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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. Dena Nena Henash v. Fairbanks North Star Borough (11/10/2011) sp-6618

Dena Nena Henash v. Fairbanks North Star Borough (11/10/2011) sp-6618

        Notice: This opinion is subject to correction before publication in the PACIFIC  REPORTER. 
        Readers are requested to bring errors to the attention of the Clerk of the Appellate Courts, 
        303 K Street, Anchorage, Alaska 99501, phone (907) 264-0608, fax (907) 264-0878, email 
        corrections@appellate.courts.state.ak.us. 

                THE SUPREME COURT OF THE STATE OF ALASKA 

DENÁ NENÁ HENASH d/b/a                        ) 
TANANA CHIEFS CONFERENCE,                     ) 
                                              )       Supreme Court No. S-13340 CI 
                       Appellant,             ) 
                                              )       Superior Court No. 4FA-06-02717 
        v.                                    ) 
                                              )       O P I N I O N 
FAIRBANKS NORTH STAR                          ) 
BOROUGH,                                      )       No. 6618 - November 10, 2011 
                                              ) 
                       Appellee.              ) 
                                              ) 

               Appeal   from     the  Superior   Court   of   the  State  of   Alaska, 
               Fourth Judicial District, Fairbanks, Raymond Funk, Judge 
               pro tem. 

               Appearances: Michael J. Walleri, Tanana Chiefs Conference, 
               Fairbanks, and Lloyd B. Miller, Sonosky, Chambers, Sachse, 
               Miller & Munson, LLP, Anchorage, for Appellant.             Cynthia 
               M.    Klepaski,   Assistant   Borough     Attorney,    and  A.  René 
               Broker, Borough Attorney, Fairbanks, for Appellee.  Kathie 
               Wasserman, Alaska Municipal League, Juneau, for Amicus 
               Curiae Alaska Municipal League. 

               Before:    Carpeneti, Chief Justice, Fabe, Winfree, Christen, 
               and Stowers, Justices. 

               CARPENETI, Chief Justice. 

----------------------- Page 2-----------------------

I.      INTRODUCTION 

               A    Native   nonprofit   corporation    applied   to  the  borough    assessor    for 

charitable-purpose tax exemptions on several of its properties.             The assessor denied 

exemptions for five of the parcels, concluding that they did not meet the exemption's 

requirements.     The superior court affirmed the denial as to four of the properties and 

remanded the case for consideration of one property back to the assessor, who granted 

the exemption.   The nonprofit corporation appeals the denial of exemptions for three of 

the remaining properties plus a portion of the fourth, and appeals the superior court's 

award of attorney's fees to the borough.        Because the properties in question were used 

exclusively for charitable purposes, we reverse the assessor's determination on the four 

appealed properties, vacate the attorney's fees award, and remand for an award of fees 

in light of this opinion. 

II.     FACTS AND PROCEEDINGS 

               Tanana Chiefs Conference, Inc. (TCC), also known as Dená Nená Henash, 

is a regional Native nonprofit corporation that provides health services, social services, 

and   community   development   services   to   Native   entities   and   individuals   throughout 

Interior Alaska.  TCC owns several properties in the Fairbanks North Star Borough (the 

Borough), including the David Salmon Tribal Hall, the Chief Peter John Tribal Building, 

and    the  Al   Ketzler,   Sr.,   Building. Some    of   TCC's   properties   house   TCC's    own 

operations, while others are leased to outside entities.        TCC and the borough assessor 
have disputed the tax status of TCC's property in the past.1 

               In   October   2005,   TCC   submitted   applications   to   the   borough   assessor 

seeking exempt status for 22 parcels under the charitable-purpose exemption of state 

        1      See Fairbanks N. Star Borough v. Dená Nená Henash, 88 P.3d 124 (Alaska 

2004). 

                                                -2-                                             6618 

----------------------- Page 3-----------------------

law.2   The   assessor   initially   decided   that   one   parcel   was   fully   exempt,   found   that   a 

number   of   properties   were   spatially   apportioned       between   exempt   and   non-exempt 

portions, but disputed the eligibility of the others. TCC appealed the assessment notices 

on the remaining 21 parcels, though it subsequently withdrew three of its exemption 

applications. In May 2006, the borough assessor and some of his staff conducted a walk- 

through of several of the disputed properties.           A hearing was held before the borough 

assessor in June 2006.        The assessor issued findings of fact and conclusions of law for 

the 18 remaining parcels in September 2006, concluding that ten of the parcels were 

partially exempt and eight of the parcels were non-exempt. TCC appealed to the superior 

court as to five of the parcels.       The superior court, acting as an intermediate appellate 

court, upheld the assessor's determination as to four parcels: the David Salmon Tribal 

Hall, the second floor of the Chief Peter John Tribal Building, the fourth floor of the 

Chief Peter John Tribal Building, and the first and second floors of the Al Ketzler, Sr., 

Building.      The court also   remanded   the case for consideration   of the fifth   parcel - 

consisting of rooms 512, 524, and 525 of the Chief Peter John Tribal Building - back 

to the borough assessor for more detailed findings.               On remand, the assessor held a 

hearing, permitted TCC to supplement the record, and ultimately granted   the parcel 

exempt   status.    In   October   2008,   the   superior   court   resolved   the   appeal   as   to   four 

remaining parcels.  One month later, the court awarded TCC $455.55 in attorney's fees 

and $13.42 in costs. Simultaneously, the court ordered TCC to pay the Borough $38,416 

in attorney's fees. 

                TCC appeals the superior court's decision as to the David Salmon Tribal 

Hall, the second floor of the Chief Peter John Tribal Building, the fourth floor of the 

        2        See AS 29.45.030. 

                                                   -3-                                               6618 

----------------------- Page 4-----------------------

Chief Peter John Tribal Building, and the second floor of the Al Ketzler, Sr., Building.3 

TCC also appeals the attorney's fees award. 

III.    STANDARD OF REVIEW 

                When the superior court in its capacity as an intermediate appellate court 

reviews a decision of the borough assessor, we review the assessor's decision directly, 
not deferring to the superior court's decision.4         Whether certain property merits a tax 

exemption under AS 29.45.030 is a question requiring statutory interpretation; thus, we 

apply the "substitution of judgment" standard of review, giving no deference to the 
assessor's administrative expertise.5       We review questions of law de novo, adopting the 

rule of law "most persuasive in light of precedent, reason, and policy."6 

        3       TCC's opening brief and points on appeal indicate that it is appealing the 

assessor's determination as to both the first and second floors of the Al Ketzler, Sr., 
Building, which were part of the same tax parcel.           However, TCC's briefing concerns 
itself entirely with the lease by the Fairbanks Native Association (FNA) of the second 
floor of the Al Ketzler, Sr., Building.   The first floor was occupied by the U.S. General 
Services   Administration,   and   TCC   refers   to   it   only   as   a   "market   comparable"   in   its 
briefing.  We have therefore reviewed the superior court's conclusion only with respect 
to FNA's lease of the second floor of the Al Ketzler, Sr., Building. 

        4       See Dená Nená Henash, 88 P.3d at 128 (citing among others CH Kelly 

Trust v. Municipality of Anchorage, Bd. of Equalization, 909 P.2d 1381, 1382 (Alaska 
1996)). 

        5       See City of Nome v. Catholic Bishop of N. Alaska, 707 P.2d 870, 875-76 

(Alaska 1985) (citations omitted). 

        6       See Dená Nená Henash, 88 P.3d at 128-29 (quoting Ketchikan Gateway 

Borough   v.   Ketchikan   Indian   Corp.,   75   P.3d   1042,   1045   (Alaska   2003))   (internal 
quotation marks omitted). 

                                                  -4-                                           6618
 

----------------------- Page 5-----------------------

                 In all contested cases, the assessor is required to "make findings of fact 
sufficient to explain the reasons" for its decision.7              We review the assessor's factual 

findings for substantial evidence.8         Substantial evidence is "such relevant evidence as a 

reasonable mind might accept as adequate to support a conclusion."9 

IV.     DISCUSSION 

                 Alaska Statute 29.45.030, the most recent version of Alaska's charitable- 
purpose tax exemption statute,10 provides in relevant part: 

                 (a) The following property is exempt from general taxation: 

                         . . . 

                         (3) property used exclusively for nonprofit religious, 
                         charitable, cemetery, hospital, or educational purposes; 
                 . . . . 

                 (c) Property described in (a)(3) . . . of this section from which 
                 income is derived is exempt only if that income is solely from 
                 use    of   the  property     by   nonprofit     religious,    charitable, 
                 hospital,     or   educational     groups.     If  used    by    nonprofit 

        7        Id. at 129 (citing City of Nome, 707 P.2d at 875). 

        8        Id.   (citing Balough   v.   Fairbanks   N.   Star   Borough,   995   P.2d   245,   254 

(Alaska 2000)). 

        9        Keiner   v.   City   of   Anchorage,   378   P.2d   406,   411   (Alaska   1963)   (citing 

Consol. Edison Co. of N.Y. v. N.L.R.B., 305 U.S. 197, 229 (1938)). 

         10      The     charitable-purpose       tax  exemption      in  current    AS    29.45.030     was 

preceded by a similar exemption at former AS 29.10.336 (1962).                       This provision was 
amended in 1964. See ch. 34, § 2, SLA 1964.   AS 29.10.336 was subsequently amended 
and renumbered as AS 29.53.020 in 1972, which in turn was amended and renumbered 
as AS 29.45.030 in 1985. See ch. 118, § 2, SLA 1972; ch. 74, § 12, SLA 1985.  The 
1985 amendment contained the last revision of the charitable-purpose exemption to date. 
This   case   is   the   first   to   address   the   proper   interpretation   of   the   exemption   as   most 
recently amended. 

                                                     -5-                                               6618
 

----------------------- Page 6-----------------------

                educational      groups,    the  property    is  exempt    only   if  used 
                exclusively for classroom space. 

We   interpret   the   statute   as   follows:  As   a   general   matter,   property   must   meet   the 

exclusive use requirement of AS 29.45.030(a) to qualify for tax exemption - that is, it 

must   be "used   exclusively   for nonprofit religious, charitable, cemetery, hospital,   or 
educational purposes."11       In the special case of income-deriving properties, these remain 

exempt if (1) the entities using a specific property are all nonprofit religious, charitable, 

hospital, or educational groups (with educational groups using the property exclusively 

for   classroom   space);   and   (2)   the   property   meets   the   exclusive   use   requirement   of 

AS 29.45.030(a), being used exclusively for nonprofit religious, charitable, cemetery, 

hospital, or educational purposes.          There are no statutory restrictions on the amount of 

income such properties may earn. 

                TCC      challenges   the   borough     assessor's   determination      that   the  David 

Salmon Tribal Hall, the second floor of the Chief Peter John Tribal Building, the second 

floor of the Al Ketzler, Sr., Building, and the fourth floor of the Chief Peter John Tribal 

Building are ineligible for a tax exemption under AS 29.45.030.                 We take each in turn, 

using the above statutory analysis to frame our discussion. 

        A.      The David Salmon Tribal Hall 

                The first parcel at issue is the David Salmon Tribal Hall (Tribal Hall).  TCC 

describes the Tribal Hall as "an alcohol free Native community center" and "potlatch 

hall," which primarily serves as "a venue to hold potlatches for the Native community 

in Fairbanks." TCC policy restricts Tribal Hall use to the Native community, and no user 

fee is charged for funerals, memorials, and hardship fundraisers related to the Native 

community. Funerals, memorials, and hardship fundraisers have first priority in booking 

        11      AS 29.45.030(a)(3). 

                                                   -6-                                                6618 

----------------------- Page 7-----------------------

the Tribal Hall, and other events must vacate their reservations should a conflict arise. 

For these other events, TCC lists user fees between $125 and $875.  Drugs, alcohol, and 

tobacco are not permitted in the facility. 

                 The assessor found, and the parties do not contest, that the Tribal Hall was 

used 40 times in 2005.   The assessor also found that these uses included a mix of "tribal 

related    activities,   potlatches,   dances,   funerals,   church     services,   fund    raisers,   tribal 

governance meetings and other gatherings," and some of the groups using the hall paid 

a fee to do so.    The record supports both findings. 

                 The   assessor   concluded   that   the   Tribal   Hall   was   not   eligible   for   a   tax 

exemption, explaining that its limited use "was not exclusive to exempt purposes."  The 

assessor     did   not  specify    these   non-exempt       uses.   On     appeal,   the   superior    court 

acknowledged that the assessor did not specify which uses of the Tribal Hall were found 

to be non-exempt, but noted that the uses of the Tribal Hall included weddings, and in 

at least one case a fee of $575 was charged for a wedding reception.  The superior court 

concluded that "the renting of a hall to private individuals for a wedding or wedding 

reception     [is]  not  .  .  .   a  charitable  use,"  and   therefore   the   Tribal   Hall   failed  the 

requirement that it be used exclusively for charitable purposes. TCC appeals the superior 

court's ruling, arguing that the uses of the Tribal Hall are "clearly charitable" and merit 

a tax exemption. 

                 We use the "substitution of judgment" standard to review the assessor's 
decision.12    The central issue is whether the paid   uses of the Tribal Hall violate the 

"exclusive use" requirement of AS 29.45.030(a).  Our review of the record reveals only 

two questionable uses: two wedding receptions, for which the organizers paid $375 and 

        12       City   of   Nome   v.   Catholic   Bishop   of   N.   Alaska,   707   P.2d   870,   875-76 

(Alaska 1985); Fairbanks N. Star Borough v. Dená Nená Henash, 88 P.3d 124, 128 
(Alaska 2004). 

                                                    -7-                                                 6618 

----------------------- Page 8-----------------------

$575,   respectively.13     Unlike     the  superior   court,   we   conclude    that   these  wedding 

receptions do not negate the charitable-purpose tax exemption. The receptions are firmly 

connected to the charitable purpose underlying TCC's administration of the Tribal Hall: 

promoting "an alcohol-free environment for Native social and cultural events," in the 

words of TCC's counsel at oral argument.   We have said that "what is done out of good 

will and a desire to add to the improvement of the moral, mental, and physical welfare 
of the public generally comes within this meaning of the word 'charity.' "14 TCC's use 

of the Tribal Hall for its constituency falls well within this definition. 

                In   oral   argument   before    us,  the   Borough   argued   that   an   alcohol-free 

reception can occur in other venues, in accordance with the wishes of the person holding 

the wedding.      However, TCC persuasively responded that in other venues, alcohol is 

likely to be available from nearby bars that may even be in the same building, whereas 

alcohol   is   not   permitted   on   any   TCC   property.  At   oral   argument,   TCC   stated   that 

security guards monitor the Tribal Hall to ensure that intoxicated individuals do not enter 

and that guests do not bring alcohol into the event. As the Tribal Hall uniquely provides 

an   alcohol-free     venue   for  TCC's     constituency,    we   hold   that  constituent    wedding 

receptions do not disqualify TCC's use of the Tribal Hall as a charitable use.                Overall, 

the   Tribal   Hall   meets   the   exclusive   use   requirement   of   the   charitable-purpose   tax 

exemption statute, and should have been deemed tax-exempt. 

        B.	     The Second Floor Of The Chief Peter John Tribal Building And The 
                Second Floor Of The Al Ketzler, Sr., Building 

        13      A third wedding reception was combined with a potlatch; users do not 

appear to have paid a fee. 

        14	     Dená Nená Henash, 88 P.3d at 132 (quoting Matanuska-Susitna Borough 

v. King's Lake Camp, 439 P.2d 441, 445 (Alaska 1968)). 

                                                  -8-                                               6618 

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                The next two properties at issue are the second floor of the Chief Peter John 

Tribal Building and the second floor of the Al Ketzler, Sr., Building.              TCC has rented 

both properties to other nonprofit organizations. Suite 201 of the Chief Peter John Tribal 

Building is leased to the Adult Learning Program of Alaska (Learning Program), which 

TCC describes as "an educational group which leases its space for classroom space." 

Suite 200 of the Al Ketzler, Sr., Building is leased to the  Fairbanks Native Association. 

The   borough   assessor   deemed   the   properties   rented   by   the   Learning   Program   and 

Fairbanks Native Association to be taxable, as both were being leased at market rates. 

The superior court affirmed, largely for the same reason. 

                TCC argues on appeal that the assessor erred as to the law, and that the 

assessor's   factual   findings   were   not   supported   by   substantial   evidence.    While   the 

assessor    and   the  superior    court  focused    on  the   rental  amounts,    TCC    argues    that 

AS    29.45.030(c)     exempts     both   properties   because    they   are  being   leased   by   one 

statutorily-qualified nonprofit to another statutorily-qualified nonprofit for qualifying 

uses.  TCC argues that the amount of income TCC derives from renting the property is 

immaterial.     The   Borough's   position   is   that   neither   property   should   receive   a   tax 

exemption, because they are leased at market rates. 

                TCC's argument is persuasive.          Leased properties derive income for the 

lessor,   and   are   therefore   subject   to   the   restrictions   of   AS   29.45.030(c). However, 

AS 29.45.030 places no restrictions on the amount of income the charitable organization 

derives from renting the property.   It is concerned only with the nature of the property's 

use.  Because TCC is a charitable nonprofit, the leased properties will be tax-exempt if 

the lessee is a nonprofit religious, charitable, hospital, or educational group that is using 

the   property   "exclusively   for   nonprofit   religious,   charitable,   cemetery,   hospital,   or 

                                                  -9-                                            6618
 

----------------------- Page 10-----------------------

educational purposes."15      If a lessee is an educational group, the exemption is qualified 

by the requirement that the lessee use the property "exclusively for classroom space."16 

                The assessor did not identify non-exempt uses in the case of either property; 

he concluded that the properties were taxable solely because TCC charged market-rate 

rents.  This conclusion is based on a misinterpretation of the law.  The Borough does not 

dispute that the Fairbanks Native Association and the Learning Program were renting the 

property for exempt uses; the Borough's argument relies on the erroneous assumption 

that   TCC's   rental   rates   are   relevant. Because   the   properties   in   question   were   used 

"exclusively for [exempt] purposes," we interpret AS 29.45.030 to provide TCC a tax 

exemption in the case of both properties. 

        C.      The Fourth Floor Of The Chief Peter John Tribal Building 

                The final parcel at issue is the fourth floor of the Chief Peter John Tribal 

Building (Tribal Building).  Under the borough code, the use of a parcel as of January 1 
of the tax year is determinative of the tax exemption for that year.17  Vacant property is 

not generally eligible for a property tax exemption.18        In its preliminary disclosures, TCC 

stated that the fourth floor of the Tribal Building was vacant.  However, in supplemental 

disclosures, TCC updated this to say that "[a]s of January 1, 2006, the 4th floor was 

occupied by the Fairbanks Community Mental Health Center" (Health Center).  TCC 

simultaneously submitted documents showing that the Health Center was a nonprofit 

organization engaged in charitable activities.   TCC asserts that its initial disclosure of a 

        15      AS 29.45.030(a)(3). 

        16      AS 29.45.030(c). 

        17      See Fairbanks General Code Ordinance (FGCO) §§ 3.08.020,  .090 (2008). 

        18      FGCO § 3.08.020(C). 

                                                 -10-                                            6618
 

----------------------- Page 11-----------------------

vacancy was made in error.          No lease documents relating to the Health Center were 

included in the record. 

                At the June 2006 hearing, the assessor noted that there had been "some kind 

of migration between departments" and asked when that had taken place.                     TCC Chief 

Financial Officer Kal Kennedy responded that "[t]he big migration was that Fairbanks 

Community   Mental   Health,   right   after   the   first   of   the   year,   vacated   into   their   own 

structure."   The exchange continued: 

                Assessor:        [A]s   of   January   1st   of   the   year,   [the   Health 
                                Center] ran a holdover with their lease? 
                Kennedy:         Correct. 
                Assessor:        Okay. 
                Kennedy:         They . . . were in the process of moving, but it 
                                didn't happen until - you know, into January 
                                or February. 
                Assessor:       So     .  .  .  for  purposes    of   this  exemption 
                                application,     it's  -     they    were    there   [on 
                                January 1st]. 
                Kennedy:        Right. 

The assessor nonetheless determined that the parcel was non-exempt, explaining that 

"[b]ased on TCC's [preliminary disclosures] it was declared that as of January 1, 2006 

the unit was vacant and no charitable use was being made of this area."                  The superior 

court affirmed this decision, explaining that the evidence was contradictory and that TCC 

had the burden of proof of showing the parcel was not vacant. 

                TCC   argues   that   the   assessor's   finding   that   the   parcel   was   vacant   on 

January 1, 2006, is not supported by substantial evidence and must be reversed.  TCC 

asserts that the assessor's finding is "solely based upon [an] error in TCC's initial filings" 

and    improperly     ignores   TCC's     subsequent     documentary      and   testimonial    evidence 

correcting that error. 

                                                  -11-                                            6618
 

----------------------- Page 12-----------------------

               The    Borough    responds   that  the  assessor's   finding  is  supported   by 

substantial   evidence in light of TCC's preliminary disclosures and TCC's failure to 

provide financial documents or a lease agreement pertaining to the space.  Alternatively, 

the Borough argues that even if we find that the parcel was occupied, the parcel is still 

non-exempt because "TCC failed to provide any evidence as to rental rates and income 

derived from the lease of the space in 2005." 

               We agree with TCC that the assessor's vacancy finding was not supported 

by   substantial  evidence.   Even    in  the  absence   of  a  lease  agreement   or  financial 

documents, TCC did submit documentary and testimonial evidence that the parcel was 

occupied on January 1, 2006, and that its preliminary disclosure regarding the vacancy 

was in error.   The assessor relied solely on the initial disclosure and did not explain why 

he ignored the later corrections.    Nor did the assessor identify any reason for doubting 

the credibility of these later corrections.    We find that the vacancy conclusion is not 

supported by "such relevant evidence as a reasonable mind might accept as adequate to 
support a conclusion."19 

               With regard to the parcel's taxability, it is not seriously disputed that the 

Health Center, while it operated, was engaged in exclusively nonprofit hospital purposes. 

As   explained    above,  AS   29.45.030    exempts   properties   that  are  rented  from  one 

qualifying nonprofit to another qualifying nonprofit, including nonprofit hospitals using 

the properties exclusively for nonprofit hospital purposes. Although the Borough argues 

that TCC has not produced evidence as to its rental rates and income from leasing the 

space to the clinic, these figures are immaterial to whether the use of the property is 

       19      Keiner v. City of Anchorage, 378 P.2d 406, 411 (Alaska 1963) (citations 

omitted). 

                                             -12-                                          6618 

----------------------- Page 13-----------------------

exempt.    We conclude that the property should have qualified for a tax exemption, and 

accordingly reverse the superior court's decision. 

        D.      Attorney's Fees 

                Finally,    TCC    argues   that  the  superior    court  abused    its  discretion   in 

awarding the Borough $38,416 in attorney's fees.               As we are reversing the superior 
court's determination as to all four parcels, we must vacate the attorney's fees award20 

and remand for the superior court to award fees in light of this opinion. 

V.      CONCLUSION 

                Because   the   David   Salmon   Tribal   Hall   was   being   used   exclusively   for 

charitable purposes, we hold that it was tax-exempt and REVERSE the superior court's 

determination to the contrary.  Because the remaining three parcels were rented to other 

charitable   non-profits   for   exempt   purposes,   we   hold   that   they   were   tax-exempt   and 

REVERSE the superior court's decision as to these parcels. In light of these conclusions, 

we VACATE the attorney's fees award and REMAND for a determination on attorney's 

fees consistent with this opinion. 

        20      Kenai Peninsula Borough v. Cook Inlet Region, Inc., 807 P.2d 487, 501-02 

(Alaska 1991). 

                                                 -13-                                              6618 
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