Opinion ID: 1268867
Heading Depth: 3
Heading Rank: 1

Heading: Exclusive Use is Required

Text: All tax exemptions disputed in this case were sought under AS 29.53.020. This section exempts only those properties used exclusively for a tax exempt purpose. [18] We have interpreted exclusive use in accord with our rule of strict construction. In Harmon v. North Pacific Union Conference Association of Seventh Day Adventists, 462 P.2d 432 (Alaska 1969), we decided that [e]ven when the uses of a piece of property are highly related to the primarily exempted activity, the exemption will not apply when the statute requires `exclusive' use. 462 P.2d at 437. All uses of the property must be for the direct and primary exempt purpose. Evangelical Covenant Church v. City of Nome, 394 P.2d 882, 883 (Alaska 1964) (citing Annot., 154 A.L.R. 895, 898 (1945)). See Matanuska-Susitna Borough v. King's Lake Camp, 439 P.2d 441, 445 (Alaska 1968). Thus, property used by a charitable organization to raise money for that group's charitable activities is not exempt since the property's direct and primary use is fund-raising and not charity itself. See King's Lake Camp, 439 P.2d at 445; Evangelical Covenant Church, 394 P.2d at 885. Furthermore, property occasionally used for a nonexempt purpose is not exempt since the property must be used exclusively for exempt purposes. Evangelical Covenant Church, 394 P.2d at 885. Property need not be devoted exclusively to a single exempt purpose to meet the exclusive use requirement. If the property is used exclusively for any combination of religious, charitable or educational purposes, AS 29.53.020(a)(3) is satisfied. See Ladies Literary Club v. City of Grand Rapids, 409 Mich. 748, 298 N.W.2d 422, 425 (1980); Young Women's Christian Association v. Baumann, 130 S.W.2d 499, 502 (Mo. 1939). [19] Today, we acknowledge two very narrow exceptions to the exclusive use rule. The first excepts de minimus uses. We foresee, as have other courts, that application of the exclusive use rule could be so literal and narrow that it defeats the exemption's settled purpose. Association of the Bar of the City of New York v. Lewisohn, 34 N.Y.2d 143, 356 N.Y.S.2d 555, 560, 313 N.E.2d 30, 35 (N.Y. 1974). We join the Utah Supreme Court in holding that an occasional use of true minor import or a de minimus use will not defeat exemption. Salt Lake County v. Tax Commission of Utah, 658 P.2d 1192, 1194 (Utah 1983) (quoting In re Loyal Order of Moose, # 259 v. County Board of Equalization, 657 P.2d 257, 264 (Utah 1982)). Second, we acknowledge an exception under AS 29.53.020(a)(3) for property used for purposes directly incidental to and vitally necessary for the exempt use of other property. In King's Lake Camp, 439 P.2d 441, we held that a camp used by children's organizations remained exempt even though user groups contributed to operational expenses. We concluded that the receipt of income and rentals by appellee was incidental to and reasonably necessary for the carrying out of the primary charitable purposes of the camp. Id. at 445. In that case, the property itself was used exclusively for otherwise exempt purposes. We have never held that King's Lake Camp exempts property for uses incidental to and reasonably necessary for exempt uses on other properties. In Harmon, 462 P.2d 432, appellees sought to exempt buildings used for the residences of church administrators, teachers and visiting church staff members. The buildings were also used for counseling and church social gatherings. Such uses did not comply strictly with former AS 29.10.336 (repealed 1972). That section exempted only the residence of the pastor, priest, rabbi, minister, or religious order. Nevertheless, appellees argued that the court should consider the property necessary to the efficiency of the organization claiming the exemption. Id. at 437. We declined and pointed out that this analysis was not sufficient to overcome the precise terminology of our own statute or the more general policy of strict construction in interpreting tax exemptive laws. Id. at 438. Moreover, in Harmon, the disputed property was not used directly with other exempt uses. Rather, it was merely used to further the general purposes of an organization engaged in other exempt activities. After Harmon, we rejected the incidental to and reasonably necessary for extension in a much closer case, Sisters of Charity, 553 P.2d 467. In that case, the Sisters of Charity, a longtime health care provider in Alaska, sought to exempt space in their building adjacent to Providence Hospital. They rented the disputed space to doctors with hospital staff privileges to use as private office space. While we acknowledged that such office space use by the doctor-tenants incidentally benefited the hospital and its patients, we denied the exemption because the space was not used exclusively for hospital purposes. Sisters of Charity, 553 P.2d at 470. We distinguished a California case, Cedars of Lebanon Hospital v. Los Angeles County, 35 Cal.2d 729, 221 P.2d 31 (1950). That case exempted living quarters for resident doctors and hospital employees. We held that the questioned uses in Cedars of Lebanon were institutionally necessary. Sisters of Charity, 553 P.2d at 470. We distinguished Cedars of Lebanon for the same reason in Harmon, 462 P.2d at 438. In sum, we acknowledge that property may be exempt under AS 29.53.020(a)(3) if the taxpayer establishes that the use of that property is directly incidental to and vitally necessary for the exempt use of other specifically identified property. Similarly, property used part-time for exempt purposes and otherwise for uses directly incidental to and vitally necessary for the exempt purposes is exempt. We will strictly construe this extension.