Opinion ID: 2524427
Heading Depth: 1
Heading Rank: 1

Heading: 25 × (average per capita property value) × (n residents).

Text: For example, if the average state-wide property value per capita were $50,000 and a municipality contained 10,000 people, the maximum tax base in the municipality would equal (2.25)($50,000)(10,000) = $1,125,000,000. If the actual tax base were in fact $2 billion, then the municipality would have to reduce that value by $875 million to comply with the 225% valuation cap. The critical issue is how the municipality should make that reductionwhether it should reduce the oil and gas property value by the full $875 million, or whether it should reduce both oil and gas property and other locally assessed property proportionately to fall within the limit. There are two proposed approaches for reducing the total assessed value to comply with the 225% formula cap. Bullock's view is that the statute requires the municipality to reduce the value of only oil and gas property such that, when that portion is added to the full and true value of all other taxable property, the total amount does not exceed the maximum value under the 225% valuation cap. Thus, continuing with the above example, if the assessed value of both the local property and the 43.56 property were each $1 billion, the total taxable property would consist of the full $1 billion of locally assessed property but only $125 million of the 43.56 property. [5] The oil and gas taxpayer would then receive a credit against its state taxes for the amount of taxes it paid on the $125 million in taxable property, and the state could tax the remaining $875 million of 43.56 property in full. The State, NSB, and Valdez advocate a different approach. Their method, which NSB and Valdez have been applying since 1978, and which the State of Alaska has consistently supported, is to reduce the assessed value of all the property in the municipality proportionately in order to arrive at the maximum value under the 225% formula cap. A municipality using this approach taxes a greater portion of oil and gas property than it would tax using Bullock's method. The following arithmetic example illustrates the method that NSB and Valdez use in calculating the reduction factorthe proportion by which the pro-rata method reduces the values of both the 43.56 property and the locally assessed property: (2.25) (average property value) (n residents) (43.56 property value) + (locally assessed property value) Substituting numbers from the above example reveals: (2.25)($50,000)(10,000) = 0.5625. $1,000,000,000 + $1,000,000,000 Thus, under this interpretation of AS 29.45.080(c), the municipality should only include 0.5625 of the 43.56 property and the locally assessed property. The sum of the resulting values of the two types of property should be less than or equal to the maximum tax base, $1,125,000,000 in this example. Arithmetically: (.5625 × $1,000,000,000) + (.5625 × $1,000,000,000) = $1,125,000,000. The value of the taxable property for both the 43.56 property and the locally assessed property is $562,500,000. [6] This figure represents roughly fifty-six percent of the full value of each of the two types of property. Contrast this result with that which Bullock's method generates: $375,000,000 for the 43.56 propertywhich represents 12.5% of the full valueand $1,000,000,000 for the locally assessed propertywhich represents 100% of the full value. The pro-rata method also results in a lower state tax collection under AS 43.56.010(a), since oil and gas taxpayers are allowed a credit against state tax for the municipal taxes they pay under AS 29.45.080. [7] And oil and gas taxpayers pay more municipal taxes, and hence have a larger credit, under the pro-rata method than under the Bullock method.
Donald Bullock, a former employee of the State of Alaska, initially filed his complaint against the State of Alaska in May 1998 along with the Ketchikan Gateway Borough (KGB), for whom he now works as a legislative liaison. The complaint challenged the State's interpretation of AS 29.45.080(c), which, as explained above, proportionately reduces the assessed valuation of both 43.56 property and locally assessed property in order to comply with the 225% valuation cap. NSB and Valdez moved to intervene as defendants, and Superior Court Judge Michael A. Thompson granted their motions. Bullock and KGB argued that the Department of Revenue's interpretation of the statutes is wrong and that, when a municipality's total tax base exceeds the maximum property value limitation produced by the 225% formula, only the 43.56 property values should be reduced to achieve compliance with the cap. In a second claim, Bullock and KGB argued that limitations apply to a municipality's authority to tax 43.56 property for purposes of debt repayment under AS 29.45.100. KGB withdrew from the case prior to oral argument pursuant to a stipulation that all parties signed. The superior court granted summary judgment for the State, NSB, and Valdez. This appeal followed.
When the issue before us implicates agency expertise or the determination of fundamental policies within the scope of the agency's statutory functions, we review the agency's interpretation under the reasonable basis standard. [8] We believe that in this case, determining the appropriate portion of the tax base that municipalities may tax is a matter that involves agency expertise. In addition, both AS 43.56.010 and AS 29.45.080 reveal the legislature's intention to leave such determinations up to the Department. Alaska Statute 43.56.010 provides: [i]f the total value of assessed property of a municipality taxing under AS 29.45.080(c) exceeds [the 225% valuation cap] ... the department shall designate the portion of the tax base against which the local tax may be applied. [9] And AS 29.45.080 provides in relevant part: [a] municipality may levy and collect a tax on the full and true value of taxable property taxable under AS 43.56 as valued by the Department of Revenue. This language evinces the legislature's intent to allow the Department to utilize its expertise to decide how to determine the municipal tax base under AS 29.45.080(c). [10] Thus, because the statute involves agency expertise, and because the legislature intended to place the decision in the hands of the Department, [11] we apply the reasonable basis standard. In applying the reasonable basis standard, we consider factors of agency expertise, policy, and efficiency in reviewing discretionary decisions. [12] And this standard of review, which is highly deferential to the Department, is similar to the unreasonable, arbitrary and capricious standard. [13] With this standard for guidance, we turn now to the question whether the Department's pro-rata interpretation is reasonable.
This appeal involves two major issues: first, whether AS 29.45.080(c) requires municipalities to reduce only the portion of oil and gas property such that that amount, when added to the full value of other locally assessed property, falls within the 225% valuation cap; and second, whether municipalities must apply the 225% tax base limitation to taxes for repaying bonded indebtedness under AS 29.45.100.