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State, Department of Revenue v. Nabors International Finance, Inc.

TAX LAW

Supreme Court of Alaska (2022)

Robert Bulka

In State, Department of Revenue v. Nabors International Finance, Inc., 514 P.3d 893 (Alaska 2022), the supreme court upheld an Alaska tax statute requiring corporate taxpayers to report affiliated corporations incorporated or doing business in low-tax countries. (Id. at 898). The Department of Revenue (Department) audited Nabors International Finance, Inc. (NIF), an oil field service provider with foreign-affiliated corporations in low-tax countries.  (Id. at 897).  The Department sought information about these affiliated corporations which NIF originally neglected to include in its tax return pursuant to an Alaska corporate tax statute. (Id.).  There are two statutory conditions under which corporations must name any affiliated corporations in low-tax countries in their tax returns, but it is unclear whether the conditions are conjunctive or disjunctive: (1) where the affiliated corporation engages in substantial self-dealing with affiliates, and (2) where the corporation conducts insignificant economic activity. (Id. at 898). On appeal of the Department’s application of the statute to NIF, NIF argued for the statute’s unconstitutionality on three grounds: (1) it violated the Due Process Clause because the lack of a conjunction between two subparts made the statute void for vagueness, (2) it violated the dormant Commerce Clause by impermissibly discriminating against foreign commerce, and (3) it violated the Due Process Clause for irrationality and arbitrariness. (Id. at 897­–98.). The supreme court reversed the lower court’s decision that the statute was unconstitutionally vague, reasoning that the subparts may be construed through the adjudication process, that a conjunctive reading is most tenable, and thus taxpayers are given appropriate notice of what affiliates to include in their tax returns. (Id. at 901). The supreme court affirmed the lower court’s decision that the statute is not an impermissible discrimination against foreign commerce, explaining that merely requiring foreign corporations to file an Alaskan tax return is not a sizeable enough burden to trigger strict scrutiny.  (Id. at 907). Finally, the supreme court found that Alaska has a legitimate interest in preventing the exportation of Alaska value and requiring only corporations incorporated in countries with lower than a ninety percent tax rate to be included on a corporate tax return as affiliates is reasonably related thereto.  (Id. at 911).  Reversing the lower court’s holding, the supreme court upheld an Alaska tax statute requiring corporate taxpayers to report affiliated corporations incorporated or doing business in low-tax countries. (Id. at 898).

State, Department of Revenue v. Nabors International Finance, Inc.

TAX LAW

Supreme Court of Alaska (2022)

Robert Bulka

In State, Department of Revenue v. Nabors International Finance, Inc., 514 P.3d 893 (Alaska 2022), the supreme court upheld an Alaska tax statute requiring corporate taxpayers to report affiliated corporations incorporated or doing business in low-tax countries. (Id. at 898). The Department of Revenue (Department) audited Nabors International Finance, Inc. (NIF), an oil field service provider with foreign-affiliated corporations in low-tax countries.  (Id. at 897).  The Department sought information about these affiliated corporations which NIF originally neglected to include in its tax return pursuant to an Alaska corporate tax statute. (Id.).  There are two statutory conditions under which corporations must name any affiliated corporations in low-tax countries in their tax returns, but it is unclear whether the conditions are conjunctive or disjunctive: (1) where the affiliated corporation engages in substantial self-dealing with affiliates, and (2) where the corporation conducts insignificant economic activity. (Id. at 898). On appeal of the Department’s application of the statute to NIF, NIF argued for the statute’s unconstitutionality on three grounds: (1) it violated the Due Process Clause because the lack of a conjunction between two subparts made the statute void for vagueness, (2) it violated the dormant Commerce Clause by impermissibly discriminating against foreign commerce, and (3) it violated the Due Process Clause for irrationality and arbitrariness. (Id. at 897­–98.). The supreme court reversed the lower court’s decision that the statute was unconstitutionally vague, reasoning that the subparts may be construed through the adjudication process, that a conjunctive reading is most tenable, and thus taxpayers are given appropriate notice of what affiliates to include in their tax returns. (Id. at 901). The supreme court affirmed the lower court’s decision that the statute is not an impermissible discrimination against foreign commerce, explaining that merely requiring foreign corporations to file an Alaskan tax return is not a sizeable enough burden to trigger strict scrutiny.  (Id. at 907). Finally, the supreme court found that Alaska has a legitimate interest in preventing the exportation of Alaska value and requiring only corporations incorporated in countries with lower than a ninety percent tax rate to be included on a corporate tax return as affiliates is reasonably related thereto.  (Id. at 911).  Reversing the lower court’s holding, the supreme court upheld an Alaska tax statute requiring corporate taxpayers to report affiliated corporations incorporated or doing business in low-tax countries. (Id. at 898).