Opinion ID: 1268867
Heading Depth: 3
Heading Rank: 2

Heading: When Does Payment for a Service Taint What was Otherwise an Exempt Activity?

Text: Under AS 29.53.020(c), [38] otherwise exempt property which produces income is exempt only if that income derives solely from use of the property for classroom space. [39] We first interpreted the predecessor of this statute, former AS 29.10.336(c) (repealed 1972), [40] in King's Lake Camp, 439 P.2d 441. There we considered whether a nonprofit recreational camp was exempt as a charitable undertaking even though it charged user fees. The camp charged individual users $3.25 daily and group users $250 annually. Since these charges did not entirely defray the operational expenses of the camp, the camp owners accepted donations for that purpose. Id. at 443. We first determined that the camp operated exclusively for charitable purposes. We then held that it was exempt notwithstanding the fees because the receipt of income and rentals ... was incidental to and reasonably necessary for the carrying out of the primary charitable purposes of the camp. Id. at 445. In addition, such moderate user fees as were charged ... do not appear to have been inspired by a dominant profit motive. Id. We implicitly held that the fee accepted must not exceed the operational requirements of the exempt activity for which the payment is received. Id. at 444. [41] Although the statute interpreted in King's Lake Camp has since been amended and recodified as AS 29.53.020(c), nothing suggests that the legislature intended to modify the King's Lake Camp test for deciding when payment for a service taints an otherwise exempt property use. In sum, property will not lose an exemption under AS 29.53.020(a)(3) even if payment is received for the use of the property if: (1) the property is used exclusively for exempt purposes; (2) the payment is not sought as a result of a dominant profit motive; and (3) the payment is both incidental to and reasonably necessary for the accomplishment of the exempt activity and does not exceed the operating costs of the exempt activity for which payment is received. If all of the above are met, the property does not lose its exemption on account of the income. If (3) is not met, the property is only exempt if used for classroom space.