Thursday, April 24, 2014

Board Finds One Half of Duplex Used for Charitable Purpose and Entitled to 100% Exemption

Excerpt of the Board's Determination follow:

23. SPA claims that it owns, occupies, and predominately uses the two properties at issue for charitable purposes.4 The exact meaning of what constitutes a charitable purpose has spawned much litigation. Broadly speaking, courts have linked a taxpayer’s right to exemption to its property being used to provide a public benefit. See, e.g., Fort Wayne Sports Club, Inc. v. State Bd. of Tax Comm’rs, 147 Ind. App. 129, 258 N.E.2d 874, 881 (1970) (“In our view, the well-established and obvious purpose for legislative conferral of tax exemptions requires a showing of some public benefit as a condition precedent to the granting of such exemption.”). Thus, to show a charitable purpose, a taxpayer must demonstrate (1) the “relief of human want . . . manifested by obviously charitable acts different from the everyday purposes and activities of man in general,” and (2) a benefit inuring to the public that is sufficient to justify the loss of tax revenue. Jamestown Homes of Mishawaka, Inc. v. St. Joseph County Assessor, 909 N.E.2d 1138, 1141 (Ind. Tax Ct. 2009), reh’g den. 914 N.E.2d 13 (Ind. Tax Ct. 2009) (quoting Indianapolis Elks Bldg. Corp. v. State Bd. of Tax Comm’rs, 145 Ind. App. 522, 251 N.E.2d 673, 683 (1969)).

24. SPA did not offer significant detail about its operations or about how it uses the two properties at issue. But what evidence there is demonstrates that SPA owns and operates the properties as part of its ministry to provide shelter, counseling, and other services to women in need. Thus, SPA has shown that it uses the properties to relieve human want in ways that differ from the ordinary activities of man in general.

25. The Assessor disagrees, pointing to the fact that SPA charges rent to the women who live at both properties. But there is no evidence that SPA charges rent in order to make a profit. To the contrary, SPA pegs the rent for Phase II to a percentage of the women’s income, which tends to be very low given their entry-level jobs. While the rent for Phase III is slightly higher, there is still nothing to show that SPA seeks to profit from that rent. Instead, SPA charges rent as part of teaching the women in both phases of the program budgeting skills as a necessary component of their recovery.

26. Under those circumstances, the fact that SPA charges rent does little to negate a charitable purpose. As both the Indiana Court of Appeals and Indiana Tax Court have explained in the context of facilities that care for the aged, the mere fact that such facilities charge residents a fee for their stays “does not necessarily negate the charitable purpose of the institution, particularly ‘when it does not appear that the fees are more than sufficient to pay the expenses of maintenance or that the proprietors of the institution derive any profit therefrom.’” Knox County Property Tax Assessment Bd. of Appeals v. Grandview Care, Inc., 826 N.E.2d 177, 184 (Ind. Tax Ct. 2005) (quoting State Bd. of Tax Comm’rs v. Methodist Home for the Aged, 143 Ind. App. 419, 241 N.E.2d 84, 88-89 (1968).

27. Of course, having a charitable purpose by itself is not enough. The property also must be predominately used for that purpose. A property is predominantly used or occupied for an exempt purpose if it is used or occupied for that purpose more than 50% of the time that it is used or occupied in the year ending on the assessment date. I.C.§ 6-1.1-10-36.3(a). If it is exclusively used or occupied for an exempt purpose, the property is 100% exempt. I.C. § 6-1.1-10-36.3(a)(c)(1). If it is predominantly—but not exclusively—used for an exempt purpose, the property is exempt from taxes “on the part of the assessment of the property that bears the same proportion to the total assessment of the property” as the amount of time that the property was used or occupied for exempt purposes. I.C. § 6-1.1-10-36.3(a)(c)(3).5 The determination applies separately to each part of the property identified under Ind. Code § 6-1.1-11-3(c)(5). That statute (Ind. Code § 6-1.1-11-3(c)(5)), in turn, requires taxpayers applying for exemptions to identify each part of a property that is and is not used for exempt purposes in the year leading up to the assessment date. I.C. § 6-1.1-10-36.3(b); I.C. § 6-1.1-11-3(c)(5).

28. SPA uses the house at 132 Middlebury exclusively for exempt purposes and is therefore entitled to a 100% exemption. The question of predominate use is a little more complicated for the duplex at 313-315 N. Riverside. SPA no longer claims that the half of the duplex used by Ms. Bontrager and the volunteers (315 N. Riverside) is exempt. The predominate-use analysis, however, applies separately to each part of the property. The Board must therefore examine whether the half of the duplex used as part of Phase III (313 N. Riverside) was used for an exempt purpose more than 50% of the time that it was in use for the year leading up to March 1, 2012.

29. It was. In fact, the undisputed evidence shows that SPA used 313 N. Riverside for only one purpose in the year leading up to March 1, 2012—to provide a Phase II graduate with housing so that she could attempt to re-unite her family. As already explained, that is an exempt purpose. It appears that one woman from the program stayed at 313 N. Riverside in July 2011 and that it remained vacant the rest of the year. Indiana Code § 6-1.1-10-36.3, however, only requires that a property be used for an exempt purpose a majority of the time that it is in use. Based on the admittedly lean record in this case, the Board concludes that 313 N. Riverside was used for an exempt purpose 100% of the time that it was in use for the year leading up to March 1, 2012. That portion of the property is therefore entitled to a 100% exemption.

30. The Assessor apparently believes that applying an exemption to only part of the duplex will pose a problem because, as she testified, the duplex’s assessment is not broken down between the two sides. SPA attempted to solve that problem by saying that it was seeking a 50% exemption for the entire property. While that is not how the exemption statute works, it may be functionally equivalent to applying a 100% exemption to the half of the duplex located at 313 N. Riverside, at least if the two halves of the duplex are mirror images. The parties did not offer a property record card. But given that SPA's exemption application describes each side of the duplex as having three bedrooms, a living room, a dining room, a kitchen, and a bath, the two sides of the duplex may well be identical. In any case, SPA is entitled to an exemption for the portion of the duplex located at 313 N. Riverside and the land on which it is situated.

31. The Assessor contends that SPA should nonetheless be denied exemptions because it did not adequately support its claims at the time it filed its applications. In the Assessor’s view, that failure operated to waive SPA’s exemption claims. The Board disagrees. As explained above, SPA substantially complied with the statutory procedures for claiming an exemption.

32. The Assessor apparently focuses on the fact that SPA did not include with its exemption applications every document that supports its claims. But neither the relevant statutes nor the exemption application form itself requires a taxpayer to do so. Instead, the exemption statute requires a taxpayer to provide the following information:

(1) A description of the property claimed to be exempt in sufficient detail to afford identification.
(2) A statement showing the ownership, possession, and use of the property.
(3) The grounds for claiming the exemption.
(4) The full name and address of the applicant.
(5) For the year that ends on the assessment date of the property, identification of:
(A) each part of the property used or occupied; and
(B) each part of the property not used or occupied;
for one (1) or more exempt purposes under IC 6-1.1-10 during the time the property is used or occupied.
(6) Any additional information which the department of local government finance may require.

I.C. § 6-1.1-11-3. Similarly, the exemption application form indicates that a taxpayer “must present evidence that a property qualifies under a specific statute.” And it asks the taxpayer to indicate that it has provided the following documents: articles of incorporation or other organizational documents, By-laws, and financial statements for the last three years consisting of either balance sheets or a summary of income and expenditures. Resp’t Ex. A.

33. SPA answered most of the questions on the exemption applications and provided all of the statutorily required information. Similarly, SPA attached certificates of amendments to its articles of incorporation together with its By-Laws, profit and loss statements, and balance sheets for three years. Thus, SPA substantially complied with the application requirements and did not waive its exemption claims.

34. This case differs from State Bd. of Tax Comm’rs v. Stanadyne, Inc., 435 N.E.2d 278 (Ind. Ct. App. 1982), which the Assessor cites in support of her position. In Stanadyne, the taxpayer had filed a personal property return claiming an exemption for a portion of its inventory located at a warehouse in Indiana. Stanadyne, 435 N.E.2d at 279. At a later hearing before the State Board of Tax Commissioners, the taxpayer claimed all of its inventory at the warehouse should be exempt, a claim the trial court granted on judicial review. Id. at 279-80. Among other things, the court of appeals held that the trial court erred in granting a larger exemption than what the taxpayer claimed on its return. Id. At 283-84. The court cited Ind. Code § 6-1.1-11-1, which it described as codifying the long established principle that an exemption unclaimed is forever lost. Id. at 283. In response to the taxpayer’s argument that it did not waive the exemption for its inventory but merely claimed an incorrect amount, the court explained that Ind. Code § 6-1.1-11-1 requires taxpayers to comply with the statutory procedures for claiming an exemption. And to claim the type of exemption at issue, a taxpayer had to report on its return the true cash value of all the property for which it claimed an exemption. Id. at 283-84. Thus, the taxpayer was entitled to an exemption, but only to the extent claimed on its return. Id.

35. Unlike Stanadyne, SPA did not seek to bypass the application procedure by claiming a greater exemption on appeal than it had claimed below. While the Assessor argues that SPA cannot offer any documents to support its claims beyond those attached to its applications, the exemption statutes do not support her position.