Greater Anchorage Area Borough v. Sisters of Charity of House of Providence, No. 2445

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

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

Page 468

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.

Page 469

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

Page 470

'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...