Property tax dispute heads to Alaska Supreme Court
A years-long dispute between the City of Nome and Norton Sound Health Corporation, whether certain NSHC properties should be exempt from property taxation, is making its way to the Alaska Supreme Court.
At the heart of the dispute lies if NSHC properties that are used to directly provide medical services qualify for tax exemption under state and federal laws. A Superior Court Judge fund yes, they do. But that decision is being appealed by the City and will be decided by the highest court in the state.
Genesis of the dispute
In January 2022, NSHC applied for tax exemptions for several properties and was denied by the city clerk and by the city’s property assessor. The health corporation then filed an appeal and went before the Nome Common Council, sitting as the Nome Board of Equalization, and was denied again. NSHC then took matters to court in June 2022. After oral arguments were heard and a supplemental briefing, the court issued its decision, that yes, the properties should be exempt.
Applying state law, NSHC lawyers argued at the board of equalization hearings that the properties are exclusively used for nonprofit, charitable or hospital purposes. Citing federal law, the lawyers said the properties should not be taxed under the federal preemption doctrine and should be barred from taxation under tribal sovereign immunity.
NSHC is a tribally owned nonprofit health care organization.
The federal preemption doctrine means that properties used to carry out federal programs are exempt from taxation if they are subject to
GOOD BYE TO THE CHIEF—Nome Police Department gather for a photo as they bid Chief Mike Heintzelman farewell on his last day in office, on October 27. Pictured (l.to r.) are Dylan Howard, Nathan Bryson, Thomas Broady, Sgt. Alex Le, Investigator Vince Nguyen, Chief Michael Heintzelman, Chelsea Griffin, James Turk, Sgt. Wade Harrison, Corporal Austin Martinez and Sgt. Brandon Barrry. comprehensive federal oversight.
In the July 18 ruling, Superior Court Judge Paul Roetman granted NSHC’s appeal to seek tax exemptions for four properties. In his decision he wrote that the board of equalization failed to consider if NSHC properties qualify under the charitable purposes exemption. “The Board of Equalization simply did nothing with this argument when deciding Norton Sound’s appeal,” the judge wrote. Second, the board did not correctly consider the federal preemption doctrine “despite Norton Sound presenting the correct legal standard and case citation both in writing and orally at two hearings,” the judge wrote. “By doing so, it overlooked federal law.” The judge also wrote that the board of equalization didn’t dispute the description of the properties and how they are used or if NSHC is a nonprofit.
He found that the board construed the meaning of hospital too narrowly to only test if properties were used as a hospital and not for hospital purposes. The judge found that properties 1 through 4 —except for the empty old BIA building and the BHS building— qualify for exemption as property used exclusively for hospital purposes. “There is no evidence the properties are used other than exclusively for this purpose,” the judge wrote. The purpose of each property, the “end to be attained”, being to allow Norton Sound to deliver health care services to the region’s residents.
The city disagreed the judge’s decision for one particular property in dispute and filed an appeal with the Supreme Court in mid-August. The property at dispute is identified as property 1. It refers to the former Lawyers Apartments, a 7-plex apartment complex on 1st Avenue that is now owned by NSHC to provide housing for medical staff.
The city’s court filing appealing the judge’s decision says that the board of equalization found that NSHC collects rent from some of the employees housed there and that “NSHC provided medical services in Nome for years without the use of Property 1”, that the property is not used to provide medical treatment to sick or injured people and is not used exclusively for nonprofit hospital purposes. The court filing says that the Superior Court erred in concluding that NSHC satisfied its burden of demonstrating that the property is used exclusively for nonprofit hospital and charitable purposes, and that the court erred in finding that NSHC satisfied the burden before the board of equalization that Nome’s interest in collected real property tax on the property is relatively inconsequential. According to Mayor John Handeland, NSHC has land and buildings valued at more than $131 million. If taxed, NSHC’s tax bill would be $1.4 million.
The property in question is valued at $1 million, with a tax value of $10,700. Handeland added that NSHC bought the apartment complex west of the hospital, assessed at $4.7 million (approximately $50,000 in tax), which will be reflected in future assessments, and NSHC is making plans to add another three housing multiplexes to their list of properties.
Handeland argued that the city still provides significant services to NSHC and that the costs for those need to be shared. “Property taxes cover a whole host of city services: road maintenance, fire services, museum, library, rec center and there are many, many services within the city that are covered by property tax. If somebody’s exempt from property tax, that doesn’t mean that we don’t provide those services to them,” Handeland said. He said there are other solutions. For example, the city
has entered into agreements called payment in lieu of taxes with exempt property owners, where they are agreeing that while they’re not paying property tax, they’re paying an equivalent as a PILT, it’s called, and that they’re recognizing that these services are important to their properties, and they are contributing to it.” He said that Norton Sound is one of the larger property owners and that the city’s tax base shrinks, fewer property owners have to cover the cost of city services. “So that’s why this payment in lieu of taxes is another mechanism where they can still contribute to the services that are vital to their organizations, and to their properties,” he said. The Supreme
Court case is only one piece of the bigger picture, he said. “There is no reason why we can’t talk about the rest of it.”
A similar situation plays out in Kodiak, where a Superior Court decision affirmed the Kodiak Area Native Association’s property tax exempt status for most of its Kodiak properties, reports the Kodiak Daily Mirror. Now, the Kodiak Island Borough assembly is considering what to do next.
In Nome, Handeland said the city’s next brief filing is due Nov. 17; NSHC then has a month to respond and afterwards, the city can respond to NSHC’s response. Then oral arguments will be held and the Supreme Court will make a decision.
NSHC was contacted for comment but didn’t respond by press time.