIA, SEHRA, and the Washington Health Insurance Pool are `special purpose obligations or assessments,' the exception in AS 21.09.270(b) operates only to exclude the Washington assessment from any comparison with similar assessments imposed in Alaska to determine if retaliation is required. Blue Cross contends that the plain language of subsection .270(b) requires that the Division exclude only foreign state special purpose obligations. Alaska's own special purpose obligations, according to Blue Cross, fit within the category of other obligations or even of taxes, licenses, and fees enumerated in subsection .270(a). Taken together, Blue Cross's arguments amount to a claim that ACHIA and SEHRA charges should be considered in the aggregate on the Alaska side of the retaliatory tax calculation, while Washington's WHIP charges should be excluded from the Washington side. In evaluating this argument we turn first to the statutory text. It states that tax will be imposed to the extent that the taxes, licenses, and fees, in the aggregate . . . imposed upon Alaska insurers [out-of-state] exceed the taxes, licenses, and fees, in the aggregate . . . under the statutes of this state. [30] The statute also states that tax will be imposed to the extent that the fines, penalties, deposit requirements, or other material obligations . . . imposed upon Alaska insurers [out-of-state] exceed the fines, penalties, deposit requirements, or other obligations . . . under the statutes of this state. Nowhere does the phrase in the aggregate modify other obligations, although it appears three times after taxes, licenses, and fees within the text of subsection .270(a). This language reasonably permits the Director's conclusion that other obligations under Alaska law only offset similar foreign state obligations and should not be considered in the aggregate. At the same time, the language undermines Blue Cross's argument insofar as the company's reading renders that phrase superfluous. Blue Cross contends that the fact that those categories of impositions are required to be considered `in the aggregate' does not lead to the conclusion that other expressly included items, such as `other obligations' . . . can simply be excluded from a retaliatory tax calculation if the foreign state imposes no similar obligation. The plain language of the statute, however, supports that conclusion. The statute only imposes a tax on other obligations under a foreign state's law that are in excess of the fines, penalties, deposit requirements, or other obligations . . . under the statutes of this state. [31] Just as the statute provides no subsidy to insurers from states that have lower aggregate taxes, licenses, and other fees, so too does it deny an offset to insurers from states with lower fines, penalties, deposit requirements, and other obligations. Nor does the statute provide support for Blue Cross's argument that ACHIA and SEHRA charges should be considered tantamount to taxes, licenses, or fees. While most taxes, licenses, and fees are imposed by, payable to, or collected by the State, the ACHIA and SEHRA charges are levied by specially created non-profit institutions. Moreover, if the Division excluded WHIP and similar charges under subsection .270(b), while taking the Alaskan counterparts of these charges to offset foreign state taxes, licenses, and fees, retaliation would hardly ever occur. Indeed, little excess would ever arise with ACHIA, SEHRA, and several other special purpose obligations [32] driving up the Alaska side of the tax equation while subsection .270(b) exempts their out-of-state counterparts on the other side of the ledger. Adopting Blue Cross's interpretation hence would yield the absurd result of rendering AS 21.90.270 a nullity. We generally disfavor statutory constructions that reach absurd results. Therefore, we look for another construction that avoids the absurdity and is consistent with a reasonable interpretation of the terms of the statute. The Director's interpretation satisfies those criteria. In contrast to Blue Cross's reading, the Director gives effect to all of the language in the statute. And contrary to the irrational results that Blue Cross predicts, the Director's interpretation follows an intuitive logic. Retaliatory tax statutes aim to universalize the tax and regulatory treatment of firms across state lines. [33] Applying a retaliatory tax on the basis of another state's unconventional tributary policies involves practical difficulties. [34] In light of these difficulties, the statutory language plausibly reflects an intent to steer foreign states away from fines, penalties, deposit requirements, or other obligations, and towards taxes, licenses, and other fees, because the former obligations pose the specter of hidden taxes and administrative hassle, while the latter charges more easily lend themselves to comparison in the aggregate. Case law from outside of Alaska offers some support for Blue Cross's reading of the statute, but we do not find these decisions persuasive. In Executive Life Insurance Co. v. Commissioner of Revenue, the Minnesota tax court found that assessments similar to ACHIA and SEHRA qualified as licenses or fees, and therefore should be aggregated with other licenses and fees when calculating the Minnesota side of retaliatory taxes. [35] But the Minnesota statute contained language that materially differed from subsection .270's terms. [36] Other courts that have interpreted more similar statutory language have either failed to address the policy implications of adopting Blue Cross's interpretation, [37] or relied on legislative history and other factors that lack a parallel in this case. [38] In sum, Blue Cross has not convinced us that the Division's application of the law departs from this basic statutory scheme laid out in AS 21.09.270. Nor do we believe that the Division otherwise abused its discretion in implementing the statute. We therefore affirm the judgment of the superior court.