On June 15, 2020, the Arizona Attorney General’s Office issued Opinion No. I20-009 stating that the occasional commercial use of a school-owned facility does not necessarily constitute being “used or held for profit” and therefore does not necessarily disqualify the facility from receiving the full property tax exemption for education and library property provided by Arizona Revised Statute (“A.R.S.”) § 42–11104 (A). The Opinion further cautioned, however, that “more than occasional commercial use could constitute being ‘used or held for profit.’”

Article 9, § 2 of the Arizona Constitution permits, but does not require, the Legislature to exempt from taxation the property of “educational, charitable, and religious associations or institutions not used or held for profit.” The Legislature has implemented this constitutional provision for educational properties in A.R.S. § 42-11104.

A.R.S. § 42–11104 (A) provides that “[l]ibraries, colleges, school buildings and other buildings that are used for education, with their furniture, libraries and equipment and the land that is appurtenant to and used with them, are exempt from taxation if they are used for education and not used or held for profit.”

While no Arizona cases address whether commercial use of a school-owned facility constitutes being “used or held for profit” and, therefore, disqualifying the facility from the full A.R.S. § 42-11104 (A) property tax exemption, the Opinion cited several Attorney General Opinions and the applicable statutes relating to the leasing of school property and use of the proceeds thereof in support of the proposition that it is legally permissible for school districts to lease school property to commercial users while still satisfying the “not used or held for profit” requirement in A.R.S. § 42-11104 (A).

The Opinion further relied on the case Tucson Botanical Gardens, Inc. v. Pima County, 218 Ariz. 523, 189 P. 3d 1096 (App. 2008), which analyzed, in part, whether a property was “not used or held for profit” under a similarly worded property tax exemption statute, A.R.S. § 42-11116. That statute provides an exemption for the property of, among others, botanical gardens that are qualified as non-profit charitable organizations under I.R.C. § 501(C)(3) if the property was “not used or held for profit.”

The County Assessor had denied the exemption for parts of the garden, including a gift shop that sold non-educational items (ie., t-shirts, stationary, etc.) and meeting rooms that were rented occasionally to third parties for non-charitable purposes (ie., weddings, private parties and meetings) as well as occasionally exhibiting art for sale from which the garden received a commission. With respect to whether the sale of non-educational goods in the gift shop and renting out the meeting rooms from time to time might cause those properties to be considered “used or held for profit,” the court noted that the garden did not realize a profit from either the gift shop or renting out the meeting rooms and it rejected the Assessor’s argument that that income disqualified those spaces from receiving an exemption.

In short, the court held that when a nonprofit organization is the primary user of a property it owns, but allows occasional use of its property for non-exempt purposes, the property does not lose its tax-exempt status for being “used or held for profit,” so long as the organization’s nonprofit status under A.R.S. § 42-11154 is proved and all other requirements of the tax exemption statute are met.

Accordingly, the Opinion concluded that occasional commercial use of a school-owned facility does not necessarily constitute being “used or held for profit” and, therefore, does not necessarily disqualify the facility from receiving a full exemption under A.R.S. § 42-11104(A), although the facts of any particular case will drive the outcome in any particular instance and more than occasional commercial use could constitute being “used or held for profit.”