Alaska Supreme Court says a sleep clinic performs services in the field of health and owes the tax

Alaska Sleep Clinic is a four-location operation with 13 beds, founded in Wasilla in 2002 as the state's first independent sleep testing facility and now running labs in Anchorage, Fairbanks, Soldotna and Wasilla. It describes itself as a veteran-owned small business.

It is not small enough, or rather, that is not the question. The Alaska Supreme Court ruled in July that the clinic cannot claim the state's small business exemption from corporate income tax, because the exemption excludes whole categories of work no matter the size of the company. Health is one of them, along with law and engineering.

The clinic's corporate parent, Alyeska International, claimed the exemption for 2016, 2017 and 2018. The Department of Revenue denied it in 2020.

Writing for the court, Justice Borghesan focused on what the business is actually selling. Its medical director, Dr. Mauricio Reinoso, is a board-certified sleep specialist who screens every patient. The clinic's own marketing offers customers "training and seasoned know-how." The value, the court found, is in the expertise rather than the machines.

Attorney Colleen Knix argued for the clinic that it functions more like a pharmacy, filling sleep studies that physicians order. The court also declined to give weight to a 2024 IRS private letter ruling the clinic had obtained in its favor, noting such rulings do not bind anyone else and that this one left out facts the state was relying on.