KETCHIKAN GATEWAY v. Ketchikan Indian Corp.

Citation75 P.3d 1042
Decision Date15 August 2003
Docket NumberNo. S-10332.,S-10332.
PartiesKETCHIKAN GATEWAY BOROUGH and Ketchikan Gateway Borough Board of Equalization, Appellants, v. KETCHIKAN INDIAN CORPORATION, Appellee.
CourtSupreme Court of Alaska (US)

Scott A. Brandt-Erichsen, Borough Attorney, Ketchikan, for Appellants.

Jahna M. Lindemuth, Dorsey & Whitney LLP, Anchorage, for Appellee.

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

OPINION

MATTHEWS, Justice.

The superior court applied the implied federal preemption doctrine to exempt from borough taxes all space in a building that contains a tribally operated clinic that is subject to detailed oversight by the Indian Health Service. The narrow question presented here is whether space in the building that is not committed to use by the clinic should be exempt. We answer in the negative because such space is not necessarily part of a pervasively and comprehensively regulated federal program and the borough's interest in taxing the property is not inconsequential.

I. FACTS AND PROCEEDINGS

In 1997 the United States conveyed a three-quarter-acre parcel located in Ketchikan to the Ketchikan Indian Corporation (KIC). KIC began to construct a five-story building that, when completed, was intended primarily to contain a clinic run by KIC but funded by the Indian Health Service. As of the tax day, January 1, 2000, the building was more than half complete.

KIC requested a tax exemption for the property from the Ketchikan Gateway Borough. The borough assessor initially granted a ten percent charitable exemption. He determined that ten percent of the services offered by KIC were available to the community at large and not restricted to Alaska Natives. KIC appealed to the Borough Board of Equalization. At a hearing before the board the assessor modified his position. He continued to adhere to the theory that the building could have a ten percent charitable exemption, but added that another fifty percent could be exempt as space committed to clinic use.1 The sixty percent exemption, based on an appraised value of the land and partially completed building as of January 1, 2000, of $2,360,300, resulted in a taxable value of $944,100. The board accepted the assessor's position but made no specific findings.

The evidence presented to the board concerning the amount of space in the building that was not committed to clinic purposes was both sparse and conflicting. KIC's zoning permit application indicated that two floors would be used for the clinic, one floor would be used for offices, and two floors would be "lease space." The plans of the building indicate two floors of clinic space, one floor of office space, one floor of lease space, and one floor of daycare space. But it is unclear whether the zoning application or the plans reflected the intent of KIC as of January 1, 2000, regarding the use of the building. At the board hearing KIC's attorney argued that all of the floor space that "is being used, is being used for hospital purposes." But he acknowledged that there were unused spaces and that "[t]he intent of KIC for the unused space is still unknown," although "long-term plans and strategy includes expansion of their hospital functions into those unused spaces." KIC's general manager acknowledged that there is space in the building which might either be leased or used for other programs of KIC. He stated that KIC would be obligated to devote lease revenues to Indian Health Services programs, but later stated that lease revenues could be used to pay the debt service on the building.

KIC paid under protest the resulting taxes, $12,462.12, both appealing the board's decision and filing a separate suit seeking a tax refund. The borough cross-appealed the board's decision, arguing that the exemption should only have been ten percent rather than sixty percent, and filed a counterclaim seeking a declaration that the clinic is not a nonprofit hospital. The superior court consolidated the cases.

Following briefing and argument, the superior court

(1) dismissed the cross-appeal on the grounds that the borough lacked standing and, alternatively, that the borough was precluded from appealing from a decision that adopted the assessor's position in its entirety;

(2) held that the property was entirely exempt because of implied federal preemption, based on Ramah Navajo School Board, Inc. v. Bureau of Revenue of New Mexico;2

(3) awarded full fees of $62,694.70 and costs to KIC under AS 29.45.500(a); and

(4) ruled that its earlier decision dismissing the borough's cross-appeal in effect dismissed the borough's counterclaim.

On appeal, the borough challenges the superior court's decision on the merits only to the extent that it exempted portions of the building that were not committed for use as part of the clinic. The borough also challenges the award of full attorney's fees.

II. STANDARD OF REVIEW AND GENERAL PRINCIPLES RELEVANT TO TAX EXEMPTION CASES

The main question involved in this case is one of law in which "we apply our independent judgment and adopt the rule of law that is most persuasive in light of precedent, reason, and policy."3

Taxpayer exemptions are strictly construed against the taxpayer and in favor of the taxing authority.4 The burden of proving eligibility for an exemption is on the taxpayer.5 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.6

Notwithstanding the rule of strict construction, where the question is whether federal law requires the exemption of tribal interests from taxation, ambiguities in federal law should be resolved in favor of the tribe.7

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 reasons for their decisions.8 Such findings are reviewed deferentially and will be affirmed if they are supported by substantial evidence.9

III. DISCUSSION10
A. Space in the Building that Has Not Been Committed for Use by the Clinic Is Not Exempt under the Implied Federal Preemption Doctrine.

The superior court concluded that the implied federal preemption doctrine as reflected in the 1982 decision of the United States Supreme Court in Ramah Navajo School Board, Inc. v. Bureau of Revenue of New Mexico11 applied to the property in question and resulted in its total exemption from borough taxation. Implied federal preemption in Indian tax cases is distinct from federal preemption in other areas of the law. The law of federal preemption generally requires that one "start with the assumption that the historic police powers of the States were not to be superseded by [a] Federal Act unless that was the clear and manifest purpose of Congress."12

To determine whether Congress has preempted state action in a particular arena... [g]enerally, we apply a two-step analysis to preemption questions. First, we look to see whether Congress has overtly preempted the subject matter the state wishes to regulate, either explicitly, by declaring its intent to preempt all state authority, or implicitly, by occupying the entire field of regulation on the subject in question. See Webster, 621 P.2d at 897-98. Second, if neither kind of direct preemption is found, we look to whether federal and state law conflict in this particular instance. If state and federal regulations openly conflict or if state regulations obstruct the purpose of federal regulations, then the supremacy clause blocks the state regulation. See id. at 897, 900-01; Bald [v. RCA Alascom, 569 P.2d 1328, 1331 (Alaska 1977)].13

In contrast, questions of implied federal preemption in Indian tax cases "are not resolved by reference to standards of pre-emption that have developed in other areas of the law" and are "not limited to cases in which Congress has expressly—as compared to impliedly—pre-empted the state activity."14

Instead, we have applied a flexible pre-emption analysis sensitive to the particular facts and legislation involved. Each case "requires a particularized examination of the relevant state, federal, and tribal interests." Ramah Navajo Sch. Bd., Inc. v. Bureau of Revenue of New Mexico, 458 U.S. 832, 838, 102 S.Ct. 3394, 73 L.Ed.2d 1174 (1982).15

Ramah involved the application of New Mexico's gross receipts tax to receipts that a non-Indian construction firm received from a tribal school board for the construction of a school for Indian children on a reservation. The Supreme Court held that federal law impliedly preempted application of the tax, following a methodology established in White Mountain Apache Tribe v. Bracker,16 requiring "a particularized examination of the relevant state, federal, and tribal interests."17 The Court noted the federal policy of encouraging tribal control of education and explained in detail the "comprehensive and pervasive" regulatory system pertaining to the construction and financing of Indian schools.18 By contrast, the Ramah Court found that the state's interest in the tax was inconsequential. Noting the historical fact that the state had closed the only public school near the reservation, the Court stated:

[T]he State does not seek to assess its tax in return for the governmental functions it provides to those who must bear the burden of paying this tax. Having declined to take any responsibility for the education of these Indian children, the State is precluded from imposing an additional burden on the comprehensive federal scheme intended to provide this education—a scheme which has "left the State with no duties or responsibilities."19

The Court also observed that the "case would be different if the State were...

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