Fairbanks v. Dená Nená Henash

• Decision Date: 02 April 2004
• Docket Number: No. S-10029., No. S-9849
• Parties: FAIRBANKS NORTH STAR BOROUGH, Appellant/Cross-Appellee, v. DENÁ NENÁ HENASH a/k/a Tanana Chiefs Conference, Inc., Appellee/Cross-Appellant.
• Court: Alaska Supreme Court

88 P.3d 124

FAIRBANKS NORTH STAR BOROUGH, Appellant/Cross-Appellee, v. DENÁ NENÁ HENASH a/k/a Tanana Chiefs Conference, Inc., Appellee/Cross-Appellant.

Nos. S-9849, S-10029.

Supreme Court of Alaska.

April 2, 2004.

A. René Broker, Assistant Borough Attorney, for Appellant/Cross-Appellee.

Michael J. Walleri, Law Offices of Michael J. Walleri, Fairbanks, for Appellee/Cross-Appellant.

Before: FABE, Chief Justice, MATTHEWS, EASTAUGH, BRYNER, and CARPENETI, Justices.

OPINION

EASTAUGH, Justice.

I. INTRODUCTION

Tanana Chiefs Conference, Inc. (TCC), also known as Dená Nená Henash, is a regional Native nonprofit corporation that uses its properties in the Fairbanks North Star Borough to provide health, social, community development, and similar services throughout Interior Alaska. When TCC sought charitable-purposes tax exemptions for some of its properties, the borough assessor denied TCC's applications, finding that TCC's programs were largely funded by government contributions and that TCC's receipts usually exceeded the cost of operating its programs. TCC appealed and the superior court reversed, ruling that six of TCC's parcels were wholly or partially exempt. The borough and TCC both appeal. We conclude that TCC's properties were not altogether ineligible for charitable-purpose exemptions, and that the assessor should have granted most of TCC's exemption applications. We therefore affirm the decision of the superior court.

II. FACTS AND PROCEEDINGS

Tanana Chiefs Conference is a regional Native nonprofit corporation organized under the Alaska Native Claims Settlement Act.¹ It represents forty-three Interior Alaskan Native communities and qualifies for exemption from federal income tax.² TCC owns several properties in the Fairbanks North Star Borough, including the six-story TCC building, the TCC Annex (the BESCO building), and the Paul Williams House. Among other things, TCC offers medical services and conducts lands management, tribal government assistance, and natural resources programs at these properties.

Village councils select forty-three representatives for TCC's board of directors, which elects a nine-member executive board. The corporation has five major divisions: Administration and Finance, Planning and Development, Health Services, Native Services, and Subregional/Village Programs. TCC's programs are funded largely through its contracts with the federal and state governments. These contracts support TCC's dental and eye services, mental health services, community services for women and children, economic and business support for members of the community, and sanitation maintenance training. TCC's base funding comes from contracts with the Bureau of Indian Affairs and the Indian Health Services under the Indian Self-Determination Act, 25 U.S.C. § 450 et seq.

In 1996, 1997, and 1998 federal and state government sources provided about ninety percent of TCC's program funds. The remainder of TCC's funding came from what TCC calls "self-generated money," including interest and investment income, rental income, and program income from third-party insurers, Medicare, and Medicaid.

Real property exclusively used for "non-profit... charitable purposes" is exempt from municipal property tax in Alaska.³

In March 1997 TCC filed ten appeals with the borough assessor seeking exemptions from real property taxation for the BESCO building, the Paul Williams House, and five floors of the TCC building. TCC sought these tax exemptions on the ground it used these properties to provide services for "charitable purposes." TCC acknowledged that some of its property is taxable, and only sought exemption for the tax lots in dispute here. The assessor denied tax-exempt status for each parcel in July 1997 and declined to apportion the space for any of the parcels between exempt and non-exempt uses.

TCC appealed the assessor's denial to the superior court, which remanded to the assessor for further proceedings because the court held that the assessor had not made specific findings of fact. On remand, the assessor conducted a hearing and entered findings of fact and conclusions of law. The assessor again denied TCC's exemption requests for each parcel.⁴ TCC again appealed the assessor's decision to the superior court. In a thoughtful memorandum decision issued November 17, 2000, Superior Court Judge Richard D. Savell thoroughly reviewed the record, the assessor's findings and conclusions, and the pertinent constitutional and statutory provisions and case law. The superior court first rejected the borough's argument and the assessor's conclusion that receipt of government funding precluded any exemption. The court then examined the use of each contested parcel to determine its eligibility for tax exemption. Concluding that the assessor's denials as to six of the disputed parcels lacked a reasonable legal basis, the superior court reversed in whole or in part the assessor's rulings as to those parcels. The superior court then awarded TCC about forty percent of its attorney's fees.

The borough argues on appeal that no part of TCC's properties should be exempt from taxation. It therefore asks us to reverse those parts of the superior court decision that found some of TCC's parcels to be tax-exempt. TCC's cross-appeal asks us to reverse the superior court decision to the extent it affirmed the assessor's denial of TCC's exemption applications for two of the parcels. TCC's cross-appeal also argues that the superior court erred by failing to award TCC full reasonable attorney's fees; it argues alternatively that TCC should receive seven-eighths of its attorney's fees.

III. DISCUSSION

A. Fairbanks North Star Borough's Appeal: Was TCC Entitled to Any Exemption for a Charitable Purpose?

1. Standard of review

Because the superior court, as the intermediate appellate court, did not conduct a trial de novo on appeal, and made no findings of fact of its own,⁵ we independently review the decision of the borough assessor.⁶ The borough asserts that its "argument ultimately rests on an interpretation of `charitable purposes.'" It asks us to interpret the charitable-purposes tax exemption to be inapplicable if the property owner receives "full compensation for its services through a combination of government contracts, third-party insurers, and participant fees, and ... consistently earns more income than it expends...." This argument requires us to interpret the Alaska Constitution, the Alaska Statutes, and case law. As to this argument, we consequently review the assessor's decision under the "substitution of judgment test" and do not defer to the assessor's administrative expertise.⁷ To the extent the borough's arguments require review of the assessor's factual findings, we apply the "substantial evidence" standard of review.⁸

The main question involved in this case is one of law to which "we apply our independent judgment and adopt the rule of law that is most persuasive in light of precedent, reason, and policy."⁹ Taxpayer exemptions are strictly construed against the taxpayer and in favor of the taxing authority.¹⁰ The burden of proving eligibility for an exemption is on the taxpayer.¹¹ The policy underlying the rule of strict construction and the burden of proof is:

All property is benefited by the security and protection furnished by the State, and it is only just and equitable that expenses incurred in the operation and maintenance of government should be fairly apportioned upon the property of all.¹²

Boards of equalization may spatially apportion exempt from nonexempt uses of a building and tax the nonexempt space. In all contested cases boards of equalization are required to make findings of fact sufficient to explain the reason for their decisions.¹³ Such findings are reviewed deferentially and will be affirmed if they are supported by substantial evidence.¹⁴

2. Charitable-purpose exemption analysis

Per article IX, section 4 of the Alaska Constitution, property is exempt from taxation in Alaska if it is "used exclusively for non-profit ... charitable purposes, as defined by law...." Section 4 provides in relevant part:

The real and personal property of the State or its political subdivisions shall be exempt from taxation under conditions and exceptions which may be provided by law. All, or any portion of, property used exclusively for non-profit religious, charitable, cemetery, or educational purposes, as defined by law, shall be exempt from taxation. Other exemptions of like or different kind may be granted by general law. All valid existing exemptions shall be retained until otherwise provided by law.¹⁵

Alaska Statute 29.45.030(a)(3)¹⁶ and Fairbanks North Star Borough (FNSB) Ordinance 3.08.020¹⁷ are substantially similar to article IX, section 4, but do not include the "as defined by law" clause.

"A taxpayer claiming a tax exemption has the burden of showing that the property is eligible for the exemption. Furthermore, the courts must narrowly construe statutes granting such exemptions."¹⁸ But, as the superior court observed, "[t]his canon of strict construction `is an aid to, not a substitute for, statutory interpretation; the interpretation must still be a reasonable one.'"¹⁹ The borough asserts that none of TCC's properties is eligible for a charitable-purposes exemption. It ultimately founds this assertion on the assessor's factual finding that TCC is fully, or more than fully, remunerated for its services by federal and state government funding, medical insurance payments, and its investment and rental income. It asks us to read the charitable-purposes exemption in light of three proposed eligibility requirements, and thus argues that TCC's activities are not for charitable purposes because they (1) do not provide the public with a gift or significant benefit, (2) do not lessen a governmental burden, and (3) do not subsidize a socially worthy activity.²⁰ The borough's opening brief attributes...