Greater Anchorage Area Borough v. Sisters of Charity of House of Providence, 2445

• Citation: 553 P.2d 467
• Decision Date: 06 August 1976
• Docket Number: No. 2445,2445
• Parties: GREATER ANCHORAGE AREA BOROUGH, Appellant, v. SISTERS OF CHARITY OF the HOUSE OF PROVIDENCE, Appellee.
• Court: Supreme Court of Alaska (US)

Page 467

553 P.2d 467

GREATER ANCHORAGE AREA BOROUGH, Appellant, v. SISTERS OF CHARITY OF the HOUSE OF PROVIDENCE, Appellee.

No. 2445.

Supreme Court of Alaska.

Aug. 6, 1976.

Keith W. Bell, Asst. Municipal Atty., and Richard Garnett, Municipal Atty., Anchorage, for appellant.

Robert J. Dickson, Atkinson, Conway, Young, Bell & Gagnon, Anchorage, for appellee.

OPINION

Before BOOCHEVER, C. J., and RABINOWITZ, CONNOR, ERWIN and BURKE, JJ.

BURKE, Justice.

The central issue in this appeal is the tax-exempt status of a building owned by the Sisters of Charity of the House of Providence, ¹ under the provisions of Art. IX, Sec. 4, of the Constitution of Alaska ² and AS 29.53.020. ³

The Sisters of Charity, a long time health care provider in Alaska, erected the building in question, the Providence Professional Building, adjacent to their hospital on land deeded to them in 1959 by the United States for 'hospital site, school and recreational purposes only'. ⁴ The construction of the Professional Building began in 1970; its first full year of operation was 1972.

The Professional Building has four floors, including a basement, and is connected by an underground tunnel to nearby Providence Hospital. Three floors are the subject of this appeal, since the parties agree that the basement and tunnel are used exclusively for hospital purposes and are, therefore, exempt from taxation. ⁵

The first, second and third floors are rented to doctors having hospital staff privileges at Providence Hospital, for use as their private office space. Approximately thirty-five doctors rent such space. These doctors, although enjoying staff privileges, are not employed by Providence Hospital, and their patients are not necessarily patients of the hospital. Thus, the actual use made of the first, second and third floors is for office space by doctros engaged in the private practice of medicine.

The doctor-tenants rent space on a square foot basis. Upon leasing, each tenant represents that he enjoys staff privileges, and the Sisters may cancel the lease as to any tenant who ceases to enjoy such privileges. ⁶ At the time of the hearings below, space was leased for $1,10 per square foot per month, a commercially competitive rate for the Anchorage area. The lease agreement provides that the Sisters shall pay any real property taxes which become payable on the Professional building and associated lands provided, however, that the rents shall be adjusted annually for any increase in taxes. The agreement also provides that rentals shall be subject to a rental adjustment every two years for whatever reason the Sisters determine necessary. Nothing in the lease agreement restricts the doctor-tenants in the control of their office space.

In 1973, the tax assessor for the Greater Anchorage Area Borough ⁷ assessed the Providence Professional Building at a value of $2,134,200.00. The tax on this assessment was $43.416.02, which the Sisters of Charity paid under protest.

The assessor determined that the first, second and third floors, and a proportionate share of the land upon which the building is situated, did not qualify for exemption from ad valorem taxation, as property being 'used exclusively for nonprofit hospital . . . purposes,' under AS 29.53.020(a)(3). The Sisters appealed the assessment to the Greater Anchorage Area Borough Assembly, sitting as a board of equalization. The argument on appeal was that the entire property was sufficiently related to hospital purposes to allow total exemption. Upon hearing the evidence and arguments of the parties, the board denied the appeal. The Sisters then appealed to the superior court.

Again, the only issue on appeal was whether the property being assessed was entitled to exemption. No questions were raised regarding the sufficiency of the assessor's appraisal and proration methods or the assessed value of the property.

The superior court initially remanded the matter to the board for a finding of the percentage of the disputed office space which was 'reasonably necessary for the fulfillment of the generally recognized functions of a completely modern hospital.' ⁸ .when the board did not submit such a finding within the period specified, the court ruled that all of the office space was exempt; upon further consideration of the board's later finding that no part of the board's later finding that no part of the office space was necessary, the court reaffirmed its own ruling. This appeal by the borough followed.

A taxpayer claiming a tax exemption has the burden of showing that the property is eligible for the exemption. Furthermore, the courts must marrowly construe statutes granting such exemptions. ⁹ The policy behind these rules was expressed in Animal Rescue League of Boston v. Assessors of Bourne, 310 Mass. 330, 37 N.E.2d 1019, 1021 (1914):

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. An exemption from taxation releases property from this obligation to bear its share of the cost of government and serves to disturb to some extent, that equality in the distribution of this common burden upon all property which is the object and aim of every just system of taxation. While reasonable exemptions based upon various grounds of public policy are permissible, yet taxation is the general rule. . . . It is for this reason that statutes granting exemptions from taxation are strictly construed. A Taxpayer is not entitled to an exemption unless he shows that he comes within either the express words or the necessary implication of some statute conferring this privilege upon him.

In this case, therefore, the burden is on the Sisters to show that the office space is exempt. Under AS 29.53.020, this is a two-step process. They must first show, under Sec. 020(a)(3), that the property is 'used exclusively for nonprofit . . . hospital . . . purposes.' Then, since income is derived from the property, they must show that it meets the requirements that Sec. 020(c) ¹⁰ imposes on property exempt under Sec. 020(a)(3). It is the Sisters' argument that the office space must be considered 'reasonably necessary for the fulfillment of the generally recognized functions of a completely modern hospital' and that it therefore can be characterized as used exclusively for hospital purposes. This formulation of the 'exclusive use' test derives from Cedars of Lebanon Hospital v. Los Angeles County, 35 Cal.2d 729, 221 P.2d 31 (1950). We declined to adopt that part of the Cedars of Lebanon opinion in Harmon v. North Pac. Union Conference Ass'n of Seventh Day Adventists, 462 P.2d 432, 437-438 (Alaska 1969) because of factual differences; we reject it here for the same reason. The California court granted an exemption upon the finding that provision of living quarters for resident doctors and hospital employees was institutionally necessary. Those living quarters were not used for the private practice of medicine; the office space in the Providence Professional Building is. While it is clear from the record before us that the use of the office space by the doctor-tenants in conducting their private practices does provide incidental benefits to the hospital, it is equally clear, and we find as a matter of law, that the office space is not used exclusively for hospital purposes.

The Sisters urge that the owner's use, rather than the actual use, should be considered in making this determination. That analysis, however, would extend the tax exemption to everything owned and used in some way by an exempt institution. If only the uses of the office space by the Sisters are considered, by definition the Sisters' use is exclusive. Nothing in the exemption statute indicates that such a limited reading is justified. ¹¹

To support their contention that the owner's use alone should be considered in determining exclusive use, the Sisters cite Matanuska-Susitna Borough v. King's Lake Camp, 439 P.2d 441 (Alaska 1968), where the borough sought to tax a nonprofit camp which collected a small user fee from the groups which brought campers there. However, exclusive use was not an issue in that appeal, which concerned the effect of the income from user fees on the exemption, and the establishment of recreation as a charitable use. Thus, King's Lake can lend no support to the Sister's position. Similarly, in Harmon v. North Pac. Union Conference Ass'n of Seventh Day Adventists, supra, also cited by the Sisters to support their theory of use, this court did not have reason to consider the issue, since the question on appeal involved a specific statutory exemption for the residences of clergy, and not a question of use. We find nothing in these cases inconsistent with analyzing actual use rather than owner's use in determining eligibility for an exemption.

A better analogy than King's Lake or Harmon would be to compare the issue in this case with that decided in Evangelical Covenant Church of America v. City of Nome, 394 P.2d 882 (Alaska 1964). The Church, an exempt institution like the Sisters, ran a radio station, which was used to broadcast religious material. Some of the air time was sold for commercial use, the proceeds going to support the church's work. This court held that the radio station was not used exclusively for religious purposes. While the exempt and the commercial uses of the Professional Building are not as clearly separable as were the uses in Evangelical, the lesson of that case is applicable here: when the property in question is used even in part by non-exempt parties for their private business purposes, there can be no exemption. ¹²

Following Cedars of Lebanon Hospital v. Los Angeles County, supra, and its companion cases, ¹³ courts in many jurisdictions held exempt such hospital facilities as nurses' and residents' housing,...