May Alaska tax a corporation that was administratively dissolved by its state of domicile but that continued to conduct business in Alaska? The corporation says no. First, it asserts that no court has subject matter jurisdiction to determine whether taxes may be assessed on a dissolved corporation. Because Alaska courts have subject matter jurisdiction to determine the taxability of corporate entities, we reject this jurisdictional challenge.
Second, the corporation argues that the State of Alaska may not tax a corporation that has been administratively dissolved by another state. The Office of Tax Appeals agreed, concluding that, because the corporation had been dissolved in Washington, it no longer existed for tax purposes in Alaska. Because Alaska courts have subject matter jurisdiction to determine taxability of corporations operating in this state, and because the corporation did not cease to exist for Alaska corporate income tax purposes, we affirm the superior court's decision to reverse the Office of Tax Appeals.
Northwest Medical Imaging, Inc. (Northwest Medical) was incorporated under the laws of the State of Washington in 1988. Dr. James Pister was the sole director and shareholder of the corporation. Effective February 21, 1990, the corporation was administratively dissolved by the State of Washington for failure to file its initial list of officers and directors and for failure to pay the annual license fee required by the state. The parties have stipulated that Dr. Pister did not become aware of this dissolution until December 1998.
Despite its administrative dissolution Northwest Medical continued to act as a corporation between 1990 and 1998. Corporate actions included entering written contracts in the name of the corporation to provide radiology services to health care organizations and hospitals; contracting with service providers such as accountants, financial consultants, and lawyers; contracting with medical organizations; maintaining a corporate checking account in Alaska; filing Alaska and federal corporate income tax returns; leasing a vehicle in the corporate name; and filing the underlying appeal of the tax deficiency assessed by Alaska for corporate income taxes. Dr. Pister admitted during argument before the Office of Tax Appeals that business transactions were conducted under the name Northwest Medical Imaging, Inc. for the period 1990 through 1998.
In 1999 Northwest Medical's accountants learned of the corporation's administrative dissolution. Upon learning of the dissolution, Dr. Pister instructed the accountants to "wind up" the corporate accounts and tax filings as existing contracts expired. By 2000 all of the corporate contracts had expired except one. Dr. Pister sold that contract and stopped doing business under the name Northwest Medical Imaging, Inc.
The Alaska Department of Revenue now seeks to collect state corporate income taxes for business conducted by between 1991 and 1995. The department claims the corporation owes the state $88,665 in taxes, plus interest and penalties. Northwest Medical argues that it was not subject to Alaska corporate taxes for the years following its dissolution.
The Office of Tax Appeals (the Office of Tax Appeals or OTA) concluded as a matter
Upon the department's appeal, the superior court reversed and remanded. The superior court first noted that the purported dissolution was supported by fairly weak evidence, including an undated document from the Washington Secretary of State's office, representations of counsel that the corporation was dissolved, references to the State of Washington's web page, and a computer print-out, apparently from that web page. The court held that the finding of administrative dissolution on the basis of this evidence was premature. The court also determined that, even if the dissolution was effective, OTA's legal conclusions were flawed. In contrast to OTA, the superior court concluded that a dissolved corporation may continue to exist as a corporation, depending on the factual situation presented. The superior court remanded for OTA to consider whether Northwest Medical could be subject to taxation despite its dissolution.
On remand, OTA again concluded that the corporation did not exist for tax purposes from 1991 to 1995. Applying Washington law, it determined that Northwest Medical had been effectively dissolved on February 21, 1990—the date on which the certificate of administrative dissolution was issued. It then concluded that, under Washington law, the corporation legally ceased to exist as of the date of administrative dissolution. It further stated that under federal law, the corporation ceased to exist when it was administratively dissolved under Washington law. According to OTA, because the corporation ceased to exist immediately upon dissolution, it did not exist for tax purposes after 1990. Thus, OTA abated the taxes and penalties assessed against Northwest Medical for tax years 1991 through 1995.
The Department of Revenue again appealed. Northwest Medical filed a motion to dismiss the department's appeal on the ground that it was untimely. The superior court denied the motion to dismiss, holding that although the state failed to appeal within thirty days of service of OTA's decision, a conflicting statute justified relaxation of the thirty-day limit of Appellate Rule 602. Alaska Statute 43.05.480(a) provides that appeals of tax agency decisions must be filed within thirty days of the date the decision becomes final, and AS 43.05.465(f) states that such decisions do not become final until sixty days after service, allowing a total of ninety days to appeal.
On the merits, the superior court again reversed OTA, stating:
The court explained that, despite Northwest Medical's administrative dissolution, it actively operated as a de facto corporation for many years after the effective date of its dissolution. The court held that, despite administrative dissolution by a foreign state, Northwest Medical remained liable for Alaska corporate income taxes. The superior court again questioned the validity of the dissolution, but did not make any specific findings in that regard. It also disagreed with OTA's conclusion that Washington corporations immediately cease to exist after dissolution. Finally, the superior court concluded that, even if Northwest Medical had been administratively dissolved and ceased to exist under Washington law, it still acted as a business entity in Alaska, subjecting it to Alaska corporate taxes.
Northwest Medical appeals. Its principal point on appeal is that the courts of this state do not have subject matter jurisdiction to consider claims brought against a defunct corporation. We conclude that the courts of
When the superior court acts as an intermediate court of appeal in an administrative matter, we "independently review and directly scrutinize the merits of the [agency]'s decision."
Whether an agency acting in a judicial capacity or the superior court has subject matter jurisdiction is a question of law, subject to de novo review by this court.
We review for abuse of discretion the superior court's decision to waive procedural rules and accept a party's untimely appeal.
We begin our analysis by examining the subject matter jurisdiction of the Office of Tax Appeals, the superior court, and the Department of Revenue. We next consider whether Northwest Medical is liable for corporate income taxes under Alaska law. Finally, we discuss whether the superior court abused its discretion in entertaining the second appeal.
Northwest Medical's primary stated purpose in this appeal is to challenge the subject matter jurisdiction of state adjudicatory bodies over a defunct corporation. This challenge is based on its claim that subject matter jurisdiction is absent because the corporation did not exist for the time period during which the department seeks to tax it.
Subject matter jurisdiction is "the legal authority of a court to hear and decide a particular type of case."
The superior court acts as an intermediate court of appeal in administrative matters. Alaska Statute 22.10.020(d) declares that the superior court "has jurisdiction in all matters appealed to it from . . . [an] administrative agency when appeal is provided by law." Alaska Statute 43.05.480 provides for judicial review of final administrative decisions made by OTA. This statute confers subject matter jurisdiction on the superior court under the present circumstances.
Because OTA and the superior court have subject matter jurisdiction under the relevant statutes, we deny Northwest Medical's jurisdictional challenge.
Although Northwest Medical describes its jurisdictional challenge as against OTA and the superior court, it also directs its protest against the Department of Revenue's ability to assess and enforce taxes. Northwest Medical contends that the department lacks judicial authority to levy and enforce tax assessments and penalties.
Alaska Statute 43.05.010(7) specifically confers upon the Department of Revenue the authority to "hold hearings and investigations necessary for the administration of state tax and revenue laws." Alaska Statute 43.05.010(8) further grants the department the responsibility to "hear and determine appeals of a matter within the jurisdiction of the Department of Revenue and enter orders on the appeals that are final unless reversed or modified by the courts."
Because the legislature has conferred assessment and adjudicatory duties upon the Department of Revenue, Northwest Medical's jurisdictional challenge against the department must fail.
Although our decision regarding subject matter jurisdiction resolves the only substantive issue that Northwest Medical directly appealed, we may consider issues not preserved for appeal if the issues were raised and briefed below.
OTA asserted that "federal courts consider the statutory and common law of the corporate domicile in determining whether a corporate taxpayer has dissolved and still holds valuable assets." Because Northwest Medical was domiciled in Washington, OTA applied Washington law and concluded that, under that state's law, once the corporation was administratively dissolved it ceased to exist for taxation purposes.
However, OTA mistakenly assessed the extent to which federal courts defer to the law of the domiciliary state. Indeed, the case upon which OTA relied for its assertion that Washington law controlled, United States v. McDonald & Eide,
Is the decision of OTA "consisten[t] with the purposes of federal tax law?" Federal Treasury Regulation 1.6012-2(a)(2) (as amended in 2006) governs the cessation of corporate existence for federal tax purposes. The regulation states in part:
In other words, dissolution alone is not enough to cause a corporation to cease to exist for tax purposes—the cessation of business and a lack of assets are also required. Because this federal regulation provides clear guidance for determining the existence of dissolved corporations, and hence their taxability, there are no interstices that need be filled by state law. We therefore conclude that OTA erred in relying on Washington law to determine whether Northwest Medical existed for federal, and derivatively Alaska, taxation purposes.
Alaska law generally incorporates federal tax law regarding corporations.
OTA relied on Washington state law to conclude that Northwest Medical had ceased doing business because, once the corporation was dissolved, it could not enter into any contracts unrelated to winding up and dissolution. Consequently, any new contracts or leases entered into under the corporate name "were rendered Dr. Pister's personal responsibility regardless of the fact that he purported to act for the corporation when he executed them."
OTA also found that Northwest Medical retained only the most minimal of assets after dissolution. According to that office, at the time of dissolution Northwest Medical had no long-term contracts ("because Dr. Pister was providing medical radiology services on a per-job basis") and owned only one Xerox copier, one computer, two or three hand-held tape recorders, and a few medical books, with a total value of $3,600.
OTA looked to United States v. McDonald & Eide,
Unlike the corporations in McDonald, Cold Metal, and Henry Hess, Northwest Medical continued to earn income and to make contracts after it was dissolved. The parties stipulated that "business transactions were conducted under the name Northwest Medical Imaging, Inc., including the maintenance and use of bank accounts; contracting with physicians; contracting with service providers such as accountants, financial consultants and lawyers; contracting with medical organizations; and leasing vehicles." These actions indicate that the corporation did not cease its business operations. Under federal law, a corporation does not cease to exist just because it has been dissolved; it must also cease all business activity and divest itself of all assets. Northwest Medical, although dissolved, continued to contract and provide services under its corporate name.
Moreover, contrary to OTA's conclusion, several cases suggest that corporate dissolution does not automatically insulate a corporation from corporate tax liability. OTA failed to address these cases, which were highlighted by the superior court. For example, in Hill v. Commissioner,
Similarly, in Hersloff v. United States,
By maintaining active bank accounts; contracting with physicians, service providers, and medical organizations; and leasing vehicles, Northwest Medical continued to conduct business. The outstanding contracts and the leased vehicles constitute significant business assets. Consequently, we hold that, although the corporation was administratively dissolved, it continued to exist for purposes of taxation. OTA erred in holding that under federal and Alaska law Northwest Medical was not taxable post-dissolution.
OTA acknowledged in its first opinion that the result of its decision was undesirable. It stated, "Concluding that NWMI is not liable for Alaska corporate income taxes under these circumstances is troubling because it seems to reward Dr. Pister for conduct that, at best, was negligent with respect to business and tax matters." Nonetheless, OTA held firm to its conclusion, apparently relying in part on the notion that Dr. Pister could be held personally liable for the actions of the dissolved corporation. Citing White v. Dvorak,
It is true that the court in Dvorak held that the shareholder of an administratively dissolved corporation could sue personally and individually to enforce a contract.
The Washington Supreme Court addressed that question in Equipto Division Aurora Equipment Co. v. Yarmouth,
We addressed the inequity of such a result in University of Alaska v. Thomas Architectural Products, Inc.
OTA's decision in the present case would have just such an inequitable result and would create precisely the perverse incentives we sought to avoid in Thomas. Northwest Medical would be rewarded for failing to comply with its corporate obligations and responsibilities, including paying the appropriate licensing fees, as well as taxes on income it earned in Alaska while operating under the corporate name.
OTA distinguishes Thomas by arguing that the Department of Revenue was not a creditor at the time Northwest Medical was dissolved. OTA focuses on the fact that no tax claims arose before the certificate of dissolution was issued. However, Northwest Medical continued to operate as a business entity for several years after the certificate of dissolution was issued. All businesses operating in Alaska are responsible for knowing and complying with corporate income tax laws. Thus, the Department of Revenue was a known creditor at the time Northwest Medical conducted business in the state.
OTA distributed its final decision on August 6, 2003. The state appealed the decision to the superior court on October 31, 2003, eighty-six days later. Northwest Medical argued before the superior court that the state's appeal was untimely and should be dismissed. The superior court concluded that, although the state failed to appeal within thirty days of the date of service of OTA's final decision, Appellate Rule 521 allowed the superior court to relax the filing deadline.
Under the statutory provisions governing revenue and taxation, an appeal must be filed within thirty days after the decision becomes final.
The state argues that OTA's decision was not an order upon reconsideration because
Thus, the state's contention is that OTA erred in its characterization of its own decision and that the decision would not become final until sixty days after the date it was served. Under the state's view, its appeal was timely.
We need not resolve whether OTA's decision was a "decision upon reconsideration" under subsection .065(e) because Appellate Rule 521 authorizes a court to relax the rules "where a strict adherence to them will work surprise or injustice."
Because the Office of Tax Appeals and Alaska courts have subject matter jurisdiction to determine whether an active but dissolved corporation may be taxed, we reject Northwest Medical's jurisdictional challenge. Because the superior court did not abuse its discretion in accepting the department's appeal and because the corporation, although administratively dissolved by the State of Washington, did not cease to exist as a corporate entity for purposes of taxation by Alaska, we AFFIRM the superior court's decision requiring Northwest Medical to pay the assessed taxes plus interest and penalties.