Evangelical Covenant Church of America v. City of Nome

• Decision Date: 24 August 1964
• Docket Number: No. 457,457
• Citation: 394 P.2d 882
• Court: Alaska Supreme Court
• Parties: 3 Rad. Reg. 2d (P & F) 2016 The EVANGELICAL COVENANT CHURCH OF AMERICA, an Illinois Corporation, and Arctic Broadcasting Association, an Illinois Corporation, Appellants, v. CITY OF NOME, an Alaska Municipal Corporation, Appellee.

Page 882

394 P.2d 882

3 Rad. Reg. 2d (P & F) 2016

The EVANGELICAL COVENANT CHURCH OF AMERICA, an Illinois Corporation, and Arctic Broadcasting Association an Illinois Corporation, Appellants, v. CITY OF NOME, an Alaska Municipal Corporation, Appellee.

No. 457.

Supreme Court of Alaska.

Aug. 24, 1964.

Eben H. Lewis, of Robison, McCaskey & Lewis, Anchorage, for appellants.

Thomas J. Balone, Nome, for appellee.

Before NESBETT, C. J., and DIMOND and AREND, JJ.

AREND, Justice.

This is an appeal by the Evangelical Covenant Church of America, hereinafter designated 'Covenant Church,' and its subsidiary Arctic Broadcasting Association, hereinafter referred to as 'Arctic,' from a judgment of the superior court in effect denying them exemption from certain ad valorem and sales taxes imposed by the appellee, the City of Nome. Both appellants are Illinois corporations, operating at Nome, Alaska.

Covenant Church, as plaintiff below, filed a complaint in the superior court against the City of Nome for the recovery of taxes paid under protest in 1959 and 1960, and to be paid for 1961, on certain lands and the buildings and equipment thereon, consisting of Radio Station KICY leased to Arctic, and the residences of the station manager, the station engineer, the missionary builder and the associate or lay pastor. The city answered denying the entitlement of Covenant Church to any tax exemptions and counterclaiming for consumer sales taxes alleged to be due and owing to the city on all radio time sold by Arctic. Covenant Church denied any obligation to pay the sales tax. By stipulation Arctic was brought into the case as a party plaintiff.

There are three issues raised on appeal, the first of which may be phrased as follows: May a city in Alaska, under its taxing powers, lawfully assess and collect ad valorem taxes upon the property and facilities of a radio station established and operated under the missionary function of a church, where the station is actively engaged in the sale of commercial radio time and the profits therefrom are used to pay the cost of operating the station and to help support the missionary activities of the church?

Article IX, section 4 of the Alaska Constitution provides in part that

'All, or any portion of, property used exclusively for non-profit religious * * * purposes, as defined by law, shall be exempt from taxation. Other exemptions of like or different kind may be granted by general law. * * *'

Subsection (a) of AS 29.10.336 ¹ authorizes city councils to 'assess, levy, and collect a general tax for school and city purposes not to exceed three per cent of the assessed valuation upon all real and personal property * * *.' Subsection (b) reiterates the constitutional provision above quoted by declaring that 'all property used exclusively for religious * * * purposes' is exempt from taxation, and subsection (c) defines the term 'property used for religious purposes' as including 'the residence of the pastor, priest, or minister of a religious organization, and other property of the organization not used for business, rent, or profit.' [Emphasis added.] Subsection (d) declares that 'if a religious * * * organization * * * derives rentals or profits from its property, that property is not exempt.'

Covenant Church admits that Arctic, through radio station KICY sells 'commercial time' ² but claims that Arctic is not organized as a profit-making enterprise and that fees are charged for its service only to alleviate the burden that otherwise would fall on contributors to the missionary (religious) activities of Covenant Church.

There seems to be no court decisions dealing with the tax exempt status of church operated radio stations; however, there are cases bearing upon the question of tax exemption of property used by beneficent institutions in the publication or sale of literature, which we consider to be analogous and helpful. In reference to the decisions in this latter field, there is an annotation in 154 A.L.R. which states:

'[I]t has been held in a great majority of jurisdictions that a beneficent institution is not entitled to an exemption from taxation on its property used in the commercial business of publishing or selling literature even though the funds derived in this manner are exclusively devoted to beneficial purposes, but that such property will be considered as tax exempt if the publication or the sale of literature is the direct and primary purpose of the beneficent institution.' ³

Illustrative of the majority view as above stated is the decision in a recent Oregon case, Multnomah School of the Bible v. Multnomah County. ⁴ The Bible School was a nonprofit, nondenominational institution. It made no tuition charges and afforded opportunities for a general liberal arts education, but emphasizing the study of the Bible, with preparation qualifying its graduates for missionary work and other forms of religious activity. It operated an off-campus bookstore, known as the Christian Supply Center, in one of the largest retail districts of the City of Portland. The stock of merchandise in the bookstore consisted in the main of Sunday School supplies, Bibles of various styles, missionary film strips, moving pictures, picture projection machines, religious records and miscellaneous novelties with a religious flavor. While the store catered to missionaries and Sunday School teachers, without regard to denomination, its merchandise was sold to any member of the public interested in buying.

By statute in Oregon the property of literary, benevolent, charitable and scientific institutions is exempt from taxation but only insofar as it 'is actually and exclusively occupied or used in the literary, benevolent, charitable or scientific work carried on by such institutions.' ⁵ Another Oregon statute declared that nonprofit corporations, such as the Bible School was, might be created for any lawful purpose 'so long as they do not engage in any form of trade or commerce, or carry on any activity which will result in a remunerative profit to them or any of their members.' [Emphasis added. ⁶ The school sought to avoid the impact of the statute by representing that all profits from the bookstore were immediately channeled back into the treasury of the school, where it was employed for the purposes for which the school was organized. The court, however, refused to recognize such a basis for tax exemption, stating:

'We hold plaintiff's business, known as the Christian Supply Center, is an enterprise for the purpose of business and profit which comes in direct competition with businesses of like nature and kind carried on elsewhere by other persons and does not comply with ORS 307.130, supra, so as to entitle it to the tax relief sought, even though its net gains flow to and are devoted by the Bible School to religion or education.' ⁷

Similarly in Hilger v. Harding College, Inc., ⁸ the Supreme Court of Arkansas held that under a state constitutional provision authorizing exemption from taxation of school buildings and apparatus and grounds used exclusively for school purposes, the printing press of Harding College was not exempt from taxation. Although the operation of the printing press was authorized by the articles of incorporation and the press provided jobs for students and immediate, accurate service for college printing, the court ruled that the printing press was not being used exclusively for school purposes since ten percent of the printing work was not done for the college. ⁹

A few jurisdictions have adopted a contrary view, holding that it is the use of the income derived that determines whether the institution is entitled to tax exemption. ¹⁰ We think the rule followed by the majority is the better one and we, therefore, hold in this case that the property and facilities of radio station KICY are subject to the ad valorem tax since they are not used exclusively for religious purposes. It matters not that only a part of the radio time was sold and used for commercial purposes ¹¹ and that the profits derived from the sale of commercial radio time were used to further the missionary work of Covenant Church. For us to hold otherwise would result in a taxed commercial business being forced to compete with the commercial activities of institutions claiming a tax exempt status under the law.

The next issue to consider is whether a city may lawfully assess and collect taxes on the residence furnished by a church to its assistant or lay pastor.

The head pastor of Covenant Church at Nome is a Mr. Amundson who serves mainly the White population. He is assisted by an associate or lay pastor, Mr. Savok, who is an Eskimo and ministers to the needs of the people of his own race. The parties have stipulated that both of these men are ordained, licensed preachers of Covenant Church, the only distinction between them being 'that the Reverend Amundson has attended and graduated from a Theological Institution.' Mr. Savok is paid a small stipend and furnished a residence. As appellants point out, the dispute between the parties is not whether Mr. Savok is a bona fide minister, but whether a church is...