Full Opinion

<div id="co_document" class="co_document co_caselawNRS"><div class="co_cites">2026 WL 2068010</div><input type="hidden" id="co_document_paraNumbersSourceCiteMetadata" value='{ "paraNumbersSourceCite": "2026 WL 2068010", "publicationNumber": "999" }' alt="metadata"><div class="co_contentBlock co_editorialNoteBlock"><div>Only the Westlaw citation is currently available.</div></div><div class="co_message"><div>NOTICE: THIS DECISION DOES NOT SERVE AS PRECEDENT. THE CASE WAS ENTERED IN THE WESTLAW DATABASE BEFORE THE TIME FOR REHEARING HAD EXPIRED. IT IS POSSIBLE THAT REHEARING HAS BEEN SOUGHT, GRANTED OR DENIED.</div></div><div class="co_contentBlock co_courtBlock"><div>Supreme Court of Alaska.</div></div><div class="co_title"><div class="co_suit"><div class="co_partyLine"> ALYESKA INTERNATIONAL INC., d/b/a Alaska Sleep Clinic, Appellant, </div><div>v.</div><div class="co_partyLine"> STATE of Alaska, Department of Revenue, Appellee. </div></div></div><div class="co_docketDate"><div class="co_contentBlock co_docketBlock"><span>Supreme Court No. S-18949</span></div><div class="co_date"><span>July 17, 2026</span></div></div><!--DHE--><div class="co_contentBlock co_actionBlock"><div>Appeal from the Superior Court of the State of Alaska, Third Judicial District, Anchorage, Kevin M. Saxby, Judge. Superior Court No. 3AN-22-07244 CI</div></div><h2 class="co_attorneyBlockLabel co_printHeading" id="co_attorneysAndLawFirms">Attorneys and Law Firms</h2><div class="co_contentBlock co_attorneyBlock"><div>Colleen Knix and F. Steven Mahoney, Manley Brautigam Bankston P.C., Anchorage, for Appellant.</div><div>J. Paige Smothers, Assistant Attorney General, Anchorage, and Treg Taylor, Attorney General, Juneau, for Appellee.</div></div><div class="co_contentBlock co_panelBlock"><div>Before: Borghesan, Henderson, Pate, and Oravec, Justices. [Carney, Chief Justice, not participating.]</div></div><div class="co_contentBlock co_opinionBlock"><h2 id="co_opinion" aria-hidden="true"></h2><div class="co_docDelivery_dottedLine"><img src="https://s1-govt.westlaw.com/WeblinksStaticContent_2607.1.1010/images/co_docDelivery_dottedLine.png" alt=""></div><div class="co_contentBlock x_opinionBlockBody"><div class="co_contentBlock x_opinionLead"><div class="co_contentBlock x_opinionBody"><div class="co_contentBlock co_section" id="co_anchor_I242943a1842011f19a68fa866e4cf6cf"><div class="co_headtext co_hAlign2"><span class="co_underline">OPINION</span></div><div class="co_contentBlock x_leadAuthorLineBlock"><div class="co_contentBlock x_leadAuthorLine">BORGHESAN, Justice.</div></div></div><div class="co_contentBlock co_section" id="co_anchor_I24296ab1842011f19a68fa866e4cf6cf"><div class="co_headtext co_hAlign1"><strong>I. INTRODUCTION</strong></div><div class="co_paragraph"><div class="co_paragraphText"> <span class="co_starPage"><span class="co_accessibilityLabel">Star page 1</span><span aria-hidden="true">*1</span></span> Alaska law offers a favorable tax status to corporations that meet certain standards described in federal law. This favorable treatment does not apply to businesses that perform services “in the field of health.”</div></div><div class="co_paragraph"><div class="co_paragraphText">A corporation that performs sleep studies ordered by physicians claimed the favorable tax status, asserting that it did not provide services in the field of health. The State denied this status, and the superior court affirmed. The corporation appeals, raising three principal arguments: (1) the denial was untimely; (2) the State erred in ruling that the corporation provided services in the field of health; and (3) the outcome of this case should be controlled by a private letter ruling (PLR) later obtained from the Internal Revenue Service (IRS) stating, upon facts described by the corporation, that it did not perform services in the field of health.</div></div><div class="co_paragraph"><div class="co_paragraphText">We are not persuaded by these arguments. First, the State's denial of the corporation's tax exemption was not untimely. The corporation argues that the State must determine whether taxpayers qualify for a particular exemption on the first day of the tax year at issue and notify them shortly after. But interpreting the applicable statute to require the State to make a fact-intensive determination regarding a taxpayer's status before taxes are even due would lead to absurdity. Second, the State correctly determined that the corporation performed services in the field of health based on findings that were supported by substantial evidence, including evidence about the role of the corporation's highly trained medical director, its staff's interaction with patients, and its expertise-and-skill-focused marketing. Third, the corporation's PLR, which did not mention certain facts that were central to the State's analysis and was issued long after the State's decision, does not convince us that the State erred. We therefore affirm the decision.</div></div></div><div class="co_contentBlock co_section" id="co_anchor_I242af151842011f19a68fa866e4cf6cf"><div class="co_headtext co_hAlign1"><strong>II. FACTS AND PROCEEDINGS</strong></div><div class="co_headtext co_hAlign1"><strong>A. Facts</strong></div><div class="co_headtext co_hAlign2"><strong>1. Legal framework</strong></div><div class="co_paragraph"><div class="co_paragraphText">Alaska's net income tax does not apply to “an Alaska corporation that is a qualified small business and that meets the active business requirement in 26 U.S.C. 1202(e) as that subsection read on January 1, 2012.”<strong><sup id="co_fnRef_B00012060534820_ID0EWGAC"><a class="co_footnoteReference" aria-label="Footnote 1" href="#co_footnote_B00012060534820">1</a></sup></strong> On that day, section 1202(e)’s active business requirement was met by a corporation when “at least 80 percent (by value) of the assets of such corporation [were] used ... in the active conduct of 1 or more qualified trades or businesses” and “such corporation [was] an eligible corporation.”<strong><sup id="co_fnRef_B00022060534820_ID0E4HAC"><a class="co_footnoteReference" aria-label="Footnote 2" href="#co_footnote_B00022060534820">2</a></sup></strong> Section 1202(e) defined qualified trades or businesses in the negative, excluding<input type="hidden" id="co_docMarker_0"></div><div class="co_paragraph co_indentLeft1"><div class="co_paragraphText"><blockquote><div>any trade or business involving the performance of services in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, or any trade or business where the principal asset of such trade or business is the reputation or skill of 1 or more of its employees.<sup>[</sup><strong><sup id="co_fnRef_B00032060534820_ID0E5IAC"><a class="co_footnoteReference" aria-label="Footnote 3" href="#co_footnote_B00032060534820">3</a></sup></strong><sup>]</sup></div></blockquote></div></div></div><div class="co_paragraph"><div class="co_paragraphText"> <span class="co_starPage"><span class="co_accessibilityLabel">Star page 2</span><span aria-hidden="true">*2</span></span> The U.S. Department of Treasury's (Treasury's) regulations expounding on section 1202 do not define “field[ ] of health.”<strong><sup id="co_fnRef_B00042060534820_ID0EANAC"><a class="co_footnoteReference" aria-label="Footnote 4" href="#co_footnote_B00042060534820">4</a></sup></strong> But another section of the Internal Revenue Code (IRC), enacted prior to section 1202(e)(3)(A), uses the same phrase: Section 448 excludes some corporations “in the field[ ] of health” from calculating personal income taxes using a particular method of accounting.<strong><sup id="co_fnRef_B00052060534820_ID0EXNAC"><a class="co_footnoteReference" aria-label="Footnote 5" href="#co_footnote_B00052060534820">5</a></sup></strong> In 2019 the Treasury and the IRS indicated that to interpret section 1202, “it is appropriate to look to the definitions provided for in the regulations under section 448 because guidance under section 1202 is limited.”<strong><sup id="co_fnRef_B00062060534820_ID0EXOAC"><a class="co_footnoteReference" aria-label="Footnote 6" href="#co_footnote_B00062060534820">6</a></sup></strong> A Treasury regulation defines performance of services in the field of health, for the purposes of section 448, as follows:</div><div class="co_paragraph co_indentLeft1"><div class="co_paragraphText"><blockquote><div>the provision of medical services by physicians, nurses, dentists, and other similar healthcare professionals. The performance of services in the field of health does not include the provision of services not directly related to a medical field, even though the services may purportedly relate to the health of the service recipient. For example, the performance of services in the field of health does not include the operation of health clubs or health spas that provide physical exercise or conditioning to their customers.<sup>[</sup><strong><sup id="co_fnRef_B00072060534820_ID0EWPAC"><a class="co_footnoteReference" aria-label="Footnote 7" href="#co_footnote_B00072060534820">7</a></sup></strong><sup>]</sup></div></blockquote></div></div></div><div class="co_paragraph"><div class="co_paragraphText">Federal cases have discussed the meaning of “field of health” in the context of section 448 rather than section 1202(e).<strong><sup id="co_fnRef_B00082060534820_ID0ERGAE"><a class="co_footnoteReference" aria-label="Footnote 8" href="#co_footnote_B00082060534820">8</a></sup></strong> But some PLRs by the IRS have discussed whether businesses perform services in the “field of health” under section 1202.<strong><sup id="co_fnRef_B00092060534820_ID0EEHAE"><a class="co_footnoteReference" aria-label="Footnote 9" href="#co_footnote_B00092060534820">9</a></sup></strong> These PLRs are written statements issued to a taxpayer that “interpret[ ] and appl[y] tax laws to the taxpayer's specific set of facts,” but “may not be relied on as precedent by other taxpayers or IRS personnel.”<strong><sup id="co_fnRef_B00102060534820_ID0E3HAE"><a class="co_footnoteReference" aria-label="Footnote 10" href="#co_footnote_B00102060534820">10</a></sup></strong></div></div></div><div class="co_contentBlock co_section" id="co_anchor_I24337cd1842011f19a68fa866e4cf6cf"><div class="co_headtext co_hAlign2"><strong>2. Alaska Sleep Clinic</strong></div><div class="co_paragraph"><div class="co_paragraphText">The Alaska Sleep Clinic (Clinic) incorporated in February 2015 to take advantage of the small business exemption. Since 2015 it has identified itself as a qualified small business on each of its tax returns to claim the small business exemption.</div></div><div class="co_paragraph"><div class="co_paragraphText">The Clinic produces reports of sleep diagnostic studies for physicians and sells medical equipment. These sleep tests monitor the test subject during sleep to collect data and look for abnormalities related to brain waves, respiration, oxygenation, heart function, and movements. These studies require six or more hours of recording time, which typically occurs in the Clinic. The Clinic's website indicates that it collects, analyzes, and interprets large amounts of data in order to produce a final report which is sent to the patient's referring physician.</div></div><div class="co_paragraph"><div class="co_paragraphText"> <span class="co_starPage"><span class="co_accessibilityLabel">Star page 3</span><span aria-hidden="true">*3</span></span> The Clinic is also an “independent diagnostic testing facility,” which allows it to bill Medicare and Medicaid.<strong><sup id="co_fnRef_B00112060534820_ID0EGOAE"><a class="co_footnoteReference" aria-label="Footnote 11" href="#co_footnote_B00112060534820">11</a></sup></strong> Such facilities perform diagnostic procedures. Patients need a doctor's referral for a sleep test at the Clinic. If a patient does not have a referral, the Clinic will connect the patient to one of its affiliated, board-certified, sleep medicine doctors for a consultation. The doctor typically refers the patient back to the Clinic.</div></div><div class="co_paragraph"><div class="co_paragraphText">The Clinic is accredited by the American Academy of Sleep Medicine (Academy). The Academy advertises that accredited sleep centers demonstrate commitment to the highest care in the diagnosis and treatment of sleep disorders. <input type="hidden" id="co_docMarker_1">To maintain Academy accreditation and to be considered an independent diagnostic testing facility, the Clinic must have a medical director who is a board-certified physician. The Clinic's medical director, Dr. Mauricio Reinoso, is a pulmonary and board-certified sleep specialist.</div></div><div class="co_paragraph"><div class="co_paragraphText">The Clinic employs polysomnographic technologists, who have completed an educational program in that field; some of the technologists obtain the hands-on training for this program while working at the Clinic. There are no state licensing requirements for the technologists, but the Clinic requires technologists to be certified by a national credentialing body.</div></div></div><div class="co_contentBlock co_section" id="co_anchor_I24359fb1842011f19a68fa866e4cf6cf"><div class="co_headtext co_hAlign1"><strong>B. Proceedings</strong></div><div class="co_paragraph"><div class="co_paragraphText">The Clinic claimed the small business exemption for the 2016, 2017, and 2018 tax years. In 2020 the State notified the Clinic that it was denying the exemption and increasing the Clinic's tax liability for the three years at issue. The Clinic objected and requested an informal conference.<strong><sup id="co_fnRef_B00122060534820_ID0ECRAE"><a class="co_footnoteReference" aria-label="Footnote 12" href="#co_footnote_B00122060534820">12</a></sup></strong></div></div></div><div class="co_contentBlock co_section" id="co_anchor_I24368a11842011f19a68fa866e4cf6cf"><div class="co_headtext co_hAlign2"><strong>1. Informal conference decision</strong></div><div class="co_paragraph"><div class="co_paragraphText">An informal conference was held, and the appeals officer issued a decision in June 2020. The appeals officer determined that the Clinic performed services in the field of health and therefore did not qualify for the small business exemption because the Clinic (1) has a doctor certified by a national credentialing body on staff; (2) is Academy-certified; (3) interacts extensively with patients when testing for sleep disorders; (4) employs only technologists certified by an appropriate national credentialing body; and (5) is unlike businesses that the IRS has determined do not perform services in the “field of health,” such as a diagnostic laboratory and a drug manufacturer.</div></div></div><div class="co_contentBlock co_section" id="co_anchor_I2436ff41842011f19a68fa866e4cf6cf"><div class="co_headtext co_hAlign2"><strong>2. Office of Administrative Hearings decision</strong></div><div class="co_paragraph"><div class="co_paragraphText">In July 2020 the Clinic appealed the decision to the Office of Administrative Hearings (OAH). First, the Clinic argued that the State's denial of its tax exemption was untimely. Second, the Clinic argued that it was eligible for the small business exemption in 2016, 2017, and 2018 because it met the “active business requirement” of Internal Revenue Code section 1202(e).</div></div><div class="co_paragraph"><div class="co_paragraphText">The OAH held a hearing, at which the Clinic's CEO and its medical director testified. During the hearing, the OAH's Administrative Law Judge (ALJ) explained that he had previously undergone a sleep study at a different clinic and asked the CEO whether the Clinic's operations differed from the ALJ's personal experience.</div></div><div class="co_paragraph"><div class="co_paragraphText">Following the hearing, the OAH issued a decision upholding the State's decision and determining that the Clinic performed services in the “field of health.” As a preliminary matter, the OAH rejected the Clinic's argument that the State's denial of the small business exemption for tax years 2016, 2017, and 2018 was untimely.</div></div><div class="co_paragraph"><div class="co_paragraphText"> <span class="co_starPage"><span class="co_accessibilityLabel">Star page 4</span><span aria-hidden="true">*4</span></span> The OAH then assessed whether the Clinic was eligible for the tax exemption for the years in question. The OAH relied on IRS PLRs applying the phrase “field of health” from section 1202 and federal case law interpreting the same phrase in section 448. The OAH reasoned that “the ‘field of health’ language was in a provision intended to keep entities trading primarily on professional skill from getting a special tax break aimed at entities that needed to accumulate capital for reinvestment.”</div></div><div class="co_paragraph"><div class="co_paragraphText">The OAH deemed the question a close one. It reasoned that federal authorities have analyzed whether a business performs services in the field of health “primarily by focusing on the professional status of those who do the core of the taxpayer's work.” And it found that the Clinic's polysomnographic technologists fell <input type="hidden" id="co_docMarker_2">“at the break point between what the prior cases have considered health professionals as opposed to non-professional workers in the health industry.” But it ruled that the Clinic performed services in the field of health because of three “[u]nusual factors.” First, the Clinic's medical director provided a professional screening service for every patient that went “well beyond what one would expect of the medical director of ... a lab doing blood tests.” Second, the Clinic marketed its skill and judgment in helping diagnose sleep disorders. Third, the Clinic had “long-term, multidimensional, interpersonal” interactions with its patients. Accordingly, the OAH affirmed the State's denial of the small business exemption.</div></div></div><div class="co_contentBlock co_section" id="co_anchor_I24392221842011f19a68fa866e4cf6cf"><div class="co_headtext co_hAlign2"><strong>3. Superior court proceedings</strong></div><div class="co_paragraph"><div class="co_paragraphText">The Clinic appealed the OAH decision to the superior court. The Clinic argued, among other things, that the ALJ, who mentioned his experience with a different sleep clinic during the administrative hearing, had conflated his personal experience with the evidence presented by the Clinic. The Clinic also argued that the ALJ improperly considered the Clinic's website and advertising in making its decision. The superior court rejected these arguments and affirmed the OAH decision.</div></div><div class="co_paragraph"><div class="co_paragraphText">A few months later, the IRS issued a PLR at the Clinic's request. The statement of facts in the PLR did not mention some of the particular findings relied on by the OAH. The PLR concluded that the Clinic “was not engaged in a trade or business involving the performance of services in the fields of health.” It included this caveat: “The ruling is based upon information and representations submitted by Taxpayer and accompanied by a penalty of perjury statement executed by appropriate parties. This office has not verified any of the material submitted in support of the request for a ruling.”</div></div><div class="co_paragraph"><div class="co_paragraphText">The Clinic notified the superior court of the PLR and filed a motion for reconsideration. The superior court noted that the PLR's description of the Clinic's practice was different than the findings made by the OAH. The court reasoned that “not all information provided to or considered by this court was provided to or considered by” the IRS official that wrote the letter. For that reason, the court ruled that the PLR did not change its decision and denied reconsideration.</div></div><div class="co_paragraph"><div class="co_paragraphText">The Clinic appeals.</div></div></div><div class="co_contentBlock co_section" id="co_anchor_I243aa8c1842011f19a68fa866e4cf6cf"><div class="co_headtext co_hAlign1"><strong>III. STANDARD OF REVIEW</strong></div><div class="co_paragraph"><div class="co_paragraphText">“When a superior court acts as an intermediate court of appeals, we independently review the administrative decision.”<strong><sup id="co_fnRef_B00132060534820_ID0EO2AE"><a class="co_footnoteReference" aria-label="Footnote 13" href="#co_footnote_B00132060534820">13</a></sup></strong> There are two standards of review for administrative agency decisions based on the agency's interpretation of statute.<strong><sup id="co_fnRef_B00142060534820_ID0E12AE"><a class="co_footnoteReference" aria-label="Footnote 14" href="#co_footnote_B00142060534820">14</a></sup></strong></div></div><div class="co_paragraph"><div class="co_paragraphText"> <span class="co_starPage"><span class="co_accessibilityLabel">Star page 5</span><span aria-hidden="true">*5</span></span> The reasonable basis standard applies to questions of law “when the interpretation at issue implicates agency expertise or the determination of fundamental policies within the scope of the agency's statutory functions.”<strong><sup id="co_fnRef_B00152060534820_ID0E45AE"><a class="co_footnoteReference" aria-label="Footnote 15" href="#co_footnote_B00152060534820">15</a></sup></strong> Under the reasonable basis standard, we “seek to determine whether the agency's decision is supported by the facts and has a reasonable basis in law.”<strong><sup id="co_fnRef_B00162060534820_ID0EQ6AE"><a class="co_footnoteReference" aria-label="Footnote 16" href="#co_footnote_B00162060534820">16</a></sup></strong></div></div><div class="co_paragraph"><div class="co_paragraphText">When agency expertise is unnecessary to resolve questions of law, we apply the substitution of judgment standard.<strong><sup id="co_fnRef_B00172060534820_ID0EJCAG"><a class="co_footnoteReference" aria-label="Footnote 17" href="#co_footnote_B00172060534820">17</a></sup></strong> Under this test, we “substitute [our] own judgment for that of the agency even if the agency's decision had a reasonable basis in law.”<strong><sup id="co_fnRef_B00182060534820_ID0EZCAG"><a class="co_footnoteReference" aria-label="Footnote 18" href="#co_footnote_B00182060534820">18</a></sup></strong> We adopt “the rule of law that is most persuasive in light of precedent, reason, and policy.”<strong><sup id="co_fnRef_B00192060534820_ID0EMDAG"><a class="co_footnoteReference" aria-label="Footnote 19" href="#co_footnote_B00192060534820">19</a></sup></strong></div></div><div class="co_paragraph"><div class="co_paragraphText">In reviewing an administrative agency's factual determinations, we apply “the ‘substantial evidence’ test.”<strong><sup id="co_fnRef_B00202060534820_ID0EIHAG"><a class="co_footnoteReference" aria-label="Footnote 20" href="#co_footnote_B00202060534820">20</a></sup></strong> For this test, we examine whether a reasonable mind could find the evidence adequate to support the finding.<input type="hidden" id="co_docMarker_3"><strong><sup id="co_fnRef_B00212060534820_ID0EUHAG"><a class="co_footnoteReference" aria-label="Footnote 21" href="#co_footnote_B00212060534820">21</a></sup></strong></div></div></div><div class="co_contentBlock co_section" id="co_anchor_I24402701842011f19a68fa866e4cf6cf"><div class="co_headtext co_hAlign1"><strong>IV. DISCUSSION</strong></div><div class="co_headtext co_hAlign1"><strong>A. The State's Denial Of The Claimed Exemption Was Timely.</strong></div><div class="co_paragraph"><div class="co_paragraphText">As a threshold issue, we assess the Clinic's argument that the State's denial of the exemption was untimely and therefore invalid. Using the substitution of judgment standard, we agree with the OAH that this argument is unavailing.</div></div><div class="co_paragraph"><div class="co_paragraphText">According to AS 43.20.012(c), “whether a corporation qualifies [for the small business exemption] shall be determined on the first day of the tax year for which the corporation claims it qualifies.” The Clinic interprets this to mean that the State must decide whether taxpayers qualify for the exemption and then notify taxpayers on or shortly after the first day of the tax year for which the exemption is claimed. The Clinic claims to have detrimentally relied on the implied acceptance of its tax status in 2016, 2017, and 2018 because the State did not deny its exemption until 2020.</div></div><div class="co_paragraph"><div class="co_paragraphText">The OAH rejected the Clinic's interpretation under “the principle that a reading of a statute, even if consistent with its literal language, may be excluded if it would lead to an absurd result.”<strong><sup id="co_fnRef_B00222060534820_ID0EAMAG"><a class="co_footnoteReference" aria-label="Footnote 22" href="#co_footnote_B00222060534820">22</a></sup></strong> The OAH reasoned it “cannot be that AS 43.20.012(c) required the Department of Revenue to rule on a factually complex matter relating to a corporation's structure on a New Year's Day that fell before that corporation had yet filed a single return,” noting “that the prior year's return was not yet due.”</div></div><div class="co_paragraph"><div class="co_paragraphText">We interpret statutes “according to reason, practicality, and common sense, taking into account the plain meaning and purpose of the law as well as the intent of the drafters.”<strong><sup id="co_fnRef_B00232060534820_ID0ENOAG"><a class="co_footnoteReference" aria-label="Footnote 23" href="#co_footnote_B00232060534820">23</a></sup></strong> Interpreting AS 43.20.012(c) to require the Department of Revenue to determine, on the first day of the tax year, whether a taxpayer qualifies for a particular exemption in that tax year is a technically plausible reading of the statute's plain text. But, as the OAH explained, this reading leads to an absurd result the legislature almost certainly did not intend.</div></div><div class="co_paragraph"><div class="co_paragraphText"> <span class="co_starPage"><span class="co_accessibilityLabel">Star page 6</span><span aria-hidden="true">*6</span></span> The statutory text can support a more plausible reading. That is, it does not require the <em>determination</em> of the corporation's status to be made on the first day of the tax year. It requires the determination to be based on whether the corporation <em>qualified</em> for the tax exemption on the first day of the tax year.</div></div><div class="co_paragraph"><div class="co_paragraphText">This interpretation is also more plausible because there is already a statutory limitation on the timing of tax assessments. The Department can review a tax return and assess additional taxes until three years after the date the return was filed.<strong><sup id="co_fnRef_B00242060534820_ID0EMRAG"><a class="co_footnoteReference" aria-label="Footnote 24" href="#co_footnote_B00242060534820">24</a></sup></strong> This clear deadline for determining tax liability further supports the conclusion that AS 43.20.012(c) was not intended to function as a deadline.<strong><sup id="co_fnRef_B00252060534820_ID0E5RAG"><a class="co_footnoteReference" aria-label="Footnote 25" href="#co_footnote_B00252060534820">25</a></sup></strong></div></div><div class="co_paragraph"><div class="co_paragraphText">Therefore, we reject the Clinic's interpretation of AS 43.20.012(c) and its argument that the denial of its claimed exemption was untimely.</div></div></div><div class="co_contentBlock co_section" id="co_anchor_I24466891842011f19a68fa866e4cf6cf"><div class="co_headtext co_hAlign1"><strong>B. The OAH Did Not Err In Determining That The Clinic Performed Services In The Field Of Health.</strong></div><div class="co_paragraph"><div class="co_paragraphText">The Clinic argues that the OAH erred in determining that the Clinic performed services in the “field of health” such that it did not qualify for the small business exemption under AS 43.20.012(a)(3). We discern three distinct elements to the Clinic's challenge: (1) that the OAH did not correctly interpret the phrase “field of health” because it relied on improper or irrelevant considerations; (2) that some of the OAH's factual findings are not supported by the record; and (3) that the OAH's overall determination that the Clinic performed services in the “field of health” is out of step with other legal authorities.<input type="hidden" id="co_docMarker_4"></div></div></div><div class="co_contentBlock co_section" id="co_anchor_I2446ddc1842011f19a68fa866e4cf6cf"><div class="co_headtext co_hAlign2"><strong>1. The OAH did not err in interpreting the term “field of health.”</strong></div><div class="co_paragraph"><div class="co_paragraphText">We first review whether the OAH accurately interpreted the meaning of the phrase “field of health.” Before delving into this question, we address two threshold disputes.</div></div></div><div class="co_contentBlock co_section" id="co_anchor_I244752f1842011f19a68fa866e4cf6cf"><div class="co_headtext co_hAlign2"><strong>a. Term of art</strong></div><div class="co_paragraph"><div class="co_paragraphText">The first dispute is whether the phrase “field of health” is a term of art. “[W]e construe terms according to their common usage, unless a term has acquired a peculiar meaning due to statutory definition or judicial construction.”<strong><sup id="co_fnRef_B00262060534820_ID0EOYAG"><a class="co_footnoteReference" aria-label="Footnote 26" href="#co_footnote_B00262060534820">26</a></sup></strong> The State argues that the phrase “field of health” should be interpreted broadly and according to its plain meaning. The Clinic counters that this phrase is a term of art that covers a narrower range of businesses.</div></div><div class="co_paragraph"><div class="co_paragraphText">We agree with the Clinic's position. Alaska law expressly references 26 U.S.C. § 1202 as it existed on a particular date.<strong><sup id="co_fnRef_B00272060534820_ID0ES1AG"><a class="co_footnoteReference" aria-label="Footnote 27" href="#co_footnote_B00272060534820">27</a></sup></strong> While the phrase has not been explicitly defined in the context of section 1202(e), the same language is used in section 448, and both the IRS and the Treasury have determined that authorities interpreting section 448 are helpful guidance on the meaning of section 1202(e).<strong><sup id="co_fnRef_B00282060534820_ID0E62AG"><a class="co_footnoteReference" aria-label="Footnote 28" href="#co_footnote_B00282060534820">28</a></sup></strong> The IRS has defined “the performance of services in the field of health” for purposes of section 448 as “the provision of medical services by physicians, nurses, dentists, and other similar healthcare professionals,” but not businesses like “health clubs or health spas.”<strong><sup id="co_fnRef_B00292060534820_ID0EA4AG"><a class="co_footnoteReference" aria-label="Footnote 29" href="#co_footnote_B00292060534820">29</a></sup></strong> And a handful of federal cases have relied on this definition to determine whether a business performed services in the “field of health.”<strong><sup id="co_fnRef_B00302060534820_ID0EM4AG"><a class="co_footnoteReference" aria-label="Footnote 30" href="#co_footnote_B00302060534820">30</a></sup></strong> The State points out that the United States Tax Court has reasoned that the normal meaning of the term “health” is one of the “relevant indicia” to be considered when interpreting this federal law.<strong><sup id="co_fnRef_B00312060534820_ID0E14AG"><a class="co_footnoteReference" aria-label="Footnote 31" href="#co_footnote_B00312060534820">31</a></sup></strong> But since the common usage of the term “health” is just one factor among many used by federal authorities to determine whether a business operates in the “field of health,” it is clear that this phrase has acquired a “peculiar meaning due to ... judicial construction.”<strong><sup id="co_fnRef_B00322060534820_ID0EN5AG"><a class="co_footnoteReference" aria-label="Footnote 32" href="#co_footnote_B00322060534820">32</a></sup></strong> We therefore rely primarily on authorities construing the phrase, rather than ordinary usage.</div></div></div><div class="co_contentBlock co_section" id="co_anchor_I244cf841842011f19a68fa866e4cf6cf"><div class="co_headtext co_hAlign2"><strong>b. Deference</strong></div><div class="co_paragraph"><div class="co_paragraphText"> <span class="co_starPage"><span class="co_accessibilityLabel">Star page 7</span><span aria-hidden="true">*7</span></span> The second threshold issue is whether to use our independent judgment or to defer to the State's interpretation of the phrase. The State argues that if “field of health” is a term of art with a specialized meaning in the tax code, as the Clinic asserts, then the State's expertise is implicated.</div></div><div class="co_paragraph"><div class="co_paragraphText">But we are skeptical that interpreting “field of health” as a term of art requires tax expertise. Interpreting the phrase “field of health” requires analysis of federal statutes, case law, IRS rulings, and regulations. This kind of analysis “resides within the traditional province of judicial review and involves no technical expertise.”<strong><sup id="co_fnRef_B00332060534820_ID0EAJBG"><a class="co_footnoteReference" aria-label="Footnote 33" href="#co_footnote_B00332060534820">33</a></sup></strong></div></div><div class="co_paragraph"><div class="co_paragraphText">Nor is it clear that the deference should apply based on a legislative delegation of fundamental policy decisions to the Department. The legislature tethered the Department to federal law as it existed on a particular date.<strong><sup id="co_fnRef_B00342060534820_ID0EZKBG"><a class="co_footnoteReference" aria-label="Footnote 34" href="#co_footnote_B00342060534820">34</a></sup></strong> And since the final agency decision in this matter was made by the OAH, not the Department itself, it is unclear whether the statutory interpretation reflects policy determinations of any sort. Finally, the canon of strict construction for tax exemptions does not support the State's argument for deference. The canon is merely an “aid to, not a substitute for, statutory interpretation”;<strong><sup id="co_fnRef_B00352060534820_ID0EQLBG"><a class="co_footnoteReference" aria-label="Footnote 35" href="#co_footnote_B00352060534820">35</a></sup></strong> it does not determine the level of deference we apply.</div></div><div class="co_paragraph"><div class="co_paragraphText">Ultimately, we need not decide the appropriate level of deference to apply because, in our independent judgment, we agree with the OAH's interpretation of the phrase “field of health.”<input type="hidden" id="co_docMarker_5"></div></div></div><div class="co_contentBlock co_section" id="co_anchor_I244f6941842011f19a68fa866e4cf6cf"><div class="co_headtext co_hAlign2"><strong>c. Interpretation</strong></div><div class="co_paragraph"><div class="co_paragraphText">Because the phrase “field of health” has acquired, for purposes of section 1202(e)’s active business requirement, a “peculiar meaning due to ... judicial construction,” our interpretation focuses heavily on judicial decisions and PLRs applying this phrase.<strong><sup id="co_fnRef_B00362060534820_ID0E4OBG"><a class="co_footnoteReference" aria-label="Footnote 36" href="#co_footnote_B00362060534820">36</a></sup></strong> Yet we begin with the text of the statute because it illuminates a guiding interpretive principle.</div></div><div class="co_paragraph"><div class="co_paragraphText">Section 1202(e) excludes certain types of businesses from qualifying for favorable tax treatment. It excludes businesses providing services in the “field[ ] of health” as well as those providing services in fields of “law, engineering, architecture, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, <em>or any trade or business where the principal asset of such trade or business is the reputation or skill of 1 or more of its employees</em>.”<strong><sup id="co_fnRef_B00372060534820_ID0E2QBG"><a class="co_footnoteReference" aria-label="Footnote 37" href="#co_footnote_B00372060534820">37</a></sup></strong> The specific categories of business mentioned in the statute all share the characteristic of the catchall phrase: businesses whose value derives primarily from “the reputation or skill” of the business's personnel. Whether a business in the healthcare industry derives its value from the reputation or skill of its personnel is therefore key to whether it performs services in the “field of health” for purposes of section 1202(e).</div></div><div class="co_paragraph"><div class="co_paragraphText">This principle finds further support in authorities interpreting the same phrase under section 448,<strong><sup id="co_fnRef_B00382060534820_ID0E1SBG"><a class="co_footnoteReference" aria-label="Footnote 38" href="#co_footnote_B00382060534820">38</a></sup></strong> which according to the IRS and the Treasury are “appropriate” guidance for understanding section 1202(e).<strong><sup id="co_fnRef_B00392060534820_ID0EOTBG"><a class="co_footnoteReference" aria-label="Footnote 39" href="#co_footnote_B00392060534820">39</a></sup></strong> A Treasury regulation defines “field of health” under section 448 by reference to trained healthcare professionals: “the performance of services in the field of health means the provision of medical services by physicians, nurses, dentists, and other similar healthcare professionals.”<strong><sup id="co_fnRef_B00402060534820_ID0EGUBG"><a class="co_footnoteReference" aria-label="Footnote 40" href="#co_footnote_B00402060534820">40</a></sup></strong> A federal district court, examining commentary on section 448, reasoned that the carve-out for professional services corporations reflects two related purposes: first, “Congress wanted to stop professional individuals from ... using their corporate status[ ] in order to obtain lower graduated corporate tax rates”; and second, “Congress did not see any reason why qualified personal services corporations, who were being paid largely for their mental or intellectual skill, needed to accumulate capital for future corporate investment.”<strong><sup id="co_fnRef_B00412060534820_ID0EMVBG"><a class="co_footnoteReference" aria-label="Footnote 41" href="#co_footnote_B00412060534820">41</a></sup></strong></div></div><div class="co_paragraph"><div class="co_paragraphText"> <span class="co_starPage"><span class="co_accessibilityLabel">Star page 8</span><span aria-hidden="true">*8</span></span> Accordingly, whether a business provides services in the field of health depends heavily on the degree to which it is compensated for the professional reputation or skill of those performing the service. At the same time, courts have emphasized that whether a business performs services in the “field of health” turns on “all relevant indicia,” including “the normal meaning of the term ‘health’ ... and examination of services historically regarded as within the qualifying field.”<strong><sup id="co_fnRef_B00422060534820_ID0EX1BG"><a class="co_footnoteReference" aria-label="Footnote 42" href="#co_footnote_B00422060534820">42</a></sup></strong></div></div><div class="co_paragraph"><div class="co_paragraphText">The OAH correctly described and applied these principles in its decision. Examining federal court decisions and PLRs interpreting “field of health” in both section 448 and section 1202, the OAH determined that the Clinic's polysomnographic technologists fell “at the break point between what the prior cases have considered health professionals as opposed to non-professional workers in the health industry.” What tip