Opinion ID: 2572683
Heading Depth: 5
Heading Rank: 1

Heading: How we analyze exemption claims

Text: The relevant constitutional and statutory provisions specify that to be exempt from local taxation, property must be used exclusively for non-profit religious, charitable, cemetery, hospital, or educational purposes. [21] Our cases have interpreted these provisions to require a two-part inquiry: first, whether there is a nonprofit, charitable purpose, and second, whether the property is being exclusively used for an exempt purpose. [22] As to the first of these, we read non-profit to impose a substantive qualification that is not identical to the charitable purposes requirement, both because the constitutional delegates included the non-profit qualifier in article IX, section 4 despite the absence of that qualifier in the existing territorial exemption statute, [23] and because we interpret the words of the constitution to avoid rendering any words superfluous. [24] The non-profit qualifier modifies purposes, and the constitution does not expressly refer to the organization that owns or uses the property. In discussing eligibility, the primary exemption provisions do not refer to owner or user organizations. [25] This suggests that the focus under the primary exemption provisions is on the purpose of the use, not on the organization. We note that AS 29.45.030(c) requires that if property, otherwise eligible for exemption under subsections .030(a)(3) and (4), generates income, the organization using the property must be a nonprofit ... charitable... group[ ]. [26] We applied the predecessor of subsection .030(c) in Greater Anchorage Area Borough v. Sisters of Charity of the House of Providence , and affirmed the denial of an exemption for three income-generating floors of the owner's medical building. [27] The medical center's owner arguably had the purpose of operating a nonprofit hospital. But it received rental income from physicians who used office space on those floors to conduct their private medical practices. Because the actual users of these income-generating properties were not nonprofit charitable groups, AS 29.45.030(c) deprived the properties of any exemption they otherwise would have received under AS 29.45.030(a)(3) or (4). Thus, unlike subsections .030(a)(3) and (4) which look to the nature of the owner's purposesubsection.030(c) looks to the nature of the user. It is not clear whether subsection .030(c) would apply here. The borough does not rely on it and the assessor did not base the exemption denial on that subsection, possibly because it is not clear that subsection .030(c) applies if the group using the property is also the owner seeking the exemption, and possibly because it is not obvious that the governmental support TCC received can be considered income. Certainly there is no dispute before us about TCC's status as a nonprofit organization. The assessor found that TCC was a nonprofit organization. The borough does not take issue with this finding, and does not assert on appeal that TCC was operating in violation of the Internal Revenue Code or its own articles and bylaws. TCC's § 501(c)(3) nonprofit status for purposes of the Internal Revenue Code [28] is not necessarily determinative, although its status and corporate purposes are consistent with finding the purposes to be nonprofit. The borough does argue that TCC was not acting as a charity, but makes that argument only in context of its claim that TCC used its property for contractual, not charitable, purposes. The borough does not assert that subsection .030(c) applies here. As the borough recognizes, its argument ultimately rests on an interpretation of `charitable purposes.' Consequently, the question raised by the borough in this appeal is whether TCC was motivated by charitable purposes, not whether TCC itself was a charity. We therefore next look to the purposes for which the parcels were used. The record confirms that the assessor did not err in finding that the programs TCC conducted on those parcels generated a surplus in most years. And as to one of the parcels, the assessor found that TCC had engaged in lease activity that results in a profit to TCC with respect to the Fairbanks Community Mental Health Clinic. But we think it significant that the assessor did not find that the other disputed parcels were not used for nonprofit purposes. The fact that use of a given parcel created an operational surplus does not necessarily preclude a conclusion that the activity had a nonprofit purpose. That a given charity manages, through effective fund-raising and careful management, to generate a surplus while carrying out its charitable purposes does not necessarily deprive the charity of a property tax exemption. Our decisions have previously discussed this nonprofit qualifier only briefly, and have translated it to mean that a property generating income will not lose its exemption if payment is not sought as a result of a dominant profit motive. [29] We conclude that the nonprofit qualifier does not require us to affirm the assessor's decision denying all of TCC's exemption applications. (We will return to the question of profit motive in Part III.B.2, when we consider TCC's cross-appeal concerning exemptions for two specific parcels.) Most of our charitable-purposes tax exemption cases revolve around the second part of the analysis: whether the property is being used exclusively for a charitable purpose. We have interpreted exclusive use to require that all uses of the property be for the direct and primary exempt purpose. [30] Although the exclusive-use requirement precludes temporal apportionment if property is used for both exempt and nonexempt purposes, we recognized in Catholic Bishop that the constitution allows spatial apportionment. [31] Accordingly we have concluded that operation of a church radio station that sold commercial radio time was not an exclusive use of property for a religious or charitable purpose. [32] In so holding, we did not think it relevant that the radio station's income was used to fund missionary activities. We have also held that a hospital did not use its property exclusively for hospital purposes because it leased the property to doctors for private office space. [33] We recognized an exception to the exclusive-use requirement in City of Nome v. Catholic Bishop of Northern Alaska, in which we held that de minimis use of property for a non-exempt purpose did not preclude an exemption. [34] The exclusive-use requirement also requires analysis of how the property is actually used. The eligibility analysis in this case ultimately turns on the meaning of charitable purposes in Alaska. Noting that neither the constitution nor AS 29.45.030 defined charity or charitable, in Matanuska-Susitna Borough v. King's Lake Camp we approvingly quoted this statement as typifying the broad scope given to these terms: 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 this meaning of the word charity. To crowd out coarseness, cruelty, brutality from social man undoubtedly results in this betterment. [35] We later characterized this statement as the broad common law definition of `charity'  and observed that this definition reflects the humanitarian rationale of property tax exemptions: they are granted as an aid or encouragement to individuals, corporations, or businesses, to do something supposedly for the good of the community at large, although such an act is not itself a proper or even permissible function of the government. [36] This definition provides some guidance, but it does not purport to specify prerequisites for eligibility. It provides only a general framework for determining eligibility. Applying this framework, we have concluded that properties used for a youth summer recreational camp, [37] a youth hostel, [38] and a church radio station [39] were being used for charitable purposes. Our charitable purposes doctrine also requires analyzing whether the property sustains activities motivated by a dominant profit motive. [40] This factor parallels the nonprofit requirement discussed above. Exemption is foreclosed if there is a real profit motive in the undertaking. [41] We considered the effect of deriving income from property in King's Lake Camp and Catholic Bishop. We held that property will not lose an exemption 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 operating costs. [42] We have applied this test in cases involving user fees, [43] rental income, [44] and donations. [45]