Proposed Legislation to Eliminate “Incidental Use”

Proposed Legislation to Eliminate “Incidental Use” in Property Tax Exemption


A bill currently pending in the Maine Legislature would amend the property tax exemption statute by adding language that would eliminate the “incidental use” doctrine, which currently allows real estate to remain exempt if any uses that are not directly related to the owner’s exempt purposes are “incidental” to those uses. (While this doctrine has existed for many years, it was most fully articulated by the Law Court in Maine Medical Center v. Lucci, 317 A.2d 1 (1974), a case involving a parking garage operated by the hospital.) L.D. 1121 would amend Maine’s property tax exemption statute, 36 M.R.S. § 652(1), by adding a new provision to the “further conditions to the right of exemption” in subsection C, as follows:


(8)    The property of the institution, organization or corporation may not be incidentally used to provide goods, services or materials in exchange for any amount, type or form of remuneration.  For the purpose of this subsection, an incidental use is a use of the property that is not directly related and necessary to the purposes of the benevolent and charitable or literary and scientific institution, organization or corporation.


The bill summary states: “his bill amends the exemption from property tax provided to benevolent and charitable incorporated institutions and to scientific and literary institutions to specify that the exemption does not apply to property that is used incidentally in the provision of good, services or materials in exchange for any type of consideration.”


The proposed Legislation obviously would raise the stakes for tax-exempt entities, giving municipal tax assessors latitude to argue that any number of current incidental uses are not actually “directly related and necessary” to their purposes. For example, are gift shops and cafeterias “directly related and necessary” for a hospital? Are bookstores, student unions, and sports events “directly related and necessary” for a college?


The bill is labelled as being presented “By Request,” so it is unknown how much legislative support it will actually gain. A public hearing before the Taxation Committee is scheduled for 1:00 PM on Wednesday, April 12.