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Kenai Peninsula Borough v. Tyonek Native Corp. (6/30/89), 807 P 2d 502
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Notice: This is subject to formal correction before
publication in the Pacific Reporter. Readers are
requested to bring typographical or other formal errors
to the attention of the Clerk of the Appellate Courts,
303 K Street, Anchorage, Alaska 99501, in order that
corrections may be made prior to permanent publication.
THE SUPREME COURT OF THE STATE OF ALASKA
KENAI PENINSULA BOROUGH, )
) Supreme Court No. S-2253
Appellant, )
) Trial Court No.
v. ) 3KN-86-485 Civil
)
TYONEK NATIVE CORPORATION, ) O P I N I O N
)
Appellee. )
______________________________)
Appeal from the Superior Court of the
State of Alaska, Third Judicial District,
Kenai,
James Hanson, Judge.
Appearances: Gerald L. Sharp, Peggy A.
Roston, Preston, Thorgrimson, Shidler, Gates
& Ellis, Anchorage, for appellant. Karl
Fulton Lehr, Anchorage, for appellee.
Before: Matthews, Chief Justice,
Rabinowitz, Burke, Compton, and Moore,
Justices.
MATTHEWS, Chief Justice.
The Kenai Peninsula Borough (borough) appeals from a
decision of the superior court which ruled that a tax parcel
owned by the Tyonek Native Corporation (Tyonek) was exempt from
taxation for 1985. The parcel consists of 385 acres located on
the west side of Cook Inlet. In the early 1970's, Tyonek leased
the parcel to Kodiak Lumber Mills, which constructed substantial
improvements. These include a chip mill, warehouses, a 1475-foot
dock, an air strip, 15 mobile homes, 4 bunk houses, 5 houses, 6
duplexes, 3 shop buildings, an office building, a recreation
hall, a mess hall, a 400,000 gallon fuel tank farm, and sewage,
water and electrical utilities. Kodiak Lumber Mills used the
property until it went bankrupt in 1983. Tyonek then took
possession. During the period the parcel was leased to Kodiak
Lumber Mills it was included on the borough tax rolls.
In 1985 Tyonek claimed that the parcel was exempt from
taxation under 43 U.S.C. 1620(d), which provides that real
property conveyed to village corporations under the Alaska Native
Claims Settlement Act (ANCSA) is exempt from property taxation
for 20 years so long as the property is "not developed or leased
to third parties".1 Tyonek also relied on a state statute,
AS 29.45.030, which exempts from property taxation land which is
exempt under 43 U.S.C. 1620(d).2 AS 29.45.030(m)(1) purports
to define the word "developed"as used in the federal statute
"unless superseded by applicable federal law" to mean "a
purposeful modification of the property from its original state
that effectuates a condition of gainful and productive present
use without further substantial modification . . . ." We have
discussed at length the legislative history of 1620(d) as well as
its interaction with the Alaska National Interest Lands Conserva
tion Act (ANILCA) and AS 29.45.030 in a companion case, Kenai
Peninsula Borough v. Cook Inlet Region, Inc., __ P.2d __, Op. No.
3671 (Alaska, March 15, 1991).
Following a hearing, the borough assessor rejected
Tyonek's claim of exemption on the grounds that although the
property was no longer leased it was developed. Tyonek appealed
this determination to the superior court. The superior court
decided that the parcel was exempt, stating: "[I]t is clear that
[Tyonek] is entitled to a moratorium on taxation so long as the
property lies unleased or otherwise unproductive and idle." From
this decision the borough appeals.
After filing its notice of appeal in this court, the
borough sought a remand to the superior court for the purpose of
filing a motion for relief from judgment under Alaska Civil Rule
60(b). Remand was granted. The borough contended before the
superior court that new information had come to light regarding
the use of the parcel which entitled the borough to relief under
the fraud or misrepresentation subsection of the rule.3
The borough had obtained a copy of an agreement between
Tyonek and Beluga Coal Company dated November 2, 1983 which was
entitled "Option/Lease of KLM Facilities." Under this agreement
Beluga was paying Tyonek $125,000 per year for an option to lease
the parcel. The option, if exercised, would allow Beluga to
lease the parcel for $250,000 per year. The term of the option
was four years and the term of the lease would be ten years with
renewal rights for three additional ten-year periods. Under the
agreement Tyonek was required to use the option payments to
maintain the facilities in reasonable condition, and to employ
two caretakers. Further, the agreement provided that if third
parties used the facilities on the parcel during the term of the
option and paid Tyonek for their use, option payments required to
be made by Beluga should be reduced by 60 percent of the
payments.
Tyonek opposed the Rule 60(b) motion on the grounds
that it was untimely since the borough had known of the agreement
before the court's initial decision. Tyonek also contended that
since the agreement was merely an option, it did not affect the
merits of the court's decision. The trial court denied the
motion, stating that there had been an insufficient showing that
fraud, misrepresentation or other misconduct had occurred. From
this order as well, the borough has appealed.
In our view the superior court erred in reversing the
decision of the assessor rejecting Tyonek's claim of exemption.
The critical question is whether the property was "developed" as
that term was used in 43 U.S.C. 1620(d)(1). The borough
suggests as a working definition of the term that land is
developed when it is converted "into an area suitable for
residential or business uses." Citing Winkelman v. City of
Tiburon, 108 Cal. Rptr. 415, 421 (Cal. App. 1983). Tyonek, on
the other hand, argues that the definition of "developed" under
the federal act is controlled by the state definition set forth
in AS 29.45.030(m)(1): "`developed' means a purposeful
modification of the property from its original state that
effectuates a condition of gainful and productive present use
without further substantial modification . . . ." Tyonek argues
that this definition means that there must be a current actual
productive use of property rather than merely a current potential
productive use.
Tyonek's argument that property to be developed must
have an actual current productive use is contrary to the common
understanding of the meaning of that term. It would mean, for
example, that urban property on which an office building stands
which is vacant because it has lost its tenant is not developed.
There is no indication that Congress in enacting section 1620(d)
as part of the 1971 Native Claims Settlement Act intended
"developed"to have an uncommon or specialized meaning. Whether
the term applies to a given parcel will not always be easy to
determine, see e.g., Kenai Peninsula Borough v. Cook Inlet
Region, Inc., __ P.2d __, Op. No. S-3671 (Alaska, March 15,
1991), but this case does not present a difficult question.
There is no reasonable usage of the term "developed" that
requires actual occupancy. The parcel here has been so
extensively improved that it is necessarily developed within the
meaning of section 1620(d).
The state statute, AS 29.45.030, enacted in 1983, is
less clear. As noted, it defines "developed"as "a purposeful
modification . . . that effectuates a condition of gainful and
productive present use without further substantial modification
. . . ." Whether this refers only to productive actual present
uses rather than to productive potential and actual present uses
is reasonably arguable. However, only the latter alternative is
consistent with section 1620(d).
We construe the meaning of the term "developed"in the
state statute to be consistent with the meaning of that term as
used in ANCSA. We reach this conclusion for two reasons. First,
AS 29.45.030(a)(7) expressly exempts only property which is also
exempt under ANCSA. Second, if we were to construe the state
statute to exempt property which is not exempt under ANCSA,
serious and substantial questions concerning the
constitutionality of this statute under the equal rights clause
of the Alaska Constitution would be raised.4 As statutes are to
be construed to avoid a substantial risk of unconstitutionality
where adopting such a construction is reasonable, we construe the
state statute to be co-extensive with ANCSA.5
The only question under the state statute is whether
the property "revert[ed] to an undeveloped state"according to AS
29.45.030(n) when Kodiak Lumber Mills went bankrupt. As the
property was taxable both because it was developed and because it
was leased, the termination of the lease, taken alone, did not
suffice to render the property tax exempt. What was required,
additionally, was a tangible change such as destruction or decay
of the improvements, to constitute reversion to an undeveloped
state. As no such change has occurred, the property remains
taxable.
Our decision that the property is developed and
therefore taxable moots the borough's appeal concerning its Rule
60(b) motion.
REVERSED and REMANDED.6
_______________________________
1 43 U.S.C. 1620(d)(1) states:
Real property interests conveyed,
pursuant to this chapter, to a Native
individual, Native Group, Village or Regional
Corporation or corporation established
pursuant to section 1613(h)(3) of this title
which are not developed or leased to third
parties or which are used solely for the
purposes of exploration shall be exempt from
State and local real property taxes for a
period of twenty years from the vesting of
title pursuant to the Alaska National
Interest Lands Conservation Act or the date
of issuance of an interim conveyance or
patent, whichever is earlier, for those
interests to such individual, group, or
corporation: Provided, That municipal taxes,
local real property taxes, or local
assessments may be imposed upon any portion
of such interest within the jurisdiction of
any governmental unit under the laws of the
State which is leased or developed for
purposes other than exploration for so long
as such portion is leased or being developed:
Provided further, That easements, rights-of-
way, leaseholds, and similar interests in
such real property may be taxed in accordance
with State or local law. All rents,
royalties, profits, and other revenues or
proceeds derived from such property interests
shall be taxable to the same extent as such
revenues or proceeds are taxable when
received by a non-Native individual or
corporation.
2 AS 29.45.030 provides:
(a) The following property is exempt
from general taxation:
. . . .
(7) real property or an interest in
real property that is exempt from taxation
under 43 U.S.C. 1620(d), as amended.
. . . .
(m) For the purpose of determining
property exempt under (a)(7) of this section,
the following definitions apply to terms used
in 43 U.S.C. 1620(d) unless superseded by
applicable federal law:
(1) "developed" means a purposeful
modification of the property from its
original state that effectuates a condition
of gainful and productive present use without
further substantial modification; surveying,
construction of roads, providing utilities or
other similar actions normally considered to
be component parts of the development
process, but that do not create the condition
described in this paragraph, do not
constitute a developed state within the
meaning of this paragraph; developed
property, in order to remove the exemption,
must be developed for purposes other than
exploration, and be limited to the smallest
practicable tract of the property actually
used in the developed state;
(2) "exploration"means the examination
and investigation of undeveloped land to
determine the existence of subsurface
nonrenewable resources;
(3) "lease"means a grant of primary
possession entered into for gainful purposes
with a determinable fee remaining in the
hands of the grantor; with respect to a lease
that conveys rights of exploration and
development, this exemption shall continue
with respect to that portion of the leased
tract that is used solely for the purpose of
exploration.
(n) If property or an interest in
property that is determined not to be exempt
under (a)(7) of this section reverts to an
undeveloped state, or if the lease is
terminated, the exemption shall be granted,
subject to the provisions of (a)(7) and (m)
of this section.
3 Civil Rule 60(b)(3) states:
On motion and upon such terms as
are just, the court may relieve a party or
his legal representative from a final
judgment, order, or proceeding for the
following reasons:
. . . .
(3) fraud (whether heretofore
denominated intrinsic or extrinsic), misrep
resentation, or other misconduct of an
adverse party[.]
4 The equal rights clause of the Alaska Constitution is
contained in article I, section 1, which provides:
that all persons are equal and entitled
to equal rights, opportunities, and
protection under the law[.]
5 See e.g., United States v. Atlantic Richfield Co., 612
F.2d 1132, 1139 (9th Cir. 1980); State v. Fairbanks North Star
Borough, 736 P.2d 1140, 1142 (Alaska 1987) ("This court is under
a duty to construe a statute to avoid constitutional infirmity
where possible."); Veco International, Inc. v. Alaska Public
Offices Comm'n, 753 P.2d 703, 713 (Alaska 1988).
6 We express no view concerning whether the parcel has been
limted "to the smallest practicable tract"of developed property
as required by AS 29.45.030 as the issue is not before us, nor do
we remand with directions to the superior court to determine that
issue as it was not raised on appeal to the superior court.
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