Gust, Rosenfeld, Divelbess & Robinette, Phoenix, for appellant.
James P. Boyle, Jr., former County Atty., Yavapai County, Prescott, for appellee.
[90 Ariz. 181] Plaintiff Verde Valley School appeals from a Superior Court judgment denying plaintiff recovery of real property taxes paid under protest for the years 1953 and 1957 inclusive. The cause was submitted and judgment below rendered on an agreed statement of facts which are as follows.
Plaintiff, a nonprofit Arizona corporation with no capital stock, operates a private boarding school on land in Yavapai County. To this end it has constructed, furnished and now maintains thereon classrooms, dormitories, a library and other buildings incidental to its purposes. Plaintiff's charter precludes use of the property for other than education purposes and also declares that: 'no dividend or pecuniary profit may be declared or paid to its members nor any part of its net earnings inure to the benefit of any member or individual.' Because of its educational purpose and nonprofit character plaintiff enjoys an exemption from the Federal income tax. 
Students at the school (there were 90 in 1957) are charged $2,200 annually for room, board, tuition and other services. But this income, augmented by application fees and private contributions and depleted by scholarships, has never been sufficient to defray the operating costs in any year since the school was founded in 1948. (From 1948 to 1957 such losses totaled $452,035.74.)
That Article 9, section 2 of the Arizona Constitution, A.R.S., permits but does not require legislative exemption from taxation of nonprofit educational institutions is clear. For, the first two sentences thereof read us follows:
'There shall be exempt from taxation all federal, state, county and municipal property. Property of educational * * * institutions not used * * * for profit may be exempt from taxation by law * * *.'  (Emphasis added.)
'And under this [section] the Legislature cannot grant more, but may give him much less than the exemption permitted by the Constitution.' Conrad v. Maricopa County, 40 Ariz. 390, 393, 12 P.2d 613, 614 (1932).
Accordingly, the legislature acted in 1913 to provide in what is now A.R.S. § 42-271(3) (1956) for the exemption of:
'Public libraries, colleges, schoolhouses and other buildings used for education, with their furniture, libraries and equipment, and the lands appurtenant thereto and used therewith, as long as they are used for the purpose[90 Ariz. 182] of education and not used or held for profit, but when such property is private property from which a rent or valuable consideration is received for its use it shall be taxed as other property.'  (Emphasis added.)
The question for decision, therefore, is whether a private, nonprofit educational institution, otherwise entitled to a real property tax exemption, is nevertheless disqualified by receipt of student tuition and fee charges (for room, board and other services) for the reason that such charges constitute 'a rent or valuable consideration' within the meaning of A.R.S. § 42-271(3).
It is true, as defendant urges, 'that laws exempting property from taxation are to be construed strictly' and that 'the presumption is against the exemption, and every ambiguity in the statute will be construed against it.' Conrad v. Maricopa County, 40 Ariz. at 393, 12 P.2d at 614.  But it is also true that it has always been the policy of this state to encourage the establishment of private educational institutions. And the principle of strict construction of exempting statutes should not be used to subvert that policy. Yale University v. Town of New Haven, 71 Conn. 316, 42 A. 87, 43 L.R.A. 490 (1899). Moreover, in this instance exemption of the plaintiff is called for by precedent as well as by a common sense interpretation of the statutory language.
It is generally held that an educational institution organized and operated on a nonprofit basis is not deprived of tax exemption by exacting tuition from its students. See, e. g., Kimberley School v. Town of Montclair, 2 N.J. 28, 65 A.2d 500 (1949); Assessors of Lancaster v. Perkins School, 323 Mass. 418, 82 N.E.2d 883 (1948). But such appellate pronouncements as these have usually been made in determining the question whether receipt of tuition, without more, indicates that an institution is on a profit making basis. In Arizona, however, the statute requires not only that an educational institution be operated on a nonprofit basis--this is admitted here--but also that no 'rent or valuable consideration' be received for use of its property. On this point the few existing authorities support plaintiff's claim for exemption.
In Yale University v. Town of New Haven,71 Conn. 316, 42 A. 87, 43 L.R.A. 490 (1899) student dormitories were held to have been improperly subjected to a local real property tax. In that connection the [90 Ariz. 183] Supreme Court ...