Alaska Supreme Court bars Nome from taxing hospital staff housing

A Statewide Test of Hospital Tax Exemptions

The Alaska Supreme Court ruled Aug. 7 that the City of Nome may not tax a seven-unit apartment building where Norton Sound Health Corporation houses the doctors and nurses who staff the regional hospital. The decision was unanimous. It reaches beyond Nome to any Alaska borough with a tribal health facility on its tax roll.

Justice Dario Borghesan wrote for the court in Opinion No. 7823, affirming a superior court ruling that the building qualifies for the state exemption covering nonprofit hospital purposes.

State law exempts property "used exclusively for nonprofit religious, charitable, cemetery, hospital, or educational purposes." The court agreed with Nome that the apartment is not used exclusively for hospital purposes, because staff also live there. It then exempted the building under a doctrine the court has applied since 1985 covering property "directly incidental to and vitally necessary to the exempt use of other property."

What made the housing vitally necessary was Nome's rental market. The building sits within walking distance of the hospital and houses doctors on a one-month-on, one-month-off rotation and nurses hired on contract, all on call and required to be minutes away. The housing is free to most of them. "There are no efficient or feasible short-term rentals in the Nome area," the court found.

Norton Sound described the housing in its exemption application as "a necessary incentive to attract qualified [staff] to work in [a] remote area." The corporation runs its facilities under the Alaska Tribal Health Compact with the Indian Health Service. Its annual funding agreement requires staff housing.

Why the court rejected Nome's arguments

The city assessor denied the exemption, conceding a housing shortage but saying other industries face the same conditions. The Board of Equalization agreed, reading "hospital purposes" as a place where sick or injured people are treated and finding the corporation "provided medical services for years without the use of Property 1."

The court rejected both points. Past practice "does not disprove NSHC's contention that currently there are no feasible short-term rentals in Nome." To the city's suggested housing vouchers, it answered that "if there are no feasible short-term rentals, vouchers will not solve that problem."

The precedent Nome relied on was its own. In City of Nome v. Catholic Bishop of Northern Alaska in 1985, the city won a similar argument: housing radio station personnel was not vitally necessary because a station that might "some day be asked to broadcast instructions during a public emergency" did "not require housing volunteers year-round." The distinction here took one sentence: "By contrast, doctors and nurses are routinely required to respond to medical emergencies."

The Kenai Peninsula Borough, the Ketchikan Gateway Borough, the Kodiak Island Borough and the State of Alaska filed in support of the city. Bristol Bay Area Health Corporation, a coalition of Alaska Tribal Health Organizations and the United States filed in support of the hospital. Each of the three boroughs has a tribal health facility in its own tax base. The opinion does not describe what any amicus argued, including the Justice Department.

On rent, the city argued for the first time on appeal that any rental income defeats the exemption, a point it had not raised before the Board, leaving the record without findings on it. The court held that limited rent does not defeat an exemption when the governing King's Lake Camp and Catholic Bishop tests are met, which turn on whether the owner has a "dominant profit motive." It declined to read the statute "so narrowly as to prohibit a nonprofit hospital from collecting some rent from medical staff to defray the cost" of necessary housing. New hires stay free for 30 days and then pay what the corporation calls nominal rent. The record indicates Norton Sound ran the building at roughly a $200,000 loss.

What the Ruling Leaves Unresolved

Superior Court Judge Paul A. Roetman had held both that the exemption applied and that federal law preempted the tax outright. The Supreme Court affirmed on the exemption alone, reaching neither preemption, the question that drew in the United States, nor whether the building qualifies as charitable-purposes property.

The Board raised a statutory point the court did not answer. State law names the residence of a bishop, pastor, priest, rabbi, minister or member of a religious order as exempt religious-use property, along with the home of an educator at a religious school. There is no equivalent line for a nurse.

The ruling joins a longer Alaska line on nonprofit and tribal health property. Ketchikan Gateway Borough v. Ketchikan Indian Community in 2003 held non-clinic space taxable. Fairbanks v. Dená Nená Henash in 2004 reaffirmed the charitable-use exemption under AS 29.45.030.

The opinion contains no assessed value and no tax figure, so what the exemption costs Nome is not established. Norton Sound applied for exemptions on several Nome properties, and only this one reached the Supreme Court. How much tribal health property statewide could claim the same treatment remains unmeasured. No doctor, nurse, hospital administrator, Nome taxpayer or municipal organization speaks anywhere in the record.