Arizona charities are entitled to escape property taxes on all their relevant holdings, including the parts that actually make money, the state Court of Appeals has ruled.
The judges rejected arguments by Pima County that Tucson Botanical Gardens Inc. has to pay tax on the portion of its property used to operate a gift shop, display art for sale, and rent to outsiders for use for special events such as weddings, parties and private meetings.
Court records show the organization is organized as a federally recognized charity dedicated to horticultural and ecological education. It operates 16 different gardens representing various themes on 5.7 acres in central Tucson.
There are also six buildings on the site, including a gift shop.
While the court said the materials sold there are “primarily educational,’’ the shop also sells things like T-shirts, napkins, hats, salsa seasoning and dishes.
Those items bring in more than they cost, though the organization said there is no profit if operating expenses are included like staff and utilities.
The organization also has meeting rooms that it rents out and where it also exhibits art for sale.
State law says the property of botanical gardens — along with museums, zoos, dance and community arts groups — is exempt from taxation “if the property is used for those purposes and not used or held for profit.” Based on its interpretation of the law, Pima County assessed property taxes on the gift shop and meeting areas of $3,835 in 2005, $2,028 in 2006 and $2,079 last year.
Appellate Judge Patricia Norris, writing for the unanimous court, said judges generally are required to construe tax statutes strictly to ensure that all taxpayers share the burden. But she also said they should not be interpreted so strictly so as to frustrate legislative intent.
In this case, she said, the county has concluded that the sale of the non-educational items means the organization is engaged in commercial activities that are not exempt from property tax laws. But Norris said that isn’t true.
“By focusing on the nature of a few of the items sold in the gift shop and TBG’s incidental use of the meeting areas, the county has failed to take into account the primary use TBG makes of the gift shop and meeting areas,” she wrote. “As long as the taxpayer’s principal or primary use of the property is for the designated exempt purpose, the taxpayer is entitled to the exemption notwithstanding its occasional or incidental use of its property for other purposes.”
Here, Norris said, the organization presented uncontroverted evidence that it was primarily using the gift shop for the charitable purpose of enhancing its educational mission. The same is true, the judge said, of the meeting areas, with the sale of art only incidental to the main purpose of the organization.
And Norris said the fact that the organization is recognized as a charity by the federal government shows that the gift shop and meeting rooms were “not used or held for profit,” allowing it to get the property tax exemption in state law.