Opinion ID: 2572683
Heading Depth: 1
Heading Rank: 2

Heading: Fifth floor

Text: The fifth floor of TCC's main building housed various community programs providing family services, Indian child welfare, self-governance, planning, village government credit and finance, and employment services. The assessor denied an exemption for the family services programs because the programs appear to be fully funded by the state and federal government. The assessor also found that the village government services and credit and finance activities did not qualify as activities adding to the moral, mental, and physical welfare of the public generally. The assessor found that these latter programs involved attempts to economically benefit certain businesses.... The assessor consequently denied an exemption for the entire fifth floor. Having determined that receipt of government funding was not a valid factor in analyzing eligibility for a charitable-purpose exemption, the superior court held that only the fifth floor family services and employment programs, which were funded by state and federal government, qualified for exemption. The superior court determined that thirty percent of the fifth floor was used for these programs. The remainder was subject to taxation. (The superior court calculated this spatial allocation after reviewing an exhibit and finding that 3,500 square feet of the 11,570 square-foot fifth floor were used for exempt purposes. Neither TCC nor the borough asserts on appeal that the court erred by making this calculation rather than remanding to the assessor.) As to the remaining seventy percent of the fifth floor, the superior court upheld the assessor's conclusion that this portion of the property was used for business loan programs and village government services and therefore did not qualify for exemption. In the words of the superior court, those programs are geared more toward providing assistance to governmental and tribal entities in the performance of what are traditional government services. TCC argues that the superior court erred by denying an exemption for the portions of the fifth floor used for these services. It asserts that the fifth floor programs that were denied an exemption by the superior court add to the moral, mental and physical welfare of the public generally. It contends that other courts have identified community programs promoting environmental health, agriculture, housing, economic and community development, and self-governance as charitable activities. It further argues that community services are just as charitable as individual-based services. TCC also contends that programs that perform traditional government services are not ineligible for a charitable-purpose exemption, and that government services may promote charitable purposes. In support, it cites Southwestern Oregon Public Defender Services, Inc. v. Department of Revenue, in which the Oregon Supreme Court held that a nonprofit organization providing legal services to indigent criminal defendants, a typical government service, was engaged in charitable activity. [82] TCC further notes that in states that require a charity to lessen a governmental burden, charities must provide a traditional governmental service to qualify for a charitable exemption. The borough responds that the disputed programs do not add to the moral, mental, and physical welfare of the public generally. It contends that these programs provide distinctly government and political services and are therefore not conducted for charitable purposes. It argues that the functions TCC performs, such as constitution and ordinance drafting, licensing, and other legislative duties, are political governmental activities, not charitable activities. The borough also states that not all government functions qualify as charitable, and that expanding the definition of charitable purposes to include all government functions would render the separate government exemption superfluous. The borough concludes that the term charitable purpose must be construed narrowly. We do not disagree with TCC's contention that property used to provide traditional government services is not necessarily ineligible for exemption. But that was not the only basis for the assessor's ruling. Rather, he ruled that these services do not involve activities adding to the moral, mental, and physical welfare of the public generally. Instead, they involve attempts to economically benefit certain businesses (Credit and Finance), provide for economic development of certain areas (Planning), and technical assistance to tribal entities like drafting ordinances and constitutions (VGS). We cannot say that these findings and conclusions lack a legal and factual basis. And whether or not these are traditional government services, it is not evident that they necessarily have charitable purposes. In the words of the superior court, narrowly construing the exemption and holding TCC to its high burden, we cannot say that the assessor erred by failing to exempt the parcels used for these purposes. 3. Sixth floor In granting an exemption for only thirty-four percent of the sixth floor, the superior court held that the administrative offices supported both exempt and nonexempt activities and that [n]onexempt activities include[d] fund-raising, lobbying, and political activity, as well as economic development and commercial loan programs. TCC first argues that fund-raising should not deprive a charity of a tax exemption. It reasons that fund-raising is necessary for a charity's survival and is directly incidental to and vitally necessary to a charity's activities. TCC also argues that a nonprofit entity which receives rent or income should not be disqualified from receiving an exemption. The borough argues that fund-raising is not a charitable-purpose activity. In support, it cites Evangelical Covenant Church of America v. City of Nome , in which we held that a church radio station that sold commercial radio time to raise money for church activities was not exclusively using the property for charitable purposes. [83] We there noted: It matters not that only a part of the radio time was sold and used for commercial purposes and that the profits derived from the sale of commercial radio time were used to further the missionary work of Covenant Church. [84] TCC responds that operating the radio station in Evangelical Covenant Church differed from TCC's fund-raising efforts because it claims the radio station was a charitable feeder activity. TCC defines a charitable feeder activity as commercial activity conducted by a non-profit entity in which the profit from the enterprise is used to support and fund the charitable activity. TCC argues that there is a distinction between commercial feeder activity and its solicitation of donations and grants, which it characterizes as passive fund-raising. It argues that the appropriate test is whether the activity is necessary and incidental to carrying out a charitable purpose. Although we recognize that fund-raising can be for charitable purposes, it loses its eligibility for exemption if it is used to support both exempt and nonexempt services, i.e., if it is not conducted exclusively for a charitable purpose. [85] The assessor found that the administrative services supporting exempt and nonexempt programs were not used exclusively for charitable purposes. The superior court relied on that finding in classifying the fund-raising as nonexempt when the court spatially apportioned the sixth floor to determine the part entitled to exemption. It did not commit legal error in doing so. TCC has not demonstrated on appeal that the facts compel application of either of the recognized exceptions to the exclusive use rule. [86] We consequently discern no error in the superior court's spatial apportionment on the basis of the fund-raising activity. TCC next argues that the superior court should not have classified TCC's lobbying activities as nonexempt. It reasons that a nonprofit agency should not be denied a charitable purpose exemption because it conducts activity that is unpopular or perceived as political.... It also contends that seeking to effectuate a change in the law or in government is no basis for denying a charitable-purpose exemption. The borough applied the rule, extant in some jurisdictions, that denies charitable exemptions for property used for lobbying. [87] Given the findings and conclusions of the assessor that TCC's administrative functions serve both exempt and nonexempt purposes, we conclude, for the reasons we discussed in considering TCC's fund-raising activities, that the superior court committed no error in spatially apportioning the sixth floor on this basis and in rejecting TCC's contention that more of the sixth floor should have been exempt. Finally, TCC argues that economic development programs satisfy a charitable purpose because they contribute to the welfare of the public generally. TCC further argues that private economic development programs, including those lending money to private businesses, achieve charitable purposes. It focuses its discussion on its credit and finance program, which TCC contends receives funding from the federal and state governments and re-lends the funds to aid business development. TCC argues that the lending program promotes the physical welfare of individuals and rural communities by making financing available which would otherwise not be available. TCC also notes that because it does not charge for these lending services, the program does not have a dominant profit motive. The borough responds that because economic development encourages the production, development and management of material wealth, it does not fulfill a charitable purpose. The borough argues that lending money to for-profit businesses that compete in the marketplace is not charity. The borough also argues that Alaska law does not recognize exemptions for property used for commercial activity of any sort. We cannot conclude that the assessor's findings and conclusions on this point lack a legal and factual basis. The superior court did not err by failing to find that the area devoted to community economic development was also exempt. That TCC did not charge for its re-lending activity may well mean that it had no dominant profit motive, but it does not compel a conclusion that the activity itself was for charitable purposes. [88]