Opposition Brief — Carlson v. Alaska Commercial Fisheries Entry Commission

Supreme Court, U.S. |

f | \ iL Ee

ee DEC 12 1996

No. 96-685

CLERK '

In The

Supreme Court of the United States

October Term, 1996

~

DONALD H. CARLSON, WARREN HART, GERARD

HASKINS, STEPHEN R. LIBBY, EARL WEESE, and LYLA

C. WEESE, individually and as Class Representatives on

behalf of all persons similarly situated,

Petitioners,

V.

STATE OF ALASKA, COMMERCIAL

FISHERIES ENTRY COMMISSION,

Respondent.

¢

On Petition For Writ Of Certiorari

To The Supreme Court Of Alaska

+

BRIEF IN OPPOSITION TO

PETITION FOR WRIT OF CERTIORARI

+

Bruce M. BorELHO

Attorney General

STEPHEN M. WHITE

Assistant Attorney General

State of Alaska

Department of Law

Attorney General’s Office

P.O. Box 110300

Juneau, Alaska 99811-0300

(907) 465-3600

COCKLE LAW BRIEF PRINTING CO., (800) 225-6964

OR CALL COLLECT (402) 342-2831

QUESTIONS PRESENTED

1. Whether the Alaska Supreme Court erred by

reviewing Alaska’s commercial fishing license and permit

fee differentials, which are predicated on residency,

under the Privileges and Immunities Clause instead of

under the Commerce Clause.

2. When a state imposes fees for a state-provided

service, whether the compensatory tax doctrine prohibits

the state from attributing to its residents taxes which they

pay for that service.

ii

TABLE OF CONTENTS

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STATEMENT OF FACTS AND PROCEEDINGS

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REASONS FOR DENYING THE WRIT.............

I.

Il.

THE DECISION BELOW IS CONSISTENT WITH

THIS COURT’S TREATMENT OF DIFFEREN-

TIALS THAT ARE PREDICATED ON RESI-

DENCY, NOT ON THE MOVEMENT- OF

ARTICLES ACROSS STATE LINES.............

THE DECISION BELOW IS CONSISTENT WITH

THIS COURT’S HOLDING UNDER THE PRIVI-

LEGES AND IMMUNITIES CLAUSE THAT A

STATE, WHEN IMPOSING FEES FOR A STATE-

PROVIDED SERVICE, MAY ATTRIBUTE TO ITS

RESIDENTS TAXES THEY PAY FOR THAT SER-

VICE. RECENT DECISIONS UNDER THE COM-

PENSATORY TAX DOCTRINE DO NOT

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iii

TABLE OF AUTHORITIES

Page

Cases

Armco Inc. v. Hardesty, 467 U.S. 638 (1984)....7, 8, 13

Baldwin v. Montana, 436 U.S. 371 (1978)............ 16

Brown v. Maryland, 25 U.S. (12 Wheat) 419 (1827) ..... 7

Carlson v. State, 798 P.2d 1269 (Alaska 1990)...3, 5, 9, 15

Carlson v. State, 919 P.2d 1337 (Alaska 1996).... passim

Clark v. Paul Gray, Inc., 306 U.S. 583 (1939)...... 15, 16

Commonwealth Edison Co. v. Montana, 453 U.S.

EET nos o'cw bb N00 HS Cakes beeen as are neeces 15, 16

Evansville-Vanderburgh Airport Auth. Dist. v.

Delta Airlines, Inc., 405 U.S. 707 (1972)........ 15, 16

Foster Packing Co. v. Haydel, 278 U.S. 1 (1928)...... 6

Freeman v. Hewit, 329 U.S. 249 (1946) ............... 7

Fulton Corp. v. Faulkner, 116 S.Ct. 848 (1996)....... 13

Halliburton Oil Well Cementing Co. v. Reilly, 373

TE cn kah cs paneseebat sheers’ eveteeeeses 7

Hicklin v. Orbeck, 437 U.S. 517 (1978)............. 6, 12

Hunt v. Washington State Apple Advertising

SR, ME SEER, ES CAGES oc cv csv ncsessssecrcces 7

Interstate Transit, Inc. v. Lindsey, 283 U.S. 183

SN ESS EOE Se ret ea habe Us KaveGesivbeccorscees 26

Maine v. Taylor, 477 U.S. 131 (1986)................. 12

Maryland v. Louisiana, 451 U.S. 725 (1981).......... 13

a

iv

TABLE OF AUTHORITIES — Continued

Mullaney v. Anderson, 342 U.S. 415 (1952)........ 6, 11

New Energy Co. v. Limbach, 486 U.S. 269 (1980) ..... 7

Oregon Waste Systems, Inc. v. Department of

Envtl. Quality, 511 U.S. 93 (1994) ..... Ze Ve Ady 34, 16

Pennsylvania v. West Viiginia, 262 U.S. 553 (1923) ..... 6

Philadelphia v. N.J., 437 U.S. 617 (1978).............. 7

Toomer v. Witsell, 334 U.S. 385 (1948)........... passim

Walling v. Michigan, 116 U.S. 446 (1884) ............. 7

West v. Kansas Natural Gas, 221 U.S. 229 (1911) ..... 6

RELEVANT CONSTITUTIONAL AND STATUTORY PROVISIONS

US. Const Ot--t¥, @ €s csc ceva 2

US. Cet, rks hy SB Gace cicdica ph cl veges kewhaee eres 2

Alaska Admin. Code tit. 20, § 05.240................. 1

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STATEMENT OF FACTS

AND PROCEEDINGS BELOW

Alaska charges nonresident commercial fishers three

times more for annual fishing licenses and annual limited

entry permits than it charges resident commercial

fishers.! These fees are intended to compensate the state

for a portion of what it spends to manage its commercial

fisheries.2 Generally, the fees are a small fraction of the

income derived from those fisheries.? In recent years,

' For a commercial fishing license, a resident pays $30 per

year and a nonresident pays $90 — a license fee differential of

$60. Alaska Statute 16.05.480. App. 1a. For the annual fee for a

limited entry permit, which varies according to the value of the

particular fishery, a nonresident pays from $100 to $500 more

each year than a resident. Alaska Statute 16.43.160; 20 Alaska

Administrative Code § 05.240. App. 1a-6a.

There is no evidence that the fee differentials are intended

to discourage, or that they actually discourage nonresidents

from participating in Alaska commercial fisheries. Petitioners

are incorrect in saying “ Alaska has essentially admitted that the

overall purpose of the permit system is to keep non-residents

out of Alaska’s fisheries.” Petition at 5. To support that claim,

they quote a passage from report on the state’s limited entry

program, a program that limits the number of persons who can

participate in Alaska’s high value fisheries. Despite the

implication of the passage, participation in those fisheries,

although limited in number, does not favor residents over

nonresidents. Anyone may participate after purchasing or being

issued a limited entry permit.

Distinct from limited entry permits are the fees that permit

holders must pay each year to the state. Those annual fees, three

times higher for nonresidents than residents, are what

petitioners are challenging. Thus, they have quoted language

from a report that has no bearing on the annual fees.

3 For example, a high value fishery having a $60 license

differential and a $500 permit differential had average gross

1

nonresident participation in Alaska commercial fisheries

has been increasing. App. 10a n.5.

In 1984, the petitioners filed a class action challenging

Alaska’s fee differentials. App. 8a. Among other allegations,

the petitioners claimed that the differentials violate two

clauses of the United States Constitution — the Privileges and

Immunities Clause* and the Commerce Clause.5 App. 9a.

When the trial court ruled in the state’s favor, the petitioners

appealed to the Alaska Supreme Court. App. 12a-13a.

earnings per permit that ranged, for the years 1983 through

1993, between $88,709 and $268,525. For the same years, a low

value fishery having a $60 license differential and a $100 permit

differential had average gross earnings per permit between $847

and $1613. App. 9a n.4. If license and permit fees are considered

“user fees” for participating in Alaska’s commercial fisheries,

then the annual return on nonresidents’ fees ranged between

956% and 3073% for the high value fishery and between 253%

and 572% for the low value fishery. Of course, there are other

fixed annual costs of commercial fishing —- debt retirement on

permits and vessels, gear costs, and crew shares, to name a few.

The point of isolating this one cost is to show that the user fee is

insignificant when compared to the benefit derived from

participating in the fisheries.

4 “The Citizens of each State shall be entitled to all

Privileges and Immunities of Citizens in the several States.”

U.S. Const. art. IV, § 2.

> “The Congress shall have the Power . . . [t]o regulate

Commerce . .. among the several States.” U.S. Const. art. I, § 8.

Though phrased as a grant of regulatory power to Congress, the

Clause has long been understood to have a “negative” aspect

that denies the States the power unjustifiably to discriminate

against or burden the interstate flow of articles of commerce.

Oregon Waste Systems, Inc. v. Department of Envtl. Quality, 511

U.S. 93 (1994). Petitioners are seeking review under this aspect

of the Clause.

In 1990, the supreme court made its first ruling on

the differentials. Carlson v. State, 798 P.2d 1269 (Alaska

1990). In Carlson I, the court held that the proper inquiry

under the Privileges and Immunities Clause was whether

all the fees and taxes paid to the state by nonresident

fishers to participate in Alaska commercial fisheries are

substantially equal to those paid by resident commercial

fishers. App. 11a. The court said that the inquiry should

take into account the residents’ proportionate shares of

state revenues to which nonresidents make no contribu-

tion and that are expanded for commercial fisheries man-

agement. Id. It also said that state revenues derived from

petroleum production are analytically equivalent to taxes

which only residents pay. Id. The court remanded the case

for an accounting of those revenues and for several other

inquiries. Id. It left open the question of whether this case

is governed by the Commerce Clause. Id. at 1276-77 n.4.

App. 13a n.8.

On remand, the trial court decided that the differen-

tials do not violate the Commerce Clause or the Privileges

and Immunities Clause. Again, the petitioners appealed.

App. 13a.

In its second review of the fee differentials, Carlson II,

the Alaska Supreme Court decided that the Commerce

Clause was not implicated. Carlson v. State, 919 P.2d 1337,

1340-41 (Alaska 1996). This is because the differentials are

not predicated on the movement of articles across state

lines, but rather, on the residency status of persons apply-

ing for the permits and licenses. App. 15a-16a.

Under the Privileges and Immunities Clause, the

Alaska Supreme Court decided that the trial court had

applied the incorrect formula for calculating the permis-

sible differentials.© It remand the case for application of a

different formula. App. 24a.

Under that formula, the permissible difference

between a resident’s fee and a nonresident’s fee is each

resident’s proportionate share of the_state’s expenditures

for commercial fishery management that are derived from

petroleum revenues (in lieu of resident-only taxes).” App.

21a. In other words, a permissible nonresident’s fee

would be equal to the resident’s fee plus the resident's

proportionate share of petroleum revenues which are

expended by the state for the management of commercial

fisheries.®

6 The trial court found that in order to calculate the

permissible fees, the petroleum revenues that are deposited in

the state’s general fund and paid out for commercial fisheries

management should be divided by the number of resident

permits issued in a given year. The supreme court held that the

proper divisor is the total number of Alaskans. App. 22a.

7 Under Toomer v. Witsell, 334 U.S. 385 (1948), a state may

establish a resident-nonresident fee differential “which would

merely compensate the State . . . for any conservation

expenditures from taxes which only residents pay.” Toomer, 334

U.S. at 399. (Emphasis added.) Alaska’s expenditures that

support the commercial fishing industry are greater than just

funds spent for “conservation.” The state also spends funds for

allocating fish among various commercial fisheries, for public

works that support the industry, and for commercial fisheries

law enforcement. In this brief, all of the state’s commercial

fishery activities are called “management.”

8 The supreme court expressed it this way: “Resident

commercial fishers are paying the license and permit fees they

are charged plus their per capita share of oil revenues which are

diverted to fisheries management from other benefits or State

The petitioners are seeking review of those decisions.

+

REASONS FOR DENYING THE WRIT

I. THE DECISION BELOW IS CONSISTENT WITH

THIS COURT’S TREATMENT OF DIFFERENTIALS

THAT ARE PREDICATED ON RESIDENCY, NOT

ON THE MOVEMENT OF ARTICLES ACROSS

STATE LINES.

The Alaska Supreme Court’s reason for reviewing the

fee differentials under the Privileges and Immunities

Clause instead of under the Commerce Clause is that this

Court “ . . . [H]as consistently analyzed statutes which

purportedly classify on the basis of residency under the

Privileges and Immunities or the Equal Protection

Clauses.” App. 16a. To support that observation, the

Alaska Court cited Toomer v. Witsell, 334 U.S. 385 (1948),

and four other opinions by this Court. App. 16a n.10.

”

Petitioners claim that none of those opinions “sug:

gests that discrimination against commercial interests

based on residency is not cognizable under the Com-

merce Clause.” Petition, at 13 n.16. While it is true that

none of the opinions explicitly hold that, it is also true

that this Court reviewed those cases, and has reviewed all

other cases where differential treatment is predicated on

services. It is this quantity which must be equivalent to the fee

differential for the fees to be constitutional under the Carlson I

analysis.” App. 23a.

residency, only under the Privileges and Immunities

Clause.?

Petitioners also claim that other opinions hold that

differential treatment, predicated on residency, should be

reviewed under the Commerce Clause. They have quoted

passages which, when removed from their factual con-

texts, seem to support their proposition.!° Petition at 14-16.

9 Mullaney v. Anderson, 342 U.S. 415 (1952), is no exception.

Even though the lower court struck down the nonresident fee

differential under the Commerce Clause, this Court, following

Toomer, sustained that result under the Privileges and

Immunities Clause, and only under that clause. Id. at 430.

10 For example, petitioners say, “The Commerce Clause is

implicated whenever a state seeks ‘to prefer its own citizens in

the utilization of natural resources found within its borders, but

destined for interstate commerce.’ ” Petition at 15. Their partial

quote is from Hicklin v. Orbeck, 437 U.S. 517, 533 (1978), an

opinion where the Court struck down the “Alaska Hire” law.

Because the “Alaska Hire” law was predicated on residency,

the Court applied the Privileges and Immunities Clause. Id. at

525-31. The Court went on to discuss the “mutually reinforcing

relationship” between that clause and the Commerce Clause,

and it stated that several Commerce Clause decisions gave

support to its Privileges and Immunities Clause decision. Id. at

531-34.

Omitted from the petitioners’ partial quote are the

Commerce Clause opinions, identified at the beginning of the

sentence in the Hicklin opinion. Those opinions — identified as

“West, Pennsylvania v. West Virginia and Foster Packing,” id. at

533, — struck down state action that was predicated on the

movement of articles across state lines, not on a person’s

residency. (West v. Kansas Natural Gas, 221 U.S. 229 (1911)

(Oklahoma law completely prohibited the export of natural gas

found within the state.); Pennsylvania v. West Virginia, 262 U.S.

553 (1923); (West Virginia law prohibited the export of natural

gas before in-state demands were met.); Foster Packing Co. v.

Cee ee

But when the contexts are considered, all of those

cases have a common feature that is absent from this one.

All of them involve differential treatment that is predi-

cated on the movement of articles across state lines. None

of them have the pertinent feature of this case. None

involve differential treatment that is predicated on a per-

son’s residency."!

Haydel, 278 U.S. 1 (1928) (Louisiana law required local

processing before shrimp harvested in Louisiana could be

exported.) Thus, the opinions contradict rather than support the

petitioners’ proposition.

11 The Commerce Clause opinions cited by the petitioners

are: Brown v. Maryland, 25 U.S. (12 Wheat) 419 (1827)

(Maryland’s tax predicated on a person importing merchandise

from another state.); Walling v. Michigan, 116 U.S. 446 (1884)

(Michigan’s tax predicated on importing liquor from another

state.); Hunt v. Washington State Apple Advertising Comm’n, 432

U.S. 333 (1977) (North Carolina’s prohibition predicated on

importing or selling apples bearing another state’s grading

label.); Armco Inc. v. Hardesty, 467 U.S. 638 (1984) (West

Virginia’s gross receipts tax predicated on whether a taxpayer

conducted manufacturing in West Virginia.); New Energy Co. v.

Limbach, 486 U.S. 269 (1980) (Ohio’s tax credit predicated on

whether ethanol was produced in Ohio or produced in a state

giving similar advantage to Ohio ethanol.); Philadelphia v. N.J.,

437 U.S. 617 (1978) (New Jersey’s prohibition predicated on

whether waste originated outside of New Jersey.); Halliburton

Oil Well Cementing Co. v. Reilly, 373 U.S. 64 (1963) (Louisiana’s

use and sales taxes were predicated on whether the

performance of certain services or the purchase of certain items

occurred within Louisiana.); Freeman v. Hewit, 329 U.S. 249

(1946) (Indiana gross income tax predicated on the interstate

sale of securities.); Oregon Waste Systems v. Department of Envtl.

Quality, 511 U.S. 93 (1994) (Oregon’s surcharge predicated on

whether the solid waste was generated outside of Oregon.) In

none of these Commerce Clause cases was a person’s residency

the predicating factor for differential treatment.

The petitioners claim that the Alaska Supreme

Court’s second reason for not reviewing the differentials

under the Commerce Clause is because the court decided

that “articles” had not yet entered the stream of com-

merce. Although the petitioners do not identify the “arti-

cles” here that trigger Commerce Clause analysis,!? they

discuss several opinions holding that the Clause applies

to taxation on “local activities,” that is, on articles that are

destined to enter the stream of commerce even before

they are harvested. Petition at 16-19.

The petitioners, however, have mischaracterized the

supreme court’s reason. The court reasoned that the fee

differentials are predicated on residency, not on the

movement of articles across state lines. App. 15a-16a. The

court said nothing about when an article, which eventu-

ally enters the stream of commerce, qualifies for analysis

12 The fish caught by commercial fishers cannot be the

“articles” that qualify for analysis under the Commerce Clause;

Alaska’s fee differentials do not treat fish differently because

they are shipped in interstate commerce. The same is true of the

fishers themselves.

For this case to resemble other cases analyzed under the

Commerce Clause, Alaska’s differentials would have to be

predicated on something crossing Alaska’s borders. (A state

discriminates against interstate commerce if it “tax[es] a

transaction or incident more heavily when it crosses state lines

than when it occurs entirely within the State.” Armco Inc. v.

Hardesty, 467 U.S. 638, 642 (1984), (emphasis added.) If Alaska

were to impose a head tax or some other burden on all incoming

fishers, including residents, that is predicated on their travel

from a point outside of the state, this case would warrant review

under the Commerce Clause. However, the fee differentials do

not target interstate commerce in that manner.

under the Clause.!3 The petitioners’ arguments about

“local activities” are misdirected.

Il. THE DECISION BELOW IS CONSISTENT WITH

THIS COURT’S HOLDING UNDER THE PRIVI-

LEGES AND IMMUNITIES CLAUSE THAT A

STATE, WHEN IMPOSING FEES FOR A STATE-

PROVIDED SERVICE, MAY ATTRIBUTE TO ITS

RESIDENTS TAXES THEY PAY FOR THAT SER-

VICE. RECENT DECISIONS UNDER THE COM-

PENSATORY TAX DOCTRINE DO NOT

DIMINISH THAT HOLDING

The Alaska Supreme Court remanded this case to

apply a formula under the Privileges and Immunities

Clause for analyzing the fee differentials. That formula

will credit resident commercial fishers with their propor-

tionate share of state expenditures for commercial fishery

management that are derived from taxes which only resi-

dents pay. Thus, the formula follows Toomer’s holding

that a state may “charge non-residents a differential

which would merely compensate the State . . . for any

conservation expenditures from taxes which only resi-

dents pay.” Toomer at 398, 399. For simplicity, this will be

called the “tax attribution doctrine.”

Both Toomer and the Alaska Supreme Court recognize

that when the state assesses fees for a service, attributing

13 The Alaska Supreme Court, in its first decision in this

case, acknowledged that later opinions by this Court conflict

with the proposition that unharvested fish do not implicate the

Commerce Clause. Carlson I, 798 P.2d 1269, 1276 f.4 (Alaska

1990). It would be incongruous for the Alaska Supreme Court,

in its second decision, to rely on that proposition.

10

to residents their proportionate share of state taxes they

have paid for that service is necessary for treating resi-

dents and nonresidents “on terms of substantial equal-

ity.”14 Were residents and nonresidents charged identical

fees, the residents, when their proportionate tax pay-

ments for the same services are taken into account, would

be paying more than nonresidents for those services. In

essence, the residents would be overcharged by the

amount that their taxes pay for that service.

Despite this reality, the petitioners claim that the

Alaska Supreme Court erred in applying tax attribution

doctrine. They imply that Toomer has been overruled.

Petition at 11, 21. They argue that the Court’s recent

treatment of the compensatory tax doctrine under the

Commerce Clause prevents Alaska from attributing resi-

dent taxes under the Privileges and Immunities Clause.

Petition at 21-23.

The petitioners are incorrect when saying that the tax

attribution doctrine is “antiquated” and “long since dis-

credited.” Petition at 12. Toomer made rulings on both the

Privileges and Immunities Clause and the Commerce

Clause. Under the Privileges and Immunities Clause, it

struck down South Carolina’s 100:1 nonresident fee dif-

ferential and, in doing so, established the tax attribution

doctrine: a state may “charge non-residents a differential

which would merely compensate the State .. . for any

conservation expenditures from taxes which only resi-

dents pay.” Toomer, 334 U.S. at 398, 399. That holding is

what the Alaska Supreme Court followed, and it has

14 Toomer, 334 U.S. at 396.

11

never been rejected, either explicitly or implicitly, by this

Court.15

The petitioners are correct when, probably referring

to nonresident fee differentials, they say “no decision of

this Court has ever upheld such discrimination, or dis-

crimination based on a theory of foregone revenues. .. . ”

Petition at 21. But that is true only because this Court has

not taken up those differentials since Mullaney. A more

relevant statement would be that no decision of this

Court has ever rejected the tax attribution doctrine since it

was announced in Toomer. It is still “good law,” and well

it should be. Without the doctrine, there could be no

“substantial equality” between residents and nonresi-

dents when their fees pay for only a portion of a state-

provided service and the residents’ taxes pay for the rest.

Petitioners argue that decisions about the compensa-

tory tax doctrine under the Commerce Clause should be

° Perhaps petitioners, when they say “antiquated” and

“discredited,” are referring the Commerce Clause rulings of

Toomer. Under that Clause, the Court reviewed the 1/8 cent per

pound tax that South Carolina assessed on green shrimp taken

in the maritime zone, Toomer, 334 U.S. at 394, and it reviewed the

requirement that shrimpers unload, pack, and stamp their catch

at a South Carolina port before shipping it to another state, id. at

403. The Court said that the South Carolina tax did not violate

the Commerce Clause because “the taxable event, the taking of

shrimp, occurs before the shrimp can be said to have entered the

flow of interstate commerce.” Id. at 394, 395. Later opinions

suggest that the Clause may be implicated before fish, destined

for interstate commerce, are harvested. See Petition at 16-19.

Even so, dicta under the Commerce Clause does not affect

Toomer’s holding under the Privileges and Immunities Clause

creating the tax attribution doctrine.

12

the basis for overruling the tax attribution doctrine under

the Privileges and Immunities Clause. Essentially, they

argue that the two doctrines are interchangeable, and

they imply that this Court, in recent decisions, has

rejected the compensatory tax doctrine. Petition at 21-23.

Although the Commerce Clause and the Privileges

and Immunities Clause share a common origin and have

similar analyses,!© the clauses address entirely different

types of discrimination: discrimination against articles

traveling across state lines versus discrimination against

nonresidents pursuing a livelihood or other important

interest.

Likewise, the two doctrines involve different

inquiries. Under the compensatory tax doctrine, a state,

to justify a tax on interstate commerce, must identify an

offsetting tax imposed on intrastate commerce. Under the tax

attribution doctrine, a state, to justify higher fees against

nonresidents, must identify offsetting fees paid by residents

through the taxes they pay for that state-provided service. The

inquiries are not interchangeable.

16 Both Clauses have their origin in the Fourth Article of the

Articles of Confederation. Hicklin, 437 U.S. at 531-32. Under the

Commerce Clause, a state may discriminate against interstate

commerce if there is a legitimate state interest that cannot be

achieved by other, nondiscriminatory means. Maine v. Taylor,

477 U.S. 131, 138 (1986). Under the Privileges and Immunities

Clause, a state may discriminate against nonresidents if there is

a valid reason, independent of the mere fact that they are

nonresidents, and if the degree of discrimination bears a close

relation to the reason. Toomer, 334 U.S. at 396. Thus, under both

analyses, discrimination is prohibited unless the state has a

legitimate purpose or reason and if it satisfies other conditions.

13

In recent years, states have had difficulty when try-

ing to rely on the compensatory tax doctrine. Principally,

they have been unable to satisfy the third prong of the

doctrine which requires that the interstate tax and the

compensatory intrastate tax be assessed against “substan-

tially equivalent events.”!” But because states have failed

to meet this prong does not mean that the Court has

rejected the doctrine, or as petitioners imply, rejected its

rationale. Although the Court has not recently employed

17 To rely on the compensatory tax doctrine, a state must

show three things: (1) the intrastate tax for which the state is

intended to compensate; (2) that the interstate tax must roughly

approximate — but not exceed - the intrastate tax; and (3) that

the events on which the intrastate and interstate taxes are

imposed are “substantially equivalent,” that is, are sufficiently

similar in substance to serve as mutually exclusive proxies of

each other. Oregon Waste Systems, 114 S.Ct. at 1352, 128 L.Ed.2d

at 24.

Recently, states have had difficulty satisfying the third

prong. For example, see Maryland v. Louisiana, 451 U.S. 725

(1981) (Severance and first use or processing were not

“substantially equivalent events” on which compensating taxes

might be imposed. Id. at 759.); Armco Inc. v. Hardesty, 467 U.S.

638 (1984) (“Here, too, manufacturing and wholesaling are not

‘substantially equivalent events’ such that the heavy tax on in-

state manufacturers can be said to compensate for the

admittedly lighter burden placed on wholesalers from out of

State.” Id. at 463.); Oregon Waste Systems, Inc. v. Department of

Envtl. Quality, 511 U.S. 93, 114 S.Ct. 1345, 128 L.Ed.2d 13 (1994)

(“We conclude that, far from being substantially equivalent,

taxes on earning income and utilizing Oregon landfills are

‘entirely different kind[s] of tax[es].’ ” Id., 114 S.Ct. at 1353, 128

L.Ed.2d at 25. Fulton Corp. v. Faulkner, 116 S.Ct. 848 (1996)

(“Even assuming the truth of both these assertions, however, we

find that the intangibles tax is not functionally equivalent to the

corporate income tax.” Id. at 858.).

14

the doctrine outside of the context of sales and use taxes

(see Oregon Waste Systems, 114 S.Ct. at 1353, 128 L.Ed.2d at

25), the doctrine is still viable.

To be sure, the Court has discussed the practical

difficulty of identifying compensatory intrastate taxes “in

various other means of general taxation, such as income

taxes. ...” Id. Such an inquiry may show that some

residents who pay the state’s general taxes are also pay-

ing the interstate taxes. For them, the taxes are cumula-

tive, not compensatory. See id.

The difficulty of fitting general state taxes into the

compensatory tax doctrine, however, does not mean that

they should be stricken from the tax attribution doctrine.

Indeed, the latter is grounded on the principle that the

residents’ payments for the state-provided service through

their general taxes is the permissible ground for charging

the residents a lower fee. If residents’ general taxes can-

not be considered, the attributing tax doctrine dissolves.

There are other reasons for not transferring the com-

pensatory tax doctrine, or its difficulties, to the attribut-

ing tax doctrine. As pointed out earlier, their inquiries are

incongruous. It is futile to search for a compensatory

interstate tax when the differential treatment is predi-

cated on residency, not on articles moving across state

borders.

With residency as the predicating factor, courts do

not have to “plunge . . . into the morass of weighing

comparative tax burdens by comparing taxes on dissimi-

lar events.” Id. There are no “events” to analyze. Unlike

the income tax at issue in Oregon Waste Systems, which

15

was borne partially by interstate commerce, here the non-

residents pay nothing beyond their fees toward the

state’s costs of fisheries management.

The Alaska Supreme Court’s Privileges and Immu-

nities Clause analysis is straight forward. First, the state

must identify its “conservation expenditures from taxes

which only residents pay.” Toomer, 334 U.S. at 399.

Because Alaska residents pay no general income tax and

most of the state’s expenditures come from petroleum

revenues, those revenues are “analytically equivalent to

‘taxes which only residents pay’.” App. 1la. Then, the

state will have to divide the petroleum revenues that pay

for its commercial fisheries management by the number

of Alaska residents. The resulting quotient can be attrib-

uted to each Alaska commercial fisher. It is the difference

that the state can charge between that fisher’s fee and a

nonresident fisher’s fee for the same license or permit.

There is no “morass” of taxable “events” that complicate

the analysis.

A permit or license is needed to participate in

Alaska’s commercial fishing industry. Alaska provides

management services to that industry. A permissible fee

differential is based on Alaska’s expenditures for that

industry. Thus, Alaska’s fees resemble “user fees.” 18

‘8 Under the Commerce Clause, the Court distinguishes

“user fees” from “compensatory taxes.” A “user fee” is a

“specific charge imposed by the State for the use of state-owned

or state-provided transportation or dther facilities and

services.” Commonwealth Edison Co. v. Montana, 453 U.S. 609, 621

(1981). See also Evansville- Vanderburgh Airport Auth. Dist. v. Delta

Airlines, Inc., 405 U.S. 707 (1972); Clark v. Paul Gray, Inc., 306 U.S.

ee

16

That is another reason to not employ the compensa-

tory tax doctrine. User fees and taxes are not subject to

the same analysis as are compensatory taxes.!9 Thus, even

if Alaska’s fees were reviewable under the Commerce

Clause, the compensatory tax doctrine would probably

not be part of that review.

CONCLUSION

This Court has applied the Privileges and Immunities

Clause to differentials that involve “basic and essential

activities,”2° and are predicated on residency. This Court

has never applied the Commerce Clause unless differen-

tials are predicated on the movement of articles across

state lines. The Alaska Supreme Court’s use of the Privi-

leges and Immunities Clause instead of the Commerce

583 (1939). It follows that a “compensatory tax” occurs when the

transportation, facility, or service is provided by private

entities. See Oregon Waste Systems, 114 S.Ct. at 1352 n.6.

19 Regarding user fees and taxes, the Court said “such

imposition, although termed a tax, cannot be tested by

standards which generally determine the validity of taxes.”

Commonwealth Edison, 453 U.S. at 622 n.12, quoting Interstate

Transit, Inc. v. Lindsey, 283 U.S. 183, 190 (1931). “Because such

charges are purportedly assessed to reimburse the State for

costs incurred in providing specific quantifiable services, we

have required a showing, based on factual evidence in the

record, that ‘the fees charged do not appear to be manifestly

disproportionate to the services rendered. ...’ ”. Commonwealth

Edison, 453 U.S. at 622 n.12, quoting Clark, 306 U.S. at 599. See

also, Evansville, 405 U.S. at 716-17.

20 Baldwin v. Montana, 436 U.S. 371, 387 (1978).

17

Clause when reviewing the resident-nonresident fee dif-

ferentials is consistent with that precedent.

The tax attribution doctrine, established by Toomer

under the Privileges and Immunities Clause, is still “good

law.” Although the Court has not applied the doctrine in

recent years, the petitioners can cite to no opinion where

it has been rejected.

The tax attribution doctrine is vital for “substantial _

equality” between residents and nonresidents when they

are charged user fees for a state-provided service and the

state supplements those fees with tax revenues paid by

the residents. If the state could not attribute to a resident

his or her proportionate share of those taxes, each resi-

dent would be paying that amount more than a nonresi-

dent for the same service. States would be disinclined to

spend resident-only taxes for a service that benefits non-

residents. They would be inclined to either stop provid-

ing the service or to equalize the fees, but raise them high

enough to cover the full cost of the service.

Under the tax attribution doctrine, the inquiry looks

not to whether there is an intrastate tax to “compensate,”

but whether resident-paid tax revenues that support

state-provided services are substantially equivalent to the

additional amount that nonresidents pay through a

higher use fee. “Compensatory tax” analysis has no place

in that inquiry.

Because the Alaska Supreme Court has followed this

Court’s rulings under the Privileges and Immunities

Clause and under the Commerce Clause, the petition for

writ of certiorari should be denied.

ee

18

Respectfully submitted this 12th day of December

1996.

Bruce M. BoreLHo

Attorney General

STEPHEN M. WHITE

Assistant Attorney General

la

APPENDIX

Sec. 16.05.480. Commercial fishing license. (a) A

person engaged in commercial fishing shall obtain a com-

mercial fishing license. The fee for the license is $30 for

residents, and $90 for nonresidents. Except for those

which are also entry or interim-use permits, all commer-

cial fishing licenses are nontransferable. The commercial

fishing license shall be retained in the possession of the

licensee, readily accessible for inspection at all times. No

more than one fee may be charged annually against a

person. For the purposes of this section, “commercial

fishing license” includes entry permits and interim-use

permits issued under AS 16.43 and crewmember fishing

licenses.

(b) A person applying for a resident commercial

license under this section shall provide the proof of resi-

dence that the department requires by regulation.

(c) [Repealed, § 12 ch 123 SLA 1978.] (§ 6 art III ch 94

SLA 1959; am § 19 ch 131 SLA 1960; am § 1 ch 93 SLA

1966; am § 2 ch 42 SLA 1968; am § 8 ch 105 SLA 1977; am

§§ 1, 2, 12 ch 123 SLA 1978; am § 1 ch 79 SLA 1982)

Sec. 16.43.160. Fees. (a) The commission shall estab-

lish annual fees for the issuance and annual renewal of

entry permits or interim-use permits. The amount paid by

a permit holder under the provisions of AS 16.05.480

shall be credited by the commission toward payment of

the fee charged under this section. No more than one

credit may be obtained annually by a person.

2a

(b) Annual fees established under this section shall

be no less than $10 and no more than $750 and shall

reasonably reflect the different rates of economic return

for different fishéries. The amount of an annual fee for a

nonresident shall be three times the amount of the annual

fee for a resident.

(c) The resident holder of an entry permit or

interim-use permit who has a family income falling

within the federal poverty guidelines, adjusted by the

commission to reflect appropriate cost-of-living differen-

tials, is subject to a maximum annual fee of $15.

(d) The commission may charge interest at a rate

not to exceed the legal rate of interest established in AS

45.45.010 on fees more than 60 days overdue. (§ 1 ch 79

SLA 1973; am § 15 ch 105 SLA 1977; am § 4 ch 123 SLA

1978; am § 2 ch 79 SLA 1982; am §§ 3, 4 ch 22 SLA 1985)

20 AAC 05.240. SCHEDULE OF ANNUAL

FEES. (a) The annual fee for the issuance or renewal of

an entry permit or interim-use permit is determined by

the commission on a yearly basis according to the follow-

ing:

(1) the resident annual fee for the issuance or

renewal of an entry permit or interim-use permit in a

limited fishery is .25 percent of the estimated value of

the entry permit, rounded to the nearest fee class

amount established in (4) of this subsection; the non-

resident annual fee is three times this amount, as set

out in (4) of this subsection; if insufficient data are

available to determine the estimated value of an

3a

entry permit, the annual fee in a limited fishery will

be calculated according to (2) or (3) of the subsection;

(2) the resident annual fee for the issuance or

renewal of an interim-use permit in an unlimited

fishery is .25 percent of the estimated average gross

earnings per permit in the most recent three years for

which data are available, rounded to the nearest fee

class amount established in (4) of this subsection; the

non-resident fee is three times this amount, as set out

in (4) of this subsection;

(3) notwithstanding (2) of this subsection, the

commission will, in its discretion, make an appropri-

ate adjustment to a fee if more than one permit type

allows the directed harvest of the same species with

the same gear in the same area or if one permit

allows the directed harvest of the same species by a

combination of gears in the same area; if strict appli-

cation of (1) and (2) of this subsection results in a fee

that exceeds the level appropriate in light of the rate

of economic return for the fisheries covered by that

permit, the commission will, in its discretion, reduce

the fee;

(4) the resident and non-resident annual fees

are:

FEE CLASS ANNUAL FEE

Resident Non-resident

I $250 $750

II 200 600

Ill 150 450

IV 100 300

V 50 150

(5) under (1) of this subsection, the entry per-

mit value for each fishery will be estimated by the

da

commission in the spring of the year immediately

preceding the year for which the annual fee applies;

(6) under (2) and (3) of this subsection, the

average gross earnings for each fishery will be esti-

mated by the commission in the spring of the year

immediately preceding the year for which the annual

fee applies; these estimates will be based upon the

most recent three years for which data are available;

if less than three years of data are available for a

fishery, the average will be calculated using the avail-

able years.

(b) Unless fishery resources, gear, or administrative

areas are combined under this chapter, and except as

provided in 20 AAC 05.120, a separate permit is required

for each separate fishery resource, gear, and administra-

tive area.

(c) For the purpose of assessing the fees for the

application for, or renewal of, entry and interim-use per-

mits, a “resident” is

(1) repealed 11/26/87;

(2) one who, on the date of permit application

or renewal, and throughout the 12-month period

before that date

(A) except for brief intervals, military ser-

vice, attendance at an educational or training

institution, or absence for good cause is, and

was, physically present in the state with the

intent to remain in the state indefinitely and to

make a home in the state; and

(B) neither claimed nor received benefits as

a resident of another state, territory or country.

5a

(d) For the purposes of this chapter, criteria rele-

vant to a determination of residence include, but are not

limited to,

(1) where an individual is registered to vote;

(2) where an individual claims residence on his

income tax returns;

(3) where an individuai registers or licenses his

personal property, including but not limited to cars,

boats, trucks and trailers;

(4) by which state the individual is licensed to

drive; 3

(5) in which state the individual maintains bank

accounts, savings accounts, lines of credit, and other

such financial relationships; and

(6) in which state the individual maintains a

permanent place of abode.

(e) Alaska residents may apply for a reduced fee of

$15 for the issuance of an interim-use permit or the

annual renewal of an interim-use or entry permit if their

total family income falls within the poverty guidelines for

the Legal Services Corporation, as set out in Appendix A

to 45 C.ER. 1611, and as modified by Alaska regional

cost-of-living differentials. A commission publication

entitled CFEC Map/Cost of Living Differentials contains

maps designating the regions and charts showing

regional cost-of-living differentials, and is incorporated

in this section by reference.

(f) A non-resident may apply for a reduced fee of

$45 for the issuance of either an interim-use permit or the

annual renewal of an interim-use or entry permit if the

6a

non-resident’s total family income falls within the pov-

erty guidelines for the Legal Services Corporation, as set

out in Appendix A to 45 C.FR. 1611. (Eff. 12/27/79,

Register 72; am 1/2/81, Register 77; am 3/4/81, Register

78; am 1/29/82, Register 81; am 10/30/82, Register 84;

am 12/30/82, Register 84; am 10/28/84, Register 92; am

12/29/84, Register 92; am 4/13/85, Register 94; am

9/26/85, Register 95; am 11/22/87, Register 104; am

11/26/87, Register 104; am 1/17/91, Register 117; am

2/8/95, Register 133; am 5/4/95, Register 134)

Authority:

AS 01.10.055 AS 16.43.110 AS 16.43.160

AS 16.43.100 AS 16.43.140 AS 16.43.990

7a

Donald H. CARLSON, Warren Hart,

Gerard Haskins, Stephen R. Libby, Earl

Weese, and Lyla C. Weese, Individually

and as Class Representatives on behalf

of All Persons Similarly Situated, Appellants,

Vv.

STATE of Alaska, COMMERCIAL

FISHERIES ENTRY COMMISSION,

Appellee.

No. S-6590.

Supreme Court of Alaska.

June 21, 1996.

Class action was brought challenging the constitu-

tionality of state’s practice of charging nonresident com-

mercial fishermen three times as much as resident

fishermen for commercial licenses and limited entry per-

mits. The Superior Court, Third Judicial District, Anchor-

age, Karen L. Hunt, J., denied relief, and class appealed.

The Supreme Court, 798 P.2d 1269, affirmed in part,

reversed in part, and remanded. On remand, the Superior

Court, Peter A. Michalski, J., concluded that fee differen-

tial did not violate either the commerce clause or the

privileges and immunities clause, and class again

appealed. The Supreme Court, Compton, J., held that: (1)

commerce clause was not implicated in challenge to fee

differential, as differential was not predicated upon the

movement of articles of commerce across state lines, but

rather upon residency status of those applying for per-

mits; (2) disparate fees charged to nonresidents did not

offend privileges and immunities clause if differential did

not exceed contribution made by residents to fisheries

ee

8a

management, because differential would be justified as

imposing on nonresidents their share of costs of commer-

cial fisheries; and (3) proper method by which to calcu-

late contribution made by residents was per capita

formula proposed by class, rather than pro rata formula

proposed by state.

Reversed and remanded.

Rabinowitz, J., filed dissenting opinion.

Loren Domke, Loren Domke, P.C., Juneau, for Appel-

lants.

Stephen M. White, Marie Sansone, Assistant Attor-

neys General, and Bruce M. Botelho, Attorney General,

Juneau, for Appellee.

Beiore RABINOWITZ, MATTHEWS, COMPTON and

EASTAUGH, JJ.

OPINION

COMPTON, Justice.

I. INTRODUCTION

This is the second appeal from a class action chal-

lenging the State of Alaska’s practice of charging nonresi-

dent commercial fishers licensing and limited entry

permit fees which are three times greater than the fees

charged resident commercial fishers. The class is com-

prised of “all persons who participated in one or more

Alaska commercial fisheries at any time who paid non-

resident assessments to the State for commercial or gear

licenses or permits.” Carlson v. State, 798 P.2d 1269, 1270

9a

(Alaska 1990) (Carlson I). In this appeal the class chal-

lenges the superior court’s grant of summary judgment to

the State. The class contends that the superior court mis-

interpreted our mandate on remand and that the fee

differential violates the Commerce Clause! and Privileges

and Immunities Clause? of the United States Constitution.

We reverse and remand.

Il. FACTS AND PROCEEDINGS

This appeal, like Carlson I, contests the constitu-

tionality of AS 16.05.480, AS 16.43.160 and Alaska

Administrative Code (AAC) 20.05.240.3 Under AS

16.05.480 a resident pays $30 per year for a commercial

fishing license, while a nonresident pays $90 per year for

the same license. Similarly, under 20 AAC 5.240(a)(1)-(4)

nonresidents pay three times more for limited entry

permits. The fee for limited entry permits is deter-

mined by the value of the permit;4] the fee range,

1 The United States Constitution provides: “The Congress

shall have power . . . To regulate commerce with foreign nations,

and among the several States and with the Indian Tribes.” U.S.

Const. art. I, § 8, cl. 3.

2 The Privileges and Immunities Clause of United States

Constitution provides: “The citizens of each state shall be

entitled to all privileges and immunities of citizens in the

several states.” U.S. Const. art. IV, § 2.

3 AS 16.43.160 is the authority under which the Commercial

Fisheries Entry Commission (CFEC) adopted 20 AAC 5.240.

4 The profitability of the different fisheries, and hence the

value of permits, varies dramatically. For example, the average

gross earnings per permit for the Chignik salmon seine fishery

ranged from $88,709 to $265,525 for the years 1983 through 1993.

10a

for residents, is from $50 to $250.5 See 20 AAC

5.240(a)(1)-(4).

In Carlson I the class alleged: (1) violations of the

Privileges and Immunities Clause and Commerce Clause;

and (2) the absence of State statutory authority to charge

this type of fee differential prior to January 1983. We

rejected the class’s second contention that the statute did

not authorize the 3:1 differential prior to 1983. Carlson I,

798 P.2d at 1278-79. However, as to the first issue we

remanded the case and imposed on the State the burden

of persuasion in defending the Commerce Clause and

Privileges and Immunities challenges. Id. at 1274-78. With

regard to the Privileges and Immunities Clause question

we held:

Commercial fishing is a sufficiently important

activity to come within the purview of the Privi-

leges and Immunities Clause, and license fees

which discriminate against nonresidents are

The permit fee for this fishery is $250 for residents and $750 for

nonresidents. During the same time period the average gross

earnings per permit for the Bristol Bay herring spawn on kelp

fishery ranged from $847 to $1613. The permit fee for this

fishery is $50 for residents and $150 for nonresidents.

5 The State notes that there is no evidence that this fee

differential has discouraged nonresidents from participating in

Alaska’s commercial fisheries. During the period between 1982

and 1992 the participation of nonresidents in Alaska fisheries

continued to increase. The State also emphasizes that virtually

every state that has a commercial fishing industry has higher

nonresident licensing and permitting fees. In many of these

states the differential between resident and nonresident fees

exceeds the one contested here.

WN oh IDET Ne estas « &

lla

prima facie a violation of it... . Thus the ques-

tions here are whether the state has a substantial

reason for the discrimination, and whether the

3:1 fee ratio bears a sufficiently close relation-

ship to the goal.

Carlson I, 798 P.2d at 1274 (citations omitted). In imposing

the burden of persuasion on the State on this issue we

adopted the Wisconsin Supreme Court's analysis. See Tay-

lor v. Conta, 106 Wis.2d 321, 316 N.W.2d 814, 823 n. 17

(1982). In doing so we held that “the burden of persua-

sion to demonstrate justification is properly on the

state.” Carlson I, 798 P.2d at 1276.

We framed the issue on remand as, “whether all fees

and taxes which must be paid to the state by a nonresi-

dent to enjoy the state-provided benefit are substantially

equal to those which must be paid by similarly situated

residents when the residents’ pro rata shares of state

revenues to which nonresidents make no contribution are

taken into account.” Carlson I, 798 P.2d at 1278. We also

held that the revenues derived by the State from petro-

leum production are “analytically[ ] equivalent to ‘taxes

which only residents pay.’ ” Carlson I, 798 P.2d at 1278.

6 We similarly imposed the burden of proof on the

Commerce Clause challenge on the State. We held:

[O]nce a state law is shown to discriminate against

interstate commerce “either on its face or in practical

effect,” the burden falls on the State to demonstrate

both that the statute “serves a legitimate local

purpose,” and that this purpose could not be served

as well by available nondiscriminatory means.

Carlson I, 798 P.2d at 1277 (quoting Maine v. Taylor, 477 U.S. 131,

138, 106 S.Ct. 2440, 2447, 91 L.Ed.2d 110 (1986)).

12a

On remand the parties cross-moved for summary

judgment, each proposing a different method by which to

compare the fees being paid by nonresidents with the

expenditures of state revenues to which the nonresidents

make no contribution (the costs to residents). The class

proposed what it termed the per capita formula. The per

capita formula computes the contribution made by each

resident to the cost of maintaining the commercial fish-

eries and compares this with the fee differential. The

State proposed what it termed the pro rata formula. The

pro rata formula in effect compares the total contributions

made to the cost of commercial fisheries by residents to

the total fees paid by nonresidents. The superior court

concluded that under this method of analysis, residents

paid by way of taxes (or their analytical equivalent) sub-

stantially more than nonresident fishers paid. In reaching

this conclusion, the superior court applied the State’s

proposed formula to the categories of expenses accepted

by us in Carlson I.” As the licensing and permitting fees

charged nonresidents did not exceed the amount paid by

7 The State presented additional budget figures which

included an analysis of every state agency for the years 1981

through 1993. The State claims that these figures included

expenditures to which only Alaska residents contributed and

which benefitted only commercial fishers. The class requested a

stay and a reopening of discovery to address these new figures.

The superior court determined that as it had not relied on the

new figures in granting summary judgment, any dispute over

these figures was moot. However, the court did reserve the right

to reconsider this decision if this court determined that the

class’s per capita method should have been employed.

13a

residents, the superior court concluded that the differen-

tial did not violate either the Commerce Clause or the

Privileges and Immunities Clause. The class appeals.

Ill. DISCUSSION

A. Standard of Review

Both parties correctly argue that the Commerce

Clause and the Privileges and Immunities Clause chal-

lenges to AS 16.05.480, AS 16.43.160 and 20 AAC 5.240

present questions of constitutional law which we review

de novo. See Wright v. Black, 856 P.2d 477, 479 (Alaska

1993). The issue of whether the superior court erred in

adopting the pro rata formula to calculate the contribution

to commercial fisheries management made by residents is

also an issue of law which we review de novo. Langdon v.

Champion, 745 P.2d 1371, 1372 n. 2 (Alaska 1987).

B. The Challenged Fee Differential under the Commerce

Clause

The class contends that two recent Supreme Court

decisions require that the different fees charged to resi-

dents and nonresidents under AS 16.05.480, AS 16.43.160

and 20 AAC 5.240 be analyzed under the Commerce

Clause.8 See Oregon Waste Systems v. Dep’t of Envtl. Qual-

ity, 511 U.S. 93, __, 114 S.Ct. 1345, 1350, 128 L.Ed.2d 13

8 In Carlson I we left open the question of whether this case

was governed by the Commerce Clause. We noted that earlier

Supreme Court cases had suggested that the Commerce Clause

does not apply to fish until the fish are actually harvested.

Carison I, 798 P.2d at 1276 n. 4 (citing McCready v. Virginia, 94

US. 391, 396, 24 L.Ed. 248 (1876); Toomer v. Witsell, 334 U.S. 385,

l4a

(1994); Chemical Waste Management, Inc. v. Hunt, 504 U.S.

334, 112 S.Ct. 2009, 119 L.Ed.2d 121 (1992). The class

argues that the fee differentials in these statutes and

regulations violate the negative Commerce Clause.? The

class argues AS 16.05.480, AS 16.43.160 and 20 AAC 5.240

are per se invalid under the Commerce Clause. A substan-

tial portion of the class’s briefs is devoted to analogizing

the different commercial licensing and permit fees

394-395, 68 S.Ct. 1156, 1161, 92 L.Ed. 1460, reh’g denied, 335 U.S.

837, 69 S.Ct. 12, 93 L.Ed. 389 (1948)).

° The grant of regulatory power to Congress implicit in the

Commerce Clause has been interpreted to have a “negative”

aspect “that denies the States the power unjustifiably to

discriminate against or burden the interstate flow of articles of

commerce.” Oregon Waste Systems, Inc. v. Dep’t of Envtl. Quality,

511 U.S. 93, __, 114 S.Ct. 1345, 1349, 128 L.Ed.2d 13 (1994)

(citing Wyoming v. Oklahoma, 502 U.S. 437, 112 S.Ct. 789, 117

L.Ed.2d 1 (1992)). A negative Commerce Clause analysis has

two steps. First, the court must determine whether the

challenged statute discriminates against interstate commerce or

“regulates evenhandedly with only ‘incidental’ effects on

interstate commerce.” Oregon Waste Systems, 511 U.S. at__, 114

S.Ct. at 1350 (citations omitted). Second, “[i]f the restriction is

discriminatory — i.e., favors in-state economic interests over

their out-of-state counterparts — it is virtually per se invalid.” Id.

at _, 114 S.Ct. at 1347. A restriction found to be per se invalid

must be struck down unless the state can “show that it advances

a legitimate local purpose that cannot be adequately served by

reasonable nondiscriminatory alternatives.” Id. at ___, 114 S.Ct.

at 1351 (citations omitted). The justifications for a

discriminatory tax or restriction must pass the strictest scrutiny.

Id. at __, 114 S.Ct. at 1351. However, if the restriction is

nondiscriminatory it is valid unless the burden it imposes on

interstate commerce “is clearly excessive in relation to the

putative local benefits.” Id. (quoting Pike v. Bruce Church, Inc.,

397 U.S. 137, 142, 90 S.Ct. 844, 847, 25 L.Ed.2d 174 (1970)).

15a

charged residents and nonresidents to surcharges the

states of Oregon and Alabama imposed on out-of-state

waste. The Supreme Court struck down these surcharges.

Oregon Waste Systems, 511 U.S. at __, 114 S.Ct. at 1355;

Chemical Waste, 504 U.S. at 334, 112 S.Ct. at 2009. The class

contends that under the reasoning employed in Oregon

Waste Systems and Chemical Waste, the 3:1 fee differential

is tantamount to “differential treatment of in-state and

out-of-state economic interests that benefits the former

and burdens the latter.” Oregon Waste Systems, 511 U.S. at

__, 114 S.Ct. at 1350.

Oregon Waste Systems does not require that the fee

differential challenged herein be evaluated under the

Commerce Clause. In both Oregon Waste Systems and

Chemical Waste, the Court found taxes imposed on out-of-

state waste which were greater than the taxes imposed on

in-state waste violated the negative Commerce Clause. In

applying the negative Commerce Clause analysis in Ore-

gon Waste Systems, the Court emphasized that the Com-

merce Clause prohibits states from unjustifiably

discriminating against or burdening the interstate flow of

articles of commerce. Oregon Waste Systems, 511 U.S. at __,

114 S.Ct. at 1349. The Court went on to hold that “[iJt is

well-established, however, that a law is discriminatory if

it ‘tax[es] a transaction or incident more heavily when it

crosses state lines than when it occurs entirely within the

State.’ ” Oregon Waste Systems, 511 U.S. at ___, 114 S.Ct. at

1350 (quoting Chemical Waste, 504 U.S. at 342, 112 S.Ct. at

2013).

Unlike the fee differentials in Oregon Waste Systems

and Chemical Waste, the fee differentials at issue in this

case are not predicated upon the movement of articles of

l6a

commerce across state lines, but rather upon the resi-

dency status of those applying for permits. The Supreme

Court has consistently analyzed statutes which purpor-

tedly classify on the basis of residency under the Privi-

leges and Immunities or the Equal Protection Clauses.!°

In Toomer v. Witsell, 334 U.S. 385, 68 S.Ct. 1156, 92 L.Ed.

1460 (1948), the Court evaluated South Carolina shrimp-

ing license fees, which were one hundred times greater

for non-residents than for residents, under the Privileges

and Immunities Clause. There the Court observed that

the Privileges and Immunities Clause “was designed to

insure to a citizen of State A who ventures into State B

the same privileges which the citizens of State B enjoy.”?!

Toomer, 334 U.S. at 395, 68 S.Ct. at 1162.

10 See United Bldg. & Const. v. Mayor & Council of Camden,

465 U.S. 208, 215-19, 104 S.Ct. 1020, 1026-28, 79 L.Ed.2d 249

(1984) (analyzing a municipal resident hiring preference under

the Privileges and Immunities Clause); Hicklin v. Orbeck, 437

U.S. 518, 524, 98 S.Ct. 2482, 2486-87, 57 L.Ed.2d 397 (1978)

(evaluating under the Privileges and Immunities Clause the

Alaska Hire Law which preferenced Alaska residents in hiring);

Sosna v. Iowa, 419 U.S. 393, 406, 95 S.Ct. 553, 560-61, 42 L.Ed.2d

532 (1975) (reviewing Ilowa’s durational residency requirement

for divorces under the Privileges and Immunities Clause); see

also Baldwin v. Fish & Game Comm'n of Montana, 436 U.S. 371, 383,

98 S.Ct. 1852, 1860, 56 L.Ed.2d 354 (1978) (stating that the

Privileges and Immunities Clause “has been interpreted to

prevent a State from imposing unreasonable burdens on

Citizens of other States in their pursuit of common callings

within the State” (citations omitted)).

11 In Anderson v. Mullaney, 191 F.2d 123 (9th Cir.1951), aff'd

342 U.S. 415, 72 S.Ct. 428, 96 L.Ed. 458 (1952), the Ninth Circuit

struck down on Commerce Clause grounds an Alaska territorial

statute which charged non-resident fishermen a higher license

fee than resident fishermen. On certiorari the Supreme Court

17a

C. The Challenged Fee Differential under the Privileges

and Immunities Clause

The class contends also that the nonresident fee dif-

ferential violates the Privileges and Immunities Clause of

the United States Constitution. The Privileges and Immu-

nities Clause is not absolute. “[I]t does not preclude

disparity of treatment [of citizens of other states] in the

many situations where there are perfectly valid indepen-

dent reasons for it.” Toomer, 334 U.S. at 396, 68 S.Ct. at

1162. A claim that a residency classification violates the

Privileges and Immunities Clause requires a two-step

inquiry:

First, the activity in question must be suffi-

ciently basic to the livelihood of the

Nation .. . as to fall within the purview of the

Privileges and Immunities Clause... .

Second, if the challenged restriction deprives

nonresidents of a protected privilege, we will

invalidate it only if we conclude that the restric-

tion is not closely related to the advancement of

a substantial state interest.

Supreme Court of Virginia v. Friedman, 487 U.S. 59, 64-65,

108 S.Ct. 2260, 2264, 101 L.Ed.2d 56 (1988) (internal quo-

tations and citations omitted).

affirmed on Privileges and Immunities rather than Commerce

Clause grounds, following Toomer v. Witsell. Assuming that the

Commerce Clause would also apply to cases of this nature, it is

difficult to believe that a license fee differential which passes

muster under the Privileges and Immunities analysis would

nonetheless be an unconstitutional discrimination against

interstate commerce.

18a

We determined in Carlson I that commercial fishing is

a sufficiently important activity to come within the pur-

view of the Privileges and Immunities Clause. 798 P.2d at

1274. However, the class claims that for us to find for the

State on the relatedness prong of the inquiry, the State

“must demonstrate that behind the nonresident surcharge

or differential is a{sic] (1) substantial reason advancing a

legitimate State policy and (2) the means employed by the

statutory scheme must be closely tailored and have a

substantial relationship to a legitimate interest served by

the statute.” Appellant’s Brief at 27.

We have already made the first inquiry. In Carlson I,

we held that equalizing the burden of fisheries manage-

ment, “where residents pay proportionately more in fore-

gone benefits than nonresidents for fisheries

management,” was a substantial State interest. Id. at 1278.

However, we concluded that the record did not contain

sufficient evidence to determine whether the differential

in fees charged residents and nonresidents was suffi-

ciently related to this interest to justify such disparate

treatment. Id. at 1278.

The class questions the relatedness of the fee differ-

ential to the burden of fisheries management borne by

residents. It analogizes this case to other Supreme Court

cases, and challenges our conclusion in Carlson I that

petroleum revenues are the analytical equivalent of taxes.

The class argues that Oregon Waste Systems prohibits the

State from arguing that the fee differentials do not dis-

criminate against nonresidents because they merely

impose on nonresidents their share of the costs of fish-

eries management. It claims that under the reasoning of

Oregon Waste Systems, neither general tax revenues nor oil

>

19a

royalty revenues can be viewed as the residents’ contri-

butions to fisheries management.!”

There are two flaws with the class’s argument. First,

Oregon Waste Systems was a Commerce Clause case. See

Oregon Waste Systems, 511 U.S. at __ 114 S.Ct. at 1349.

Although the reasoning in Privileges and Immunities

Clause cases has been used in Commerce Clause cases, it

is not analytically sensible to do the reverse in this case.

In this case the Privileges and Immunities Clause ques-

tion turns on whether there is a sufficient relationship

between the higher fees charged nonresidents and the

State’s interest in imposing on nonresidents their share of

the costs for managing the State’s commercial fisheries. In

Oregon Waste Systems, the issue was whether the inter-

state and intrastate taxes are imposed on sufficiently

equivalent events such that they could be considered

proxies for each other. See Id. at _-__, 114 S.Ct. at

1352-53. These are different inquires for which the anal-

ysis is not interchangeable.

Second, the class’s argument demonstrates a lack of

understanding of our holding in Carlson I. Contrary to the

12 The class calls this its “attribution of tax revenues”

argument.

13 Additionally, the Supreme Court in Oregon Waste Systems

had reasons other than the disparity between the events being

taxed for finding that the Department of Environmental

Quality’s compensatory tax argument was disingenuous. For

example, the Court expressed concern over the fact that the out-

of-state surcharge was actually assessed on in-state shippers

who already paid Oregon income taxes, the very tax the

surcharge supposedly balanced out. See Oregon Waste Systems,

511 U.S. at ___, 114 S.Ct. at 1353.

20a

class’s contentions, we did not advocate the kind of fee-

shifting denounced by the Supreme Court in Oregon

Waste Systems. In Carlson I we did not advance a compen-

satory tax doctrine which would impose on nonresidents

their entire share of the costs of commercial fisheries

management, while resident fishers’ share of these costs

was borne by the entire population of the State. Rather,

we held that the issue is

whether all fees and taxes which must be paid

to the state by a nonresident to enjoy the state-

provided benefit are substantially equal to those

which must be paid by similarly situated resi-

dents when the residents’ pro rata shares of state

revenues to which nonresidents make no contri-

bution are taken into account.

Carlson I, 798 P.2d at 1278. The disparate fees charged to

nonresidents will not offend the Privileges and Immu-

nities Clause if the differential does not exceed the contri-

bution made by residents, because the differential will be

justified as imposing on nonresidents their share of the

costs of commercial fisheries. The fee differential merely

balances out “any conservation expenditures from taxes

which only residents pay.” Toomer, 334 U.S. at 399, 68

S.Ct. at 1163.14 In Carlson I we held that the State bore the

burden of persuasion on this issue. 798 P.2d at 1276. This

burden should be met by calculating the contribution

made by residents and comparing it with the challenged

fee differentials.

14 In Oregon Waste Systems, the Court gave no indication

that it intended to cast doubt on this aspect of Toomer.

21a

D. The State’s Pro Rata Method of Calculating the

Amount Residents Contribute to Fisheries Manage-

ment

To establish “practical equality” between residents

and nonresidents, the State must demonstrate that the

higher fees charged nonresidents are equivalent to the

burden borne by residents as measured by the “residents’

pro rata shares of state revenues to which nonresidents

make no contribution.” Carlson I, 798 P.2d at 1278. The per

capita formula propounded by the class is the correct

method for calculating the contribution made by resi-

dents.

Under the per capita formula the resident contribution

is calculated in the following manner: (Fisheries Budget/

Alaska Population) X (percentage of State Budget from oil

revenues/1.0). See Appendix A. Once this computation is

made the resident contribution can be compared to the

difference in fees paid by nonresidents to determine if the

fee differential is constitutional.

The State advocates a different formula for comput-

ing the resident contribution. The State’s formula utilizes

a three-step approach. The State would (1) calculate the

expenditures or costs of the commercial fisheries

(enforcement and conservation); (2) determine the resi-

dent and nonresident commercial fishers’ respective pro

rata shares of those expenditures; and (3) compare the

percentage of iis respective pro rata share each group is

paying. See Appendix A.

The State’s formula differs from the class’s when it

comes to deciding how to determine the numbers to be

used in steps two and three. Although the formulae are

22a

theoretically different and are calculating different quan-

tities, the significant difference between the two pro-

posed formulae concerns how the residents’ pro rata share

is calculated. As discussed above, the class argues that

the amount used as the divisor of the commercial fish-

eries expenditures from taxes which only residents pay

must be the total number of Alaskans. It correctly asserts

that using this number will allow the court to determine

the per capita contribution actually being made by each of

the resident permit holders. On the other hand, the State

argues that the holdings in Toomer and Carlson I mandate

that the residents’ contribution should be determined by

dividing the fisheries’ expenditures from taxes by the

number of resident permits issued in any given year.'>

The State is wrong. As stated above, in Carlson I we held

that the relevant inquiry was “whether all fees and taxes

which must be paid to the state by a nonresident to enjoy

the state-provided benefit are substantially equal to those

which must be paid by similarly situated residents when

the residents’ pro rata shares of state revenues to which

nonresidents make no contribution are taken into

account.” Carlson I, 798 P.2d at 1278. Thus, we ordered the

superior court to compare the relative burden placed on

resident and nonresident commercial fishers. The per cap-

ita method does just this. Had Carlson I mandated a

comparison of the expenditures made by the State to the

15 This is not exactly accurate because the State’s formula

never calculates the actual amount that each individual resident

is purported to contribute. Rather, the State’s formula calculates

the percentages of their fair share of costs residents and

nonresidents pay.

tk Sa rolaetihnele el eorers

sale Sac a er ae

erie D NA Gore ke ae

ahah db

23a

contribution made by nonresident fishers, the State’s the-

ory would be correct.!© Resident commercial fishers are

paying the license and permit fees they are charged plus

their per capita share of oil revenues which are diverted to

fisheries management from other benefits or State ser-

vices. It is this quantity which must be equivalent to the

fee differential for the fees to be constitutional under the

Carlson I analysis. See Carlson I, 798 P.2d at 1278.'7

16 However, this would be just the kind of compensatory

tax rationale which the Supreme Court struck down in Oregon

Waste Systems.

17 The State also argues that the per capita formula should

be rejected because it has never been used by any court in any

context. The State cites a string of equal protection cases to

support this assertion. See Baldwin, 436 U.S. 371, 98 S.Ct. 1852, 56

L.Ed.2d 354 (1978); LCM Enterprises, Inc. v. Town of Dartmouth, 14

F.3d 675 (1st Cir.1994); Johns v. Redeker, 406 F.2d 878 (8th

Cir.1969). However, these equal protection cases have no

bearing on the suitability of the per capita approach in this case.

In Baldwin the comparison being made was between the state’s

costs for maintenance of the big-game populations, not the

contributions made by resident big-game hunters to the

maintenance of big-game populations. Baldwin, 436 U.S. at 389,

98 S.Ct. at 1863. Additionally, in Baldwin the calculations were

being viewed under the rational basis test, a more lenient

standard than the intermediate scrutiny required in this case.

Baldwin, 436 U.S. at 390-91, 98 S.Ct. at 1864. Similarly, LCM

Enterprises is inapplicable because it too involved the

application of the rational basis test, which only requires that

the classification being challenged is rationally related to the

legitimate state interest. LCM Enterprises, 14 F.3d at 679. Johns

also has no relevance to the issue at hand because the court in

Johns does not discuss the method the trial court used to

determine the resident contribution which was being compared

with the higher fees charged to nonresidents. Johns, 406 F.2d at

883.

24a

As we have concluded that the resident contribution

must be calculated using the class’s per capita formula, we

remand the case for the application of this formula. If

under the formula the fee differential exceeds the resi-

dent contribution, the State will have failed to demon-

strate that the means employed by its statute have a

substantial enough relationship to the legitimate interest

of the statute to survive Privileges and Immunities Clause

review. Conversely, if the superior court finds that the fee

differential is not greater than the resident contribution,

the State has successfully carried its burden of proving

that the means employed by its statutory scheme are

substantially related to the legitimate interest served by

the statute. On remand the superior court shall address

issues relating to the additional budget figures presented

by the State. It will need to determine whether to accept

these new figures and decide whether it should grant a

stay and reopen discovery in order to allow the class to

respond to the State’s presentation of these new figures.

E. Prejudgment Interest of the Unlawful Portion of the

License Fees from the Date the Class Action Was

Filed

The class seeks a refund under AS 43.10.210,18 of all

unlawfully exacted fees from the date of filing the lawsuit

18 AS 43.15.010 was renumbered 43.10.210. AS 43.10.210(a)

provides:

The Department of Administration shall, with the

approval of the attorney general and the Department

of Revenue, refund to a taxpayer the amount of a tax

paid to the Department of Revenue under protest and

deposited in the treasury if

POETS or ee nn Pee

25a

with statutory prejudgment interest calculated under AS

45.45.010. In Carlson I we held that AS 43.15.010 would

govern any refund in this case, and that if the class

succeeded on its constitutional claims it could only

recover unlawfully collected fees if it could satisfy the

protest requirement of AS 43.15.010. 798 P.2d at 1279-80.

We remanded for further findings on whether the State

had waived the protest requirement, thereby allowing a

refund of all fees not barred by the statute of limitations.

Id. The superior court found that the State had not

waived the protest requirement.

The class admits that it could not have satisfied the

protest requirement for the taxes paid prior to the filing

of the lawsuit, and thus does not seek a refund of any

unlawfully assessed fees paid prior to June 22, 1984.

However, the class claims that the filing of the complaint

in the case at bar fulfills the protest requirement.

Although the State does not address this issue in its

brief, the record indicates that the State agrees that those

fees which were paid after June 22, 1984, were paid under

protest sufficient to permit a refund under AS 43.10.210.

This does not mean that the State concedes that any

refund would be due if the class succeeds. The State

argued below that it only had conceded that the protest

requirement of AS 43.10.210 had been met, and that this

“is merely one precondition to the ‘[r]ecovery of overpay-

ments and protested payments.’ ” Because the State does

(1) the taxpayer recovers judgment against the

Department of Revenue for the return of the tax... .

26a

not brief this issue, it is impossible to know whether it

would still make this argument.

If on remand the superior court determines that the

class has prevailed, the superior court must also decide

whether the filing of this suit constituted notice sufficient

to comply with the protest requirement of AS

43.10.210(a), and whether prejudgment interest is due

under AS 45.45.010.

IV. CONCLUSION

We conclude that this appeal does not implicate the

Commerce Clause. We REVERSE the superior court’s

approval of the State’s pro rata formula of calculating and

comparing the taxation burden placed on resident and

nonresident commercial fishers, and we REMAND for

application of the class’s per capita formula. We also order

that on remand the superior court address the unresolved

issues concerning the appropriate budget items to be

considered in determining the State’s expenditures (i.e.,

resident contributions). Additionally, if the superior court

finds for the class, it must determine the date from which

the class should be given a refund, and what, if any,

interest is due on that refund.

APPENDIX

The following is a comparison of the two proposed

formulae which uses the statistics proffered by the State

for the years 1982 through 1989. It is difficult to compare

the State’s and class’s formulae because they calculate

27a

and compare different quantities in an attempt to mea-

sure what residents and nonresidents are paying. The

class’s formula calculates the fee differential which would

be allowable, while the State’s formula computes the

respective percentages of costs of running the commercial

fisheries which residents and nonresidents could pay and

still be “treated similarly.”

A. Application of the Class’s Per Capita Formula

The class’s per capita formula: Fisheries Budget/

Alaska Population x Percentage State Budget from Oil

Revenues.

1982: $29,000,000 / 500,00019 x 83% = $48.14

1983: $31,000,000 / 500,000 x 81% = $50.22

1984: $34,000,000 / 500,000 x 82% = $55.76

1985: $34,800,000 / 500,000 x 82% = $57.07

1986: $34,500,000 / 500,000 x 86% = $59.34

1987: $29,600,000 / 500,000 x 76% = $44.99

1988: $29,300,000 / 500,000 x 83% = $48.64

1989: $29,900,000 / 500,000 x 82% = $49.04

Under the per capita formula the allowable fee differ-

ential will vary from year to year. For example, in 1982

the difference between a resident and nonresident permit

could not substantially exceed $48.14, while in 1986 the

difference could not substantially exceed $59.34.

19 For the purpose of this example we will assume that the

population of Alaska is 500,000.

28a

B. Application of the State’s Pro Rata Formula

The State’s formula calls for the comparison of two

calculations: (1) Fair Share of Resident Costs = (Residents’

Pro Rata Share?°) x (Fisheries Budget x Percentage of

State Revenue from Oil); and (2) Fair Share Nonresident

Costs = (Nonresidents’ Pro Rata Share?!) x (Fisheries

Budget x Percentage of State Revenue from Oil).

The following two tables are the application of these

formulae.

20 Residents’ Pro Rata Share: (Percentage of Permits Held

by Residents) x (Fisheries Budget).

21 Nonresidents’ Pro Rata Share: (Percentage of Permits

Held by Nonresidents) x (Fisheries Budget).

29a

Percentage of State’s Commercial Fishery Expenditures Paid By Residents:

Fiscal Column 1 Column 2 Column 3 Column 4 Column 5 Column 6 Column 7 Column 8

Year % of Limited Total Residents’ Pro % of the Total _‘ Residents’ Pro _—‘ Residents’ Fees Total Amount % Paid By

Entry Permits Expenditures By Rata Share of State Revenues Rata Share of Paid For Paid By Residents of

Held By Four Agencies _ Total To Which Expenditures Licenses and Residents To Their Pro Rata

Residents For Commercial Expenditures Nonresidents From Revenues Permits Participate in Share of State

Fishery Make No To Which Commercial Expenditures For

Management Contribution Nonresidents Fisheries Commercial

: Make No Fisheries

Contribution

1982 83% $29.0 $24.1 83% $20 1.3 $21.3 88%

1983 84% $31.0 $26.0 81% $21.1 1.3 $22.4 86%

1984 85% $34.0 $28.9 82% $23.7 1.2 $24.9 86%

1985 84% $34.8 $29.2 82% $23.9 1.5 $25.4 87%

1986 84% $34.5 $29.0 86% $24.9 1.5 $26.4 91%

1987 82% $29.6 $24.3 76% $18.5 1.7 $20.2 83%

1988 82% $29.3 $24.0 83% $19.9 2.0 $21.9 91%

1989 82% $29.9 $24.5 82% $20.1 2.0 $22.1 96%

30a

Percentage of State’s Commercial Fishery Expenditures Paid By Nonresidents:

Column 1 Column 2 Column 3 Column 4 Column 5

Year % of Limited Total Nonresidents’ Pro Nonresidents’ % Paid By

Entry Permits Expenditures By Rata Share of Fees Paid For Nonresidents of

Held By Four Agencies For Total Licenses and Their Pro Rata

Nonresidents Commercial Expenditures Permits Share of State

Fishery Expenditures For

Management Commercial

Fisheries

1982 17% $29.0 $4.9 $1.3 27%

1983 16% $31.0 $5.0 $1.2 24%

1984 15% $34.0 $5.1 $1.0 20%

1985 16% $34.8 $5.6 $1.2 21%

; 19386 16% $34.5 $5.5 $1.3 24%

1987 18% $29.6 $5.3 $1.6 30%

| 1988 18% $29.3 $5.3 $2.3 43%

1989 18% $29.9 $5.4 $2.2 41%

ee

3la

Under the pro rata formula the differential is constitu-

tional as long as the percentage of fair costs nonresidents

are paying does not exceed the percentage of fair costs

that residents are paying. Thus, the fee differential was

constitutional in 1983 because residents paid 86% of their

share and nonresidents only paid 24% of their share. As

stated in the text of the opinion, the flaw with this for-

mula is that it treats the resident fishers as if they alone

are paying the tax equivalent (percentage of revenues to

which nonresidents make no contribution). For this for-

mula to accurately calculate the resident fishers’ contri-

bution, it would need to divide the residents’ pro rata fair

share by the population of Alaska and then multiply by

the number of resident fishers.

RABINOWITZ, Justice, dissenting.

The majority concludes that since Oregon Waste Sys-

tems v. Department of Environmental Quality, 511 U.S. 93,

114 S.Ct. 1345, 128 L.Ed.2d 13 (1994), was decided under

the Commerce Clause as opposed to the Privileges and

Immunities Clause, its reasoning is inapposite here. I

cannot agree.

The United States Supreme Court has long acknowl-

edged “the mutually reinforcing relationship between the

Privileges and Immunities Clause of Art. IV, § 2, and the

Commerce Clause - a relationship that stems from their

common origin in the Fourth Article of the Articles of

Confederation and their shared vision of federalism. ...”

Hicklin v. Orbeck, 437 U.S. 518, 531-32, 98 S.Ct. 2482, 2490,

57 L.Ed.2d 397 (1978). It has, in fact, endorsed the meth-

odology of referring to Commerce Clause precedent in

32a

deciding claims based solely on the Privileges and Immu-

nities Clause. Id. See also Sestric v. Clark, 765 F.2d 655, 664

(7th Cir.1985) (“The two clauses are part of the same

document, drafted by very intelligent and careful men;

why would they have wanted the same discrimination

against nonresidents to be tested by a different standard,

depending on which clause was cited in the complaint?”).

I do not mean to suggest that the two clauses are

completely interchangeable. The differences between

them, however, appear to primarily involve matters of

scope as opposed to content. For example, the market

regulator - market participant doctrine can shield a state

from Commerce Clause attack but not from a claim based

on the Privileges and Immunities Clause. United Bldg. &

Constr. Trades Council v. Mayor, 465 U.S. 208, 221-22, 104

S.Ct. 1020, 1029, 79 L.Ed.2d 249 (1984). On the other side

of the equation, the Commerce Clause protects corpora-

tions, while the Privileges and Immunities Clause does

not. Paul v. Virginia, 75 U.S. (8 Wall) 168, 19 L.Ed. 357

(1869).

In this way discrimination predicated somehow on

state affiliation can fall within the scope of the Privileges

and Immunities Clause alone, the Commerce Clause

alone, both clauses, or, for that matter, neither.! Once it

1 A well-recognized example of this last category would

be a policy of discriminating against nonresidents in the

granting of recreational game or fishing license fees. This kind

of state discrimination does not implicate the Commerce Clause

since it does not significantly burden interstate commerce, and

it does not implicate the Privileges and Immunities Clause

because it does not involve a fundamental right. See, e¢.g.,

Sena A aod a be

33a

has been determined that a discriminatory policy falls

within the purview of one or both of these clauses, how-

ever, I am not persuaded that the methodology of the two

should diverge in any significant respect. The extent to

which the interpretation of these two clauses has histori-

cally been interwoven confirms this assessment.

Further, tne level of scrutiny triggered by a discrimi-

natory policy that falls within the scope of either of these

clauses appears to be very nearly identical. Professor

Tribe has observed that the standard of review employed

in Privileges and Immunities cases is “almost as demand-

ing as that elaborated by the Warren Court in equal

protection and first amendment strict scrutiny.”? Sim-

ilarly, in Oregon Waste Systems, the Supreme Court

observed that Commerce Clause cases “require that justi-

fications for discriminatory restrictions on commerce pass

the ‘strictest scrutiny.’ ” Oregon Waste Systems, 511 U.S. at

__, 114 S.Ct. at 1351. Under both clauses, the burden is

placed on the state to provide a sufficient justification for

its discriminatory policy.

Considering the significant similarities between the

two clauses, it not surprising that in Carlson I we simply

referenced our Privileges and Immunities Clause analysis

in order to dispose of the Commerce Clause issue, con-

cluding that “(t]he analysis under Article I, section 8,

clause 3 of the United States Constitution (the Commerce

Clause) is quite similar, assuming that it is implicated.”

Baldwin v. Fish and Game Comm'n of Montana, 436 U.S. 371, 98

S.Ct. 1852, 56 L.Ed.2d 354 (1978).

2 Lawrence H. Tribe, American Constitutional Law § 6-35, at

544 (2d ed.1988).

34a

Carlson I, 798 P.2d at 1276. Indeed, we went on to state

that “[i]Jt would be anomalous... to conclude that a law

facially discriminating against interstate commerce could

pass muster under the Privilege and Immunities Clause

yet fail under the Commerce Clause; both clauses have a

common origin in the fourth article of the Articles of

Confederation.” Id. at 1277 n. 5. In the wake of the United

States Supreme Court’s ruling in Oregon Waste Systems,

however, the majority has reconsidered this position and

concluded that, in fact, “the analysis is not interchange-

able.”

It is obvious that the fee discrepancy in this case

implicates the Privileges and Immunities Clause. The pol-

icy is facially discriminatory, and it impairs an interest

that is “fundamental” for purposes of Privileges and

Immunities Clause analysis. Given the exceptionally close

relationship between this clause and the Commerce

Clause, I cannot, as noted above, join in the majority’s

summary rejection of the United States Supreme Court's

reasoning in Oregon Waste Systems.

The justification offered by Oregon for discriminating

against out-of-state interests in Oregon Waste Systems is

very similar, if not identical, to the justification advanced

by the State in the case at bar. The primary rationale is

that out-of-state interests ought to be made to bear their

“fair share” of the costs that their activities impose on the

state. Oregon Waste Systems, 511 U.S. at __, 114 S.Ct. at

1351; Carlson I, 798 P.2d at 1272. In both cases, the “share”

Spee cle Pal Fit ade hs tears

35a

or contribution of in-state interests is augmented by gen-

eral state tax revenues, or their analytical equivalent, in

order to justify the tax or fee discrepancies.*

In Carlson I, we concluded that this kind of augmen-

tation was acceptable under the holding of Toomer v.

Witsell, 334 U.S. 385, 68 S.Ct. 1156, 92 L.Ed. 1460 (1948). In

Toomer, the Supreme Court stated, in dicta, that a state

could “charge non-residents a differential which would

merely compensate the State . . . for any conservation

expenditures from taxes which only residents pay.” Id. at

399, 68 S.Ct. at 1163. The Supreme Court in Oregon Waste

Systems, however, expressing its reluctance to “plunge

-,. into the morass of weighing comparative tax burdens

by comparing taxes on dissimilar events[,]” explicitly

rejected this type of justification for state discrimination

in the Commerce Clause context. Oregon Waste Systems,

3 Although the majority asserts that the fee-shifting we

authorized in Carlson I is not the same kind of fee-shifting

denounced by the Supreme Court in Oregon Waste Systems, I

think that the similarities between the two far outweigh any

potential differences. The approach authorized by the majority

seems to place greater emphasis on the theoretical equality of

individual contributions than the Oregon tax did. There is,

however, no indication that the Oregon tax was designed to

impose on out-of-state interests their “entire share” of solid

waste disposal costs nor, for that matter, that the shares of

disposers of in-state waste, who paid an $0.85 per ton fee, were

to be borne by the entire population. More importantly, the

decision in Oregon Waste Systems did not turn on the fact that the

surcharge was excessive but rather on the conclusion that any

surcharge was constitutionally offensive under the

circumstances. Consequently, the majority’s endorsement of the

class’s per capita approach does not sufficiently distinguish the

fee discrepancies here from those in Oregon Waste Systems.

36a

511 U.S. at __, 114 S.Ct. at 1353 (citations and internal

quotation marks omitted).

The majority correctly observes that the compensa-

tory tax doctrine, focusing on whether or not the taxes

which allegedly cancel each other out are imposed on

“substantially equivalent events,” finds its origins in

Commerce Clause cases. It does not follow from this

observation, however, that the doctrine has no place in

Privileges and Immunities analysis. There is nothing

inherent in this doctrine, or the policy concerns behind it,

that indicates that it should only apply to discriminatory

state taxation challenged under the Commerce Clause.

In Armco, Inc. v. Hardesty, 467 U.S. 638, 104 S.Ct. 2620,

81 L.Ed.2d 540 (1984), the Supreme Court struck down a

discriminatory tax on the grounds that “manufacturing

and wholesaling are not ‘substantially equivalent events’ ”

on which compensating taxes might be imposed. Id. at

643, 104 S.Ct. at 2623. In that case, West Virginia had

imposed a wholesale gross receipts tax from which local

manufacturers were exempt. The policy underlying the

exemption was that it would put in-state manufacturers

who were wholesaling their products in West Virginia on

equal footing with their out-of-state competitors who

were functionally exempt from West Virginia’s manufac-

turing tax.4 The Court rejected this justification, observ-

ing that

4 Presumably the only reason that the Privileges and

Immunities Clause was not invoked in this case - where it

would seem to be a natural choice — is that the plaintiff was a

corporation not entitled to protection under that clause. As

such, the Armco case provides an excellent example of how the

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37a

[i]Jf Ohio or any of the other 48 States imposes a

like tax on its manufacturers — which they have

every right to do —- then Armco and others from

out of state will pay both a manufacturing tax

and a wholesale tax while sellers resident in

West Virginia will pay only the manufacturing

tax.

Id. at 644, 104 S.Ct. at 2623.

Likewise, the Supreme Court in Oregon Waste Systems

observed that Oregon’s compensatory tax theory

“ignore[s] the fact that shippers of waste from other

States in all likelihood pay income taxes in other States, a

portion of which might well be used to pay for waste

reduction activities in those States.” Oregon Waste Sys-

tems, 511 U.S. at ___n. 7, 114 S.Ct. at 1353 n. 7.

In this respect the “substantially equivalent events”

test essentially serves to identify a significant logical flaw

that often infects “fair share” justifications for discrimina-

tory taxes. I can see no reason to assume that this flaw is

any less serious when it is exposed through litigation

based upon the Privileges and Immunities Clause than it

is when challenged under the Commerce Clause.°

“substantially equivalent events” test should apply with equal

force regardless of which clause is invoked.

5 A commentator has observed:

While differences exist between the purposes and

functions of the two constitutional clauses, they

clearly exert overlapping spheres of influence. To

hold the same tax invalid under one clause because it

does not meet the substantially equivalent events

requirement of the compensatory tax test, but valid

under the other clause because it is important . . . that

38a

The justification advanced by the State in this case

suffers from precisely the same defect alluded to in both

Armco and Oregon Waste Systems. Specifically, a fisher

from Oregon who purchases a commercial license in

Alaska will no doubt be under an obligation to pay

Oregon income taxes, a portion of which probably will

have been used for conservation costs in that state.

Accordingly, the fee discrepancy places the Oregon fisher,

as a nonresident, at a competitive disadvantage. In other

words, both the Alaska fisher and the Oregon fisher are

obliged to contribute to a general tax fund® from which

their respective States may draw monies to support local

fisheries, but only the Oregon fisher is being called upon

to pay enhanced fees.

Restating our holding in Carlson I, the majority con-

cludes that “(t]he disparate fees charged to nonresidents

will not offend the Privileges and Immunities Clause if

the differential does not exceed the contribution made by

residents, because the differential will be justified as

imposing on nonresidents their share of the costs of com-

mercial fisheries.” Implicit in this analysis is that a share

a state have power to preserve and regulate the

exploitation of an important resource through means

of a functionally compensatory tax, is surely to

elevate form over substance.

Jeffrey J. Lamontagne, Note, Oregon's Wasted Effort: The Supreme

Court’s Inability to Adapt its Compensatory Tax Doctrine to Solid

Waste Regulations, 19 Wm. & Mary Envtl. L. & Poi’y Rev. 345, 360

(1995) (citations and internal quotation marks omitted).

6 The Alaskan fisher “contributes” in the form of foregone

benefits from petroleum revenues.

39a

of this state’s petroleum revenues, the analytical equiva-

lent to general tax revenues, should be attributed to the

resident fishers in calculating their contribution. Since I

believe that the United States Supreme Court’s holding in

Oregon Waste Systems effectively forecloses this method of

justifying a discriminatory tax, I cannot agree.

On the basis of the Supreme Court’s reasoning in

Oregon Waste Systems, I conclude that the fee discrepan-

cies authorized by AS 16.05.40, AS 16.43.160 and 20 AAC

05.240 violate the Privileges and Immunities Clause of the

Constitution of the United States of America.