Opinion ID: 1115733
Heading Depth: 3
Heading Rank: 4

Heading: Federal and State Equal Protection

Text: The oil companies assert that the Oil Tax violates both state and federal equal protection since it arbitrarily [and] irrationally subject[s] a special group of taxpayers to treatment not accorded taxpayers at large. They argue, in effect, that using a distinct method of taxation for multistate oil companies, but not for any other unitary businesses, violates equal protection. We reject the oil companies' equal protection challenge. The analysis under Alaska's equal protection clause involves a three-step process. Alaska Pacific Assurance v. Brown, 687 P.2d 264, 269-70 (Alaska 1984) [hereinafter cited as ALPAC]; State v. Ostrosky, 667 P.2d 1184, 1192-94 (Alaska 1983), appeal dismissed, ___ U.S. ___, 104 S.Ct. 2379, 81 L.Ed.2d 339 (1984); State v. Erickson, 574 P.2d 1, 11-12 (Alaska 1978). [54] First, in order to ascertain the appropriate level of review, the nature of the constitutional interest affected must be identified. ALPAC, 687 P.2d at 269. Next, the validity of the statutes' purpose must be analyzed in light of the interest impinged. Id. Lastly, the means chosen must be examined, also in light of the interest, to insure that they are sufficiently related to the goals of the statute. Id. at 269-70. The interest involved here, freedom from disparate taxation, lies at the low end of the continuum of interests protected by the equal protection clause. [55] Regarding the statute's purpose, the oil companies claim that greed and other improper motives led the Alaska legislature to enact the Oil Tax. The state, however, has adequately established that a primary purpose of the Oil Tax was to rectify a perceived underestimation of oil production and pipeline transportation income that occurred with the application of an apportionment formula. The goal was to insure that the tax rate assessed to the oil companies on this income was commensurate with the rate applicable to the income of other corporations in the state. Ch. 110, § 1, SLA 1978. Taxing the oil companies differently to rectify a perceived inequity was the legislature's attempt to prevent disparate treatment; thus, the validity of this purpose in light of the companies' interest is established. Finally, the means chosen were sufficiently related to the goals of the legislation. The use of separate accounting, rather than formula apportionment, increased the amount of production and transportation income subject to Alaska taxation and more fairly represented the extent of the business activities of the oil companies in Alaska. The Oil Tax did not adversely affect any fundamental interest, nor did it contain a suspect classification. Thus, to be upheld under the federal analysis, it need only to have been rationally related to a legitimate state interest. Exxon v. Eagerton, 462 U.S. 176, 195-96, 103 S.Ct. 2296, 2307-2309, 76 L.Ed.2d 497, 513 (1983). The rational basis standard is particularly easy to meet in the area of taxation. The United States Supreme Court has stated that [l]egislatures have especially broad latitude in creating classifications and distinctions in tax statutes. Regan v. Taxation with Representation of Washington, 461 U.S. 540, 547, 103 S.Ct. 1997, 2002, 76 L.Ed.2d 129, 138 (1983). The Oil Tax clearly bore a rational relationship to the state's goal of correcting a perceived inequity in the tax structure. While the oil companies dispute the underlying premise that the Oil Tax rectifies inequities, the legislature could have reasonably concluded that the Oil Tax would more accurately compute the companies' income generated in Alaska. Thus, the Oil Tax survives the equal protection challenge, under both the United States and the Alaska Constitutions.