A property tax exemption court case between the Kodiak Area Native Association and the Kodiak Island Borough, as well as a similar case in Nome, could set precedent for other communities around the state.
In September of 2023, an Alaska Superior Court judge ruled that the Kodiak Area Native Association, a local nonprofit corporation and tribal health organization, was exempt from paying property taxes for the vast majority of its holdings during the 2020 and 2021 fiscal years. The association owns many local buildings, 13 within borough limits according to the Kodiak Island Borough including a health clinic, a community wellness center and the local child advocacy center.
The Kodiak Island Borough appealed the lower court’s decision in October of 2023. The Alaska Supreme Court is scheduled to hear oral arguments on Dec. 4.
KANA’s chief executive officer, Mike Pfeffer, said in an email he will accept whatever decision the Alaska Supreme Court makes. He also said that “KANA trusts the process to affirm the legal protections for nonprofit organizations.”
He added that KANA sees itself like every other nonprofit and is not looking for any special treatment regarding property taxes.
While this case only directly involves two Kodiak entities, the final decision could have larger implications for Alaska nonprofits and communities.
“Yep, repercussions across the state,” said Nils Andreassen, executive director of the Alaska Municipal League, a nonprofit that represents 165 municipalities statewide. “Wherever it occurs opens up the door for action everywhere else in the state.”
Andreassen’s organization has also been paying attention to a similar case in Nome that involves property tax exemptions for the Norton Sound Health Corporation, another nonprofit tribal health consortium. As in Kodiak, a Superior Court judge ruled in that nonprofit’s favor. The City of Nome also has an appeal pending in the Supreme Court. The regional hospital and several of NSHC’s properties are located within city limits, but the City of Nome deemed it ineligible for tax exemptions. More than 15 municipal governments, tribal governments and other organizations have filed amicus briefs related to the case.
These cases hinge on Article 9, Section 4 of the Alaska State Constitution, which states, “All, or any portion of, property used exclusively for non-profit religious, charitable, cemetery, or educational purposes, as defined by law, shall be exempt from taxation.”
Andreassen said different local assessors interpret the meaning of “exclusively” differently.
“What is that exclusive threshold? Exclusively to me means 100%,” he stated. “But the more you can kind of break down a property into its component pieces, you might be able to find that some portions are used exclusively and some portions aren’t, and then you apply your tax to the pieces that aren’t.”
When it comes to property tax exemptions, Andreassen said it shouldn’t be an “us versus them” situation.
“Everybody is trying to do what’s valuable and important in their community, trying to meet a variety of needs, and sometimes those things clash trying to sort through that,” Andreassen said. “But there are tradeoffs and there are consequences from the outcomes of these kinds of debates.”
For example, if the Supreme Court decides that most of KANA’s properties are not exempt from property taxes, then that means potentially more money going into the Borough’s general fund to spend on community services and support the local school district.
The borough manager would only give limited comment about the case. But according to previous reporting from KMXT, the borough argues the exemptions should not be applied to all of KANA’s properties as they don’t exclusively provide services to just its clients, but other community members as well.
With the dispute over KANA’s previous property taxes still pending, its property taxes due in October of this year triggered another legal fight.
The Kodiak Island Borough’s assessor said this year’s taxable value of KANA’s most valuable property in Kodiak, the Kodiak Marketplace building, was nearly $30 million, about 65% of its total assessed value. KANA partially uses the marketplace for office space and for what it describes as charitable purposes. Borough records indicate the assessed value of the marketplace is $42.8 million and KANA would owe $313,286.50 in taxes with the current year’s exemptions in effect.
KANA appealed that property tax bill, first to the assessor and then to the Superior Court, too. But then KANA and the borough settled the argument out of court and KANA voluntarily dismissed its own appeal on Nov. 4.
KANA argued in court documents that these portions are exempt from property taxes because they qualify as charitable purposes under state constitution and based on the Superior Court’s ruling in September of 2023, in the earlier case that’s now before the Supreme Court. The judge in that case decided the majority of KANA properties were used exclusively for charitable purposes covered by state law and federal criteria, such as the Indian Self-Determination and Education Assistance Act.
Pfeffer said the borough refunded KANA for part of the property tax payments it made this year. Neither Pfeffer nor Borough Manager Aimee Williams would disclose the settlement in further detail.
Pfeffer said he doesn’t think there will be an issue between the borough and KANA regarding property taxes at the marketplace property going forward. He added via email that “we appreciate the Borough’s willingness to engage in productive conversations to reach a resolution that respects our shared commitment to Kodiak’s residents.”
The final decision in the broader property tax exemption case before the state Supreme Court will come sometime after the oral arguments in December.
