Alaska Supreme Court exempts Nome hospital staff housing from city property tax

Nome cannot tax a seven-unit apartment building that Norton Sound Health Corporation uses to house doctors and nurses, the Alaska Supreme Court ruled Friday. The decision affirms a superior court judgment and makes the property exempt from the city's property tax, which is levied at 11.5 mills.

Justice Borghesan wrote that the building is not used only for hospital work, because tenants also live there privately. It still qualifies, he wrote, under a long-standing exception for property that supports an exempt use. The "apartment building is directly incidental to and vitally necessary to NSHC's hospital," Borghesan wrote, because staff recruited from outside the Bering Strait region must respond to emergencies on short notice and Nome has a dearth of short-term rental housing.

The city assessor denied the exemption in 2022, calling the housing convenient but not necessary to run the hospital. The City of Nome Board of Equalization affirmed that denial. The board found that only a small number of employees live there and that the corporation provided medical services for years without the building. The board also concluded that if the Alaska State Legislature had meant to exempt hospital staff housing, it would have written that into the statute, as it did for certain religious residences.

Norton Sound Health Corporation, a tribally owned nonprofit operating under the Alaska Tribal Health Compact, told the board the building sits within walking distance of the inpatient hospital. Medical staff account for 98 percent of its occupancy, the corporation said. Its federal funding agreement with the Indian Health Service lists staff housing among required support services.

The record shows the corporation collected roughly $103,000 in rental income from the property in 2021. The corporation described as "nominal" the rent it charges new hires who stay longer than 30 days while looking for permanent housing. The court said the total amount charged seemed substantial and was hard to square with that description. The court also noted that the property appeared to operate at roughly a $200,000 loss.

The court held that rental income does not by itself disqualify a property from the hospital exemption. Because the building's housing use is directly incidental to and vitally necessary for hospital operations, the court found that test satisfied. Rent must also not stem from a dominant profit motive. It must be reasonably necessary and incidental to the hospital use, and it must not exceed the property's operational requirements. The city never raised the rental-income argument before the board, so the record contained no findings on those criteria. The justices said they could not conclude the rent disqualified the exemption.

The case drew friend-of-the-court filings from the Kenai Peninsula Borough, Ketchikan Gateway Borough, Kodiak Island Borough, the State of Alaska, Bristol Bay Area Health Corporation, Alaska Tribal Health Organizations and the United States. An earlier Alaska News article on Anchorage's exemption review noted that city has flagged about 570 tax-exempt properties for scrutiny, with roughly $811,000 a year at stake.