State Tax Commission of Missouri
|BETHEL AREA HOUSING, INC.||)||Appeal No. 18-32001|
|BETHEL AREA HOUSING SOUTH||)||Appeal No. 18-32002|
|Complainants||)||& 18-111-00-14-001.02 respectively|
|CATHY RINEHART, ASSESSOR||)|
|CLAY COUNTY, MISSOURI,||)|
DECISION AND ORDER
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).
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
- Complainant timely appealed to STC.
- 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.
- 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. 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. 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).
- Respondent valued the subject properties’ true value in money (TVM), as of January 1, 2018, and denied exemption to the subject properties.
- The BOE also found the subject properties not to be to exempt.
- 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:
|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|
|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|
|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 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 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).
- Respondent’s Evidence. Respondent offered the following evidence to support her assertion:
|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).
- 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
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).
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.
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.
- 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.”
- 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).
- 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.
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). 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.
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.
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
Senior Hearing Officer
Certificate of Service
I hereby certify that a copy of the foregoing has been sent electronically or mailed postage prepaid this 29th day of October, 2019, to: Complainant(s) and/or Counsel for Complainant(s), the County Assessor and/or Counsel for Respondent.
 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).
 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).
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.
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).
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).
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).