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Kotzebue Lions Club v. City of Kotzebue (4/3/98), 955 P 2d 921
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Notice: This opinion is subject to correction before publication in
the Pacific Reporter. Readers are requested to bring errors to the attention of the
Clerk of the Appellate Courts, 303 K Street, Anchorage, Alaska 99501, phone (907)
264-0608, fax (907) 264-0878.
THE SUPREME COURT OF THE STATE OF ALASKA
KOTZEBUE LIONS CLUB, )
) Supreme Court No. S-7570
Appellant, )
) Superior Court No.
v. ) 2KB-95-54 CI
)
CITY OF KOTZEBUE, ) O P I N I O N
)
Appellee. ) [No. 4961 - April 3, 1998]
)
Appeal from the Superior Court of the State of
Alaska, Second Judicial District, Kotzebue,
Richard H. Erlich, Judge.
Appearances: C.R. Kennelly, Stepovich,
Kennelly & Stepovich, Anchorage, and Mark L. Nunn, Law Office of
Mark L. Nunn, Anchorage, for Appellant. Jerald M. Reichlin,
Fortier & Mikko, P.C., Anchorage, for Appellee.
Before: Matthews, Chief Justice, Compton,
Eastaugh, Fabe, and Bryner, Justices.
COMPTON, Justice.
BRYNER, Justice, with whom FABE, Justice,
joins, concurring.
I. INTRODUCTION
The Kotzebue Lions Club appeals from a judgment of the
superior court holding that its charitable gaming activities are
subject to the municipal sales tax of the City of Kotzebue. We
affirm.
II. FACTS AND PROCEEDINGS
The Kotzebue Lions Club, a charitable organization as
defined by AS 05.15.690(5), conducts "pull tab"and bingo
operations under a state permit. For a number of years, the City
of Kotzebue has applied its general sales tax ordinance to these
activities, and the Club has paid that tax. In 1993, following
this court's decision in Dilley v. Ketchikan, 855 P.2d 1335 (Alaska
1993), the City amended its sales tax ordinance to expressly
subject the Club's pull tab and bingo operations to the tax. The
Club filed suit, claiming that the City lacks the authority to
subject the Club's charitable gaming activities to a municipal
sales tax. The superior court granted summary judgment in favor of
the City and ordered the Club to remit all unpaid sales taxes.
This appeal followed.
III. DISCUSSION
A. Standard of Review
Summary judgment may be granted only if there is no
genuine issue of material fact and the moving party is entitled to
judgment as a matter of law. See Estate of Arrowwood v. State, 894
P.2d 642, 644 n.2 (Alaska 1995). We conduct de novo review of the
grant of summary judgment. See Beilgard v. State, 896 P.2d 230,
233 (Alaska 1995). We draw all factual inferences in favor of the
non-moving party; the existence of a genuine issue of material fact
precludes summary judgment. Id.
B. The City May Tax Charitable Gaming Activities.
The Club first argues that the City lacks the power to
tax charitable gaming operations. The Club asserts both that the
City's tax is preempted by state law and that, even if it were not
preempted, such a tax is contrary to public policy. Neither
argument has merit. [Fn. 1]
1. The challenged sales tax ordinance is not preempted
by state law.
Preemption exists "in the absence of an express
legislative direction or a direct conflict with a statute, only
where an ordinance substantially interferes with the effective
functioning of a state statute or regulation or its underlying
purpose." Liberati v. Bristol Bay Borough, 584 P.2d 1115, 1122
(Alaska 1978). No state statute directly conflicts with municipal
taxation of charitable gaming operations. [Fn. 2] Nor has the Club
cited to any express legislative direction against such a tax. The
Club therefore can prevail only if the challenged sales tax
"substantially interferes"with the state's regulatory scheme.
"Article X, section 1 of the Alaska Constitution
prescribes that '[a] liberal construction shall be given to the
powers of local government units.' Accordingly [this court]
'should not be quick to imply limitations on the taxing authority
of a municipality where none are expressed.'" Fairbanks North Star
Borough v. College Utils. Corp., 689 P.2d 460, 464 n.14 (Alaska
1984)(quoting Liberati, 584 P.2d at 1121). Preemption of local
laws therefore requires more than the existence of state statutes
concerning an activity. See Liberati, 584 P.2d at 1121-22 ("Merely
because the state has enacted legislation concerning a particular
subject does not mean that all municipal power to act on the same
subject is lost."). In Liberati local taxation of fish sales, an
activity which the state manages "to a very detailed extent"and
subjects to a specific tax, did not "substantially interfere"with
the state scheme. Id. at 1122 ("[I]t would obviously be wrong to
conclude merely because [the state] taxes sales that a municipality
is thereby precluded from taxing the same sales."). Since "the
ordinance at issue [wa]s intended only to raise money, and ha[d] no
regulatory component,"the court saw "no direct or indirect
conflict between the State's regulation of fish harvesting or fish
sales and the ordinance in question." Id.
While the state regulates gaming extensively, such
regulation is not so all-encompassing as to foreclose all
supplemental regulation by local entities. State gaming
regulations include a requirement that such activities take place
only under state permit, [Fn. 3] a use restriction on gaming
proceeds, [Fn. 4] and a three percent tax on net pull-tab proceeds.
[Fn. 5] However, this regulatory scheme, while detailed, is no
more comprehensive than that which governs commercial fishing, an
activity which ranks among the most heavily regulated industries in
Alaska. [Fn. 6] See Cole v. State, 828 P.2d 175, 178 (Alaska App.
1992) (holding that commercial fishing qualifies as a "heavily
regulated industry"). Yet under Liberati, state regulation of
commercial fishing does not foreclose local taxation of fish sales.
Liberati, 584 P.2d at 1122. Like the ordinance at issue in
Liberati, the sales tax at issue here "is intended only to raise
money, and has no regulatory component." Id. The City's sales tax
therefore does not "substantially interfere"with state regulations
to any greater degree than did the tax at issue in Liberati.
Indeed, the statutes governing gaming activities expressly
contemplate municipal taxes in one provision. [Fn. 7] Moreover,
Dilley indicates in dicta that a municipal tax on gaming would be
permissible. Dilley, 855 P.2d at 1337. State regulation of
charitable gaming therefore does not preclude municipal taxation of
such activity. [Fn. 8]
2. Local taxation of the Club's gaming operations does
not violate public policy.
The Club also asserts that municipal taxation of
charitable gaming would run counter to public policy, and therefore
should be prohibited. [Fn. 9] This claim fails. The state
legislature has enacted a tax on gaming, and has thereby determined
that public policy permits such taxation. See AS 05.15.184. The
Club neither challenges the state tax, nor explains why municipal
taxation of the same activity would implicate policy concerns to
any greater degree than does state taxation. This court's
statement in Dilley to the effect that municipal taxation of gaming
would be permissible also suggests a lack of any broad policy
interest against local gaming taxes. Dilley, 855 P.2d at 1337.
C. The Sales Tax Ordinance Was Validly Enacted.
Assuming that the City possessed the authority to tax
gaming operations, the Club contends that the recent amendment to
the sales tax ordinance, which expressly includes bingo and pull-
tab sales within the scope of taxable sales, was enacted through
improper procedures. The Club notes that the City was required to
follow the procedures set forth in AS 29.25.020 in adopting that
ordinance. Alaska Statute 29.25.020(b)(3) provides that "at least
five days before the public hearing a summary of the ordinance
shall be published together with a notice of the time and place for
the hearing." The Club contends that the procedure by which the
amendment was adopted did not satisfy these requirements. [Fn. 10]
This claim fails as well.
1. A typographical error in the City's Notice of
Hearing on Ordinance did not invalidate the amendment to the sales
tax.
The Club contends that since the ordinance amending the
sales tax was misidentified through a typographical error as
Ordinance 93-08, instead of 93-07, "the Ordinance was not published
correctly"and is therefore invalid. This claim lacks merit.
Alaska Statute 29.25.020(b)(3) requires publication of "the time
and place"of the hearing on a proposed ordinance. The Club has
not alleged that the typographical error in the published notice
interfered in any way with the ability of the Club, or the general
public, to comment on the proposed ordinance. Nor has the Club
alleged that it sought a copy of the mis-identified measure and was
frustrated as a result of this error. Any interested party reading
the notice was directed to the right meeting, at the right time, at
the right place. Since the Club has not alleged or demonstrated
that the error had any practical effect, the error is harmless.
See 5 Beth Buday & Victoria Braucher, McQuillin Municipal
Corporations sec. 16.78 (3d ed. rev. vol. 1996) ("An error in the
printing of a word in the publication of an ordinance will not
affect its validity where it is plain from the context what word
was intended."). [Fn. 11]
2. The published summary, while imperfect, did not
render the amending ordinance invalid.
The Club also claims that the published summary of the
amendment was inadequate in that it stated only that the proposed
ordinance would amend the definition of taxable sales. This
contention also fails.
Alaska Statute 29.25.020(b)(3) does not articulate the
level of detail that the published summary of an ordinance must
contain. However, in Fairbanks North Star Borough, 689 P.2d at
462, this court indicated that a summary meets the statutory
requirements so long as it describes "clearly, if generally, what
the proposed ordinance would accomplish." Fairbanks North Star
Borough involved an ordinance which fixed the rates of property tax
for slightly over one-third of the service areas in the borough.
Id. The published summary of that ordinance described the measure
as "Fixing the Rate Of Real Property Tax Levy For [the borough]
Service Areas For the 1982/83 Fiscal Year." Id. (quoting
Fairbanks Daily News-Miner, May 22, 1982). This summary was
arguably misleading, since less than half of the service areas
would actually be affected. However, it was adequate to satisfy
the statutory requirements [Fn. 12] since any misconception created
by this notice "would presumably motivate th[e taxpayers] to attend
the hearing,"rather than prevent affected parties from realizing
that their interests were at stake. Id. at 462-63 n.7.
The summary which the City published described the
ordinance as "amending the definition of 'sale' under KMC
3.20.010(E)." While this summary was literally accurate, it was
incomplete in that it did not mention its purpose of expressly
including bingo and pull-tab operations within the scope of the
tax. However, like the summary at issue in Fairbanks North Star
Borough, this summary indicated that the ordinance had a broader
effect than it actually did. A person reading the summary would
expect the ordinance to affect all sales taxes, rather than taxes
on gaming operations alone. As a result, any uncertainty which the
summary caused would have only the effect of inducing more people
to attend the meeting, as was the case in Fairbanks North Star
Borough. This summary was adequate.
IV. CONCLUSION
The City has the authority to tax charitable gaming
activities. The City's amended tax ordinance is valid. [Fn. 13]
We AFFIRM.
BRYNER, Justice, with whom FABE, Justice, joins, concurring.
Although I join in the court's opinion in all other
respects, I do not agree with its conclusion that the City complied
with its statutory duty to publish a clear and adequate summary of
its proposed ordinance amending the definition of taxable sales.
The court agrees with the Lions Club that the published
summary was "incomplete in that it did not mention [the proposed
ordinance's] purpose of expressly including bingo and pull-tab
operations within the scope of the tax." Op. at 9. Nevertheless,
relying on Fairbanks North Star Borough v. College Utilities Corp.,
689 P.2d 460 (Alaska 1984), the court concludes that the summary
passed muster under AS 29.25.020(b)(3) because it was "literally
accurate,"Op. at 9, and because it was overly inclusive in the
sense that "any uncertainty which the summary caused would have
only the effect of inducing more people to attend the meeting, as
was the case in Fairbanks North Star Borough." Op. at 10.
The court's reading of Fairbanks North Star Borough is
troublesome. The published notice at issue in Fairbanks North Star
Borough was a single summary that described two proposed
ordinances, one appropriating funds for all fifty-seven service
areas in the borough and another fixing tax rates for twenty of the
fifty-seven. [Fn. 1] See id. at 462. The primary challenge to
this summary was that it was vague in describing the tax-rate
ordinance because it failed to specify the proposed new mill rate
for each affected service area. See id. at 462-63. In addressing
the vagueness challenge, we observed that the summary "described
clearly, if generally, what the proposed ordinance would
accomplish,"id. at 462, and we reasoned that greater specificity
could not be countenanced. See id. at 463. We thus expressly
found that "the summary [was] not 'vague,'"id. at 462, and that it
"adequately and accurately summarized the proposed ordinance." Id.
at 463.
In a footnoted comment, we separately addressed the
"notice aspect"of the summary, which we found "not perfect"
because it was worded in a way that "could mislead the reader into
thinking that the proposed ordinance would set property tax rates
for more service areas than it actually affected." Id. at 462-63
n.7. We dismissed this problem as insignificant, noting that, "if
anything, more readers would expect to be affected by the ordinance
as described [in the summary], and their misconception . . . would
presumably motivate them to attend the hearing." Id.
As I read Fairbanks North Star Borough, it stands for the
modest proposition that a clear summary of an ordinance's subject
matter and purpose will not be invalidated merely because its
wording describes the potential scope of the ordinance's coverage
too broadly. In today's decision, however, the court conflates
Fairbanks North Star Borough's separate treatment of vagueness and
overly inclusive notice to suggest that overly inclusive notice can
cure vagueness. In declining to squarely address whether the
published summary in the present case adequately described the
subject and purpose of the City's proposed sales tax ordinance, the
court seemingly holds that as long as the summary was "literally
accurate,"Op. at 9, and gave overly inclusive notice, id., its
vagueness is of no concern.
This test of compliance makes little sense, because the
vaguer a summary, the more likely it is to be both literally
accurate and overly inclusive. Under this test, vagueness itself
becomes a redeeming virtue. [Fn. 2]
When a published summary is vague in its description of
an ordinance's subject and purpose, and when its own vagueness is
the cause of its overly inclusive public notice, the public has no
basis for informed choice; it must decide whether to attend a
meeting on the off-chance that something of actual interest might
be considered. The predictable result of such guesswork notice is
reduced, not enhanced, public participation: members of the public
whose interests are actually affected may be lulled into
complacency by the innocuous generality of the vague description.
[Fn. 3]
In the present case, the published summary is overly
inclusive precisely because it does not describe as clearly as it
might the subject and purpose of the City's proposed sales tax
ordinance: to include bingo and pull-tab sales within the
definition of taxable sales. Unlike the situation in Fairbanks
North Star Borough, the situation here permits a strong argument
that the published summary did not "clearly"or "adequately and
accurately"describe "what the proposed ordinance would
accomplish." 689 P.2d 462-63. In my view, the issue of statutory
compliance thus presents a very close question.
The court's reliance on a questionable interpretation of
Fairbanks North Star Borough to decide this issue is troubling
because the issue itself need not be decided. The harmless error
rationale set out in footnote 13 of the court's opinion offers a
straightforward, fully sufficient, and clearly correct alternative
basis for concluding that the City properly required the Lions Club
to pay the sales tax. Given the ready availability of this
alternative rationale, I see no reason for the court's insistence
on creating a new and potentially problematic legal rule.
Accordingly, I join in the court's opinion except as to
Part III.C.2. As to that part of the opinion, my agreement with
the court is limited to the harmless error rationale set out in
footnote 13.
FOOTNOTES
Footnote 1:
The Club also argues that since the Club is a charitable
organization, article IX, section 4 of the Alaska Constitution
renders the Club's property exempt from taxation, and the Club is
therefore exempt from the City's sales tax. This claim fails. The
tax at issue does not fall upon the property of the Club as such,
but falls instead on the sale of property to gaming participants.
The Club has cited no authority for the proposition that charitable
organizations confer tax-exempt status on every transaction to
which they are a party.
The Club also asserts that since gaming participants
would actually pay the tax, they must all be joined as
indispensable parties. This claim also fails. The Club cites no
authority for the proposition that municipalities cannot bring
actions to collect sales taxes unless they join every party to
every taxable sale. Nor does the Club present any logical reason
for adopting such a rule. Indeed, since joinder of all parties to
taxed sales is normally impossible, it appears entirely appropriate
for a municipality seeking to collect a sales tax to bring suit
only against the entity charged with collection of that tax.
Footnote 2:
The Club asserts that a local tax directly conflicts with AS
05.15.150, which does not include "payment of local taxes"within
its list of acceptable uses for the proceeds of charitable gaming.
However, that list also does not include payment of the state tax
contained in AS 05.15.184. This provision serves as a general use
restriction on the proceeds, and not as a ban on all gaming taxes.
Footnote 3:
See AS 05.15.100(a).
Footnote 4:
See AS 05.15.150(a) (restricting use of gaming proceeds to
"political, educational, civic, public, charitable, patriotic, or
religious uses").
Footnote 5:
See AS 05.15.184.
Footnote 6:
While charitable gaming is the subject of a single chapter of
Title 5 of the Alaska Statutes, nearly all of Title 16 is dedicated
to regulation of commercial fishing. Title 16 contains detailed
restrictions on commercial fishing activities, including licensing
requirements for the taking of fish, see AS 16.05.330-710, and
criminal penalties for violations, see AS 16.05.722-723. In
addition, commercial fishing is subject to regulation and oversight
by the Alaska Department of Fish and Game.
Footnote 7:
The definition of "adjusted gross income,"by which operators
of the games are evaluated and regulated, is "gross income less
prizes awarded and state, federal, and municipal taxes paid or owed
on the income." AS 05.15.690(1).
Footnote 8:
The Club argues that by enacting AS 05.15.184, the state has
implicitly reserved the power to tax gaming operations to itself.
This argument fails. AS 05.15.184 does not create a state power of
taxation, but instead actually levies a tax. The statute makes no
mention of any reservation of the power to tax such activities to
the state alone.
Footnote 9:
In support of this argument, the Club contends that allowing
the City to receive revenue from gaming would be to place the City
"in the gambling business." However, the Club notes that the City
conducts its own gaming operations. The City therefore already is
in the "gambling business,"and receives revenue from gaming wholly
apart from its taxation of the Club. This argument therefore lends
little weight to the Club's position.
Footnote 10:
The Club also contends that several factual disputes exist on
this point that preclude a grant of summary judgment. However, the
parties do not dispute the facts concerning what was published, but
rather the legal consequences of those facts.
Footnote 11:
The Club also notes that "the Minutes did not reflect that the
ordinance was read at the Public Meeting." This alleged error is
of no greater significance than the claim concerning the
typographical error. See 62 C.J.S. Municipal Corporations sec.
416(b)
("[N]oncompliance with merely formal requirements in the manner of
enactment ordinarily is considered by the courts as no ground for
declaring an ordinance void.").
Footnote 12:
The statute at issue was former AS 29.48.150, which outlined
procedures for passage of local ordinances which are similar, but
not identical, to the present requirements.
Footnote 13:
Even were we to conclude that the City's amended tax ordinance
is invalid, the Club would be entitled to no relief. Prior to the
1993 amendment, the City's ordinance defined taxable "retail sales"
to include "every sale or exchange of property, of every kind and
description."Former Kotzebue Municipal Code 3.20.010. Property
"of every kind and description"would include intangible property
such as bingo and pull-tab entries. Id. Indeed, both the City and
the Club apparently believed that the pre-amendment sales tax
applied to the Club's activities. The City asserts that the
amendment has no effect on its operations or collection of the tax.
The Club does not dispute this claim, nor the City's claim that the
Club regularly paid the tax prior to the amendment. The Club's
challenge to the tax would therefore fail even if the amendment
were invalid.
FOOTNOTES (Concurrence)
Footnote 1:
The summary stated: "An ordinance amending the FY 1982-83
budget by appropriating funds for the borough service areas and
fixing the rate of real property tax levy for these service areas
for the 1982/83 fiscal year." See id. at 462.
Footnote 2:
If literal accuracy and overly inclusive notice are enough to
comply with the statutory notice requirement -- as the court
suggests they are -- then the City's summary in the present case
would have been adequate if, instead of saying "amending the
definition of 'sale' under KMC 3.20.010(E),"it said something like
"amending a tax ordinance,"or even "amending an ordinance." Each
of these formulations is "literally accurate,"and each is overly
inclusive.
Footnote 3:
For example, notice of an ordinance "amending the definition
of 'sale'"under KMC 3.20.010(e),"may mean little to anyone,
leading no one to attend the City assembly meeting. In contrast,
notice of an ordinance "amending the definition of 'sale' to
include bingo and pull tab sales"may mean nothing to most people,
but it will mean very much to an interested few, who will attend
and participate. The court's view that overly inclusive notice
will invariably generate greater attendance in such cases is
questionable.
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