In a decision handed down Dec. 5, the Alaska Supreme Court upheld a Kenai Peninsula Borough ordinance exempting from property taxation the first $10,000 of assessed property value on the primary residences of borough citizens.
In upholding the Kenai Superior Court decision, the high court rejected an appeal by Anchorage resident Ronald F. Stanek, owner of a second home on the peninsula that is not his primary residence. Stanek argued that the borough ordinance illegally discriminated against nonborough residents, and that it violated the Alaska and U.S. constitutions.
"We uphold the ordinance because it discriminates on the basis of property use, treating resident and nonresident owners of second homes alike, and because the discrimination is legitimate," Justice Warren Matthews wrote in the opinion.
Borough Attorney Colette Thompson said the borough was pleased with the decision.
"The challenge was purely on an issue of law, not any factual dispute," she said, adding that analyzing the constitution issues had made the case particularly interesting.
Stanek said he saw it as basically unfair that someone should be paying a tax rate different from that of his neighbor. In addition, nonresidents don't get to vote on tax issues in the borough, he said. Nevertheless, he said he can live with the decision.
"Obviously, I can't appeal it any further. Other than being disappointed, life goes on," he said.
Stanek's attorney, Robert D. Stone of Anchorage, said the suit had been filed because it was felt the borough's system of taxation was unfair and unconstitutional, Stone said.
"Ultimately it was appealed to the supreme court. The court disagreed," Stone said. "We respect the decision of our state's highest court. This is why we have our judicial system to make the tough decisions about difficult and debatable issues."
The borough law at the heart of the case exempts the first $10,000 in assessed value of a home from the borough tax levy provided that home is the primary residence of the owner. The law requires the owner of record to reside in the home for at least 183 days a year (half a leap year), except if required to be absent for longer periods for medical reasons.
In the Superior Court case filed in 2000 and heard by the late Judge Jonathan Link, both Stanek and the borough asked for summary judgment. Link granted the borough's motion in a ruling on Feb. 27, 2002. Stanek appealed to the high court.
In their ruling, the Alaska Supreme Court justices said the exemption violated neither the Equal Rights Clause of the Alaska Constitution nor the Equal Protec-tion Clause of the Fourteenth Amendment to the U.S. Constitu-tion.
Stanek argued that the borough created illegitimate classes of resident and nonresident homeowners. The borough argued that residents and nonresidents were treated the same because residents do not get a tax exemption on their second homes either, only on their primary residences. Thus the distinction is based on use of property, not on residency.
The high court agreed with the borough and added that the borough ordinance was "evidently designed to protect and promote home ownership," considered beneficial to a community.
In so ruling, the justices cited similar decisions by courts in Florida, New York and Michigan.
Stanek also argued that the ordinance, passed by initiative in 1978, was created with discriminatory intent. According to the court, the borough no longer possesses the initiative petition or other documents that might show the sponsors' motives.
Stanek said the court should apply "spoliation remedy," an approach sometimes employed in tort cases in which the absence of records leads to "a rebuttable presumption that the records would have established facts unfavorable to the party who destroyed the documents," the court said.
The justices, however, rejected that argument as being without merit, saying they knew of no case using the remedy in a public law context, and that Stanek hadn't shown that the impetus for the initiative wasn't available elsewhere, as in newspaper archives.
Most important, the court said, while it could be imagined that the initiative was filed to lessen the tax burden on local homeowners, as distinct from nonresident second-home owners, that fact would not detract from the legitimacy of the objective of promoting owner-occupied home ownership.
In tossing out Stanek's argument that the ordinance violated the Alaska Constitution's Equal Rights Clause, the justices also discarded his argument that it violated similar provision in the U.S. Constitution. An analysis of the two constitutions, the court said, showed the U.S. Constitution's Equal Protec-tion Clause was "more forgiving" than the Alaska Constitution's provision. In meeting the tougher Alaska standard, the law also met the federal standard.
Stanek also said the ordinance's 183-day requirement violated his constitutional right to travel. The Alaska justices said Stanek lacked standing to make that argument because his peninsula home was not his primary residence, and thus the presumptive period was irrelevant to him.
The court also upheld the way the borough defined and assessed residential property and said the exemption was legitimate.
According to the borough's assessing department, some 10,664 residential properties receive the exemption benefit. The total value exempted is about $106,345,000, which would represent about $1.2 million in tax revenue if the borough collected it.
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