Court Opinion

ID: 7798348
Source: CourtListenerOpinion
Date Created: 2022-08-05 18:01:29.085571+00
Date Added: 2024-06-11T16:28:47.388973
License: Public Domain

Notice: This opinion is subject to correction before publication in the PACIFIC REPORTER.
     Readers are requested to bring errors to the attention of the Clerk of the Appellate Courts,
     303 K Street, Anchorage, Alaska 99501, phone (907) 264-0608, fax (907) 264-0878, email
     corrections@akcourts.gov.

              THE SUPREME COURT OF THE STATE OF ALASKA

STATE OF ALASKA, DEPARTMENT )
OF REVENUE,                         ) Supreme Court Nos. S-17883/17903
                                    )
               Appellant and Cross- ) Superior Court No. 3AN-18-09155 CI
               Appellee,            )
                                    ) OPINION
     v.                             )
                                    ) No. 7609 – August 5, 2022
NABORS INTERNATIONAL                )
FINANCE, INC. & SUBSIDIARIES,       )
                                    )
               Appellee and Cross- )
               Appellant.           )
                                    )

             Appeal from the Superior Court of the State of Alaska, Third
             Judicial District, Anchorage, Kevin M. Saxby, Judge.

             Appearances: Katherine Demarest and Mary Hunter
             Gramling, Assistant Attorneys General, Anchorage, and
             Treg R. Taylor, Attorney General, Juneau, for
             Appellant/Cross-Appellee. Jennifer M. Coughlin, Landye
             Bennett Blumstein, LLP, Anchorage, and Doug Sigel, Ryan
             Law Firm, PLLC, Austin, Texas, for Appellee/Cross-
             Appellant.

             Before:    Winfree, Chief Justice, Maassen, Carney,
             Borghesan, and Henderson, Justices.

             WINFREE, Chief Justice.
I.     INTRODUCTION
              The Alaska Department of Revenue conducted a tax audit of a non-resident
corporation doing business in Alaska. The Department issued a deficiency assessment
based in part on an Alaska tax statute requiring an income tax return to include certain
foreign corporations affiliated with the taxpaying corporation. The taxpayer exhausted
its administrative remedies and then appealed to the superior court.
              The taxpayer argued that the tax statute the Department applied is facially
unconstitutional for three reasons: (1) it violates the dormant Commerce Clause by
discriminating against foreign commerce based on countries’ corporate income tax rates;
(2) it violates the Due Process Clause by being arbitrary and irrational; and (3) it violates
the Due Process Clause by failing to provide notice of what affiliates a tax return must
include, and therefore is void for vagueness. The superior court rejected the first two
arguments but ruled in the taxpayer’s favor on the third argument.
              The Department appeals, asserting that the superior court erred by
concluding that the statute is void for vagueness in violation of the Due Process Clause.
The taxpayer cross-appeals, asserting that the court erred by concluding that the statute
does not violate the Commerce Clause and is not arbitrary. For the reasons set forth
below, we reverse the court’s decision that the statute is facially unconstitutional on due
process grounds and affirm the court’s decision that it otherwise is facially constitutional.
II.    FACTS AND PROCEEDINGS
              Nabors International Finance, Inc. is “part of a corporate financial reporting
group” and the lead nominal taxpayer in this case. Within the international conglomerate
of Nabors corporations, it is “the parent entity of the U.S. group.” Nabors “provides oil
field services throughout the world,” including in Alaska.

                                            -2-                                        7609
              Alaska law requires corporations doing business in Alaska to file corporate
income tax returns and to pay tax on income “derived from sources within the state.”1
Under AS 43.20.145(a)(5) corporations doing business in Alaska must also report the
income of certain affiliated corporations that are part of a “unitary business” with the
filing corporation.2 Specifically, AS 43.20.145(a)(5) requires including affiliated
corporations incorporated in or doing business in low-tax countries. Nabors is a unitary
business with foreign-affiliated corporations incorporated in or doing business in low-tax
countries.
              The Department audited Nabors for tax years 2007 through 2010,
requesting information about Nabors’s affiliated corporations not included in its Alaska
tax return. Nabors identified its affiliates that were incorporated or did substantial
business in low-tax jurisdictions. The Department then applied AS 43.20.145(a)(5) and
included in Nabors’s combined return the income from its affiliated corporations doing
business in low-tax jurisdictions. This resulted in a deficiency assessment.
              Nabors appealed and requested a formal hearing with the Office of
Administrative Hearings.3      The only issue on appeal was AS 43.20.145(a)(5)’s
constitutionality. The parties participated in a two-day hearing before an Administrative
Law Judge (ALJ), who heard testimony from each party’s expert witness about state tax

       1
              AS 43.20.011(e), .030.
       2
              “A business is unitary if the entity or entities involved are owned, centrally
managed, or controlled, directly or indirectly, under one common direction which can
be formal or informal, direct or indirect, or if the operation of the portion of the business
done within the state is dependent upon or contributes to the operation of the business
outside the state.” 15 Alaska Administrative Code (AAC) 20.310(a) (1982).
       3
             See AS 43.05.241 (providing aggrieved taxpayer “may file with the office
of administrative hearings a notice of appeal for formal hearing”); 15 AAC 05.010
(providing for taxpayer appeal); 15 AAC 05.030 (providing formal hearing procedures).

                                            -3-                                        7609
policy, tax treatises, international taxation, discrimination against international
commerce, and holding companies. Nabors’s witness, describing Nabors’s legal
position, explained: “The statute at issue in this case has a fatal drafting error.
Moreover, subsequent developments have rendered the statute obsolete, irrational, and
arbitrary. Furthermore, the statute improperly interferes with foreign commerce. From
a policy perspective, the statute fails to achieve its purpose.” The ALJ issued a decision
setting out findings of fact that were essentially undisputed between the parties, but
without ruling on the ultimate legal question of the statute’s constitutionality.4
             Nabors appealed to the superior court, asserting that AS 43.20.145(a)(5) is
facially unconstitutional for three reasons: (1) it violates the Commerce Clause through
“unconstitutional location-based discrimination”; (2) it violates the Due Process Clause
by being arbitrary and irrational; and (3) it violates the Due Process Clause because the
lack of a conjunction between subparts (A) and (B) renders the statute void for
vagueness. The court rejected Nabors’s first two arguments but ruled in Nabors’s favor
on its third argument.
III.   LEGAL BACKGROUND
             Alaska taxes income attributable to a corporation’s activities within the
state.5 Corporate taxpayers are required to “file a return using the water’s edge combined
reporting method,”6 defined by AS 43.20.145(h)(4) as “a reporting method in which the
only corporations besides the taxpayer that may be included in the return are the

       4
            See Alaska Pub. Int. Rsch. Grp. v. State, 167 P.3d 27, 36 (Alaska 2007)
(“Administrative agencies do not have jurisdiction to decide issues of constitutional
law.”).
       5
             See AS 43.20.011(e).
       6
             AS 43.20.145(a)(5).

                                           -4-                                       7609
corporations listed in (a) of this section.” A return “must include” the corporations listed
in subsections (a)(1)-(5) if they are “part of a unitary business with the filing
corporation.”7 The subsection at issue — (a)(5) — requires a return to include:
              (5) a corporation that is incorporated in or does business in a
              country that does not impose an income tax, or that imposes
              an income tax at a rate lower than 90 percent of the United
              States income tax rate on the income tax base of the
              corporation in the United States, if
                     (A) 50 percent or more of the sales, purchases,
                     or payments of income or expenses, exclusive
                     of payments for intangible property, of the
                     corporation are made directly or indirectly to
                     one or more members of a group of
                     corporations filing under the water’s edge
                     combined reporting method;
                     (B) the corporation does not conduct significant
                     economic activity.[8]
Unitary foreign corporations thus must be included on a corporation’s Alaska tax return
only if they meet the conditions stated in AS 43.20.145(a)(5). After determining which
corporations must be included on the combined return, another statute applies to
calculate income attributable to Alaska.9 The apportionment formula statute is not at
issue in this case. Nabors challenges only AS 43.20.145(a)(5).

       7
              AS 43.20.145(a).
       8
              AS 43.20.145(a)(5).
       9
              See AS 43.20.142 (“A taxpayer who has income from business activity that
is taxable both inside and outside the state or income from other sources both inside and
outside the state shall allocate and apportion net income as provided in AS 43.19
(Multistate Tax Compact), or as provided by this chapter.”).

                                            -5-                                       7609
IV.   STANDARD OF REVIEW
             “The constitutionality of a statute and matters of constitutional or statutory
interpretation are questions of law to which we apply our independent judgment,
adopting the rule of law that is most persuasive in light of precedent, reason, and
policy.”10 “Statutes should be construed, wherever possible, so as to conform to the
constitutions of the United States and Alaska.”11
V.     DISCUSSION
      A.     Alaska Statute 43.20.145(a)(5) Is Not Unconstitutionally Vague.
             The superior court concluded that the missing conjunction between subparts
(A) and (B) of AS 43.20.145(a)(5) rendered the statute void for vagueness in violation
of the Due Process Clause. The court determined that it is unclear whether subparts (A)
and (B) should be read conjunctively, with an implied “and” between them, or
disjunctively, with an implied “or” between them. The court noted that a disjunctive “or”
made the most sense but was “not the only logical reading.” The court ultimately
concluded: “[T]he Legislature’s intent cannot be discerned. This is the essence of
unconstitutional vagueness. . . . [O]ne of two potential interpretations must be applied.
But if a taxpayer guesses wrong, or a new administration or auditor applies a different
interpretation, significant adverse tax consequences may result.”

      10
              Premera Blue Cross v. State, Dep’t of Com., Cmty. & Econ. Dev., Div. of
Ins., 171 P.3d 1110, 1115 (Alaska 2007).
      11
            Id. (quoting Alaska Transp. Comm’n v. AIRPAC, Inc., 685 P.2d 1248, 1253
(Alaska 1984)).

                                           -6-                                       7609
              1.    Subsection .145(a)(5) is a civil statute subject to a more lenient
                    vagueness standard.
              “The basic element of the doctrine of vagueness is a requirement of fair
notice.”12 “We have recognized, in accord with the United States Supreme Court, that
a law ‘which either forbids or requires the doing of an act in terms so vague that men of
common intelligence must necessarily guess at its meaning and differ as to its application
violates the first essential of due process of law.’ ”13 Two considerations are applicable
when determining whether a law is void for vagueness. We first “consider whether there
is a history or a strong likelihood of arbitrary enforcement and uneven application,” and
we next “determine whether the [statute] provides adequate notice of prohibited
conduct.”14 “[T]he fact that people can, in good faith, litigate the meaning of a statute
does not necessarily (or even usually) mean that the statute is so indefinite as to be
unconstitutional.”15 Rather, when determining whether an apparently ambiguous statute
is unconstitutionally vague, we will “look beyond [the statute’s] literal terms, asking

         12
              VECO Int’l, Inc. v. Alaska Pub. Offs. Comm’n, 753 P.2d 703, 714 (Alaska
1988).
         13
             Halliburton Energy Servs. v. State, Dep’t of Lab., Div. of Lab. Standards
& Safety, Occupational Safety & Health Section, 2 P.3d 41, 51 (Alaska 2000) (quoting
Lazy Mountain Club v. Matanuska-Susitna Borough Bd. of Adjustment & Appeals, 904
P.2d 373, 382 (Alaska 1995)).
         14
              Id. at 50. A third consideration — the “statute may not be so imprecisely
drawn and overbroad that it ‘chills’ the exercise of [F]irst [A]mendment rights” — is not
relevant to this decision. See State v. Rice, 626 P.2d 104, 109 (Alaska 1981) (quoting
Holton v. State, 602 P.2d 1228, 1235-36 (Alaska 1979)).
         15
              Dykstra v. Mun. of Anchorage, Land Use Div., 83 P.3d 7, 9 (Alaska 2004)
(alteration in original) (quoting De Nardo v. State, 819 P.2d 903, 908 (Alaska App.
1991)).

                                           -7-                                      7609
whether careful study of its history, relevant case law, and other statutory provisions can
help establish a reasonably clear meaning.”16
              The Department asserts that because AS 43.20.145(a)(5) is a civil statute
“govern[ing] economic concerns of regulated industries” we should give the legislature
“more latitude for vagueness” and apply a more lenient standard. The Department points
to Village of Hoffman Estates v. Flipside, Hoffman Estates, Inc., in which the United
States Supreme Court noted: “The degree of vagueness that the Constitution tolerates
. . . depends in part on the nature of the enactment.”17 The Court stated: “[E]conomic
regulation is subject to a less strict vagueness test because its subject matter is often more
narrow, and because businesses, which face economic demands to plan behavior
carefully, can be expected to consult relevant legislation in advance of action.”18 The
Court reasoned that “the regulated enterprise may have the ability to clarify the meaning
of the regulation by its own inquiry, or by resort to an administrative process.”19 The
Court also noted that it has “expressed greater tolerance of enactments with civil rather
than criminal penalties because the consequences of imprecision are qualitatively less
severe.”20
              The Department also points to our Williams v. State, Department of
Revenue decision.21      In that case a worker asserted that an Alaska Workers’

       16
              Id.
       17
              455 U.S. 489, 498 (1982).
       18
              Id. (footnote omitted).
       19
              Id.
       20
              Id. at 498-99.
       21
              895 P.2d 99 (Alaska 1995).

                                             -8-                                        7609
Compensation Act provision deprived her of procedural due process because it was
unconstitutionally vague.22 We stated that the void for vagueness factors — as relevant
here, adequate notice of prohibited conduct and likelihood of arbitrary enforcement —
had “little or nothing to do with” the worker’s case.23 We noted that “the statutes in
question prohibit no conduct” and involve “neither prosecutorial action in a criminal
context nor a civil enforcement action where a litigant may be at risk of losing an
important right because the litigant’s conduct did not meet a certain standard.”24 We
explained: “Assuming that there is a constitutional bar of statutory vagueness in a case
such as this . . . the bar is easily overcome. All that should be required is legislative
language which is not so conflicting and confused that it cannot be given meaning in the
adjudication process.”25
             Nabors responds that we should not apply a more lenient vagueness
standard because AS 43.20.145(a)(5) “is a taxing statute subject to both civil and
criminal enforcement” and that a corporation’s officers and employees may be convicted
of a class C felony for “willfully attempt[ing] to evade a tax imposed by [Title 43 of the
Alaska Statutes].”26 But this argument is unavailing. In Lazy Mountain Land Club v.
Matanuska-Susitna Borough Board of Adjustment & Appeals we held that a local
ordinance defining “junkyard/refuse area” for conditional land-use permits was an
economic regulation subject to a less strict vagueness test in accordance with Hoffman

      22
             Id. at 105.
      23
             Id.
      24
             Id.
      25
             Id.
      26
             See AS 43.05.290(a).

                                           -9-                                      7609
Estates, despite the regulatory scheme providing criminal penalties for violations.27 This
was because “the primary enforcement mechanism” was an enforcement order rather
than criminal penalties.28 The primary enforcement mechanism once an erroneous tax
return has been filed similarly is the Department’s assessment and a notice and demand
for payment of taxes owed, such as the one issued to Nabors in this case; an aggrieved
taxpayer may request an informal conference and then administratively appeal the
Department’s assessment.29 Criminal penalties are assessed only for willful evasion of
taxes.30 A corporation attempting in good faith to comply with AS 43.20.145(a)(5) thus
may be required to pay taxes owed but would not be subject to criminal penalties. As
the Department points out: “Failure to guess the correct interpretation of an ambiguous
statute is not a crime; the crime is intentional tax evasion.” (Emphasis in original.) For
these reasons subsection .145(a)(5) is subject to the more lenient vagueness standard
contemplated by Hoffman Estates and Williams, requiring only “legislative language
which is not so conflicting and confused that it cannot be given meaning in the
adjudication process.”31

      27
             904 P.2d 373, 382-84 & n.61 (Alaska 1995).
      28
             Id. at 384 n.61.
      29
               See AS 43.05.245 (providing Department may “assess the license fees, tax,
penalties, or interest and make a return from information that it obtains”); AS 43.05.240
(providing taxpayer may request informal conference); AS 43.05.241 (providing
taxpayer may file appeal with office of administrative hearings following informal
conference decision).
      30
             See AS 43.05.290.
      31
             Williams v. State, Dep’t of Revenue, 895 P.2d 99, 105 (Alaska 1995); see
Village of Hoffman Estates v. Flipside, Hoffman Estates, Inc., 455 U.S. 489, 498 (1982).

                                          -10-                                      7609
              2.     Subsection .145(a)(5) can be given meaning through the
                     adjudication process.
              Because Nabors presented no evidence of arbitrary enforcement of
subsection .145(a)(5), the only issue is whether the statute provides adequate notice of
the required conduct.32 Under the more lenient standard applied to civil, economic
statutes such as this one, the statute provides adequate notice if it can be given meaning
in the adjudication process.33 Subsection .145(a)(5) can be given meaning in the
adjudication process and thus is not unconstitutionally vague.
                     a.     Subsection .145(a)(5) can be interpreted despite the
                            missing conjunction between subparts (A) and (B).
              Although the superior court ultimately concluded that subsection .145(a)(5)
cannot be interpreted, it first engaged in a statutory interpretation analysis and concluded
that a disjunctive reading of the statute “makes the most sense.” Looking at the statute’s
plain language the superior court reasoned:
              The plain meaning of ‘significant’ could be argued to render
              Subparts (A) and (B) as disjunctive, because it seems
              unlikely that a corporation would ever comply with both
              subparts simultaneously. That is, making 50 percent or more
              of sales, purchases or payments in a location where an entity
              does not conduct significant sales, purchases or payments
              seems improbable, unless the combined group does little or
              no business at all.

       32
              See State v. Rice, 626 P.2d 104, 109 (Alaska 1981) (noting that
consideration whether statute encouraged arbitrary enforcement was not applicable
because we “ ‘will not invalidate a statute on these grounds unless there is some history
of arbitrary or selective enforcement’ and there was no showing of such a history in this
case” and concluding “that a claim of void for vagueness must rest” on adequate notice
(footnote omitted) (quoting Holton v. State, 602 P.2d 1228, 1237 (Alaska 1979))).
       33
              Williams, 895 P.2d at 105.

                                           -11-                                       7609
The court noted that a disjunctive interpretation was further supported by the language
used in subsection .145(a)(5) being “nearly identical” to language in a Worldwide
Unitary Taxation Working Group report.34 The report identifies “certain tax haven
corporations presumed to be part of the unitary business,” separating subparts (A) and
(B) with “or.” The Department’s expert testified about why “or” was used in the
Working Group report. He stated that (A) and (B) represented distinct situations;
subpart (A) described “the types of things you would look at to see whether something
is part of the unitary business” and attempted to capture “operational connections” that
might “give rise to the opportunity to shift income,” and subpart (B) dealt with holding
companies.
              The ALJ also noted in his decision: “Certainly, [AS 43.20.145(a)(5)] is
capable of construction through the administrative process.” The ALJ acknowledged
that he had not been asked to interpret the statute but that “if [he] were asked to construe
the statute as having an implied ‘and’ or an implied ‘or,’ [he] certainly could do so.” The
ALJ further found that the “record contains considerable information that would help
guide a decision on this issue.”
              Both the superior court’s analysis and the ALJ’s conclusion that
subsection .145(a)(5) is capable of interpretation through the administrative process
support our conclusion that subsection .145(a)(5) provides adequate notice of what is

       34
              The Worldwide Unitary Taxation Working Group was convened in the
1980s by U.S. Treasury Secretary Donald Regan; the Working Group’s goal was
responding to foreign nations’ concerns about states using worldwide combined
reporting for corporate income tax returns. The Working Group’s 1984 report identified
options for “limiting the worldwide unitary method to the ‘water’s edge.’ ”

                                           -12-                                       7609
required.35 The plain language, the Working Group report, and the statute’s purpose of
preventing tax avoidance all aid in providing a reasonably clear meaning.36
               Nabors asserts that even if subsection .145(a)(5) is analyzed under a more
lenient void for vagueness standard, it still is unconstitutional because it fails to provide
taxpayers fair notice. Nabors emphasizes the superior court’s determination that “the
Legislature’s intent cannot be discerned.” Nabors argues that the Working Group report
is not referenced in the statute’s legislative history and that a tax lawyer doing research
for a client would not find the report. The Department persuasively undercuts this
argument by noting that the attorneys working on this case found the report and that it
has been available to decision-makers throughout Nabors’s appeal. It also appears that
the statute’s legislative history reflects discussion about the Working Group report.37 But
even if Nabors were correct that reference to the Working Group Report cannot be found
in the legislative history, the statute still is capable of interpretation by looking at its plain
language and purpose.38
               Nabors stresses that “[c]ourts cannot use legislative history to change the
language of statutes to correct alleged mistakes in drafting.” Although Nabors is correct
that we do “not rewrite statutes even when the legislative history suggests that the

       35
               See Williams, 895 P.2d at 105.
       36
               See Dykstra v. Mun. of Anchorage, Land Use Div., 83 P.3d 7, 9 (Alaska
2004) (“[T]o determine whether an apparently confusing statute is impermissibly vague,
we . . . ask[] whether careful study of its history, relevant case law, and other statutory
provisions can help establish a reasonably clear meaning.”).
       37
             See, e.g., Policy Statement Attachment to Letter to Rep. Finkelstein
(Feb. 20, 1991), House Fin. Comm., House Bill 12, 17th Leg., 1st Sess. (1991).
       38
            See City of Valdez v. State, 372 P.3d 240, 249 (Alaska 2016) (observing
that we use “three metrics for statutory interpretation: text, legislative history, and
purpose”).

                                              -13-                                          7609
legislature may have made a mistake in drafting,”39 a decision-maker asked to interpret
subsection .145(a)(5) need not rewrite the statute. Subparts (A) and (B) must be read
either conjunctively or disjunctively, and a reviewing court could consider the statute’s
language, legislative history, and purpose to determine the proper interpretation.
Nabors’s argument that subsection .145(a)(5) is incapable of interpretation through the
administrative process because “choosing one of two equally plausible interpretations
is stepping over the line of interpretation and engaging in legislation” similarly fails.40
A decision maker interpreting the statute in light of its language, legislative intent, and
purpose would not be choosing between equally plausible alternatives but rather
interpreting its reasonably clear meaning.
              Nabors’s reliance on Lamie v. United States Trustee41 also is misplaced.
In Lamie the United States Supreme Court considered whether a statute could be
interpreted based on its plain language or whether a missing conjunction rendered it
ambiguous and required that the Court consult legislative history to determine its
meaning.42 The Court determined that, despite the missing conjunction, the statute was

         39
              State, Div. of Workers’ Comp. v. Titan Enters., 338 P.3d 316, 321 (Alaska
2014).
         40
              See Progressive Ins. Co. v. Simmons, 953 P.2d 510, 517 (Alaska 1998)
(“Neither literal clarity of statutory language nor the desire to avoid implied repeal can
justify construing a statute in a manner that is plainly unreasonable in light of its intent,
‘because giving the statute an unintended meaning “would be stepping over the line of
interpretation and engaging in legislation.” ’ ” (quoting State v. Alex, 646 P.2d 203,
207-08 (Alaska 1982))).
         41
              540 U.S. 526 (2004).
         42
              Id. at 533-35.

                                            -14-                                       7609
not ambiguous.43 Nabors nonetheless relies on the Court’s comment that “[t]his is not
a case where a ‘not’ is missing or where an ‘or’ inadvertently substitutes for an ‘and.’ ”44
Nabors asserts that the Court implicitly “recognized that there may be situations where
the absence of an ‘and’ or an ‘or’ renders a statute ambiguous or inoperable due to
missing language” and that this case is such a situation.
              The Department correctly responds that “[n]othing in the case implies that,
had the Court found ambiguity, it would have struck down the statute on vagueness
grounds.” Lamie involved a different statute, legal question, and analysis than this case
and is irrelevant to whether subsection .145(a)(5) is void for vagueness.45
              We emphasize that “[s]tatutes should be construed, wherever possible, so
as to conform to the constitutions of the United States and Alaska.”46 Because we
conclude that subsection .145(a)(5) can be interpreted through the adjudication process,
the missing conjunction between subparts (A) and (B) does not render the statute void
for vagueness.47
                     b.     Subpart (B) can be interpreted.
              Nabors contends that subpart (B) also is void for vagueness because the
phrase “does not conduct significant economic activity” is undefined and fails to provide

       43
              Id. at 534-35.
       44
              Id. at 535.
       45
              See id. at 533-35.
       46
              Premera Blue Cross v. State, Dep’t of Com., Cmty. & Econ. Dev., Div. of
Ins., 171 P.3d 1110, 1115 (Alaska 2007) (quoting Alaska Transp. Comm’n v. AIRPAC,
Inc., 685 P.2d 1248, 1253 (Alaska 1984)).
       47
              The Department also asks us to decide whether subsection .145(a)(5)’s
subparts (A) and (B) should be interpreted conjunctively or disjunctively. But that issue
is not before us, and we decline to rule on it.

                                           -15-                                       7609
taxpayers fair notice of which corporations must be included in the return. Under
AS 43.20.145(a)(5)(B) a corporate tax return should include a unitary corporation if it
is incorporated in a low-tax jurisdiction and “the corporation does not conduct significant
economic activity.” The Alaska Administrative Code defines “does not conduct
significant economic activity” to mean “the corporation’s business is substantially
limited to transactions that permit favorable tax treatment because of the corporation’s
presence in the country and that would not otherwise be available to other members of
the water’s edge combined group.”48 Nabors asserts that this definition is meaningless.
              Nabors also contends that the statute is not capable of interpretation
because, as interpreted by the superior court, the definition is “standardless.” Using
ordinary definitions, the superior court interpreted the statute to mean that “a corporation
that does not conduct significant economic activity would not have a noticeably or
measurably large amount” of “activities relating to making, providing, purchasing, or
selling goods or services, or any activities involving money or the exchange of products
or services.” (Emphasis omitted.)
              The Department responds that corporations subject to this statute are large,
multinational businesses supported by lawyers, accountants, and tax experts who “have
the ability to clarify the meaning of the regulation by [their] own inquiry, or by resort to
an administrative process.”49 Corporate taxpayers have fair notice that foreign unitary
corporations located in low-tax jurisdictions must be included in an Alaska tax return if
the foreign corporations do not conduct a large amount of business activities or if their
activities are limited to transactions permitting favorable tax treatment. If a taxpayer is

       48
              15 AAC 20.900(b)(1).
       49
            See Village of Hoffman Estates v. Flipside, Hoffman Ests., Inc., 455 U.S.
489, 498 (1982).

                                           -16-                                       7609
unsure which affiliates to include, it can request guidance from the Department.
Nabors’s argument that subsection .145(a)(5)(B) is void for vagueness fails.
      B.     Alaska Statute 43.20.145(a)(5) Does Not Violate The Commerce
             Clause.
             Nabors asserts in its cross-appeal that the superior court erred by
concluding AS 43.20.145(a)(5) does not violate the United States Constitution’s
Commerce Clause, which gives Congress the power to regulate interstate and foreign
commerce.50 The Commerce Clause does not explicitly limit states’ power to regulate
commerce, but the United States Supreme Court has long recognized the clause as “a
self-executing limitation on the power of the States to enact laws imposing substantial
burdens on [interstate and foreign] commerce.”51 “This ‘negative’ aspect of the
Commerce Clause prohibits economic protectionism — that is, regulatory measures
designed to benefit in-state economic interests by burdening out-of-state competitors.”52
“Thus, state statutes that clearly discriminate against interstate commerce are routinely
struck down, unless the discrimination is demonstrably justified by a valid factor
unrelated to economic protectionism.”53
             The Court in Complete Auto Transit, Inc. v. Brady articulated a four-part
test for determining whether state taxation of interstate commerce violates the Commerce

      50
             See U.S. Const. art. I, § 8, cl. 3 (“The Congress shall have Power . . . To
regulate Commerce with foreign Nations, and among the several States, and with the
Indian Tribes.”).
      51
             S.-Cent. Timber Dev., Inc. v. Wunnicke, 467 U.S. 82, 87 (1984).
      52
             New Energy Co. of Ind. v. Limbach, 486 U.S. 269, 273 (1988).
      53
             Id. at 274 (citations omitted).

                                          -17-                                     7609
Clause.54 A state tax will be upheld if it: (1) “is applied to an activity with a substantial
nexus with the taxing State”; (2) “is fairly apportioned”; (3) “does not discriminate
against interstate commerce”; and (4) “is fairly related to the services provided by the
State.”55 And the Court addressed state taxation of foreign commerce in Japan Line, Ltd.
v. Los Angeles County.56 The Court held that, after satisfying the Complete Auto test, a
state tax on foreign commerce must survive two additional inquiries which are not
relevant in this case.57
              Nabors asserts only that subsection .145(a)(5) discriminates against foreign
commerce and thus under the Complete Auto test fails to satisfy the third prong.58 When
evaluating a discrimination claim against interstate or foreign commerce, the Court has
“adopted what amounts to a two-tiered approach.”59 The first question is whether a

       54
              430 U.S. 274, 279 (1977).
       55
            Id.; see also Alyeska Pipeline Serv. Co. v. Williams, 687 P.2d 323, 329-30
(Alaska 1984) (applying Complete Auto test to “determin[e] the validity of a tax under
the commerce clause of the U.S. Constitution”).
       56
              441 U.S. 434, 446-51 (1979).
       57
              Id. at 451 (quoting Michelin Tire Corp. v. Wages, 423 U.S. 276, 285
(1976)).
       58
              Although the Complete Auto test’s third prong refers to discrimination
against “interstate” commerce, see Complete Auto Transit, 430 U.S. at 279, the Court has
applied the test to evaluate claims of discrimination against foreign commerce. See, e.g.,
Barclays Bank PLC v. Franchise Tax Bd. of California, 512 U.S. 298, 312-14 (1994)
(considering whether state’s worldwide combined reporting scheme “violates the
antidiscrimination component of the Complete Auto test” by discriminating against
foreign-owned enterprises).
       59
            Brown-Forman Distillers Corp. v. N.Y. State Liquor Auth., 476 U.S. 573,
578-79 (1986).

                                            -18-                                       7609
statute is facially discriminatory, in which case it is “virtually per se invalid.”60 A statute
is facially discriminatory if it “directly regulates or discriminates against interstate
commerce, or when its effect is to favor in-state economic interests over out-of-state
interests.”61 If subsection .145(a)(5) is not facially discriminatory and “its effects on
interstate commerce are only incidental,”62 then the second question becomes whether
it survives the balancing test articulated in Pike v. Bruce Church, Inc.;63 under Pike the
statute “will be upheld unless the burden imposed on [interstate] commerce is clearly
excessive in relation to the putative local benefits.”64
              1.     Alaska Statute 43.20.145(a)(5) is not facially discriminatory.
              Nabors contends that “AS 43.20.145(a)(5) is facially discriminatory,
because the explicit geographic references that appear on the face of the statute divide
the world into two categories: (1) those with corporate income tax rates lower than 90%
of the U.S. rate, i.e., ‘tax havens’; and (2) ‘non-tax havens.’ ” Nabors’s primary
contention is that the superior court erred by considering the discriminatory effect and
burdens imposed in evaluating whether the statute is facially discriminatory.

       60
              Id. at 579.
       61
              Id.
       62
              Pike v. Bruce Church, Inc., 397 U.S. 137, 142 (1970).
       63
              Brown-Forman Distillers Corp., 476 U.S. at 578-79 (explaining “two-tiered
approach”).
       64
              397 U.S. at 142.

                                             -19-                                        7609
                      a.     The superior court did not err by analyzing the effect of
                             subsection .145(a)(5) to determine whether it is facially
                             discriminatory.
              In analyzing whether subsection .145(a)(5) is facially discriminatory, the
superior court relied on Brown-Forman Distillers Corp. v. New York State Liquor
Authority, in which the United States Supreme Court noted:
              [N]o clear line separat[es] the category of state regulation that
              is virtually per se invalid under the Commerce Clause[] and
              the category subject to the Pike v. Bruce Church balancing
              approach. In either situation the critical consideration is the
              overall effect of the statute on both local and interstate
              activity.[65]
The superior court stated: “[A]pplying this reasoning to a Foreign Commerce Clause
challenge, the threshold question is whether Nabors has sufficiently asserted that the
overall effect of AS 43.20.145(a)(5) results in discrimination against foreign commerce
to invoke a strict scrutiny analysis . . . .”
              The superior court examined the burden the statute placed on similarly
situated taxpayers and found that the only burden is filing an Alaska tax return; the court
noted that this does not necessarily lead to a corporation paying more taxes because
“each corporation’s tax situation is unique” and “[f]iling an Alaska tax return . . . should
typically have a neutral effect on a corporation that does not routinely export Alaska
value to a foreign low-tax jurisdiction.” The court also found important that whether a
company is incorporated in a low-tax jurisdiction is “only one aspect of the overall
corrective measures . . . designed to identify Alaska-based revenues that would otherwise
go untaxed”; a foreign corporation must file a return only if it meets
subsection .145(a)(5)’s requirements. The court concluded that the minimal burden

       65
              476 U.S. at 579.

                                                -20-                                  7609
imposed does not rise to the level of discrimination, that the statute does not promote
economic protectionism, and that the statute is facially neutral.
              Nabors asserts that the superior court misinterpreted Brown-Forman as
requiring analysis of subsection .145(a)(5)’s discriminatory effect. Nabors contends that
subsection .145(a)(5) “divide[s] the world into two categories” based on corporate
income tax rates, rendering it facially discriminatory and subject to strict scrutiny.
Nabors emphasizes another statement in Brown-Forman: “When a state statute directly
regulates or discriminates against interstate commerce, or when its effect is to favor
in-state economic interests over out-of-state interests, we have generally struck down the
statute without further inquiry.”66 According to Nabors, the superior court “confuse[d]
a sufficient condition for a necessary condition[;] . . . . [d]emonstrating that
AS 43.20.145(a)(5) has a discriminatory effect would be sufficient for invoking strict
scrutiny, but it is not necessary.” Nabors asserts that a discriminatory effect is not
required if a statute “directly regulates or discriminates against interstate commerce”67
and that subsection .145(a)(5)’s “explicit geographic references” thus are facially
discriminatory.
              But Nabors’s interpretation ignores Brown-Forman’s statements that “there
is no clear line separating” state regulations subject to strict scrutiny from those subject
to the Pike balancing test and that “[i]n either situation the critical consideration is the
overall effect of the statute on both local and interstate activity.”68 And the analysis in
Brown-Forman contradicts Nabors’s interpretation. In Brown-Forman the appellant
contended that a state statute fell “within that category of direct regulations of interstate

       66
              Id. (emphasis added).
       67
              Id.
       68
              Id.

                                            -21-                                       7609
commerce that the Commerce Clause wholly forbids.”69 The Court analyzed how the
statute at issue worked in practice and considered whether the statute’s effect was
discriminatory against interstate commerce; the Court ultimately held that the statute “on
its face” violated the Commerce Clause.70 Brown-Forman’s analysis of the statute’s
effect to determine whether it constituted direct regulation of interstate commerce is at
odds with Nabors’s assertion that subsection .145(a)(5)’s “explicit geographic” line-
drawing alone constitutes facial discrimination violating the Commerce Clause,
regardless of whether the statute’s effect is to discriminate against foreign commerce.
              Considering a state statute’s discriminatory effect when determining
whether it is facially discriminatory against interstate commerce also is consistent with
the Court’s Commerce Clause analysis in other cases.71 In Kraft General Foods, Inc. v.
Iowa Department of Revenue & Finance, for example, the principal dispute concerned
“whether, on its face, the Iowa statute discriminates against foreign commerce.”72 It was
“indisputable that the Iowa statute treat[ed] dividends received from foreign subsidiaries
less favorably than dividends received from domestic subsidiaries” because the statute

       69
              Id.
       70
             Id. at 580-85 (“If appellant has correctly characterized the effect of the . . .
law, that law violates the Commerce Clause. . . . Our inquiry, then, must center on
whether . . . [the] law regulates commerce in other States.”); see also id. at 583
(considering “practical effects” of law at issue).
       71
              Nabors points to Wyoming v. Oklahoma, in which the Court stated: “The
volume of commerce affected measures only the extent of the discrimination; it is of no
relevance to the determination whether a State has discriminated against interstate
commerce.” 502 U.S. 437, 455 (1992) (emphasis omitted). Subsection .145(a)(5) is not
so clearly discriminatory in effect as the statute at issue in Wyoming. See id. The issue
here is not the discrimination’s extent, but whether subsection .145(a)(5) has a
discriminatory effect at all.
       72
              505 U.S. 71, 75 (1992).

                                            -22-                                       7609
included “the former, but not the latter, in the calculation of taxable income,” but Iowa
argued that the differential treatment did not constitute prohibited discrimination against
foreign commerce.73 The Court did not immediately strike down the statute for that
reason alone; instead the Court analyzed whether the effect of the statute was
discriminatory against foreign commerce.74
                     b.       Subsection .145(a)(5) has no discriminatory effect on
                              foreign commerce.
              We conclude that subsection .145(a)(5) does not discriminate against
foreign commerce. As the superior court noted, the only potential burden placed on
companies incorporated in low-tax or no-tax jurisdictions is having to file an Alaska tax
return if they meet AS 43.20.145(a)(5)’s additional requirements.
              The superior court found that “Nabors did not demonstrate that the
administrative burden of filing an Alaska return was significant” and that the burden of
filing a return does not rise to the level of discrimination. The superior court pointed to
the United States Supreme Court’s consideration of a dormant Commerce Clause
challenge to California’s worldwide combined reporting scheme for corporate income
tax in Barclays Bank PLC v. Franchise Tax Board of California.75 In that case the
petitioner asserted that requiring foreign-owned enterprises to file a California tax return
was a “prohibitive administrative burden” constituting discrimination against foreign
commerce.76 The Court acknowledged that “[c]ompliance burdens, if disproportionately
imposed on out-of-jurisdiction enterprises, may indeed be inconsonant with the

       73
              Id.
       74
              Id. at 75-82.
       75
              512 U.S. 298, 312-14 (1994).
       76
              Id. at 313.

                                           -23-                                       7609
Commerce Clause.”77 But the Court determined that the petitioner had failed to
demonstrate significant compliance burdens and accordingly held that the law did not
discriminate against foreign commerce.78 Nabors does not argue that filing a return is
a significant administrative burden.
              And, as Nabors’s expert testified, merely filing a return does not mean a
company will pay more tax; Alaskan tax liability depends on applying the unchallenged
apportionment formula to the taxpayer’s specific circumstances. “[T]he Commerce
Clause is not violated when the differential tax treatment of two categories of companies
‘results solely from differences between the nature of their businesses, not from the
location of their activities.’ ”79 A company’s location is one consideration when
determining whether a corporation must file a return under subsection .145(a)(5), but,
as Nabors’s expert testified, any differential tax treatment results from the nature of the
taxpayer’s business rather than its country of incorporation.
              Because filing a return is not itself a significant burden constituting
discrimination against foreign commerce and because a company’s tax liability resulting
from its return depends on applying the apportionment formula, subsection .145(a)(5)
is not facially discriminatory.

       77
              Id.
       78
               Id. at 313-14; cf. Nat’l Ass’n of Optometrists & Opticians v. Harris, 682
F.3d 1144, 1148 (9th Cir. 2012) (“Given the purposes of the dormant Commerce Clause,
it is not surprising that a state regulation does not become vulnerable to invalidation
under the dormant Commerce Clause merely because it affects interstate commerce. A
critical requirement for proving a violation of the dormant Commerce Clause is that there
must be a substantial burden on interstate commerce.” (emphasis and citations omitted)).
       79
              Kraft, 505 U.S. at 78 (quoting Amerada Hess Corp. v. Dir., Div. of Tax’n,
N.J. Dep’t of the Treasury, 490 U.S. 66, 78 (1989)).

                                           -24-                                      7609
                    c.     The Kraft “most similarly situated” analysis does not
                           render subsection .145(a)(5) facially discriminatory.
             Nabors next argues that the superior court misapplied the “most similarly
situated” test articulated by the United States Supreme Court in Kraft80 and that, if the
test were properly applied, subsection .145(a)(5) would be facially discriminatory. In
Kraft the Court explained: “In considering claims of discriminatory taxation under the
Commerce Clause . . . it is necessary to compare the taxpayers who are ‘most similarly
situated.’ ”81 The Court compared similarly situated corporations that did not do
business in Iowa and determined the statute “impose[d] a burden on foreign subsidiaries
that it [did] not impose on domestic subsidiaries.”82
             Nabors asserts that the taxpayers most similarly situated are two
hypothetical companies, one incorporated in a high-tax jurisdiction not falling under
subsection .145(a)(5) and the other incorporated in a low-tax jurisdiction falling under
subsection .145(a)(5). Nabors provides an example of the analysis:
             Assume Company A and Company E are both engaged in
             excessive self-dealing [under AS 43.20.145(a)(5)(A)] . . . .
             If Company E is incorporated in a jurisdiction with a tax rate
             greater than 90% of the United States income tax rate,
             Company E will not be subject to AS 43.20.145(a)(5).
             Conversely, if Company A is incorporated in a jurisdiction
             with a tax rate lower than 90% of the United States income
             tax rate and engages in excessive self-dealing . . . then
             Company A is subject to AS 43.20.145(a)(5).

      80
             Id. at 80 n.23.
      81
             Id. (quoting Halliburton Oil Well Cementing Co. v. Reily, 373 U.S. 64, 71
(1963)).
      82
             Id. at 80.

                                          -25-                                     7609
But this does not necessarily mean subsection .145(a)(5) is facially discriminatory
because, as discussed above, the statute’s effect is not discriminatory against foreign
commerce. Because the burden of filing a return does not constitute a discriminatory
effect and because filing a return under subsection .145(a)(5) does not necessarily
correlate with paying higher taxes, then, even under Kraft’s analysis of the taxpayer
“most similarly situated,” subsection .145(a)(5) is not facially discriminatory.
                      d.    Subsection .145(a)(5) does not violate Boston Stock
                            Exchange v. State Tax Commission by causing
                            corporations to make non-tax-neutral decisions.
              Nabors also relies on Boston Stock Exchange v. State Tax Commission83 to
support its assertion that subsection .145(a)(5) is facially discriminatory. In that case the
United States Supreme Court reviewed a Commerce Clause challenge to an amendment
to New York’s transfer tax on securities transactions and held the amendment was
unconstitutional.84    The Court considered the amendment’s effect on interstate
commerce; in relevant part, non-residents selling securities in New York received a tax
reduction, but non-residents selling securities outside of New York did not receive the
reduction.85 The Court determined that, under the amendment, the choice of which
securities exchange to use — one in New York or one outside New York — would not
be “made solely on the basis of nontax criteria.”86 “The obvious effect of the tax [was]
to extend a financial advantage to sales on the New York exchanges at the expense of the

       83
              429 U.S. 318 (1977).
       84
              Id. at 319-21, 332-36.
       85
              Id. at 324.
       86
              Id. at 331.

                                            -26-                                       7609
regional exchanges.”87 The Court contrasted New York’s amendment with state use
taxes in other cases in which the Court had upheld use taxes against Commerce Clause
challenges.88 The critical consideration in the use tax cases was that “an individual faced
with the choice of an in-state or out-of-state purchase could make that choice without
regard to the tax consequences.”89
              The Department persuasively argues that the Court’s reasoning in the use
tax cases “is analogous to Alaska’s rule capturing taxable value transferred overseas.”
The Department points out that in the use tax cases, states were permitted to treat other
states’s goods differently based on the tax rate charged to protect the in-state tax base;
people were free to cross state lines to shop, but they could not avoid their states’ sales
taxes by doing so. And it argues that likewise “corporations remain free to locate
themselves and structure transactions as they please, but they cannot avoid Alaska tax
by doing so.”

       87
              Id.
       88
              Id. at 331-32. The Court described one such state use tax:
              Washington imposed a 2% sales tax on all goods sold at retail
              in the State. Since the sales tax would have the effect of
              encouraging residents to purchase at out-of-state stores,
              Washington also imposed a 2% “compensating tax” on the
              use of goods within the State. The use tax did not apply,
              however, when the article had already been subjected to a tax
              equal to or greater than 2%. The effect of this constitutional
              tax system was nondiscriminatory treatment of in-state and
              out-of-state purchases . . . .
Id. at 331.
       89
              Id. at 332.

                                           -27-                                      7609
              Nabors reiterates that subsection .145(a)(5) discriminates based on foreign
countries’ tax rates, but it fails to explain how the statute would cause corporations to
choose where to incorporate based on non-tax-neutral criteria. The burden of filing a
return does not render subsection .145(a)(5) discriminatory, and filing a return does not
necessarily equate to paying more taxes because each corporation’s tax situation is
unique. As the superior court noted, “[f]iling an Alaska tax return . . . should typically
have a neutral effect on a corporation that does not routinely export Alaska value to a
foreign low-tax jurisdiction” and the “minimal pressure on a corporation to relocate or
to do business in a state or country other than Alaska . . . . , to the extent that there is any,
is caused by making tax avoidance more difficult.” Thus subsection .145(a)(5) does not
violate the principle discussed in Boston Stock Exchange of promoting tax-neutral
decisions.
                      e.     Subsection .145(a)(5) does not have an economic
                             protectionist purpose.
              The Department contends that economic protectionism is required to find
a state statute discriminates against foreign commerce and, because no such
protectionism underlies subsection .145(a)(5), that there is no cognizable claim of
discrimination under the Commerce Clause. The Department asserts that the United
States Supreme Court “has never held that treating corporations incorporated in different
countries differently for reasons having nothing to do with protectionism is
‘discrimination’ ” under the Commerce Clause.
              Much of the Court’s Commerce Clause jurisprudence seems to support the
Department’s assertion that state statutes violate the dormant Commerce Clause only if
they include an element of economic protectionism. The Court has noted: “The modern
law of what has come to be called the dormant Commerce Clause is driven by concern
about ‘economic protectionism — that is, regulatory measures designed to benefit in­

                                              -28-                                         7609
state economic interests by burdening out-of-state competitors.’ ”90 The Court observed
that the “point” of the dormant Commerce Clause is to “effectuat[e] the Framers’ purpose
to ‘prevent a State from retreating into . . . economic isolation.’ ”91 The Court has also
held that, in the dormant Commerce Clause context, “ ‘discrimination’ simply means
differential treatment of in-state and out-of-state economic interests that benefits the
former and burdens the latter.”92 And the Court has explained that “state statutes that
clearly discriminate against interstate commerce are routinely struck down, unless the
discrimination is demonstrably justified by a valid factor unrelated to economic
protectionism.”93 The Court has further expressed that an apparently discriminatory state
statute may on occasion be found valid because “what may appear to be a
‘discriminatory’ provision in the constitutionally prohibited sense — that is, a
protectionist enactment — may on closer analysis not be so.”94
             Kraft95 and Boston Stock Exchange96 — two cases Nabors heavily relies on
— also involved statutes with economic protectionist elements. In Kraft the Court held

      90
           Dep’t of Revenue of Ky. v. Davis, 553 U.S. 328, 337-38 (2008) (quoting
New Energy Co. of Ind. v. Limbach, 486 U.S. 269, 273-74 (1988)).
      91
            Id. (first alteration in original) (quoting Fulton Corp. v. Faulkner, 516 U.S.
325, 330 (1996)).
      92
             United Haulers Ass’n v. Oneida-Herkimer Solid Waste Mgmt. Auth., 550
U.S. 330, 338 (2007) (quoting Or. Waste Sys., Inc. v. Dep’t of Env’t Quality of Or., 511
U.S. 93, 99 (1994)).
      93
             New Energy Co. of Ind., 486 U.S. at 274 (citations omitted).
      94
             Id. at 278.
      95
             505 U.S. 71 (1992).
      96
             429 U.S. 318 (1977).

                                          -29-                                      7609
that even though a state tax statute did not treat in-state subsidiaries more favorably than
interstate or foreign subsidiaries, the statute violated the Commerce Clause because it
“impose[d] a burden on foreign subsidiaries that it [did] not impose on domestic
subsidiaries.”97 The Court held: “[A] State’s preference for domestic commerce over
foreign commerce is inconsistent with the Commerce Clause even if the State’s own
economy is not a direct beneficiary of the discrimination.”98 In Boston Stock Exchange
the Court held that a state tax scheme that “impose[d] a greater tax liability on out-of­
state sales than on in-state sales” violated the Commerce Clause.99 The Court decided
it made no difference that the discrimination was “in favor of nonresident, in-state sales
which may also be considered as interstate commerce” and that it is “constitutionally
impermissible” for a state to “tax in a manner that discriminates between two types of
interstate transactions in order to favor local commercial interests over out-of-state
businesses.”100
              We conclude that subsection .145(a)(5)’s purpose of protecting Alaska’s
tax base is not the sort of prohibited economic protectionism contemplated by the Court’s
Commerce Clause jurisprudence. Subsection .145(a)(5) does not differentiate between
foreign nations to favor Alaskan interests or domestic interests generally over foreign
interests, which likely would constitute economic protectionism.101 The superior court
correctly recognized that “Alaskan corporations will pay the same tax they would have

       97
              505 U.S. at 80.
       98
              Id. at 79.
       99
              429 U.S. at 332.
       100
              Id. at 334-35.
       101
              See Kraft, 505 U.S. at 79.

                                           -30-                                       7609
paid had the tax avoidance activities not occurred” and that subsection .145(a)(5) is “not
designed to benefit in-state economic interests by burdening out-of-state competitors.”
Alaska’s interest in protecting its tax base does not render the statute protectionist.
              2.     Under the Pike balancing test AS 43.20.145(a)(5) does not
                     violate the Commerce Clause.
              Because subsection .145(a)(5) is not facially discriminatory, we analyze it
under the Pike balancing test.102 Under Pike subsection .145(a)(5) “will be upheld unless

       102
               See Brown-Forman Distillers Corp. v. N.Y. State Liquor Auth., 476 U.S.
573, 578-79 (1986). We note that the Department questions whether Pike balancing is
appropriate in this case and asserts we should uphold subsection .145(a)(5) because it is
not facially discriminatory without analyzing it under Pike. The Department cites the
United States Supreme Court’s Department of Revenue of Kentucky v. Davis decision
declining to subject a Kentucky taxation scheme to Pike balancing because “the current
record and scholarly material convince[d] [the Court] that the Judicial Branch is not
institutionally suited to draw reliable conclusions of the kind that would be necessary for
the [plaintiffs] to satisfy a Pike burden in this particular case.” 553 U.S. 328, 353 (2008).
The Department also notes that in Barclays Bank the Court did not conduct Pike
balancing when determining that California’s worldwide combined reporting scheme did
not discriminate against foreign commerce. 512 U.S. 298, 312-14 (1994).
              Pike nonetheless appears to be the standard, as the Court has not overruled
it or held that it generally is inappropriate in cases like this one. But cf. Dep’t of
Revenue of Ky., 553 U.S. at 360 (Scalia, J., concurring in part) (“I would abandon the
Pike-balancing enterprise altogether and leave these quintessentially legislative
judgments with the branch to which the Constitution assigns them.”); Mark L. Mosley,
The Path out of the Quagmire: A Better Standard for Assessing State and Local Taxes
Under the Negative Commerce Clause, 58 TAX L. 729, 738-39 (2005) (opining that Pike
balancing may be appropriate for some Commerce Clause analyses but that it is “wholly
inappropriate for taxation cases”).

                                            -31-                                       7609
the burden imposed on [interstate] commerce is clearly excessive in relation to the
putative local benefits.”103 State laws frequently survive this deferential balancing test.104
              The superior court determined:
              The facially neutral language in AS 43.20.145(a)(5) survives
              a Pike balancing test analysis because it regulates even­
              handedly to effectuate the legitimate public interest of
              preventing the export of Alaska value to a “tax haven”
              country, and the burden imposed on foreign commerce is
              minimal in comparison to the recognized local benefits . . . .
Nabors does not argue that Alaska’s interest is not legitimate or that the statute imposes
a burden beyond the filing requirement. Nabors asserts only that subsection .145(a)(5)
fails to accomplish Alaska’s purpose of preventing the exportation of Alaska value and
that, as a result, any burden imposed by the statute “necessarily outweighs” the benefit.
              Nabors first contends that the superior court erred by “ignor[ing] the ALJ’s
factual finding that subparagraph (A) is not likely to accomplish Alaska’s stated
interest.” The ALJ based this finding primarily on the Department’s expert’s testimony.
The Department’s expert “indicated that the level of internal transactions required by
subparagraph .145(a)(5)(A) would generally capture all members of the unitary
business” and agreed that “taxation under subparagraph .145(a)(5)(A) is, effectively,
‘very close to worldwide combined reporting.’ ” The ALJ concluded that Nabors had
demonstrated that the overall effect of subsection .145(a)(5)(A) “is to distinguish among
corporations based on place of business in a manner that is not likely to accomplish
Alaska’s goal.”
              Even if taxation under AS 43.20.145(a)(5)(A) is very close to worldwide
reporting, it does not follow that the statute fails the Pike balancing analysis. The

       103
              397 U.S. 137, 142 (1970).
       104
              Dep’t of Revenue of Ky., 553 U.S. at 339 (collecting cases).

                                            -32-                                        7609
superior court found “reasonable the [legislature’s] conclusion that a corporation
engaging in self-dealing that equates to more than 50 percent of its business transactions,
along with being located in a low-tax or no-tax jurisdiction, increases the probability that
the corporation is attempting to export Alaska value.” The court acknowledged that
“[s]tanding alone, [subsection .145(a)(5)(A)] may capture most unitary business
members” but determined that some over-inclusiveness is tolerable and the statute is not
irrational or meaningless. The legislature balanced competing policy goals of attracting
foreign investment through less burdensome filing requirements against preventing tax
avoidance. Nabors does not explain how this incidental over-inclusiveness causes the
statute to fail the deferential Pike balancing test.
              Nabors also contends that if subsection .145(a)(5)’s purpose is protecting
Alaska’s tax base and it subjects multi-jurisdictional corporations to differing tax
liabilities, “then that would mean Alaska’s alleged interest is not always advanced —
e.g., the form of tax revenue or protecting Alaska’s tax base only occurs sometimes, but
the burden to file a return is always imposed.” Nabors asserts that this means the
statute’s burden outweighs the benefit. Nabors is incorrect. As previously discussed,
tax liability will depend on a company’s unique circumstances and the application of the
apportionment formula. A company’s tax liability under the statute would not increase
unless the company were in fact exporting Alaska value; the benefit of the statute is the
State’s ability to prevent that export by requiring affiliates with indicators of potential
tax avoidance to be included on the taxpayer’s Alaska tax return.
              Under Pike Nabors was required to establish that the burden on foreign
commerce is “clearly excessive” compared to the statute’s local benefits.105 Nabors did
not meet that burden.

       105
              See 397 U.S. at 142.

                                            -33-                                      7609
       C.      Alaska Statute 43.20.145(a)(5) Does Not Violate Due Process Because
               It Is Not Arbitrary And Irrational.
               Nabors finally asserts that subsection .145(a)(5) is arbitrary and irrational
in violation of the Due Process Clause. We have explained: “Substantive due process
is denied when a legislative enactment has no reasonable relationship to a legitimate
governmental purpose.”106 It is not the role of courts to decide whether a statute is wise;
“the choice between competing notions of public policy is to be made by elected
representatives of the people.”107 Substantive due process guarantees only that a
legislative enactment “is not arbitrary but instead based upon some rational policy.”108
The legislature’s actions are presumed to be proper, and a party seeking to prove a
substantive due process violation must show “that no rational basis for the challenged
legislation exists.”109 “This burden is a heavy one, for if any conceivable legitimate
public policy for the enactment is apparent on its face or is offered by those defending
the enactment, the opponents of the measure must disprove the factual basis for such a
justification.”110
               Nabors argues that the 90% test in subsection .145(a)(5) “produces the
arbitrary result of turning 87% of the world’s nations into tax havens.” Nabors states that
“the critical flaw” is that the 90% test uses countries’ nominal tax rates rather than
effective tax rates.     The superior court addressed this concern, noting that a

       106
            Concerned Citizens of S. Kenai Peninsula v. Kenai Peninsula Borough, 527
P.2d 447, 452 (Alaska 1974).
       107
               Id.
       108
               Id.
       109
               Id.
       110
               Id.

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“government’s tax structure must be objective, not subjective” and that if the statute used
an effective tax rate, “Alaska’s use of the foreign country’s tax rate as an identification
tool for tax haven countries would be thwarted because the inquiry would become
corporation specific, requiring tax officials to analyze each and every corporate structure
to determine whether the affiliated group met the inclusion criteria.” The court further
noted that this case-by-case analysis would effectively turn high-tax jurisdictions into
low-tax jurisdictions because the effective tax rate could be reduced by the specific tax
circumstances of corporations, potentially resulting in a return that “includes more
affiliated corporations than the statute intended.” Nabors does not explain why the use
of the nominal tax rate renders the statute arbitrary.
              Nabors further asserts that the statute’s over-inclusiveness renders it
arbitrary because “turning 87% of the world’s nations into tax havens is too sweeping
for the [c]ourt to conclude that Alaska is rationally targeting that value.” But Nabors
does not dispute that the State’s interest in preventing exportation of Alaska value is a
legitimate interest and Nabors has not adequately shown that no reasonable basis for the
90% test exists.111 The legislature sought to attract foreign investment by reducing
corporations’ reporting obligations for foreign affiliates while balancing the competing
goal of preventing the exportation of Alaska value. The superior court noted that the
90% tax rate selected by the legislature “appears to have been based on the reporting
threshold used by the IRS.” We have recognized that a statute is not “constitutionally
arbitrary” merely because it “can be characterized as numerically arbitrary.”112 The
superior court thus did not err by concluding that subsection .145(a)(5) is not
unconstitutionally arbitrary.

       111
              See id.
       112
              Luper v. City of Wasilla, 215 P.3d 342, 349 (Alaska 2009).

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VI.   CONCLUSION
            The superior court’s decision is REVERSED in part, AFFIRMED in part,
and REMANDED for further proceedings consistent with this opinion.

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