## Facts

- Amoco Production Company (Amoco), a Delaware corporation and subsidiary of Standard Oil Company of Indiana, conducted a multistate oil and gas exploration and production business, including activities in Alaska.
- Alaska had adopted the Uniform Division of Income for Tax Purposes Act (UDITPA), which apportioned a multistate business’s income using a three-factor formula (property, payroll, and sales).
- Under UDITPA, the property factor looks to the value of a taxpayer’s property “used in the business” in the taxing state compared to such property everywhere.
- In computing Amoco’s Alaska apportionment, the Alaska Department of Revenue (the Department) included the value of Amoco’s Alaska oil and gas leaseholds that were not producing oil or gas during the tax period.
- Amoco challenged the Department’s calculation in the Alaska superior court, arguing that nonproducing leaseholds were not “used” in the business and therefore could not be included in the property factor.
- The superior court agreed with Amoco, reversed the Department’s determination, and excluded the nonproducing leaseholds from the property factor.
- The Department appealed to the Alaska Supreme Court.

## Issues

1. Whether Amoco’s nonproducing Alaska oil and gas leaseholds were “property … used in the business” under Alaska’s UDITPA property factor and therefore properly included in the apportionment calculation.

## Decision

- The Alaska Supreme Court reversed the superior court.
- The court held that the Department could include the value of Amoco’s nonproducing Alaska leaseholds in the UDITPA property factor.
- The matter was remanded for further proceedings consistent with the court’s ruling.

## Legal Principles

- For UDITPA apportionment, “used in the business” is not limited to property generating current output; property held as part of ongoing business operations, including exploration and development activities, may qualify as “used.”
- In an oil and gas enterprise, leaseholds acquired and retained for exploration and future production can be treated as business property connected to the income-producing activity, even when not producing during the period at issue.
- Interpreting “used” to exclude nonproducing leaseholds solely because they are not yet producing can yield an apportionment result that does not reflect the taxpayer’s in-state investment and operations.
- A reasonable, long-standing construction of a tax statute by the agency charged with administering it is entitled to substantial judicial weight when the statutory text permits the agency’s reading.

## Conclusion

The Alaska Supreme Court held that Amoco’s nonproducing Alaska oil and gas leaseholds, held for exploration and potential development, were property “used in the business” under Alaska’s UDITPA property factor. The court reversed the superior court’s exclusion of those leaseholds and remanded for recomputation of Amoco’s Alaska apportionment including their value.


State of Alaska, Department of Revenue v. Amoco Production Company, 676 P.2d 595 (1984)