Opinion ID: 2572683
Heading Depth: 5
Heading Rank: 3

Heading: Other possible factors

Text: The borough contends that because TCC receives full compensation for its services through a combination of government contracts, third-party insurers, and participant fees and operates with a surplus, TCC's property does not qualify for a charitable exemption. Thus, it asks us to add additional factors to our charitable-purpose analysis: whether the property's use provides a gift or significant benefit, lessens a governmental burden, and subsidizes a socially worthy activity. TCC responds that Alaska's charitable exemption analysis focuses only on whether the property is used for a nonprofit and charitable purpose. Thus, TCC concludes that the borough's proposed factors are contrary to Alaska law. Our constitutional and statutory exemption provisions do not catalogue all factors that might define eligibility for charitable-purpose exemptions. [59] It is not desirable, assuming it were possible, for us to attempt to identify in context of this case all factors that should determine exemption eligibility in future disputes. We therefore decline to adopt the borough's proposed factors as comprising a comprehensive or dispositive test that would control charitable-purpose analysis. Rather, we think it is appropriate to consider any circumstance relevant to whether a particular property owner has satisfied the constitutional and statutory standard. The circumstances the borough discusses are relevant, but they are not necessarily exhaustive or controlling. The borough first argues that we should define charitable purpose to require a gift to the general public or a significant public benefit. We separately consider these alternatives. Significant public benefit. The Alaska Constitution, the Alaska Statutes, and the borough's ordinance do not precondition charitable-purpose exemption eligibility on use providing a significant public benefit. Nonetheless, our broad common law definition of charity contemplates some public benefit. That definition states, It is quite clear that what is done out of good will and a desire to add to the improvement of the moral, mental, and physical welfare of the public generally comes within the meaning of the word `charity.' [60] This concept of charityas an activity that improves public welfarereflects the public policy behind tax exemptions. We noted generally in Sisters of Providence in Washington, Inc. v. Municipality of Anchorage that exemptions are granted as the quid pro quo for non-profit contributions of services and aid to society in general. [61] Charitable activities provide a public benefit whether or not the beneficiaries are indigent. [62] Programs that serve only a portion of the community can also add to the improvement of the ... welfare of the public generally. [63] Thus, in McKee v. Evans , we upheld an educational-purpose exemption for property used for a vocational training program for union apprentices. [64] We held there that educational-purpose tax exemptions require a substantial public benefit. [65] We observed that the general public is clearly benefited both by the increased opportunity for Alaskans to obtain vocational training not otherwise available, and by the increased quality of service from a skilled trade. [66] We therefore conclude that a use providing a public benefit indicates that the property is being used for a charitable purpose. Gift to the general public. The borough also argues that charity requires a  gift to the general public. (Emphasis added.) In support of its argument, the borough cites King's Lake Camp, which quoted Lord Camden, an eighteenth-century chancellor of England, who defined charity as  [a] gift to a general public use, which extends to the poor as well as to the rich. [67] The borough defines gift as something bestowed voluntarily and without compensation. It argues that a gift to the community simply requires that ... some material gap exists between what TCC receives and what it gives. It also contends that [i]t is not the source of the support but the amount of the support (i.e., full remuneration for services) that disqualifies TCC from charitable tax-exempt status. Thus, the borough argues that because TCC receives full compensation for its services through government funds and other receipts, it should not qualify for an exemption. The exemption provisions in the constitution, statutes, and ordinances do not precondition exemption eligibility on whether the property supports programs that are fully funded from such outside sources as the government. We have never interpreted charitable purpose to require, as the borough proposes, a material gap between what the charity gives and what the charity receives. Rather, our decisions have recognized that the existence of a gap between what the beneficiary pays and the value of the services the beneficiary receives could be evidence of a charitable purpose. We held that operating a youth hostel that provided temporary lodging for travelers for a low daily fee was a gift to the general public, because we concluded that although some who stay at the Hostel are not needy and could pay more, no one is turned away if the fees are not paid. [68] Although providing services free of charge is evidence of a charitable purpose, we have not explicitly conditioned charitable purpose eligibility on whether the property supports programs that are free to those who cannot pay. Thus, we have held that properties supporting programs that charge a user fee were exempt, as long as the user fee is not inspired by a dominant profit motive or does not exceed operating costs. [69] Our charitable-purpose exemption cases have not required that there be a material gap between what TCC receives and what it gives. The borough argues that TCC does not provide a gift to the community because even if the beneficiary is not paying TCC for its services, the government is compensating TCC for the services it provides. Thus, the borough concludes that TCC's service is not gratuitous and not a gift to the community. The borough's argument implies that only entities whose receipts do not cover all of their operating costs are eligible for charitable-purpose exemptions. We hold that whether a nonprofit organization receives outside funding allowing it to provide services at reduced cost or no charge to the community does not determine whether property is being used for a charitable purpose. Our cases establish that receipt of payments or compensation for using the property is not fatal to a charitable-purpose exemption. [70] An otherwise exempt property that generates revenue will not lose its exemption if (1) payment is not sought as a result of a dominant profit motive; (2) payment is both incidental to and reasonably necessary for the accomplishment of the exempt activity; and (3) payment does not exceed operating costs. [71] Lessening a governmental burden. The borough argues next that charitable-purpose eligibility should require the lessening of a governmental burden. It contends that by receiving substantial government funding for activities the government is obligated to perform, TCC does not lessen a governmental burden. [72] The borough argues that charitable tax exemptions are justified because charitable entities perform functions that governmental institutions would otherwise be obligated to perform. Our constitution and statutes do not mention lessening of a governmental burden as a factor in charitable-purpose analysis, nor do our cases. Although we generally acknowledge that tax exemptions are granted to compensate those who give nonprofit contributions to the general public, [73] we have never conditioned tax exemption eligibility on whether an organization reduces a governmental burden by either providing services the government would otherwise have to perform or supporting its services without government funding. In McKee v. Evans , we granted an educational-purpose exemption for property used for electrician apprenticeship training. [74] We considered there whether relieving a governmental burden was relevant to educational-purpose analysis under article IX, section 4 of the Alaska Constitution and former AS 29.10.336(a). [75] We rejected an argument that school properties qualifying for the educational-purpose exemption must provide programs similar to those offered at state institutions. The rationale for this [proposed] limitation is that only such school properties as relieve some substantial educational burden from the state should receive rights of tax exemption. Although this quid pro quo reasoning has superficial appeal in a period of financial crisis for local government, we find it unconvincing. [76] We also concluded that it was within the legislature's province to decide whether eligibility for an educational-purpose exemption should require a lessening of governmental burden: In Alaska the power of deciding what types of education are to be publicly supported... by tax exemption, is vested with the legislature. AS 29.10.336 in no way delimits the term educational purposes and we see no justification for this court to give to that term anything other than its ordinary meaning. [77] The borough reasons that because TCC receives substantial and direct government funding, its programs do not lessen a governmental burden. The borough argues that because TCC receives most of its funding from the government, the government is already assuming a large burden. Thus, it claims, TCC need not receive further subsidy in the form of a tax exemption. But as the borough elsewhere concedes, receipt of some government funding is not necessarily inconsistent with a charitable purpose. We decided above that government funding is not necessarily determinative. And precluding tax exemptions if government funding is substantial potentially encourages trivial and arbitrary attempts to determine what precise amount or percentage of support renders property ineligible for a charitable exemption. The borough acknowledges that the mere existence of some governmental subsidy or other direct governmental support does not automatically destroy eligibility. But it contends that because TCC receives most of its funding from government, TCC is merely a government contractor, not a charity. Whether an organization is a government contractor may be relevant to whether it has a dominant profit motive or a nonprofit purpose, but it does not conclusively establish that the property is not being used for a charitable purpose. The borough's contention seems ultimately to stand on an argument it claims it is not makingthat government funding is a complete disqualifier. In a related argument, the borough argues that charitable exemptions should indirectly subsidize socially worthy activities. It asserts that the practical effect of tax exemptions is to make all taxpayers indirect subsidizers of the institution receiving the exemption. Thus, the borough argues that there is no need for local taxpayers to indirectly subsidize an organization that already receives government funding. It claims that granting an exemption to programs that are already funded by the government shifts part of the cost of providing the service from one government to another. The borough's shifting-the-tax-burden argument raises policy questions that are of little help to courts applying the constitutional and statutory exemption provisions. Moreover, government property is not subject to borough taxation anyway, [78] so whether the government directly operates a local program or subsidizes it would seem to have little effect on the local tax base. And because programs like TCC's broadly benefit many borough residents, it is not obvious that there is anything inappropriate about transferring to local residents some of the cost (the loss of some property tax revenues) of conducting these programs. But to the extent granting these exemptions shifts some federal tax burden to local property owners, that effect does not convince us that we should interpret Alaska law to deny TCC the disputed exemptions. To the extent state statutes control municipal taxation of TCC's property, the legislature can address any perceived imbalance in taxpayer burdens. [79] Operating surplus. We next consider whether, as the borough asserts, TCC's operating surplus renders TCC ineligible for a charitable-purpose exemption. Our cases hold that an otherwise exempt property that generates revenue will not lose its exemption if (1) payment is not sought as a result of a dominant profit motive; (2) payment is both incidental to and reasonably necessary for the accomplishment of the exempt activity; and (3) payment does not exceed operating costs. [80] We have never decided whether an operating surplus precludes an exemption. Although we require that payment not exceed operating costs, that requirement should not disqualify property owned by successful fundraisers. We hold that an operating surplus will not preclude an otherwise valid tax exemption so long as revenue is not generated out of a dominant profit motive and revenue is allocated only to support exempt purposes. Our Part III.A.2.a discussion of the nonprofit qualifier also pertains here. That TCC conducted its charitable programs while achieving an operating surplus in the applicable tax years does not make TCC ineligible for any exemption for those years. It makes little sense to endorse a rule that would encourage charities to operate at a deficit just to ensure tax exemption eligibility. Although we decline to treat as dispositive the circumstances the borough finds controlling, we have considered them to the extent they are relevant to the charitable-purposes inquiry that determines this appeal. We conclude that they do not render TCC's properties altogether ineligible for exemption. B. TCC's Cross-Appeal: Did the Superior Court Err in Denying Exemptions for the Fifth Floor (Used for Community Service Programs) and Sixth Floor (Used for Administration) and Apportioning TCC's Attorney's Fees?