Sara E. Hauptfuehrer
Walter L. Williams
Thomas A. Vorbach
Steptoe & Johnson PLLC
Clarksburg, West Virginia
Attorneys for the Appellant,
Maplewood Community, Inc.
Darrell V. McGraw, Jr.
Attorney General
Stephen Stockton
Senior Assistant Attorney General
Charleston, West Virginia
Attorneys for the Appellee,
Rebecca Melton Craig,
State Tax Commissioner
Robert J. Andre
Assistant Prosecuting Attorney
Clarksburg, West Virginia
Attorney for the Appellee,
Cheryl L. Romano,
Assessor of Harrison County
Philip M. Magro
Assistant Prosecuting Attorney
Morgantown, West Virginia
Attorney for the Appellee,
Monongalia County Commission
Darrell V. McGraw, Jr.
Attorney General
Stephen Stockton
Senior Assistant Attorney General
Charleston, West Virginia
Attorneys for the Appellee,
Rebecca M. Craig,
State Tax Commissioner
James A. Walls
Spilman, Thomas & Battle, PLLC
Morgantown, West Virginia
Attorney for Amicus Curiae,
Morgantown Area Chamber of Commerce
Thomas A. Heywood
Bowles, Rice, McDavid, Graff & Love, PLLC
Charleston, West Virginia
Attorney for Amicus Curiae,
The West Virginia Hospital Association
The Opinion of the Court was delivered PER CURIAM.
JUSTICE STARCHER concurs and reserves the right to file a concurring opinion.
1. “In order for real property to be exempt
from ad valorem property taxation, a two-prong test must be met: (1) the
corporation or other entity must be deemed to be a charitable organization
under 26 U.S.C. § 501(c)(3) or 501(c)(4) as is provided in 110 C.S.R. § 3.19.1;
and (2) the property must be used exclusively for charitable purposes and
must not be held or leased out for profit as is provided in W.Va. Code § 11-3-9.” Syl.
Pt. 3, Wellsburg Unity Apartments, Inc. v. County Comm'n, 202 W.Va.
283, 503 S.E.2d 851 (1998).
2. “Constitutional and statutory provisions
exempting property from taxation are strictly construed. It is encumbent
upon a person who claims his property is exempt from taxation to show that
such property clearly falls within the terms of the exemption; and if any
doubt arises as to the exemption, that doubt must be resolved against the
one claiming it.” Syl. Pt. 2, In re Hillcrest Memorial Gardens, Inc., 146
W.Va. 337, 119 S.E.2d 753 (1961).
3. “The county assessor may presume that leaseholds
have no value independent of the freehold estate and proceed to tax all real
property to the freeholder at its true and actual value; the burden of showing
that a leasehold has an independent value is upon the freehold taxpayer and
the taxpayer must request in a timely manner the separate listing of freehold and leasehold interests.” Syl. Pt. 2, Great
A&P Tea Co. v. Davis, 167 W.Va. 53, 278 S.E.2d 352 (1981).
Per Curiam:
The primary issue presented through these two consolidated
cases is whether Appellants, (See
footnote 1) who both operate assisted living and independent
living facilities for seniors, are subject to ad valorem property taxation.
By separate order, the Circuit Courts of Harrison County and Monongalia County
respectively rejected Appellants' argument that they should be exempt from
ad valorem property tax assessments based on their contention that they both
operate facilities which serve charitable purposes. Upon our review of these
cases, we conclude that Appellants, despite their status as charitable organizations
for federal income tax purposes, do not qualify under state law as organizations
whose property is used exclusively for charitable purposes. (See
footnote 2) Consequently, Appellants fail to come within
the recognized definition of a charity under state law and are not entitled
to the tax exemption provided by statute for property used for charitable
purposes. (See
footnote 3) Finding no error to have been committed by
the courts below with respect to rejecting Appellants' exemption from ad
valorem property taxes based on charitable purpose operations, we affirm
the respective decisions of the circuit courts on this issue. Pertinent only
to the Mon Elder case were two separate assignments of error concerning whether
the leasehold interest held by Mon Elder has assessable value separate from the underlying value of the property
and whether the Monongalia County Assessor erred in making a back tax assessment
in 2002 for taxes allegedly owed in 2001. Because the lower court did not
rule on either of these two assignments of error and because they require
certain factual and legal determinations before meaningful appellate review
can occur, we remand those two limited issues to the Circuit Court of Monongalia
County.
Maplewood was created by United Hospital Center,
Inc., (“UHC”), which is a not-for-profit acute care community hospital.
During the construction and development phase, UHC contributed $1.5 million to Maplewood. UHC is also a co-obligor
on certain tax exempt bonds that were issued to provide the balance of the
required financing. Maplewood suggests that UHC's financial contributions
are essentially gifts to the community because UHC receives no direct financial
benefit from these contributions. (See
footnote 5) Maplewood receives no government subsidies
and was built solely through private funding. To date, Maplewood has not
experienced a positive cash flow, but if it should ever realize a profit
from its operations, Maplewood represents that such moneys would be used
to further its mission of providing services to its residents at the lowest
feasible cost.
Prior to moving in, residents of the independent
living apartments pay a substantially refundable deposit. (See
footnote 6) The amount of the deposit depends on the size
of the apartment and ranges from $63,100 to $115,700. Under the terms of
the residency agreement that pertains to the independent living units, (See
footnote 7) the residents receive a lifetime right to occupy their respective apartments. Upon either the death of the resident
or the termination of his/her residency, ninety-five percent of the initial
deposit will be refunded for a single occupancy or ninety percent in the
case of dual occupancy. (See
footnote 8)
Independent living residents pay a monthly service
fee ranging from $1,267 to $2,428, depending on the size of the apartment
and number of residents. (See
footnote 9) That monthly service fee covers items such
as one meal per day; bi-weekly housekeeping; utilities; security system and
emergency alert monitoring; bi-weekly laundry of linens; routine maintenance
and repairs; local transportation; social/recreational programming; payment
of taxes and insurance on the building grounds; parking space; storage area;
wellness program; medical advisor; priority admission to assisted living
facility owned by Maplewood; priority transfer to nursing care at The Heritage;
and a long-term care benefit program. The residents can pay separately for
additional services such as housekeeping; personal laundry; and personalized transportation. If a Maplewood resident fails to pay the monthly service
fee associated with his unit, Maplewood retains the right to terminate the
residency agreement. (See
footnote 10)
Maplewood's residents living in the independent living units range in age from 63 to 96 and the individuals residing in the assisted living apartments range from 77 to 100.
These residents include a cross section of society as they are former teachers,
secretaries, bookkeepers, bankers, coal miners, machinists, attorneys, nurses,
railroad workers, and homemakers. According to Maplewood, most of its residents
are of modest financial means, with 54% of the residents in independent living
units and 68% of the residents in assisted living units reporting their net
worth at less than $500,000.
Maplewood introduced testimony below to show that
by providing its residential services, individuals are permitted to remain
in areas proximate to where they spent active adult lives, which has the
secondary benefit of allowing those citizens to attend worship services at
their home church; shop where they have always shopped; continue their medical
care with established physicians; and continue to volunteer and be actively
involved in the local community. According to Maplewood's expert testimony,
the availability of facilities such as Maplewood translates favorably for society as a whole
by delaying the need for higher, more expensive levels of care, such as nursing
home facilities.
On October 8, 2001, Maplewood filed a formal, written
objection to the Harrison County Assessor's determination that Maplewood's
property is subject to ad valorem taxation. Following the Assessor's denial
of the objection, Maplewood requested that the Assessor certify the issue
of taxability to the State Tax Commissioner. See W.Va. Code § 11-3-24a
(1961) (Repl. Vol. 2003). On February 28, 2002, the State Tax Commissioner,
through Property Tax Ruling 02-05 Revised, denied Maplewood's request for
relief from ad valorem taxation; a lower property classification; and tax
preferences under the homestead exemption. (See
footnote 11) Maplewood appealed that decision to the circuit
court and by ruling entered on April 4, 2003, the circuit court concluded
that Maplewood was not exempt from ad valorem taxation “because its
property is not used for primarily charitable purposes and an indefinite
number of people do not benefit from said property.” Through this appeal,
Maplewood seeks a reversal of the unfavorable tax ruling issued below.
To aid in the capitalization of Mon Elder, Monongalia
Health Systems donated 11.35 acres of land located near Monongalia General
Hospital and further contributed approximately $1.6 million in cash. Additional
funding necessary for the construction of the facilities at Mon Elder was
realized through the sale of approximately $20 million in tax exempt development
bonds, which were issued by the Monongalia County Building Commission (“Building
Commission”). (See
footnote 14) The property on which the senior community
is located was conveyed to the Building Commission by Mon Elder on December
12, 1997. Mon Elder and the Building Commission entered into a lease arrangement
under which Mon Elder pays rent to the Building Commission sufficient to
amortize the principal and interest on the tax exempt bonds. Under the terms
of the lease, Mon Elder cannot transfer, lease, sub-lease, or otherwise convey
its interest in the lease to any other party without the consent of the Building
Commission. At the end of the lease term, the Building Commission retains
ownership of the Village and there is no purchase option giving Mon Elder
the right to acquire the property.
The Village operation consists of ninety independent
living apartments and forty assisted care living units. Like the services provided
by Maplewood to its residents, the Village similarly supplies its residents with
one daily meal; light housekeeping; linen service; maintenance services; emergency
call system; wellness and preventative maintenance programs; as well as scheduled
transportation to local shopping areas, medical facilities, and places of worship.
In addition, there are numerous services offered to enhance the residential experience
that include arts and crafts; library facilities; exercise classes; and other
opportunities for social interaction.
For these services, residents of the independent
living apartments pay a flat monthly service fee ranging from $1,450 for
a one-bedroom apartment to $2,100 for a two-bedroom apartment. Residents also pay a substantial deposit prior to moving
into their independent living unit that ranges from $72, 175 to $151,025.
These deposits are refunded to the resident or his estate upon the resident's
departure or relocation into the assisted living facilities. (See
footnote 15) Residents of the assisted living units pay
a higher monthly service fee than the independent living residents due to
the increased level of care they receive. (See
footnote 16) The Village policies provide that residents
will not be forced to leave if they are unable to pay, except if they have
squandered their resources or if non-payment would threaten the continued
existence of Mon Elder. (See
footnote 17)
Mon Elder represents that the Village was designed
to be affordable to retirees of modest to a little better financial means. (See
footnote 18) By retaining the talents and services of educated
and community-minded retirees, Mon Elder maintains that it is fulfilling
a significant public interest. Through evidence submitted below, Mon Elder
demonstrated that its residents perform volunteer work throughout the community
that includes contributions of their time and services at local hospitals, nursing homes,
and in elementary schools.
The legal proceedings involving Mon Elder began
with an assessment by the Monongalia County Assessor against the Building
Commission's interest in the Village. In response to an assessment for tax
year 2001, Mon Elder requested that the Assessor exempt the Village as property
used for charitable purposes. When this request was rejected, Mon Elder and
the Assessor jointly requested that the Tax Commissioner issue a property
tax ruling addressing whether the Village was exempt from ad valorem taxation
based on the Building Commission's ownership of the property and the charitable
purposes performed by the Village. By ruling dated February 28, 2001, the
Tax Commissioner concluded that the Building Commission was exempt from property
tax based on its status as a political subdivision. (See
footnote 19)
Adopting a different tack for tax assessment in
2002, the Monongalia County Assessor issued an ad valorem property tax assessment
against Mon Elder for its leasehold interest in the Village. (See
footnote 20) At the same time the 2002 assessment was issued,
the Assessor made an identical back tax assessment of Mon Elder's leasehold interest
in the Village for the tax year 2001. Upon receipt of these tax assessments,
Mon Elder renewed its previous request that the Assessor exempt the Village
from ad valorem taxation due to the charitable purposes allegedly served
by the Village. In response to the Assessor's rejection of this second request
for tax exemption, Mon Elder and the Assessor jointly filed a request for
a new tax ruling by the Tax Commissioner. On February 28, 2002, the Tax Commissioner
issued Property Tax Ruling 02-10, indicating that it did not have sufficient
information which demonstrated that the Village was used exclusively for
charitable purposes.
Mon Elder continued to protest its tax assessments
for 2001 and 2002 to the Board of Review, before which a hearing was held
on February 26, 2002. By order dated February 28, 2002, the Board of Review
affirmed the Assessor's appraisals against Mon Elder for both tax years.
On March 26, 2002, Mon Elder filed an appeal of the Assessor's determination
that the Village was not used for charitable purposes with the circuit court
and simultaneously filed its appeal from the Board of Review's decision.
By order dated June 17, 2003, the circuit court affirmed the ad valorem
property tax assessments at issue. Failing to make any finding as to whether
the subject property was being used for charitable purposes, the circuit
court based its ruling on a finding that Mon Elder had failed to meet its burden of proof before the Board of Review. (See
footnote 21) The trial court failed to rule on two
other issues raised for its consideration: (1) whether Mon Elder's leasehold
interest has any assessable value independent of the underlying value
of the property; and (2) whether the Assessor's back tax assessment of
Mon Elder's leasehold interest in the Village for 2001 was improper.
Through this appeal, Mon Elder seeks a reversal of the lower court's
ruling as to the validity of the assessments at issue; a determination
as to the taxable value of its leasehold interest; and a ruling as to
the propriety of the back tax assessment for 2001.
By regulation the term charitable (See
footnote 23) is defined as follows:
The term “charity” means
a gift to be applied consistently with the existing laws, for the benefit of
an indefinite number of persons, either by bringing their hearts under the influence
of education or religion, by relieving their bodies from disease, suffering or
constraint, by assisting them to establish themselves for life, or by erecting
or maintaining public buildings or works, or otherwise lessening the burdens
of government. It is immaterial whether the purpose is called charitable in the
gift itself if it is so described as to show that it is charitable. Any gift
not inconsistent with existing laws which is promotive of science or tends to the education, enlightenment, benefit or amelioration
of the condition of mankind or the diffusion of useful knowledge, or is for
the public convenience is a charity.
W.Va. R. Taxation § 110-3-2.10.
Additional regulations address what constitutes charitable use of property:
19.1. Charities must be operated
on a not-for-profit basis, must directly benefit society, must be for the benefit
of an indefinite number of people, and must be exempt from federal income taxes
under 26 U.S.C. § 501(c)(3) or 501(c)(4). Moreover, in order for the property
to be exempt, the primary and immediate use of the property must be for one or
more exempt purposes.
19.2. The beneficiaries of a
charity may be limited to a class of beneficiaries bearing a rational relationship
to the purpose of the charity.
19.3. A purported charity may
not, however, limit the class of beneficiaries in such a way as to violate the
definition of a charity.
W.Va. R. Taxation § 110-3-19.
This Court had the opportunity to apply the statutory exemption at issue in Wellsburg Unity Apartments, Inc. v. County Commission, 202 W.Va. 283, 503 S.E.2d 851 (1998). In affirming the exemption of a charitable organization that owned and operated an apartment complex providing subsidized housing to elderly or low income individuals, (See footnote 24) we held that:
In order for real property to
be exempt from ad valorem property taxation, a two-prong test must be met: (1)
the corporation or other entity must be deemed to be a charitable organization
under 26 U.S.C. § 501(c)(3) or 501(c)(4) as is provided in 110 C.S.R. § 3.19.1;
and (2) the property must be used exclusively for charitable purposes and must
not be held or leased out for profit as is provided in W.Va. Code § 11-3-9.
202 W.Va. at 284, 503 S.E.2d at 852, syl. pt. 3.
Despite the two-prong test established in Wellsburg for
applying the statutory exemption set forth in West Virginia Code § 11-3-9(a)(12),
that decision provides little guidance with regard to this case because the
parties involved in that case had stipulated to the critical issue of whether
the subject property was used exclusively for charitable purposes. 202 W.Va.
at 287, 503 S.E.2d at 855. In quoting approvingly from the lower court's
order in Wellsburg, we recognized that “the real property owned
by the taxpayer is used for charitable purposes because based upon the stipulation
reached between the parties it is uncontroverted that the property is being
used for purposes of relieving poverty and for other purposes which are beneficial
to the community.” Id. at 289, 503 S.E.2d at 857. Other than establishing the status (See
footnote 25) and use tests for purposes of applying
the charitable purposes exemption, the Wellsburg decision has
minimal precedential effect with regard to the cases currently before
us.
Because there is no dispute that both Maplewood
and Mon Elder qualify as 501(c)(3) charitable organizations which are exempt
from federal income tax, compliance with part one of the Wellsburg test
(status test) for exemption from ad valorem taxation is easily met. What
is contested in both cases, however, is whether the respective charitable
organizations come within the second prong of that same test which requires
that “the property must be used exclusively for charitable purposes
and must not be held or leased out for profit.” Wellsburg, 202
W.Va. at 284, 503 S.E.2d at 852, syl. pt. 3, in part.
Before we address whether Appellants can meet the
use test necessary to be entitled to the desired tax exemption, we note their
contention that the real issue before us is whether by requiring an initial
deposit (See
footnote 26) and monthly fees they are precluded in a legal
sense from performing a charitable purpose. While Appellants make appealing
arguments regarding the benevolent services they are providing to a certain
segment of society, with which we can only agree, the sole legal issue presented _ entitlement to
exemption from ad valorem property taxation _ is not determined by whether
the charitable organizations at issue come within a generalized concept of
charity that involves benevolent acts extended to humankind for the purpose
of relieving suffering or pain or for spiritual or educational enlightenment.
Whether Appellants are entitled to the tax exemption which they seek must
be determined with reference to the specific statute which is at issue and
the various regulations that have been promulgated to help implement that
statute. See Haines v. St. Petersburg Methodist Home, Inc.,173
So.2d 176, 181, 185 (Fla. App. 1965) (recognizing distinction between legal
concept of “charitable institution entitled to exemption from ad
valorem taxation” and societal view of charity, noting “[t]here
are benevolent aspects to many operations which are not charity according
to law”); Western Mass. Lifecare Corp. v. Board of Assessors, 747
N.E.2d 97, 103 (Mass. 2001) (stating “although many activities and services
are commendable, laudable and socially useful, they do not necessarily come
within the definition of 'charitable' for purposes of the [property tax]
exemption”). Appellants are essentially seeking a policy decision from
this Court that entails the determination that a limited economic subset
of this state's senior citizenry are exempt from property taxation based
on their specific type of residential arrangements. (See
footnote 27) That issue, however, is not a judicial decision but a determination that must be made by the Legislature,
either through expanded regulations or through a separate legislative enactment
that specifically addresses whether not-for-profit corporations, such as
Appellants, that provide alternative residential arrangements for this state's
senior citizens are entitled to exemption from ad valorem property taxation.
What we are limited to resolving today is whether under the statute and existing regulations Appellants come within the statutory requirement of fulfilling a charitable purpose. See W.Va. Code § 11-3-9(a)(12). Critical to our discussion is the limitation that to qualify for ad valorem property tax exemption a charitable organization must use its property exclusively for charitable purposes. Wellsburg, 202 W.Va. at 284, 503 SE.2d at 852, syl. pt. 3, in part. This exclusive use requirement arises from our recognition in State ex rel. Cook v. Rose, 171 W.Va. 392, 299 S.E.2d 3 (1982), overruled on other grounds by Morgantown v. W.Va. U. Med. Corp., 193 W.Va. 614, 457 S.E.2d 637 (1995), that “[a]ll property given a legislative exemption must be used primarily, directly and immediately for those enumerated purposes.” 171 W.Va. at 394, 299 S.E.2d at 5. We explained in Central Realty Co. v. Martin, 126 W.Va. 915, 30 S.E.2d 720 (1944):
[W]here real estate is used solely by an organization
for education and charitable purposes and such use is immediate and primary
the constitutional exemption from taxation applies, and the statute enacted in
pursuance thereof inhibits any assessment for taxation; but real estate is not
exempt where owned by a like organization and is leased for private purposes,
notwithstanding the application of the income from rentals to charitable and
benevolent purposes and upkeep of the premises.
Id. at 923, 30 S.E.2d at 725. Consequently, only when the use of property
for charitable purposes qualifies as primary, direct, and immediate will
such use come within the charitable purpose exemption; those uses that are
secondary and remote clearly fall outside the contemplation of the statute. See W.Va.
Code § 11-3-9(a)(12).
In addition to the exclusive use requirement that
must be met by a 501(c)(3) charitable organization for entitlement to tax
exemption, there are further conditions that control whether such organization
is determined to be exempt from ad valorem property taxation. One such requirement
is that the charitable organization at issue must be “for the benefit
of an indefinite number of people.” W.Va. R. Taxation § 110-3-19.1.
In making his ruling in the Maplewood case, Judge Bedell ruled that “Maplewood
does not use its property to benefit an indefinite number of people because
any potential class of beneficiaries will be determined based on financial
criteria which excludes those on the lower end of the socioeconomic scale.” Both
senior communities at issue require as a pre-condition to residency a demonstration of certain minimum financial worth and the ability
to pay the monthly fees associated with a particular type of living unit. (See
footnote 28) Under applicable state regulations, the charitable
purpose tax exemption is not available where “in order to gain admittance
a person must deposit a substantial amount of money which can be equated
to a prepayment of rent.” See W.Va. R. Taxation § 110-3-26.2.
While it is generally recognized that charging
fees for services does not preclude an organization from qualifying as charitable, (See
footnote 29) courts have examined whether a charitable
organization's entitlement to exemption from property taxation is affected
by limiting admission for residency in a senior community to only those individuals
with sufficient financial means. A Tennessee court examining the taxability
of a retirement community in Christian Home for the Aged, Inc. v. Tennessee
Assessment Appeals Commission, 790 S.W.2d 288 (Tenn. App. 1990), and
applying an analogous definition of charity that required exclusive charitable
use for tax exemption purposes reasoned that by excluding those members of
society who were “financially disabled,” the charitable institution was not using its property “purely and exclusively for
a charitable purpose.” Id. at 292. The Tennessee court observed: “[T]hough
the benefits of the Village are significant, only those who are financially
and physically well off can receive them. Those less healthy and wealthy
are not benefitted.” Id.
Viewing large entrance fees, substantial rents,
discretion to raise monthly fees, and the right to evict those who do not
pay the monthly fees as “obstacles . . . placed in the path of less
fortunate individuals seeking residency,” the appellate court in Bethesda
Barclay House v. Ciarleglio, 88 S.W.3d 85 (Mo. App. 2002), held that
the retirement community at issue did not devote its property exclusively
to charitable purposes and did not benefit an indefinite number of people. Id. at
94-95. Among those factors which the court in Holy Spirit Home v. Board
of Review, 543 N.W.2d 907 (Iowa App. 1995), identified as bearing on
the issue of whether a charitable organization serves a charitable purpose
are “whether admission to the facility is limited to the physically
and financially independent” and “whether applicants are screened
to determine if they fall below a certain income level.” Id. at
910 (citations omitted). In denying property tax exemption to the apartment
division of the retirement community, the court cited the large residency
fee of $40,000 to $60,000 plus the monthly payment of $481.25 as evidence
that “the purpose of Holy Spirit's apartment division is not to provide
medical care for its residents but, rather, to provide living quarters for
those who can care for themselves.” Id. at 911. Rejecting the
charitable organization's position that it served a charitable purpose, the Iowa appellate court
found instead that “[t]he apartments were designed to accommodate only
those who could well afford to pay for the services provided.” Id. at
912.
As evidence of their charitable purpose objectives,
both Appellants cite to language in their residency agreements stating that
they will not force residents to relocate if they are unable to pay monthly
fees. (See
footnote 30) Courts have concluded, however, that inclusion
of contractual language prohibiting eviction upon a demonstrated inability
to meet specified monthly fees is insufficient to offset an otherwise non-charitable
purpose. In Cape Retirement Community, Inc. v. Kuehle, 798 S.W.2d
201 (Mo. App. 1990), tax exemption was denied to a not-for-profit corporation
that operated a retirement facility which screened its residential applicants
based on financial resources. Despite the fact that the retirement community
had in fact assumed obligations of insolvent residents, the appellate court
held that “[i]t is not enough that Cape Retirement regularly underwrites
some of the costs of qualified residents and agrees to fully support selected
residents if such residents suffer financial reverses because its retirement home is not equally available
to both rich and poor.” Id. at 204. Critical to the Missouri
court's decision was the fact that the financial screening requirements “limited
meaningful access to the retirement home by the majority of the elderly.” 798
S.W.2d at 203. By screening out lower income individuals, the application
process was “structured to avoid the result of providing services to
both the rich and the poor” and thereby failed to “benefit society
generally” and “'an indefinite number of persons.'” Id. at
203-04. Consequently, the court found that the retirement home was not operated “'exclusively'
for charitable purposes.'” Id. at 204; see also Haines,
173 So.2d at 180 (recognizing that property tax exemption could not be granted
if charitable purpose objective of not-for-profit corporation was grounded
solely on prospective use of operational gains to assist residents who became
unable to meet their financial obligations in full).
In arguing their respective cases, Appellants urge us to view the definition of charitable purpose adopted by the Internal Revenue Service as persuasive of their positions. In Revenue Ruling 72-124, the following definition was articulated:
[I]t is now generally recognized that the aged, apart
from considerations of financial distress alone, are also, as a class, highly
susceptible to other forms of distress in the sense they have special needs because
of their advanced years. For example, it is recognized in the Congressional declaration
of objectives, Older Americans Act of 1965, . . . that such needs include suitable
housing, physical and mental health care, civic, cultural, and recreational activities,
and an overall environment conducive to dignity and independence, all specially designed to meet the
needs of the aged. Satisfaction of these special needs contributes to the
prevention and elimination of the causes of the unique forms of “distress” to
which the aged, as a class, are highly susceptible and may in the proper
context constitute charitable purposes or functions even though direct financial
assistance in the sense of relief of poverty may not be involved.
I.R.S. Rev. Ruling 72-124, 1972-1 I.R.B. 145.
That revenue ruling pertains solely to how the
Internal Revenue Service treats organizations for purposes of identifying
501(c)(3) corporations with their consequent entitlement to exemption from
federal income tax. It has no bearing whatsoever on how this state assesses
its property taxes. We observed in Wellsburg that “[p]roperty taxes
are fundamentally different from other types of taxes, and the question of
whether property is used for charitable purposes is fundamentally different
from the question of whether the property-owning entity qualifies as a charitable
organization for purposes of income taxes. . . .” 202 W.Va. at 288-89,
503 S.E.2d at 856-57; accord Southminster, Inc. v. Justus, 459 S.E.2d
793, 797 (N.C. App. 1995) (stating that North Carolina “Supreme Court
has recognized that the rules for determining whether property is exempt
from ad valorem taxes are distinct from those determining whether
a corporation is exempt from the taxes imposed by the Revenue Act”); but
see In Re Application of Kansas Christian Home, 2 P.3d 168, 173 (Kan.
2000) (recognizing that under Kansas law exemption from federal income taxation
entitles 501(c)(3) corporations to be similarly exempt from state property
taxation). Given the indisputable distinctions between income and property taxation recognized
by this state, we do not find this interpretation of federal income tax law
to be controlling on the issue of ad valorem property taxation that is before
us.
Even if we were to adopt the view advanced by Appellants, essentially that the provision of residential and health care to the elderly in a setting that offers them independence, dignity, and security fulfills a charitable purpose, there is still one critical component of the tax exemption test that Appellants cannot meet. To be entitled to exemption from ad valorem property taxation, Appellants cannot “limit the class of beneficiaries in such a way as to violate the definition of a charity.” W.Va. R. Taxation § 110-3-19.3. In defining the term “charity,” the Legislature has required that qualifying acts of benevolence must be “applied consistently with the existing laws, for the benefit of an indefinite number of persons.” Id. at § 110-3-2.10. By restricting residency to only those prospective residents who can demonstrate sufficient financial means to meet their stated costs on an indefinite basis, Appellants are clearly narrowing the pool of this state's citizenry who can potentially benefit from their services. As such, the services provided by Appellants, despite their valuableness, do not benefit a sufficiently large or indefinite number of individuals so that those services “directly benefit society,” which is yet another component of utilizing property for charitable purposes. Id. at § 110-3-19.1. In denying exemption from property taxation to a non-profit corporation operating a continuing care retirement community that imposed stringent health and financial requirements, (See footnote 31) the court in Western Massachusetts Lifecare reasoned:
Reeds Landing [retirement community]
is not, in light of its entrance requirements, available to a sufficiently large
segment of the population to qualify as a charity under our case law. Rather,
it provides a very valuable service to persons whose income and assets are sufficient
to show, at the time of entry, that they will in all likelihood be able to afford
a “luxury” residence for the remaining years of their lives. This form
of addressing the needs of the elderly, however much it may benefit those fortunate
enough to qualify for it, is indeed “remote” from our traditional concept
of charity.
747 N.E.2d at 105; see also Rev. Ruling 79-18, 1979-1 C.B. 194 (addressing
whether nonprofit organization was operated “exclusively for charitable
purposes” and applying earlier revenue ruling 72-124, Internal Revenue
Service required housing for elderly to be “within the financial reach
of a significant segment of the community's elderly persons” to qualify
for exemption of federal income tax).
The fact that charitable organizations, like those operated by Appellants, admittedly serve “socially constructive purposes” is, in and of itself, insufficient to qualify those organizations for an exemption from property taxation:
Institutions like that of the
plaintiff [home for the aged] are in the highest American tradition. They serve
to mitigate realistically some of the rougher aspects of retirement that are not altogether
financial. Our affinity for the elderly makes us especially aware of these
problems. We are also mindful that exemption of plaintiff's property could
financially benefit to a degree the residents of its fine establishment,
and we are deeply sympathetic. On the other hand, as stated, the record convinces
us that the plaintiff is substantially recompensed its expenditures by these
very residents who are not shown to be charity cases in the sense necessary
to sustain the plaintiff's suit.
Haines, 173 So.2d at 185. Notwithstanding the laudable social objectives
served by the existence and operation of Appellants' facilities, those purposes
cannot be viewed as charitable unless they come within the definitions and
conditions imposed by law for application of the tax exemption at issue. See
Appalachian Power Co. v. State Tax Dep't, 195 W.Va. 573, 585, 466 S.E.2d
424, 436 (1995) (recognizing that legislatively approved regulations have
force and controlling weight of law). As we recognized in syllabus point
two of In re Hillcrest Memorial Gardens, Inc., 146 W.Va. 337,
119 S.E.2d 753 (1961):
Constitutional and statutory
provisions exempting property from taxation are strictly construed. It is encumbent
upon a person who claims his property is exempt from taxation to show that such
property clearly falls within the terms of the exemption; and if any doubt arises
as to the exemption, that doubt must be resolved against the one claiming it.
While our decision is based solely on the statute and
existing regulations in force, we note the argument advanced by the Tax Commissioner
that if the requested exemption was granted to Appellants the effect would be
to require other citizens to subsidize the lost revenues. As the court in Mayflower Homes, Inc. v.
Wapello County Board of Review, 472 N.W.2d 632 (Iowa App. 1991) observed:
We are in doubt as to the tax
exempt status of Myers [senior residential facility]. It appears to be maintained
to provide low-cost elderly housing to those who can generally afford such accommodations.
Doubts are resolved in favor of taxation.
Mayflower and its subsidiary
Myers are free to provide low-cost housing to the elderly, but it is not free
to offer such low-cost housing at the taxpayers' expense when the residents can
afford such housing.
Taxes lost to the public by reason
of an exemption must be exacted from all other taxpayers. Hence the law requires
that the institution be run for those who have a real need for it. If it is operated
only for those who can well afford to pay their taxes it is not right to pass
that burden along to others.
Id. at 634-45 (citation omitted and quoting Atrium Village v. Board
of Review, 417 N.W.2d 70, 73 (Iowa 1987)).
Upon full consideration of the statutory and regulatory
requirements which govern exemption from property taxes based on charitable
use of property, we cannot conclude that the circuit courts erred in determining
that Appellants were not entitled to the exemption. Rather than operating
their subject senior communities to benefit society generally, as required by the definition of charity, (See
footnote 32) Appellants “provide[] facilities
and services at cost only to those who are able to pay for them indefinitely.” Cape
Retirement Community, 798 S.W.2d at 204. By limiting the potential
class of senior citizens who could benefit from their residential services
through financial screening requirements, Appellants do not operate their
respective facilities “exclusively” for charitable purposes. See
Wyndemere Retirement Community v. Department of Revenue, 654 N.E.2d
608, 612 (Ill. App. 1995) (finding that “the primary purpose of
Wyndemere is not to provide charity, but to provide a certain enhanced
lifestyle to the elderly who can afford to pay for it”). Having
failed to meet the exclusive use test established in Wellsburg,
Appellants are not entitled to the exemption from ad valorem property
taxes set forth in West Virginia Code § 11-3-9. See 202 W.Va.
at 284, 503 S.E.2d at 852, syl. pt. 3, in part. Accordingly, the decisions
of the circuit courts on the issue of whether Appellants are entitled
to be exempted from property taxation based on the use of their property
for charitable purposes are affirmed.
The county assessor may presume
that leaseholds have no value independent of the freehold estate and proceed
to tax all real property to the freeholder at its true and actual value; the
burden of showing that a leasehold has an independent value is upon the freehold
taxpayer and the taxpayer must request in a timely manner the separate listing
of freehold and leasehold interests.
Id. at 53, 278 S.E.2d at 354.
Subsequent to the Davis case, the state
tax department developed an eight-step process for valuing leasehold interests
in real estate that is referred to as the “Leasehold Appraisal Policy.” Pursuant
to that process, steps one and two require an initial determination of whether
a leasehold estate was created and secondly whether the lessee has a marketable
right to assign or transfer the lease. The remaining six steps in the process
are directed at arriving at a value for the leasehold estate. Critical to
applying this policy, however, is appreciation of the fact that “the
separate value of a leasehold, if any, is based on whether the leasehold
is economically advantageous to the lessee, that is a so-called bargain lease, and is freely assignable so that the lessee may realize
the benefit of such bargain in the market place.” (See
footnote 33)
Mon Elder states that it put on evidence below before
the Board of Review to demonstrate that its leasehold interest has no independent
value (See
footnote 34) based on the fact that it is not a bargain lease
and because it is not freely assignable. As further evidence of its inability
to create a marketable asset of value from its leasehold interest, Mon Elder
cites to the fact that at the end of the lease term ownership of the Village
remains with the Building Commission. (See
footnote 35) The Tax Commissioner notes that during the final
fourteen years of the forty-five-year lease, the annual rent payment by Mon Elder
to the Building Commission is only $10. This fact alone, according to the Tax
Commissioner, is evidence of the bargain nature of the lease agreement. In response to Mon Elder's contention that
the lease at issue is not freely assignable, the Tax Commissioner states
that rather than prohibiting assignment, the lease agreement only prohibits
the sale of the lease without the approval of the Building Commission.
Because the lower court did not address this issue
of whether the lease has separately assessable value, we have no factual
determinations upon which to base any review of this issue. Absent these
necessary factual rulings, we cannot perform any meaningful appellate review
of this issue. See Rowe v. Grapevine Corp., 206 W.Va. 703, 719, 527
S.E.2d 814, 830 (1999) (observing that “[s]ince the lower court dismissed
this claim of Plaintiffs summarily without any findings whatsoever, we are
without a predicate basis for conducting a meaningful review of the ruling
on this issue”); see also Syl. Pt. 3, in part, Fayette County
Nat'l Bank v. Lilly, 199 W.Va. 349, 484 S.E.2d 232 (1997) ( holding that “a
circuit court's order granting summary judgment must set out factual findings
sufficient to permit meaningful appellate review”). Accordingly, we
remand this issue of whether the lease agreement between Mon Elder and the
Building Commission has value independent of the property at issue to the
circuit court for further proceedings.
As with the previous issue, because we are without
any ruling from the circuit court that addresses this assignment of error
that was properly raised below, we are similarly prohibited from conducting meaningful appellate review. Obviously, if the
lower court determines upon remand that the leasehold interest held by Mon
Elder does not have any independent value separate from the underlying property,
this issue may be mooted. If, however, a contrary finding is reached then
the trial court will have to proceed to determine the validity of the 2001
back assessment for Mon Elder's leasehold interest. Finding effective appellate
review impossible to conduct absent a ruling on this issue, we remand this
matter to the lower court for the purpose of specifically addressing whether
the Monongalia County Assessor lacked the authority to issue the 2001 back
assessment against Mon Elder for its leasehold interest.
Based on the foregoing, the decisions of the Circuit
Courts of Harrison County and Monongalia County denying exemption from ad
valorem property taxation to Maplewood and Mon Elder are hereby affirmed.
Given the lack of rulings made by the Circuit Court of Monongalia County
on the issues of whether Mon Elder's leasehold interest has independent value
separate from the underlying property and whether the 2001 back tax assessment
was valid, we remand those two issues to the lower court for further proceedings
consistent with this opinion.