Matanuska-Susitna Borough v. King's Lake Camp

• Decision Date: 12 April 1968
• Docket Number: No. 857,MATANUSKA-SUSITNA,857
• Citation: 439 P.2d 441
• Parties: BOROUGH, Appellant, v. KING'S LAKE CAMP, Appellee.
• Court: Alaska Supreme Court

Page 441

439 P.2d 441

MATANUSKA-SUSITNA BOROUGH, Appellant, v. KING'S LAKE CAMP, Appellee.

No. 857.

Supreme Court of Alaska.

April 12, 1968.

Harland W. Davis, Anchorage, for appellant.

Wendell P. Kay, Anchorage, for appellee.

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

RABINOWITZ, Justice.

The principal issue presented in this appeal concerns the trial court's determination that King's Lake Camp was, by virtue of its charitable status, exempt from taxation by the Matanuska-Susitna Borough.

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

All, or in any portion of, property, used exclusively for non-profit religious, charitable, cemetery, or educational purposes, as defined by law, shall be exempt from taxation.

In defining the limits of its taxing powers, the Alaska Legislature enacted AS 29.10.336(a) which declared exempt from taxation

all property used exclusively for nonprofit religious, charitable * * * or educational purposes * * *.

Subsection (c) of this same statute qualifies this exemption by providing that:

Property or part of the property described in (a) * * * from which rentals or income are derived is not exempt from taxation under (a) of this section, unless the rentals or income are derived from the rental of the property by religious or educational groups for classroom space.

The Matanuska-Susitna Borough came into existence on January 1, 1964. Thereafter, the Borough enacted Ordinance No. 64-1 where, by virtue of section 1(b), property 'used exclusively for religious, educational, or charitable purposes' was exempted from Borough taxation. It was further provided in subsection (d) of the Borough's ordinance that, 'If a religious, educational, or charitable organization * * * derives rentals or profits from its property, that property is not exempt.'

The Borough's first point in this appeal is that since King's Lake Camp derived nonclassroom rentals and income from its property, the trial court erred in concluding that the camp was entitled to tax-exempt status.

The record discloses the following pertinent facts regarding the nature of the appellee King's Lake Camp: ¹ Although there is some winter camping, the main season at appellee's camp is timed to correspond with school vacation. Most of the children and other campers who use appellee's property are members of 'user groups.' ² Typical of the 'user groups' which actually utilize appellee's facilities are the Alaska Crippled Children, American Baptist Church, Camp Fire Girls, Y.M.C.A., and 4-H Clubs. Every user group pays to appellee the sum of $3.25 per day for each child using appellee's facilities. In the event a child is financially unable to pay the $3.25 daily user fee, the practice has been for the particular user group itself to make payment. The record further shows that the $3.25 daily user fee did not defray the operational expenses of the camp. ³ In order to obtain capital for expansion of the camp's facilities, each user group organization is assessed $250 annually. ⁴

In the deposition of appellee's corresponding secretary it was disclosed that:

Each user group has their own program. * * * All we do is offer these user groups properly run facilities, a manager, the kitchen help and they establish their own program.

They do whatever it is for the 4-H program comes in and at that time I think they do extra work on their 4-H program, you know, as a whole over the year. Church groups come in have their training session for their church program, and we don't furnish any of that. Each group is responsible for their own program during that time. ⁵

Appellant Borough argues that the legislature of the State of Alaska has, through the enactment of AS 29.10.336(c), severely limited tax exemptions for property used exclusively for nonprofit religious, charitable, or educational purposes. On the basis of the facts which we have referred to, appellant contends that appellee is not exempt from taxation because of the rents, or income which it received in the form of $3.25 payments from user groups based upon the daily individual camper occupancy of appellee's facilities. ⁶

Appellant has raised a question of first impression concerning the construction of subsection (c) of AS 29.10.336 and its relation to subsection (a) of the same enactment. ⁷ We believe that appellant's interpretation of subsection (c) of AS 29.10.336 is too restrictive. There are numerous precedents from other jurisdictions holding that a benevolent or charitable undertaking is not shorn of tax-exempt status because it charges fees and thereby realizes rent or income from its property. Pertinent here is Young Men's Christian Ass'n of Los Angeles v. Los Angeles County ⁸ where the Supreme Court of California said:

Defendants further argue that since plaintiff rents the dormitory rooms at its respective branches, their tax exemption would run counter to the statutory provision that the property in question 'not (be) used or operated by the owner * * * for profit regardless of the purposes to which the profit is devoted.' * * * However, such contention misconstrues the purport of the stated prohibition. It is true that plaintiff requires its dormitory residents to pay a moderate rental for the rooms in keeping with the modest scale of furnishings, and so realizes income which is used to defray operating expenses. But under the stipulated facts, it does not appear that there was any real profit motive in such undertaking as integrated into plaintiff's recognized religious and charitable objectives.

* * * Therefore, income derived by plaintiff here from dormitories maintained for its members in the normal pursuit of its exempt purposes, that is to say, from a facility which is incidental to and reasonably necessary for the accomplishment of its exempt purposes, is to be distinguished from income derived from a facility which is not so correlated with its exempt purposes. ⁹

We find this decision persuasive and believe its rationale points to a reasonable interpretation of the limiting provisions of AS 29.10.336(c). In short, property which is used exclusively for nonprofit charitable purposes does not thereby become disqualified for a charitable tax exemption solely because rents or income are derived therefrom. If it appears that the rentals or income are not derived as a result of a dominant profit motive on the charity's part, but are incidental to and reasonably necessary for the accomplishment of its charitable purposes, then such rentals or income are not within the ambit of AS 29.10.336(c)'s limitation upon properties which qualify for a charitable exemption.

In reaching this conclusion we find inappropriate the authorities relied upon by appellant. ¹⁰ One of the two principal decisions relied upon is this court's opinion in Evangelical Covenant Church of America v. City of Nome. ¹¹ In that case the church operated a radio station which was used partially for commercial purposes. Air time was sold to commercial enterprises having no connection to the church or affinity with any of its aims. There we held 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. ¹² Even though the funds generated by the radio station were used for religious purposes, we held they were taxable because operation of the radio station was not itself the 'direct and primary purpose' of the church. ¹³

Unlike the Evangelical Covenant Church case, 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. As has already been pointed out, such moderate user fees as were charged by appellee do not appear to have been inspired by a dominant profit motive.

Appellant's second point in this appeal is that article IX, section 4 of the Alaska constitution requires that those properties of nonprofit charitable, religious, or educational groups which are to be exempt from taxation be 'defined by law.' Since nowhere in AS 29.10.336(a) is an entity possessing the characteristics of appellee's camp defined as eligible for tax exemption as a charity, appellant contends the superior court erroneously decided this issue in appellee's favor. ¹⁴

Neither in Alaska's constitution nor in our general laws are the terms 'charity' or 'charitable purposes' defined. In such circumstances, resort to the common law definition of these terms is appropriate. The broad scope which has been given to the terms 'charity' and 'charitable purposes' is typified by the statement of the court in Old Colony Trust Co. v. Welch, ¹⁵ where it was said:

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.

Both in England and the United States it has frequently been held that the providing of recreational facilities, such as accommodations for campers, is a charitable use of the property. ¹⁶ In order to qualify as a charitable undertaking, it is not necessary that the beneficiaries of the charity be indigent or needy. It has been said in resolving questions of charitable status that:

Financial standing is not necessarily a criterion. * * * (T)he classic definition of Lord Camden, Eighteenth Century Chancellor of England (was) that charity is 'A gift to a general public use, which extends to the poor as well as to the rich.' ¹⁷

In our opinion the record in this case demonstrates that the King's Lake Camp properties were used for 'charitable purposes' as that term has been defined at common law. In addition to the factual details of the nature and operation of the camp, which have previously been referred to, it is also of significance that appel...