Court Opinion

ID: 9531739
Source: CourtListenerOpinion
Date Created: 2023-08-07 04:14:16.19111+00
Date Added: 2024-06-11T13:28:34.468070
License: Public Domain

DIMOND, Senior Justice, joined by RA-BINOWITZ, Justice,
dissenting.
I disagree with this court’s opinion and accordingly dissent.
Article IX, section 4, of the Alaska Constitution specifically states: “Exemptions. 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.” This has been reiterated by the legislature in AS 29.53.020, which provides in part: “(a) The following property is exempt from general taxation: ... (3) property used exclusively for nonprofit religious, charitable, cemetery, hospital or educational purposes.... ” There can hardly be any question that these provisions, by their plain meaning, exempt from taxation any and all property that is used exclusively for one or more of these nonprofit purposes. What is at issue in this appeal is what kind of “use” is meant by the constitution and the statute.
I believe it is entirely obvious that, according to the common meaning of the term “use,” the leased hospital equipment is used on a constant basis by Providence exclusively for hospital purposes. The Municipality contends that Providence is not entitled to a tax exemption for its use of the equipment because Crocker also “uses” the equipment by owning it and leasing it to the hospital for a profit. In my opinion, this contention is inconsistent with reality and common sense. Crocker does not physically use the equipment at all; its only interest in the equipment is to be able to get it back if the hospital fails to make the lease payments.
Providence supports its argument that it is entitled to the tax exemption by relying upon a series of cases, most notably Scott v. Society of Russian Isrealities, 59 Neb. 571, 81 N.W. 624 (1900), and Ross v. City of Long Beach, 24 Cal.2d 258, 148 P.2d 649 (1944). I find these cases to be persuasive authority for Providence’s position and I believe this court’s interpretation of them is simply erroneous.
In Scott, real property was leased to a religious group for valuable consideration. The religious group agreed to pay, in addition to rent, all taxes imposed on the property during the term of the lease. The group used the property exclusively for religious purposes. Similar to Alaska’s statute, Nebraska law exempted “property as may be used exclusively for ... [rjeligious ... [pjurposes.” The trial court held that all taxes assessed against the property while it was used by the religious group were null and void. In affirming this conclusion, the Nebraska Supreme Court stated as follows:
It is the exclusive use for the purpose named which determines whether the property is subject to the burden of taxation or not. To hold that a religious *453society must be the absolute owner of the property occupied or used by it exclusively for church purposes, to create the exemption, would be to inject words into the constitution and statute which are not therein written.
Scott, 81 N.W. at 624-25 (citations omitted). The court in Ross v. City of Long Beach, 24 Cal.2d 258, 148 P.2d 649 (1944), similarly interpreted California’s state constitutional provision exempting from taxation all “property used exclusively for public schools.” In that case, the public school district had leased privately owned property and used it exclusively for school purposes. The City contended that, despite the school district’s physical occupation of the property and its use of the property only for school purposes, the property should not be exempt from taxation because it was owned by a private individual who rented the property to the school district for a profit. The California Supreme Court, holding that the property was exempt, stated:
The exemption of property used for public school purposes is not for the benefit of the private owner who may rent his property for said purpose, but for the advantage of the school district that may be compelled to rent property rather than to buy [it] .... With this advantage the school district is able to rent property for a lower rental than the owner of the same property would be willing to accept from a private individual, for the reason that if rented to a school district the owner is relieved from the payment of taxes thereon.
Ross, 148 P.2d at 651-52. This is still the law followed in California. See Mann v. County of Alameda, 85 Cal.App.8d 505, 149 Cal.Rptr. 552, 554 (1978); Yttrup Homes v. County of Sacramento, 73 Cal.App.3d 279, 140 Cal.Rptr. 680, 682-83 (1977). Other jurisdictions have reached similar conclusions when faced with similar cases. See, e.g., Cleveland State University v. Perk, 26 Ohio St.2d 1, 268 N.E.2d 577 (1971); Anniston City Land Co. v. State, 160 Ala. 253, 48 So. 659 (1909); Cox v. Dillingham, 199 Okl. 161, 184 P.2d 976 (Okla.1947).
I believe that this case is analogous to Scott and Ross. In the first place, holding that property leased for an exempt purpose is exempt from taxation would benefit the nonprofit lessee. In this case, Providence is contractually obligated to pay to Crocker any taxes, should taxes be imposed upon the property. Thus, if the property were held to be tax-exempt, Providence’s costs in using the equipment would be that much less, enabling Providence to provide more services to patients with the saved money. Similarly, in future cases the benefit of the tax-exemption would inure to the nonprofit lessee: either the lessee would assume the owner’s tax obligation and then not pay the usual taxes because of the exemption, or the lessee would negotiate a lower lease price on the basis that the owner will not have to pay the usual taxes because of the exempt use made of the property by the lessee.
In the second place, holding that property leased for an exempt purpose is not tax-exempt because of the lessor’s “use” of the property to make a profit is, for all practical effects, the same as holding that property used exclusively for an exempt purpose is nonetheless not tax-exempt unless it is also owned by the nonprofit entity. Other states may require, by the terms of their constitutions and statutes, that a nonprofit entity both own the property and use it exclusively for an exempt purpose before the property is exempt from taxation, but that is clearly not what is required by the Alaska Constitution and AS 29.53.020.
Providence’s case is further bolstered by a case not cited by them. In First National Leasing Corp. v. City of Madison, 81 Wis.2d 205, 260 N.W.2d 251 (1977), that state’s highest court was faced with a case synonymous to the one presently at bar.
Madison involved the leasing of x-ray and hospital equipment by a non-profit hospital from the appellant, a leasing company doing business for profit. Wisconsin law pro*454vided a tax exemption for “[property ... used exclusively for the purposes of any hospital ... devoted primarily to the diagnosis, treatment or care of the sick, injured, or deformed .... ” Id. 260 N.W.2d at 252 (emphasis omitted). The City’s position in Madison was similar to what the Municipality contends here; that the Madison property was not exempt from taxation because the leasing company did business for profit, and took depreciation on the leased property for income tax purposes.1
The Wisconsin Supreme Court rejected the argument put forth by the City, and specifically declined to follow the dissent of Justice Traynor in Ross v. City of Long Beach, 24 Cal.2d 258, 148 P.2d 649 (1944), which the majority relies on in the case at bar. In so doing, the Madison court noted,
property has multiple “uses.” In the instant case, the . .. x-ray equipment ... had diagnostic and therapeutic uses for the hospital. In addition, it had a use to its owner, the leasing corporation, as personal property which could be rented at a profit or which could be mortgaged or assigned. We conclude, however, that it was not these latter intangible uses of the property to which the legislature referred when it enacted the phrase, “used exclusively” for hospital purposes.2
Madison, 260 N.W.2d at 254 (footnote omitted).
In light of these decisions then, I thus believe that the hospital equipment leased and used by Providence exclusively for hospital purposes should be held to be exempt from- taxation.3
I believe the judgment of the superior court should be reversed.

. The Wisconsin statute also required that the hospital had to be a non-profit hospital if owned and operated by a corporation, voluntary association, foundation or trust. The terms of the lease agreement in Madison also provided that in the event the property was found taxable, the hospital would pay the taxes. Madison, 260 N.W.2d 251, 252-53.

. The Madison court aptly solved the area of confusion surrounding these “exclusive use” statutes. They noted that the legislature had employed not the noun, “use,” but the verb. Madison, 260 N.W.2d at 254 n. 1. The verb “to use” was explained as follows:
In ordinary parlance to use an article is to utilize or employ it for the purposes for which it was intended. For instance, to use a plow is to cultivate the ground with the plow. To use a wagon is to haul with the wagon or drive it for the purposes for which a wagon is ordinarily used. To use a refrigerator is to place it in one’s home to preserve food and kindred articles.
Id. 260 N.W.2d at 254, quoting Bowies v. Madl (Kan.1945), 60 F.Supp. 152, 153. While there are a multiplicity of meanings that may be ascribed to the word “use,” I agree with the Wisconsin Supreme Court that “ ‘used exclusively’ for hospital purposes” could only have the natural meaning of referring to the physical use of the property. See Madison, 260 N.W.2d at 254-255.

.I do concur with the majority that Providence may not be heard to repudiate the form of the transaction that it freely entered into. This conclusion is in accordance with the proposition that only the taxing authority may look beyond the form of a transaction to determine the tax consequences. See, e.g., Commissioner v. National Alfalfa Dehydrating & Milling Co., 417 U.S. 134, 149, 94 S.Ct. 2129, 2137, 40 L.Ed.2d 717, 727 (1974) (“while a taxpayer is free to organize his affairs as he chooses, nevertheless, once having done so, he must accept the tax consequences of his choice, whether contemplated or not”); Moline Properties, Inc. v. Commissioner, 319 U.S. 436, 438-39, 63 S.Ct. 1132, 1134, 87 L.Ed. 1499, 1502-03 (1943); Higgins v. Smith, 308 U.S. 473, 477, 60 S.Ct. 355, 357, 84 L.Ed. 406, 411 (1940) (“the Government may not be required to acquiesce in the taxpayer’s election of that form for doing business which is most advantageous to him”); Bennett Paper Corp. & Subsidiaries v. Commissioner, 699 F.2d 450, 451-52 (8th Cir.1983). The issue, however, of whether the transaction was a lease or a secured transaction does not decide the applicability of AS 29.53.020.