STATE TAX COMMISSION OF MISSOURI

BETHEL AREA HOUSING, INC., and	)	Appeal No. 18-32001
BETHEL AREA HOUSING SOUTH,	)	Appeal No. 18-32002
Complainants,	)
	)
v.	)
	)
CATHY RINEHART, ASSESSOR,	)
CLAY COUNTY, MISSOURI,	)
Respondent.	)

 

 ORDER AFFIRMING
HEARING OFFICER DECISION UPON APPLICATION FOR REVIEW 

HOLDING

On October 29, 2019, a State Tax Commission (STC) Senior Hearing Officer (Hearing Officer) entered a Decision and Order (Decision) setting aside the decisions of the Clay County Board of Equalization (BOE) and finding the subject properties are exempt from ad valorem taxation.  Cathy Rinehart, Assessor of Clay County, (Respondent) subsequently filed a timely Application for Review of the Decision of the Hearing Officer.  Bethel Area Housing Inc. and Bethel Area Housing South (Complainants) filed their Response to Respondent’s Application for Review.  Respondent thereafter filed a Reply.

We AFFIRM the Decision of the Hearing Officer.  Segments of the Hearing Officer’s Decision may have been incorporated into our Order without further reference.

FINDINGS OF FACT AND PROCEDURAL HISTORY

            Complainants are Illinois not-for-profit corporations, exempt from federal income tax under Section 501(c) (3) of the Internal Revenue Code (Code).  The subject properties are housing facilities for senior citizens and disabled persons with limited income.  One facility consists of 44 units. The other facility consists of 31 units.  The subject properties were classified as exempt and paid no Missouri property taxes from the time they were established, one property in 1992 and one property in 1997, until tax year 2018.

            For tax year 2018, Respondent valued the subject properties’ true value in money (TVM) at $1,671,300 (Appeal No. 18-32001) and $1,779,100 (Appeal No. 18-32002).  Respondent determined the subject properties were not exempt from ad valorem taxation as of January 1, 2018.  Following Complainants’ appeal to the BOE, the BOE found the subject properties were not exempt and affirmed Respondent’s valuation of the properties.  Complainants filed a timely appeal to the STC claiming that the subject properties were exempt from ad valorem property taxation pursuant to Article X, Section 6 of the Missouri Constitution and Section 137.100[1] for tax year 2018.  The Hearing Officer held a two-day evidentiary hearing in which the parties were represented by counsel.  Complainant and Respondent each presented evidence in the form of testimony and exhibits.

The evidence established that the subject properties are used for charitable purposes and owned by non-profit organizations.  Complainants have contracts with the United States Department of Housing and Urban Development (HUD) for housing.  HUD sets the amount of rent Complainants receive for each unit.  Residents pay 30% of their income toward rent, and HUD pays the difference between the set rent and the amount paid by the resident.  The set rents are $656 per month and $1,095 per month depending on the location.  Prospective residents must meet HUD’s qualifications.  Those qualifications include the resident must be age 62 or older or, for three units, the resident must be disabled.  The residents must have low or extremely low income as defined by HUD.[2]  For 2018, more than 75% of the residents were designated as having extremely low income.  Complainants are not allowed under the contract with HUD to raise rents or to increase revenues without HUD approval.  Increases in rent may be requested once annually, and the property manager can submit new information to HUD to recalculate a resident’s rent if the resident’s income changes during the year.  The subject properties have adopted “House Rules,” which provide that a resident’s documented financial inability to pay rent is not grounds for eviction.  No resident had been evicted for financial inability to pay rent in the 20 years prior to these appeals.

The subject properties’ units mostly are fully occupied at all times with limited turnover.  The subject properties have wait lists for units, with the lists averaging between 25 and 30 applicants, far more prospective residents than either property can serve.  The subject properties are managed by Embrace Living Communities (Embrace Living), a faith-based organization closely affiliated with the United Church of Christ.  Embrace Living serves more than 3000 seniors and individuals with disabilities.  Embrace Living’s mission is to provide affordable, welcoming homes in communities.  The organization strives to provide safe, affordable, and welcoming environments where residents can live an active and dignified life.  Embrace Living receives a management fee set by HUD to pay for the types of services deemed necessary by HUD.  These services include advocacy, benefits/entitlements, conflicts resolution, crisis intervention/support counseling, family support, general information/referral, homemaker, education, and other services.  Services also include helping residents to find Medicaid doctors and communicating with residents’ doctors and/or health insurers.  Residents also receive a free personal medical alert pendant at move-in for emergency use.

Complainants employ a service coordinator to assist residents in numerous, substantial ways at no cost to residents.  The service coordinator assists residents with Medicaid paperwork, food stamp paperwork, programs and applications for assistance with utilities, issues involving Medicare or Social Security, referrals to a clothes closet for clothing, arranging deliveries of commodities, and obtaining housekeeping through personal care assistance.  The service coordinator also assists in scheduling social events, workshops, exercise programs, free computer classes, and guest speakers.  The social events and programs are publicized on monthly calendars and newsletters prepared by the service coordinator.  The service coordinator helps residents with very limited funds to maintain their independence almost until the very end of their lives, which allows them to live with dignity in an environment that is not as expensive as a nursing home.

The Hearing Officer subsequently issued the Decision containing Findings of Fact and Conclusions of Law and setting aside the BOE’s determination regarding exemption and finding that Complainants presented substantial and persuasive evidence establishing the subject properties were exempt from ad valorem taxation as of January 1, 2018.

Respondent filed a timely Application for Review.  The STC thereafter issued its Order allowing the Application for Review and granting Complainant time to file a response.  Complainant filed a response; Respondent thereafter filed a reply.

CONCLUSIONS OF LAW

Respondent’s Points on Review

            Respondent asserts the Hearing Officer’s Decision is erroneous because:

• Section 137.076, adopted in 2015, which provides for the income approach in valuation of certain properties, implicitly repeals Section 137.100, which grants exemption from ad valorem taxation properties not held for corporate profit and used exclusively for purposes purely charitable[3]; or
• even if Section 137.076 does not implicitly repeal Section 137.100, the Complainants’ use of the properties does not meet the Franciscan test for charitable use.

Standard of Review

A party subject to a decision and order of a hearing officer of the STC may file an application requesting the case be reviewed by the STC.  Section 138.432.  The STC may then summarily allow or deny the request.  Section 138.432.  The STC may affirm, modify, reverse, set aside, deny, or remand to the hearing officer the decision and order of the hearing officer on the basis of the evidence previously submitted or based on additional evidence taken before the STC.  Section 138.432.    

The Commission reviews the hearing officer’s decision and order de novo.    Lebanon Properties I v. North, 66 S.W.3d 765, 770 (Mo. App. 2002); Union Electric Company, d/b/a Ameren Missouri, v. Estes, 2020 WL 3867672 (Mo. St. Tax Com., July 2, 2020); AT&T Mobility, LLC, v. Beverly Alden, Assessor, Caldwell County, Missouri, et al., 2020 WL 3867819 (Mo. St. Tax Com., July 2, 2020).  “The extent of that review extends to credibility as well as questions of fact.” Lebanon Properties I, 66 S.W.3d at 770.  The Commission “is free to consider all pertinent facts and estimates and give them such weight as reasonably they may be deemed entitled to.”  St. Louis Cty. v. State Tax Comm’n, 515 S.W.2d 446, 450 (Mo. 1974).

Commission’s Ruling

            For the reasons that follow, the Commission finds Respondent’s arguments to be unpersuasive.  The Commission, having reviewed the whole record and having considered the Hearing Officer’s Decision, the Application for Review of Respondent, Complainant’s Response, and Respondent’s Reply, affirms the Hearing Officer’s Decision.

There is a presumption of validity, good faith and correctness of assessment by the BOE.  Hermel, Inc. v. STC, 564 S.W.2d 888, 895 (Mo. banc 1978); Chicago, Burlington & Quincy Railroad Co. v. STC, 436 S.W.2d 650, 656 (Mo. 1968); May Department Stores Co. v. STC, 308 S.W.2d 748, 759 (Mo. 1958).  This presumption is a rebuttable rather than a conclusive presumption.  The presumption of correct assessment is rebutted when the taxpayer presents substantial and persuasive evidence to establish that the BOE’s assessment is erroneous and what assessment should have been placed on the property.  Id.

The taxpayer in a STC appeal bears the burden of proof. The taxpayer is the moving party seeking affirmative relief.  Therefore, Complainant bears the burden of proving by substantial and persuasive evidence the vital elements of the case, i.e., the assessment was “unlawful, unfair, improper, arbitrary, or capricious.” See, Westwood Partnership v. Gogarty, 103 S.W.3d 152 (Mo. App. E.D. 2003); Daly v. P.D. George Co., 77 S.W.3d 645 (Mo. App E.D. 2002); Reeves v. Snider, 115 S.W.3d 375 (Mo. App. S.D. 2003); Industrial Development Authority of Kansas City v. State Tax Commission of Missouri, 804 S.W.2d 387, 392 (Mo. App. W.D. 1991).  Substantial evidence can be defined as such relevant evidence that a reasonable mind might accept as adequate to support a conclusion. Cupples Hesse Corp. v. State Tax Commission, 329 S.W.2d 696, 702 (Mo. 1959).  Persuasive evidence is evidence that has sufficient weight and probative value to convince the trier of fact.  Cupples Hesse Corp., 329 S.W.2d at 702.  The persuasiveness of evidence does not depend on the quantity or amount thereof but on its effect in inducing belief.  Brooks v. General Motors Assembly Division, 527 S.W.2d 50, 53 (Mo. App. 1975).

The Hearing Officer is the fact finder and the relative weight to be accorded any relevant factor in a particular case is for the Hearing Officer to decide.  St. Louis County v. Security Bonhomme, Inc., 558 S.W.2d 655, 659 (Mo. banc 1977); St. Louis County v. STC, 515 S.W.2d 446, 450 (Mo. 1974); Chicago, Burlington & Quincy Railroad Company v. STC, 436 S.W.2d 650 (Mo. 1968).

            Article X, Section 6, of the Missouri Constitution sets forth property exempt from ad valorem taxation.   It states, in part:

1. All property, real and personal, of the state, counties and other political subdivisions, and nonprofit cemeteries, and all real property used as a homestead as defined by law of any citizen of this state who is a former prisoner of war, as defined by law, and who has a total service-connected disability, shall be exempt from taxation; all personal property held as industrial inventories, including raw materials, work in progress and finished work on hand, by manufacturers and refiners, and all personal property held as goods, wares, merchandise, stock in trade or inventory for resale by distributors, wholesalers, or retail merchants or establishments shall be exempt from taxation; and all property, real and personal, not held for private or corporate profit and used exclusively for religious worship, for schools and colleges, for purposes purely charitable, for agricultural and horticultural societies, or for veterans’ organizations may be exempted from taxation by general law.

(Emphasis added.)

The Constitution authorizes the legislature to enact exemptions from taxation.  Section 137.100 expressly lists properties qualifying for exemptions from taxation for state, county or local purposes, including, in relevant part:

(5)  All property, real and personal, actually and regularly used exclusively for religious worship, for schools and colleges, or for purposes purely charitable and not held for private or corporate profit, except that the exemption herein granted does not include real property not actually used or occupied for the purpose of the organization but held or used as investment even though the income or rentals received therefrom is used wholly for religious, educational or charitable purposes . . . .

 

Taxation of property is the rule and exemption from taxation is the exception.  United Cerebral Palsy Ass’n of Greater Kansas City v. Ross, 789 S.W.2d 798, 799 (Mo. banc 1990).  Tax exemptions are not favored in the law and statutes granting exemptions are to be strictly, yet reasonably, construed against the one claiming the exemption. Missouri Church of Scientology v. State Tax Commission, 560 S.W.2d 837, 844 (Mo. banc 1987); State ex rel. Union Electric Co. v. Goldberg, 578 S.W.2d 921, 923 (Mo. banc 1979).  A property owner who claims the exemption bears a substantial burden to prove that his property falls within the exempted class.   United Cerebral Palsy Ass’n of Greater Kansas City, 789 S.W.2d at 799.

1. Section 137.076.2 did not implicitly repeal Section 137.100(5).

In her first point on review, Respondent claims that Section 137.076.2, which was adopted in 2015 and requires the use of an income based approach to value non-exempt real property subject to rent limitations or other requirements including receipt of federal subsidies for housing purposes, implicitly repeals Section 137.100(5), which grants exemption from ad valorem taxation to properties not held for corporate profit and used exclusively for purposes purely charitable.  We disagree.

Article X of the Missouri Constitution provides that “all property … not held for corporate profit and used exclusively for religious worship, for schools and colleges [or] for purposes purely charitable . . . may be exempted from taxation by general law . . . .”  Section 137.100(5) provides for the exemption of those properties set forth in Article X.

Section 137.076.2 provides:

In establishing the value of a parcel of real property, the county assessor shall use an income-based approach for assessment of parcels of real property with federal or state imposed restrictions in regard to rent limitations, operations requirements, or any other restrictions imposed upon the property in connection with:

(1)  The property being eligible for any income tax credits under Section 42 of the Internal Revenue Code of 1986, as amended;

(2)  Property constructed with the use of the United States Department of Housing and Urban Development HOME investment partnerships program;

(3)  Property constructed with the use of incentives provided by the United States Department of Agriculture Rural Development; or

(4)  Property receiving any other state or federal subsidies provided with respect to use of the property for housing purposes.

­­

­For the purposes of this subsection, the term “income-based approach” shall include the use of direct capitalization methodology and computed by dividing the net operating income of the parcel of property by an appropriate capitalization rate not to exceed the average of the current market data available in the county of said parcel of property.  Federal and state tax credits or other subsidies shall not be used when calculating the capitalization rate.  Upon expiration of a land use restriction agreement, such parcel of property shall no longer be subject to this subsection.

 

First, to the extent that Respondent asserts that the enactment of Section 137.076.2 renders Section 137.100(5) unconstitutional in relation to subsidized housing, deciding constitutional issues is beyond the authority of an administrative agency. Fayne v. Department of Social Services, 802 S.W.2d 565, 567 (Mo.App.1991); Duncan v. Missouri Board for Architects, Professional Engineers and Land Surveyors, 744 S.W.2d 524, 530-31 (Mo.App.1988) “Administrative agencies lack the jurisdiction to determine the constitutionality of statutory enactments.” City of Joplin v. Industrial Commission of Missouri, 329 S.W.2d 687 (Mo. banc 1959).  Furthermore, administrative agencies such as the STC have no authority to declare a statute invalid or to interpret a statute in such a way that is contrary to the plain terms of the statute.  Evans v. Empire Dist. Elec. Co. 346 S.W.3d 313, 318 (Mo. App. W.D. 2011)

Second, with regard to Respondent’s argument that Section 137.076.2 implicitly repealed Section 137.100(5), Respondent’s argument is flawed as the plain language of the two statutory provisions are not inconsistent and are not in conflict.[4]  The plain language of each statute instructs that each statute is to be applied under different sets of circumstances.

Repeals by implication are disfavored.  Turner v. School Dist of Clayton, 318 S.W.3d 660, 667 (Mo. banc 2010).   “If by any fair interpretation both statutes may stand, there is no repeal by implication and both statutes must be given their effect.”  Turner, 318 S.W.3d at 667, quoting Silcox v. Silcox, 6 S.W.3d 899, 903 (Mo. banc 1999).  “When two provisions are not irreconcilably inconsistent, both must stand even if ‘some tension’ exists between them.”    Turner, 318 S.W.3d at 667 (internal quotation omitted).  The courts look to the plain language of statutes, and, when the words are clear, will find nothing to construe and will apply the plain meaning of the law.  See Union Elec. Co. v. Missouri Public Service Commission, 591 S.W.3d 478, 485 (Mo. App. W.D. 2019).

The plain language of Section 137.100(5) provides that properties used for charitable purposes and owned by non-profit organizations are exempt from ad valorem taxation.  The plain language of Section 137.076.2 provides a method for valuing non-exempt subsidized housing.  Section 137.076.2 is not inconsistent with or in conflict with Section 137.100(5) and, thus, did not repeal implicitly Section 137.100(5).

2. The Property is Exempt under the Franciscan Test

 

Section 137.100(5) provides that real and personal property actually and regularly used for purely charitable purposes is exempt from taxation for state, county, or local purposes.  The Missouri Supreme Court set forth the test for exemptions in  Franciscan Tertiary Province of Missouri v. State Tax Commission, 566 S.W.2d 213 (Mo. banc 1978).   In order to qualify for an exemption based upon charitable use of the property, it must be established that:

• The property is dedicated unconditionally to the charitable activity;
• The property is owned and operated on a non-for-profit basis; and
• The dominant use of the property is for the benefit of an indefinite number of people and directly or indirectly benefits society.

 

In Franciscan, the Missouri Supreme Court established the criteria for determining whether a property is exempt.  The criteria have been restated and reinforced in subsequent cases such as Pentecostal Church of God v. Hughlett, 737 S.W.2d 728 (Mo. banc 1987) and Senior Citizens Bootheel Services, Inc. v. Dover, 811 S.W.2d 35 (Mo. App. W.D. 1991).  Pentecostal cited Franciscan as the “seminal case for the proposition that the provision of housing for aged and handicapped persons who are unable to bear the full cost is a charitable purpose” entitled to exemption.  Pentecostal, 737 S.W.2d at 729.  In Pentecostal, the Court stated, “Franciscan was designed to give general approval to housing projects for the elderly and handicapped.  It should not be read grudgingly.”  Id. at 730.

Complainants, non-for-profit entities, own the subject properties.  The subject properties are dedicated to the non-profit use of providing housing for elderly and disabled persons with low or extremely low incomes.  Providing housing for elderly and disabled persons with low or extremely low incomes has been deemed by the courts to be a charitable activity that benefits society.

The evidence established that Complainants receive payments from HUD in addition to rent from residents depending on their income levels.  Receiving government subsidies does not defeat the charitable use of the property.  See Rolla Apartments/Overall Construction Industries, Inc. v. State Tax Commission, 797 S.W.2d 781, 792-93 (Mo. App. S.D. 1990).  HUD regulations require tenants to meet low-income or extremely low-income standards; tenant rental obligations are based upon ability to pay; HUD approves rent rates; and HUD’s subsidy is based upon the difference between the tenant’s obligation and the approved rent.  Like the present appeals, the properties in Franciscan, Pentecostal, Senior Citizens of Bootheel Services, and Rolla Apartments utilized HUD funding.

In addition to providing low-cost housing to low-income and extremely low-income seniors and the disabled, services are provided to the residents, directly and indirectly benefitting society.  A service coordinator assists the subject properties’ residents with obtaining outside services and connecting residents with community resources.  The service coordinator assist with advocacy, benefits/entitlements, conflict resolution, crisis intervention/support counseling, family support, general information/referral, and helping residents find a doctor who takes Medicaid or communicating with residents’ doctors or health insurers.  Like the property in Rolla Apartments, the subject properties in these appeals are constantly used so that they benefit elderly and disabled persons, an indefinite number of people, thereby benefitting society because the occupants of the subject properties “are not thrust into public housing or, if not so placed, into substandard housing thereby increasing problems of government and society.”  Id. at 792.  All three prongs of the requirements identified in Franciscan were met in these appeals.

The taxpayer in a STC appeal bears the burden of proof. The taxpayer is the moving party seeking affirmative relief.  Therefore, in these appeals, Complainants had the burden of proving that the BOE’s determination regarding exemption from taxation was erroneous.  The Hearing Officer found that Complainants presented substantial and persuasive evidence establishing the subject properties were exempt as of January 1, 2018.  The record supports the Hearing Officer’s findings.  The Commission finds that a reasonable mind could have conscientiously reached the same result as the Hearing Officer based on a review of the entire record. Hermel, 564 S.W.2d at 895-96; Black v. Lombardi, 970 S.W.2d 378 (Mo. App. E.D. 1998).  The Hearing Officer did not err in setting aside the BOE’s determination regarding exemption.

ORDER

            The Decision of the Hearing Officer is AFFIRMED.  The Decision of the Hearing Officer, including the findings of fact and conclusions of law therein, is incorporated by reference, as if set out in full, in this final decision of the Commission.

Judicial review of this Order may be had in the manner provided in Sections 138.432 and 536.100 to 536.140 within 30 days of the mailing date set forth in the Certificate of Service for this Order.

If judicial review of this Order is made, any protested taxes presently in an escrow account in accordance with this appeal shall be held pending the final decision of the courts unless disbursed pursuant to Section 139.031.8.

If no judicial review is made within 30 days, this Order is deemed final and the Collector of Clay County, as well as the collectors of all affected political subdivisions therein, shall disburse the protested taxes presently in an escrow account in accord with the decision on the underlying assessment in this appeal.

SO ORDERED September 24, 2021.

STATE TAX COMMISSION OF MISSOURI

­

_____________________________________                                                                        

Gary Romine, Chairman

 

 

_____________________________________

Victor Callahan, Commissioner

 

 

_____________________________________

Will Kraus, Commissioner

 

 

 

Certificate of Service

I certify that copy of the foregoing has been sent electronically or mailed postage prepaid on September 24, 2021, to: Complainant(s) and/or Counsel for Complainant(s), the County Assessor and/or Counsel for Respondent.

 

 

Elaina Mejia

Legal Coordinator

 

 

STATE TAX COMMISSION OF MISSOURI

 

BETHEL AREA HOUSING, INC.	)	Appeal No. 18-32001
BETHEL AREA HOUSING SOUTH	)	Appeal No. 18-32002
	)	Parcel/Locator:  18-111-00-14-001.01
Complainants	)	& 18-111-00-14-001.02 respectively
	)
v.	)
	)
CATHY RINEHART, ASSESSOR	)
CLAY COUNTY, MISSOURI,	)
	)
Respondent	)

 

DECISION AND ORDER

HOLDING

The assessment made by the Board of Equalization of Clay County (BOE), Missouri, is SET ASIDE.  Complainant Bethel Area Housing, Inc. (“Bethel North”) and Bethel Area Housing South (“Complainants”) presented substantial and persuasive evidence establishing that the subject properties were exempt from ad valorem taxation under Article X, Section 6 of the Missouri Constitution and Section 137.100, RSMo as of January 1, 2018.

Complainants appeared by counsel Courtney Koger.

Respondent, Cathy Rinehart, Assessor of Clay County, Missouri appeared by counsel Patricia Hughes.

Case heard and decided by Senior Hearing Officer John Treu (Hearing Officer).

 

ISSUE

            The State Tax Commission (STC) takes this appeal to determine whether the subject properties are exempt pursuant to Article X, Section 6 of the Missouri Constitution and Section 137.100, RSMo. for tax year 2018.

The Hearing Officer, having considered all of the competent evidence upon the whole record, enters the following Decision and Order.

FINDINGS OF FACT

1. Complainant timely appealed to STC.
2. Evidentiary Hearing. The issue of tax-exempt status for the subject properties was presented at an evidentiary hearing on May 20 & 21, 2019, at the offices of Complainants’ counsel, Kansas City, Missouri.
3. Identification and Description of Subject Properties. Bethel South owns the property own located at 4040 North Brighton Avenue (Appeal 18-32002).  It is a 44 unit (Ex. C) housing facility for senior citizens with limited income.[5]  Bethel North owns the property located at 4100 North Brighton Avenue (Appeal 18-32001).  It is a 31-unit housing facility for senior citizens or disabled persons with limited income.[6]  Each of the buildings constructed and maintained on the subject properties contain apartments equipped with their own kitchen, bathroom and bedroom facilities.  The subject properties share a common parking lot and grounds.  Each building has its own common room/lounge area which residents may use for gatherings with a microwave, tables and chairs, soda vending machine, a piano (South common room only) and a refrigerator.  Each building also has offices for the manager and for the service coordinator, laundry facilities, and multi-purpose rooms for books, puzzles, and televisions.  Each building has an entryway with a secure locked door.  While residents and employees may enter freely, anyone else has to be buzzed in by a resident or authorized employee.  (Ex. III at 2).
4. Respondent valued the subject properties’ true value in money (TVM), as of January 1, 2018, and denied exemption to the subject properties.
5. The BOE also found the subject properties not to be to exempt.
6. Complainants’ Evidence. Complainant asserts that the subject property is exempt from ad valorem taxation because Complainant is a not-for-profit organization which owns and operates the property for a charitable purpose. Complainant offered the following evidence to support its assertion:

Exhibit	Description	Ruling
A	Rent Roll North 6/30/16	Admitted
B	Rent Roll North 6/30/17	Admitted
C	Rent Roll North 6/30/18	Admitted
D	Rent Roll South 6/30/16	Admitted
E	Rent Roll South 6/30/17	Admitted
F	Rent Roll South 6/30/18	Admitted
G	Bethel North HUD Subsidies	Admitted
H	Bethel South HUD Subsidies	Admitted
I	Bethel North Financial Statements 2016	Admitted
J	Bethel North Financial Statements 2017	Admitted
K	Bethel North Financial Statements 2018	Admitted
L	Bethel South Financial Statements 2016	Admitted
M	Bethel South Financial Statements 2017	Admitted
N	Bethel South Financial Statements 2018	Admitted
O	Bethel North IRS Determination Letter	Admitted
P	Bethel South IRS Determination Letter	Admitted
Q	Bethel South IRS Determination Letter 2007	Admitted
R	Embrace Living Determination Letter	Admitted
S	Bethel North Bylaws & Articles	Admitted
T	Bethel South Bylaws & Articles	Admitted
U	Management Agreement Bethel North	Admitted
V	Management Agreement Bethel South	Admitted
W	Model Lease- Bethel North	Admitted
X	Model Lease- Bethel South	Admitted
Y	Franciscan Tertiary v. STC Record and Opinion	Admitted
AA	Bethel North Salary List	Admitted
BB	Bethel South Salary List	Admitted
CC	Bethel North Marketing Materials	Admitted
DD	Bethel South Marketing Materials	Admitted
EE	2017 900 Bethel North	Admitted
FF	2017 900 Bethel South	Admitted
GG	Bethel North House Rules	Admitted
HH	Bethel South House Rules	Admitted
II	Bethel South Budgets 8/2016- 7/2017	Admitted
JJ	Bethel North Budgets 7/2017- 6/2018	Admitted
KK	Bethel South Budgets 8/2017- 7/2018	Admitted
LL	Bethel North Budgets 8/2018- 7/2019	Admitted
MM	Embrace Living Consolidated Financials 2017	Admitted
NN	Embrace Living Consolidated Financials 2018	Admitted
OO	Bethel North Semi-Annual Performance Reports 4/26/17	Admitted
PP	Bethel North Semi-Annual Performance Reports 10/30/17	Admitted
QQ	Bethel North Semi-Annual Performance Reports 4/18/18	Admitted
RR	Bethel South Semi-Annual Performance Reports 4/26/17	Admitted
SS	Bethel South Semi-Annual Performance Reports 10/30/17	Admitted
TT	Bethel South Semi-Annual Performance Reports 4/18/18	Admitted
UU	Bethel North Semi-Annual Performance Reports 1/29/19	Admitted
VV	Bethel North Semi-Annual Performance Reports 1/29/19	Admitted
WW-1	Bethel North Log Notes 101	Admitted
WW-2	Bethel North Log Notes 201	Admitted
WW-3	Bethel North Log Notes 207	Admitted
WW-4	Bethel North Log Notes 208	Admitted
WW-5	Bethel North Log Notes 308	Admitted
WW-6	Bethel North Log Notes 309	Admitted
WW-7	Bethel North Log Notes 310	Admitted
XX-1	Bethel South Log Notes 101	Admitted
XX-2	Bethel South Log Notes 104	Admitted
XX-3	Bethel South Log Notes 105	Admitted
XX-4	Bethel South Log Notes 111	Admitted
XX-5	Bethel South Log Notes 207	Admitted
XX-6	Bethel South Log Notes 208	Admitted
XX-7	Bethel South Log Notes 306	Admitted
XX-8	Bethel South Log Notes 315	Admitted
YY	Bethel North Newsletters	Admitted
ZZ	Bethel South Newsletters	Admitted
AAA	Bethel North Calendars	Admitted
BBB	Bethel South Calendars	Admitted
CCC	Housing Assistance Payments Basic Renewal Contract	Admitted
DDD	Contract Renewal to the Project Rental Assistance Contract	Admitted
EEE	Guide Star Report Excerpts	Admitted
FFF	One-Site Contract	Admitted
GGG	Written Direct Testimony of Barbara Stevenson	Admitted
HHH	Written Direct Testimony of Anne Oliva	Admitted
III	Written Direct Testimony of Sherice Anderson	Admitted
JJJ	Exemption to Bethel North 1992	Admitted
KKK	Exemption to Bethel North 1992	Admitted
LLL	Exemption to Bethel South 1997	Admitted
MMM	Exemption to Both Parcels 2005	Admitted
NNN	Interrogatory Answers of Lucas Wallingford for Respondent	Admitted
OOO	Deposition of Lucas Wallingford	Preserved

 

Exhibits JJJ, KKK, LLL, and MMM were objected to.  The exhibits were admitted to be given the weight appropriate by the Hearing Officer, if any.  Additionally, Exhibit OOO was objected to.  The objection was sustained but preserved pursuant to Section 536.070 RSMo.

Bethel South is an Illinois not-for-profit corporation, exempt from federal income tax under § 501(c) (3) of the Internal Revenue Code (“Code”).  Bethel North is also an Illinois not-for-profit corporation exempt from federal income tax under § 501(c) (3) of the Code.  Bethel North and Bethel South each have contracts with the United States Department of Housing and Urban Development (“HUD”) (Exs. CCC & DDD).  HUD sets the amount Complainant receives for each unit.  (Ex. HHH at 3).  Residents pay 30% of their income with HUD making up the difference.  (Exs. III at 6, CCC & DDD).  Bethel South’s contract rate is $656 per month; Bethel North’s is $1,095.  (Ex. III at 6).  The difference in contract rate between physically similar facilities arises because of the underlying mortgage encumbering the Bethel North property, whereas Bethel South does not have a mortgage payment.  (Ex. HHH at 3).

Neither Bethel North nor Bethel South is contractually permitted to raise its rents or increase its revenues without HUD approval.  Increases in rent may be requested once per year.  (TR 84-85).  If a resident’s income changes during the year, the property manager can submit new information to HUD to have the resident’s rent calculation changed.  (Ex. III at 6).

Embrace Living Communities (“Embrace Living”), performs management services to each of the subject properties.  (Exs. U & V).  Embrace Living is a faith-based organization closely affiliated with the United Church of Christ. It serves more than 3000 seniors and people with disabilities. (Ex. HHH at 1).  Embrace Living’s mission is to provide affordable, welcoming homes in communities.  It strives to provide safe, affordable and welcoming environments where residents can live an active and dignified life. (Id.)

Under the management contracts between Embrace Living and Bethel North and South, Embrace Living receives a management fee (set by HUD) of $35^[7] per occupied unit.  Anne Oliva (“Olivia”) testified funds from management fees go to pay for types of services deemed necessary by HUD.  Other property-specific expenses such as payroll are the obligation of Bethel North and Bethel South.  (Tr. 78-80).  Embrace Living advances payroll to a payroll provider, but each facility reimburses Embrace for the payroll expense of employees at that particular property. (Id.)  Expenses such as office supplies, snow removal, and HVAC work are paid directly from Bethel North or Bethel South’s own bank accounts. (Tr. 78-82).

Prospective residents must meet HUD’s qualifications in order to become approved as residents.  Those qualifications include being age 62 or older (or, for 3 units in Bethel North, disabled), and having low or extremely low income, again as defined by HUD. (Exs. HHH at 4 & III at 11).  For 2018, the year in question, a single person earning up to $16,800 qualified as having extremely low income; a single person earning up to $28,000 qualified as low income. (Id.) However, testimony established that none of the current residents had incomes of $28,000 per year, with more than 75% qualifying as extremely low income. (Tr. 40-41).  Potential tenants submit applications. (Ex. III at 3).

Sherice Anderson (“Anderson”), the on-site property manager for the subject properties, verifies applicants meet the age/disability and income requirements and places the applicant on that facility’s waiting list. (Ex. III at 3). Bethel North and Bethel South each typically have 25-30 names on their waiting lists at any given time.  (Ex. III at 2-3).  When a vacancy occurs, Anderson contacts applicants on the waiting list in the order in which their applications were received until she reaches the name of an applicant who is still interested in becoming a resident. (Ex. III at 4).  Once she finds an interested applicant, she enters that information into a screening program. (Id.).  The screening program provides one of three responses:  pass, conditional, or fail. (Id.).  If the result is a pass, Anderson proceeds with meeting the applicant and moving forward. (Id.).  If it is a fail, then the person is disqualified in accordance with HUD regulations.  However, Anderson notifies the applicant and gives that person a chance to explain or address the issue. (Id.).

Issues which may cause problems for potential residents are criminal history or credit history.  Those with a recent felony conviction could be dangerous to other residents. (Ex. III at 5).  Further, Complainant cannot accept someone who is unable to have utilities in their unit turned on due to credit history, since such could be harmful to Complainants’ residents. (Id.)  In one instance, Anderson had a potential resident rejected due to a moving violation more than 10 years old.  She was able to enter the age of the violation into the screening program, which resulted in a change to that applicant’s status to conditional pass. (Ex. III at 4-5).  A result of conditional is always discussed with her team lead at Embrace Living. (Ex. III at 5).  In another instance an applicant was initially rejected due to an unpaid utility bill; however, once the bill was paid, Anderson entered the new information, the resident was accepted. (Id.).

The subject properties have 75 units between them.  The units are mostly fully occupied at all times, with limited turnover.  Each community has wait lists averaging between 25-30 applicants. (Exs. HHH at 4 & III at 2-3).  Barbara Stevenson (“Stevenson”), the subject properties’ Social Services Coordinator, also testified that, from her more than 20 years of experience at Bethel North and South, there are far more people meeting the criteria for residences than either property can serve. (Ex. GGG at 19).  Anderson testified about the “many calls daily” that she received from senior citizens or disabled individuals who were not able to find housing, including some from persons reduced to living in their car.  (Tr. 35).

In addition to a residential unit, residents receive a personal medical alert pendant at move-in for emergency use, at no cost to the resident. (Ex. III at 8).  The pendants are for emergency use.  The vendor which provides the service, calls the EMT and the fire department, then Anderson, and then the first relative or person on that resident’s emergency call list.  (Tr. 32-34).

In addition, Bethel North and Bethel South employ^[8] Stevenson to assist residents in numerous, substantial ways at no cost to the residents. (Exs. GGG & OO-BBB).  Bethel presented substantial evidence of the services that Stevenson provided to residents. (Exs. GGG & OO-BBB).  At any given time, 7-11% of residents qualify as “frail elders,” while another 15-20% qualify as “at risk elders.” (Exs. GGG at 2 & OO-VV).  Typically, approximately 1/3 of residents are over the age of 80. (Ex. GGG at 4).  Bethel offered several HUD semi-annual performance reports documenting services relating to advocacy, benefits/entitlements, conflict resolution, crisis intervention/support counseling, family support, general info/referral, homemaker, education, and other services routinely offered (Exs. OO-VV).  The reports documented health care services, including helping residents find a Medicaid doctor and communicating with residents’ doctors and/or health insurers. (Exs. OO-VV & GGG at 4).

Stevenson described some of the numerous services she performs for residents and produced her log notes for several of the units in each building that document many such services in specific cases. (Exs. GGG at 2-19, WW & XX).  Stevenson allow residents who may get confused easily, who may have hearing issues, and who have trouble with automated phone systems, to use her office speakerphone to facilitate their calls. (Tr. 60-61; Exs. GGG at 3, 14 & XX-5).  She sends faxes for residents. (Tr. at 61 & Ex. GGG at 11).  She assists residents with Medicaid paperwork, food-stamp paperwork, programs and applications for assistance with utilities, issues involving Medicare or Social Security, referrals to a clothes closet for clothing, arranging deliveries of commodities, and obtaining housekeeping through personal care assistants. (Exs. GGG at 3-16, WW & XX).

Stevenson also assists in scheduling social events for residents. (Ex. GGG at 6).  Both facilities host regular parties and Christmas dinners.  Each building hosts a monthly lunch or dinner gathering for its residents.  Sometimes Bethel North or Bethel South provides the meat for such meals with residents bringing side dishes, and sometimes they are pot lucks.  Bethel provided all the food for a resident picnic in 2018, with a similar summer event planned for 2019.  (Id.).  Residents celebrate birthdays with ice cream and cakes each month and have weekly bingo games and card games.  Bethel South hosts a weekly sing-along (with Bethel North residents invited) as there is a piano for resident use in the South common room.  Bethel North residents chose to have a weekly movie showing; Bethel South has Saturday morning coffee gatherings.  Stevenson assists with all of these activities, scheduling them, publishing them on the calendars and in the newsletters, making sure new residents learn about them, even picking up or providing food for the gatherings. (Id.).  The majority of the activities are resident driven.  (Tr. 38 – 39).  Stevenson has also coordinated having the Salvation Army bring in Easter and Christmas programs. (Ex. GGG at 4-5).

Programs are offered to residents.  Previous programs involved a writer’s workshop with a local author, and exercise program, free computer classes, speakers on Medicare Advantage and/or similar insurance plans, fire department speakers to discuss a fire safety program.  (Ex. GGG at 5-6).  Other speakers and programs were shown on the monthly calendars and newsletters prepared by Stevenson and offered as exhibits. (Exs. YY-BBB).

Stevenson testified that connecting residents to community resources is a hallmark of her job.  She helps residents to live on very limited funds and to maintain their independence while doing so:

I believe that people should be able to live independently for as long as possible.  Besides that being what they want, and it allowing [them] to live with dignity, it is cost effective, as care in a nursing home is far more expensive.  I feel like Bethel North and Bethel South are doing great work making this independent living possible for our residents.  We are maximizing the time that they can live on their own.  I have seen multiple incidents, including one just recently, where residents have had to move out to a higher level of care who then died very shortly after they moved.  We helped them to live independently almost until the very end of their lives.

(Ex. GGG at 7).

Both Bethel North and Bethel South have adopted House Rules (Exs. GG & HH) which provide that documented financial inability to pay rent is not grounds for eviction.  Stevenson testified no resident had been evicted in the twenty years she had been employed by Bethel North and South.  (Ex. GGG at 1).

7. Respondent’s Evidence.  Respondent offered the following evidence to support her assertion:

Exhibit	Description	Ruling
1	Exemption Report	Admitted
2	Section 137.100 RSMo.	Admitted
3	Bethel Area Housing South 2017 Application for Tax Exemption	Admitted
4	Bethel Area Housing Property Record Card	Admitted
5	Bethel Area Housing South Property Record Card	Admitted
6	Bethel Area Housing Deed	Admitted
7	Bethel Area Housing South Deed	Admitted
8	Bethel Area Housing Application for Tenancy	Admitted
9	Bethel Area Housing Marketing Materials	Admitted
10	Bethel Area Housing South Marketing Materials	Admitted
11	Clay County Assessor’s Office Standards for Charitable Exemption	Admitted
12	Bethel Area Housing South Petition for Rent and Possession (filed and dismissed)	Admitted
13	Embrace Living Communities Website- Coordinator Program	Admitted
14	HUD Website- Snapshot of Service Coordinator Program	Admitted
15	HUD Semi-Annual Performance Report Form #92456	Admitted
16	Bethel Area Housing Rent Roll	Admitted
17	Bethel Area Housing South Rent Roll	Admitted
18	Second Amended Written Direct Testimony of Lucas Wallingford	Admitted
19	Clay County Seniors- Independent Housing List	Admitted
20	MHDC- Clay County Affordable Housing List	Admitted

 

Exhibits 1, 12, 13, 19 and 20 were objected to.  The exhibits were admitted to be given the weight appropriate by the Hearing Officer, if any.  The objections to Exhibits 19 and 20 were sustained only as to the “facts” within such, but otherwise admitted as set forth above.  The fact statements in Exhibits 19 and 20 were preserved in the record pursuant to Section 536.070 RSMo.

Respondent exhibits and testimony emphasize that Complainants’ have no employees and that Embrace Living, the management company engaged by Complainants conducts all activities and coordinates all services for Complainants.  The exhibits and testimony also emphasize the fact that credit history, such as ability to get utilities, and criminal history are utilized in evaluating potential residents.  Finally, Respondent’s exhibits and testimony asserts that other organizations provide services to the residents of the subject properties and that Complainants are reimbursed by HUD for a large portion of the total rent that Complainants’ receive.

Respondent’s witness, Lucas Wallingford, testified he found a petition for the rent and possession action (Ex. 12) on CaseNet but did not know what resulted from it.  (Tr. 109-10).^[9]

9. Tax- Exempt Status Established. Complainants’ evidence was substantial and persuasive to establish that the subject properties were tax-exempt as of the date of assessment on January 1, 2018.

CONCLUSIONS OF LAW

Authority

The STC has authority to hear this appeal and correct any assessment which is shown to be unlawful, unfair, arbitrary, or capricious, including the application of any abatement.  The Hearing Officer shall issue a decision and order affirming, modifying or reversing the determination of the Board of Equalization, and correcting any assessment which is unlawful, unfair, improper, arbitrary, or capricious.  Mo. Const. art. X, sec. 14, Sections 138.430, 138.431, 138.431.4, RSMo.

Basis of Assessment

The Constitution mandates that real property and tangible personal property be assessed at its value or such percentage of its value as may be fixed by law for each class and for each subclass.  Article X, Sections 4(a) and 4(b), Mo. Const. of 1945.  The constitutional mandate is to find the true value in money for the property under appeal.  By statute residential property at 19%; commercial property at 32%; and agricultural property at 12%.  Section 137.115.5 RSMo.

Presumption in Appeal

            There is a presumption of validity, good faith and correctness of assessment by the BOE. Hermel, Inc. v. State Tax Comm’n, 564 S.W.2d 888, 895 (Mo. banc 1978); Chicago, Burlington & Quincy Railroad Co. v. State Tax Comm’n, 436 S.W.2d 650, 656 (Mo. 1968); May Department Stores Co. v. STC, 308 S.W.2d 748, 759 (Mo. 1958).

Burden of Proof

            Complainant has the burden to present substantial and persuasive evidence to rebut the presumption of correct assessment by the Board of Equalization. Hermel, Inc. v. State Tax Comm’n, 564 S.W.2d 888, 895 (Mo. banc 1978). In order to meet this burden in an appeal seeking exemption from taxation, the Complainant must meet the substantial burden to establish that the property falls within an exempted class under the provisions of Section 137.100. State ex rel. Council Apartments v. Leachman, 603 S.W.2d 930, 931 (Mo. 1980).

Exemption Not Favored

It is well established that taxation is the rule and exemption from taxation is the exception. Exemption is not favored in the law. (See, Missouri Church of Scientology v. State Tax Comm’n, 560 S.W.2d 837, 844 (Mo. banc 1977); CSCEA v. Nelson, 898 S.W.2d 547, 548 (Mo. banc 1995), citing Scientology).

Property Exempt from Taxation

The following subjects are exempt from taxation for state, county or local purposes:

(5) All property, real and personal, actually and regularly used exclusively for religious worship, schools and colleges, for purposes purely charitable and not held for private or corporate profit, except that the exemption herein granted does not include real property not actually used or occupied for the purpose of the organization but held or used as investment even though the income or rentals received therefore is used wholly for religious, educational or charitable purposes.

 

Section 137.100(5), RSMo.

Investigation by Hearing Officer

In order to investigate appeals filed with the STC, the Hearing Officer may inquire of the owner of the property or of any other party to the appeal regarding any matter or issue relevant to the valuation, subclassification, or assessment of the property.  Section 138.430.2 RSMo.  The Hearing Officer’s decision regarding the assessment or valuation of the property may be based solely upon his inquiry and any evidence presented by the parties or based solely upon evidence presented by the parties.  Id.

Weight to be Given Evidence

The Hearing Officer is not bound by any single formula, rule or method in determining true value in money and is free to consider all pertinent facts and estimates and give them such weight as reasonable they may be deemed entitled.  The relative weight to be accorded any relevant factor in a particular case is for the Hearing Officer to decide.  St. Louis County v. Security Bonhomme, Inc., 558 S.W.2d 655, 659 (Mo. banc 1977); St. Louis County v. State Tax Comm’n, 515 S.W.2d 446, 450 (Mo. 1974); Chicago, Burlington & Quincy Railroad Company v. State Tax Comm’n, 436 S.W.2d 650 (Mo. 1968).

The Hearing Officer, as the trier of fact, may consider the testimony of an expert witness and give it as much weight and credit as deemed necessary when viewed in connection with all other circumstances.  Beardsley v. Beardsley, 819 S.W.2d 400, 403 (Mo. App. W.D. 1991). The Hearing Officer, as the trier of fact, is not bound by the opinions of experts but may believe all or none of the expert’s testimony or accept it in part or reject it in part.  Exchange Bank of Missouri v. Gerlt, 367 S.W.3d 132, 135-36 (Mo. App. W.D. 2012)

Complainants’ Burden of Proof

A presumption exists that the exemption status and assessed value fixed by the BOE is correct. Rinehart, 363 S.W.3d at 367; Cohen, 251 S.W.3d at 348; Hermel, Inc., 564 S.W.2d at 895. “Substantial and persuasive controverting evidence is required to rebut the presumption, with the burden of proof resting on the taxpayer.” Cohen, 251 S.W.3d at 348. Substantial evidence can be defined as such relevant evidence that a reasonable mind might accept as adequate to support a conclusion. Cupples Hesse Corp. v. State Tax Comm’n, 329 S.W.2d 696, 702 (Mo. 1959). Persuasive evidence is evidence that has sufficient weight and probative value to convince the trier of fact. Id. The persuasiveness of evidence does not depend on the quantity or amount thereof but on its effect in inducing belief. Brooks v. General Motors Assembly Division, 527 S.W.2d 50, 53 (Mo. App. 1975). See also, Westwood Partnership v. Gogarty, 103 S.W.3d 152 (Mo. App. E.D. 2003); Daly v. P.D. George Co., 77 S.W.3d 645 (Mo. App E.D. 2002); Reeves v. Snider, 115 S.W.3d 375 (Mo. App. S.D. 2003).

There is no presumption that the taxpayer’s opinion is correct. The taxpayer in an appeal bears the burden of proof. The taxpayer is the moving party seeking affirmative relief. Therefore, the Complainant bears the burden of proving the vital elements of the case, i.e., the assessment was “unlawful, unfair, improper, arbitrary or capricious.” Westwood Partnership, 103 S.W.3d 152 (Mo. App. E.D. 2003); Daly v. P.D. George Co., 77 S.W.3d 645 (Mo. App E.D. 2002); Reeves v. Snider, 115 S.W.3d 375 (Mo. App. S.D. 2003); Industrial Development Authority of Kansas City v. State Tax Comm’n, 804 S.W.2d 387, 392 (Mo. App. W.D. 1991).

Exemptions

Taxation of property is the rule and exemption from taxation is the exception.  United Cerebral Palsy Ass’n of Greater Kansas City v. Ross, 789 S.W.2d 798, 799 (Mo. banc 1990).  Tax exemptions are not favored in the law, and statutes granting exemptions are to be strictly, yet reasonably, construed against the one claiming the exemption.  Missouri Church of Scientology v. State Tax Comm’n, 560 S.W.2d 837, 844 (Mo. banc 1987), State ex rel. Union Electric Co. v. Goldberg, 578 S.W.2d 921, 923 (Mo. banc 1979).  A property owner who claims the exemption bears a substantial burden to prove that his property falls within the exempted class.  United Cerebral Palsy Ass’n of Greater Kansas City, 789 S.W.2d at 799.

Article X, Section 6 of the Missouri Constitution exempts from taxation all real and personal property of the state, counties, and other political subdivisions and nonprofit cemeteries.  The Constitution also provided that all real and personal property, not held for private or corporate profit and used exclusively for religious worship, for schools and colleges, for purposes purely charitable, or for agricultural and horticultural societies may be exempted from taxation by general law.  The legislature by enactment of Section 137.100 RSMo., has exempted property not held for private or corporate profit and used exclusively for religious worship, for schools and colleges, for purposes purely charitable, and for agricultural and horticultural societies.

Charitable Exemption

The legal test for a charitable exemption is whether:

• The property is dedicated unconditionally to the charitable activity;
• The property is owned and operated on a not-for-profit basis; and
• The dominant use of the property is for the benefit of an indefinite number of people and directly or indirectly benefits society generally. Franciscan Tertiary Province of Missouri v. State Tax Comm’n, 566 S.W.2d 213, 224 (Mo. banc 1978); Twitty v. State Tax Comm’n, 896 S.W.2d 680, 684 (Mo. App. S.D. 1995).

In Franciscan Tertiary Province of Missouri v. State Tax Comm’n, 566 S.W.2d 213, 224 (Mo. banc 1978) the entire Missouri Supreme Court analyzed multiple types of situations for exemption.  However, the Court explicitly stated:

[t]he general nature of the owning organization other than that it is not-for-profit cannot be said to determine whether the use of the particular property is charitable or not and that the property must be owned and operated on a not-for-profit basis.  It must be dedicated unconditionally to the charitable activity in such a way that there will be no profit, presently or prospectively, to individuals or corporations. (emphasis added)

It is manifestly clear that by using the word “and” instead of “or” in the “owned and operated” terminology the court was stating very clearly that for the property to be exempt it has to both be “owned” and “operated” on a not-for-profit basis.

1. Owned and Operated on a Not-for-Profit Basis

The property must be owned and operate on a not-for-profit basis.  The property “must be dedicated unconditionally to the charitable activity in such a way that there will be no profit, presently or prospectively, to individuals or corporations.  Any gain achieved in use of the building must be devoted to achievement of the charitable objective of the project.”  Franciscan Tertiary Province, 566 S.W.2d at 244 (Mo. banc 1978).  This does not mean that the property or charity cannot operate “in the black.”

1. Actual and Regular Use for Charitable Purpose

In order for a property to be exempt from taxation for state, county, or local purposes, the property must be actually and regularly used exclusively for a charitable purpose, as charity is defined by Salvation Army v. Hoehn, 188 S.W.2d 826 (Mo. banc 1945).  “Charity” is therein defined as “… a gift, to be applied consistently with existing laws, for the benefit of an indefinite number of persons, either by bringing their hearts under the influence of education or religious, by relieving there bodies of disease, suffering or constraint, by assisting them to establish themselves for life, or by erecting or maintaining the public buildings or works or otherwise lessening the burdens of government.” Salvation Army at 830.  Exemption rest on the use of the property not merely the charitable character of the owner.  The phrase “regularly used exclusively” has been interpreted to mean the primary, inherent, and dominate use of the property as opposed to a mere secondary and incidental use.  See Bethesda Barclay House v. Ciarleglio, 88 S.W.3d 85 (Mo. App. E.D. 2002); Home Builders Ass’n of Greater St. Louis v. St. Louis Co. BOE, 803 S.W.2d 636 (Mo. App. E.D. 1991); Pentecostal Church of God of America v. Hughlett, 601 S.W. 2d 666 (Mo. App. S.D. 1980); Barnes Hospital v. Leggett, 589 S.W.2d 241 (Mo. 1979); Missouri United Methodist Retirement Homes v. State Tax Comm’n, 522 S.W.2d 745 (Mo. 1975).

• Dedicated Unconditionally to the Charitable Activity

The property must be used such that it is available to an indefinite group of people, rendered at cost or less, which brings their heats under the influence of education or lessens the burden of government.  “The public nature of a charity is diminished when it is systematically denied to those who need and can least afford the service.”  Evangelical Retirement Homes of Greater St. Louis, Inc. v. State Tax Comm’n, 669 S.W.2d 548, 554 (Mo. banc 1984).

1. Benefit to Society

To fulfill the Franciscan test, the subject property must benefit society in general.  Complainant has the burden to put forth substantial and persuasive evidence of how the subject properties benefit society.

Discussion

The Hearing Officer is persuaded that Complainant meets all requirements of Franciscan Tertiary Province of Missouri v. State Tax Comm’n, 566 S.W.2d 213, 224 (Mo. banc 1978).  The subject properties are both owned and operated on a not-for-profit basis.  The fact that Complainants contract with Embrace Living to manage the subject properties does not change this fact.

Like the present appeals, the properties in Franciscan, Pentecostal Church of God v. Hughlett, 737 S.W.2d 728 (Mo. 1990), and Senior Citizens of Bootheel Services, Inc. v. Dover, 811 S.W.2d 35 (Mo. App. 1991) utilized HUD funding.  The residential facilities in these were utilized for housing the elderly and handicapped pursuant to an agreement with HUD.  The Court cited Franciscan as the “seminal case for the proposition that the provision of housing for aged and handicapped persons who are unable to bear the full cost is a charitable purpose,” entitled to exemption.  Id.  In Pentecostal the Court stated “Franciscan was designed to give general approval to housing projects for the elderly and handicapped.  It should not be read grudgingly.”  The Court rejected an argument that because the corporate entity did not make any gift or donation, that it was not entitled to exemption.

Respondent’s witness, Lucas Wallingford, testified he found a petition for the rent and possession action (Ex. 12) on CaseNet but did not know what resulted from it.  (Tr. 109-10).^[10]  According to testimony from Anderson and Stevenson, who had actual knowledge of the facts, this resident failed to pay rent for 6-7 months, claiming a previous property manager had agreed that he would not have to pay rent. (Ex. III at 3-4). Although Bethel South verified that he had income sufficient to pay his rent, he refused to do so. (Ex. 3).  When served with court papers, however, he was able to pay all of his back rent in one lump sum. (Exs. GGG at 1-2 & III at 4).  Staff believed that he may have been choosing to gamble rather than pay his rent. (Exs. GGG at 1-2 & XX-3).  Bethel South promptly dismissed the action and even chose not to pursue court costs or legal fees from him despite the HUD-approved lease that would have allowed it to do that. (Exs. GGG at 13, III at 3-4, & XX-3).  In addition, Stevenson testified that no resident had been evicted in the twenty years she had been employed by Bethel North and South.  (Ex. GGG at 1).

 

The Hearing Officer is persuaded, the subject properties are dedicated unconditionally to charitable activity.  The subject properties provide low cost housing to seniors and the disabled.  A service coordinator assists the subject properties residents in obtaining outside services and connecting residents with community resources.  Complainant assist with advocacy, benefits/entitlements, conflict resolution, crisis intervention/support counseling, family support, general info/referral, and helping residents find a doctor who takes Medicaid or communicating with residents’ doctors or health insurers.  The cost to the tenants is limited to 30% of their income.  Reasonable screening procedures are untaken to maintain the safety, security and welfare of the residents.  No resident has been removed from the subject properties for failure to pay rent when the resident did not have the financial income to pay rent.

Finally, the Hearing Officer is persuaded the dominant use of the subject properties is charitable and that the charitable activities of Complainants benefits an indefinite number of people and directly or indirectly benefits society generally.

Complainants’ evidence was substantial and persuasive to support tax-exemption of the subject properties as of January 1, 2018.  Complainants met the charitable purposes test set forth above.

ORDER

The subject properties were exempt from ad valorem taxation under Article X, Section 6 of the Missouri Constitution and Section 137.100, RSMo as of January 1, 2018 and the BOE decision is therefore SET ASIDE.

Application for Review

            A party may file with the STC an application for review of this decision within thirty days of the mailing date set forth in the Certificate of Service for this Decision.  The application shall contain specific facts or law as grounds upon which it is claimed the decision is erroneous.  Said application must be in writing addressed to the State Tax Commission of Missouri, P.O. Box 146, Jefferson City, MO  65102-0146, or emailed to Legal@stc.mo.gov, and a copy of said application must be sent to each person listed below in the certificate of service.

Failure to state specific facts or law upon which the application for review is based will result in summary denial.  Section 138.432, RSMo.

Disputed Taxes

            The Collector of Clay County, as well as the collectors of all affected political subdivisions therein, shall continue to hold the disputed taxes pending the possible filing of an Application for Review, unless said taxes have been disbursed pursuant to a court order under the provisions of Section 139.031.8 RSMo.

Any Finding of Fact which is a Conclusion of Law or Decision shall be so deemed.  Any Decision which is a Finding of Fact or Conclusion of Law shall be so deemed.

SO ORDERED October 29, 2019.

STATE TAX COMMISSION OF MISSOURI

John Treu

Senior Hearing Officer

 

 

Certificate of Service

I hereby certify that a copy of the foregoing has been sent electronically or mailed postage prepaid this 29^th day of October, 2019, to: Complainant(s) and/or Counsel for Complainant(s), the County Assessor and/or Counsel for Respondent.

 

Elaina McKee

Legal Coordinator

 

 

 

[1] All statutory references are to RSMo. 2000, as amended, unless otherwise indicated.

[2] For 2018, the tax year in question, low income was defined as a single person earning up to $28,000, and extremely low income was defined as a single person earning up to $16,800.

[3] In her Reply, Respondent asserts that Section 137.076 is not an implied repeal of Section 137.100; cites segments of the STC’s Assessors’ Manual for the proposition that it is difficult to apply the Franciscan test in the context of low-income senior housing; and asserts Respondent “would be glad to recalculate [Complainants’] tax under the subsidized housing formula” in Section 137.076 because it is the “clear intent of the legislature” for subsidized housing to be taxable based on net income.  These arguments, on their face, contradict and confuse the meaning conveyed by Respondent’s arguments in her Application for Review related to Section 137.076 and Section 137.100.  Accordingly, we address Respondent’s arguments as presented in the Application for Review.

[4] In her Reply, Respondent admits the two statutory provisions are not in conflict.

[5] The Bethel South property was classified as exempt and paid no Missouri property taxes from Bethel South’s founding in 1997 until tax year 2018.  (Exs. N &. LLL).

 

[6] The Bethel North property was classified as exempt and paid no Missouri property taxes from its founding in 1992 until tax year 2018. (Exs. K & JJJ).

 

[7]For 2018, the management fee was $35.  The subject properties had requested an increase in the management fee and were waiting for HUD’s response at the time of the hearing.  (Tr. At 87).  After the hearing, HUD approved an increase to $42.75.

[8]All employees are hired and employed by Embrace Living but are assigned to the subject properties, with their wages being advanced to the payroll company by Embrace Living but then reimbursed to Embrace Living by the subject properties.  (Tr. 78 – 79).  Stevenson is assigned to both Bethel North and Bethel South.  (Tr. 74).

[9]In the referenced deposition, Ex. OOO, Wallingford did admit that he did not know the result of the action commenced by Exhibit 12.  (Ex. OOO at 18 & 20).

[10]In the referenced deposition, Ex. OOO, Wallingford did admit that he did not know the result of the action commenced by Exhibit 12.  (Ex. OOO at 18 & 20).