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AGLO 1982 No. 26 - November 19, 1982
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Ken Eikenberry | 1981-1992 | Attorney General of Washington

TAXATION ‑- PROPERTY ‑- EXEMPTIONS ‑- TAX EXEMPTION FOR PUBLIC ASSEMBLY HALL

The use of a portion of certain public assembly hall property owned by a nonprofit corporation for a purpose other than the conduct of public gatherings, pursuant to a rental agreement, is not a use for which such an organization has been granted a property tax exemption under RCW 84.26.037; if, however, segregation or severance of that particular portion of the property is possible, the organization will not lose the exemption on the entire property.

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                                                               November 19, 1982

Honorable Sim Wilson
St. Rep., 10th District
P.O. Box 145                                                                                                          
Marysville, WA 98270                                                                 Cite as: AGLO 1982 No. 26

Dear Sir:

             By letter previously acknowledged, you requested our opinion on the following question: 

"May a nonprofit organization owning a public assembly hall exempt from tax under RCW 84.36.037 rent a portion of its parking lot to a neighboring business without nullifying the exemption for that portion of the parking lot, if the rent collected is reasonable and does not exceed maintenance and operation expenses created by the neighboring business?"

             We answer your question in the answer sent forth in our analysis. 

ANALYSIS

             RCW 84.36.037 is a new property tax exemption statute, codifying § 2,  chapter 141, Laws of 1981. Although it is somewhat lengthy, we believe it necessary to quote this provision in full in order to place your question in proper focus.

"Real or personal property owned by a nonprofit organization, association, or corporation in connection with the operation of a public assembly hall or meeting place is exempt from taxation. The area exempt under this section includes the building or buildings, the land under the buildings, and an additional area necessary for parking, not exceeding a total of one acre: PROVIDED, That for property essentially unimproved except for restroom facilities and structures on such property which has been used primarily for annual community celebration events for at least ten years, such exempt property shall not exceed twenty-nine acres.

"To qualify for this exemption the property must be used exclusively for public gatherings and be available to all organizations or persons desiring to use the property, but the owner may impose conditions and restrictions which are necessary for the safekeeping of the property and promote the purposes of this exemption. Membership shall not be a prerequisite for the use of property.

"The use of the property for pecuniary gain or to promote business activities, except fund raising activities conducted by a non-profit organization, nullifies the exemption otherwise available for the property for the assessment year. The exemption is not nullified by the collection of rent or donations if the amount is reasonable and does not exceed maintenance and operation expenses created by the user.

"The department of revenue shall narrowly construe this exemption and shall annually report to the legislature the names of organizations receiving such property tax exemptions."

             Our first comment, in dealing with your inquiry, involves the final paragraph of the statute which imposes a rule of strict construction. Even in the absence of that express provision, however, that would be the rule in any event. Accord, Norwegian Lutheran Church v. Wooster, 176 Wash. 581, 589, 39 P. 2d 381 (1934) wherein the Court, also citing other cases to the same effect, said:       

"In considering statutes exempting property from taxation, the cardinal rule requires strict construction in favor of the public and the right to tax. Thurston County v. Sisters of Charity of House of Providence, 14 Wash. 264, 44 Pac. 252, and Foley v. Oberlin Congregational Church, 67 Wash. 280, 121 Pac. 65.

" 'If an exemption is found to exist, it must not be enlarged by construction, since the reasonable presumption is that the state has granted in express terms all it intended to grant at all, and that unless the privilege is limited to the very terms of the statute the favor would be extended beyond what was meant.' 2 Cooley on Taxation (4th ed.), § 672."

             A second rule, or principle, to be derived from the same (Wooster) case is that where it is possible to segregate the portion of a parcel of real property which is being used for a tax exempt purpose from other portions of the same parcel which are not being so used, such an approach is proper. In turn, if that rule is deemed to be applicable in the instant case, and it is possible to segregate the portion of the parking lot which is being rented to "...a neighboring business..." from the remainder of the parcel, the ultimate result should be a denial of the tax exemption as to that segregated portion. We further note, for the record, our understanding that this is, indeed, the administrative position which has been takne by the State Department of Revenue in reviewing property tax exempt applications that are based upon RCW 84.36.037, supra. 1                                                                                      

             The only possible basis for a contrary conclusion, in the case of an RCW 84.36.037 exemption application, stems from the statement in the third paragraph of the statute to the effect that:

            ". . . The exemption is not nullified by the collection of rent or donations if the amount is reasonable and does not exceed maintenance and operation expenses created by the user."    As we view it, however, this language of the statute does not negate the applicability of a segregation principle, or approach, such as we deprive fromNorwegian Lutheran Church v. Wooster, supra.  Rather, read in context, it is simply part of a general, limiting condition for the exemption of property which is used for those purposes contemplated by the statute (i.e., public gatherings)‑-and  [[Orig. Op. Page 4]] it should be so read in view of the express language in RCW 84.36.037 requiring a strict, or narrow, construction of the exemption.  In order to be, and remain, eligible for exemption from taxation the property ". . . must be used exclusively for public gatherings . . ." and not ". . . for pecuniary gain as to private business activities . . ."  It may, however, be rented out to others for the same purposes (i.e., public gatherings) without loss of the exemption so long as rent ". . . is reasonable and does not exceed maintenance and operation expenses created by the user."

            Our ultimate answer to your question, as above stated, is therefore as follows:  The use of a portion of certain public assembly hall property as well as a nonprofit organization (here, part of a parking lot) for a purpose other than the conduct of public gatherings, pursuant to a rental agreement, is not a use for which such an organization has been granted a property tax exemption under RCW 84.36.037.  If, however, segregation or severance of that particular portion of the property is possible, the organization will not lose the exemption on the entire property (provided it otherwise meets the requirements of the statute for exemption) by so renting a portion of its parking lot.  Rather, in that case, the tax exemption will be lost only as to the severable portion of the property.

            We trust that the foregoing will be of assistance to you.

Very truly yours,

KENNETH O. EIKENBERRY
Attorney General

LELAND T. JOHNSON
Senior Assistant Attorney General

                                                         ***   FOOTNOTES   ***

1/See also, RCW 84.36.815, et seq., which set forth the functions and responsibilities of the Department of Revenue in reviewing, and acting upon, applications for property tax exemptions, generally.

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