Colony Plaza Associates LP v. Cathy Rinehart, Assessor Clay County

September 18th, 2018

State Tax Commission of Missouri

 

COLONY PLAZA ASSOCIATES, LP )    
  )    
             Complainants )    
  )    
v. ) Appeal Nos. 17-32083
  )    
CATHY RINEHART, ASSESSOR )    
CLAY COUNTY, MISSOURI, )    
  )    
             Respondent )    

 

DECISION AND ORDER

HOLDING

Decision of the Clay County Board of Equalization (BOE) sustaining the assessment made by the Assessor is AFFIRMED.  Complainant Colony Plaza Associates, LP (Complainant) failed to present substantial and persuasive evidence establishing the property is exempt under Article X, Section 6 of the Missouri Constitution.

Complainant is represented by Counsel Theresa Phelps.

Respondent Cathy Rinehart, Assessor, Clay County, Missouri, (Respondent) is represented by Counsel Patricia Hughes.

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

ISSUE

Complainant appealed solely on the ground of exemption regarding tax year 2017.  Complainant did not challenge the true value in money (TVM) determination of the BOE.  On August 15, 2018 the parties filed a Joint Stipulation and Request (motion) to Submit Appeal for Decision Based Upon Evidentiary Record in another appeal, namely Appeal Number 15-32015, where an evidentiary hearing was conducted on January 4, 2017, a Decision was issued by the Hearing Officer on March 14, 2017, and an Order was issued by the Commission affirming the Decision on October 10, 2017.  The motion was Granted.

EVIDENCE

            Complainant filed the following exhibits in Appeal 15-32015, which were admitted into the record:

EXHIBIT DESCRIPTION
1 Portions of Missouri State Tax Commission Assessor’s Manual
2 Application
3 First Amend. to the Third Amended and Restated Limited Partnership Agreement
4 2013 and 2014 Form 990’s
5 Cost Certificate Report
6 Transfer Agreement
7 Redemption Agreement
8 Portions of Corporate Policies & Operating Procedures Manual
9 Colony Plaza Apartments Unit Characteristics and Demographics Report
10 Second Amended and Restated Limited Partnership Agreement
11 Written Direct Testimony of Kevin Baptista
12 Rebuttal Written Direct Testimony of Kevin Baptista
13 Surrebuttal Written Direct Testimony of Kevin Baptista
14 Selected Pages from 2014 Form 990 for Miden Housing Corporation
15 Selected Pages from 2014 Form 990 for Affordable Housing Access, Inc.
16 State Tax Commission Decision
17 Missouri Supreme Court Decision
18 Documents Regarding Tenant Evictions

 

 

Respondent filed the following exhibits in appeal 15-32015 which were admitted into the record:

EXHIBIT DESCRIPTION
1 Written Direct Testimony of John Cardwell
2 137.100 RSMo.
3 Deed
4 LURA
5 Auditors Report
6 Preservation of Affordable Housing (POAH) Acquisitions
8 Notification of Section 8 Contract
9 Rent Roll
10 Income and Expense Statement
11 Audit Report
12 Marketing Produced By Complainant
13 Internet Information on POAH
14 Internet POAH Background
15 Colony Plaza Internet Information
16 Low and Modest Income Definitions
18 2014 POAH, Inc. Form 990 Income Tax Return
19 2015 POAH, Inc. Form 990 Income Tax Return
20 Rebuttal Written Direct Testimony of John Cardwell
21 List of Colony Plaza Evictions from Case.net
22 Colony Plaza Web Site Excerpts
23 Red Cross Web Site Excerpts
24 Salvation Army Web Site Excerpts
25 Good Samaritan Center Web Site Excerpts
26 September 2015 Ad for Colony Plaza
27 Deposition of Corporate Representative of Colony Plaza, Terri Powell-Rands

 

 

Respondent withdrew Respondent’s exhibits 7 and 17 and therefore Exhibits 7 and 17 were not admitted into the evidentiary record.

FINDINGS OF FACT

  1. Jurisdiction. Jurisdiction over this appeal is proper.  Complainant timely appealed to the State Tax Commission from the decision of the County Board of Equalization.  The appeal was submitted on the record by agreement of the parties.
  2. Procedural History of 15-32015. An evidentiary hearing was conducted on January 4, 2017, in appeal 15-32015.  A Decision was issued by the Hearing Officer on March 14, 2017, denying exemption to Complainant.  Complainant filed an Application for Review.  On October 10, 2017, Commission issued an Order Affirming the Hearing Officer’s Decision.  Complainant filed an action in the Circuit Court of Clay County challenging such Order, which remains pending.
  3. Identification of Subject Property. The subject property is located at 404 East St. Louis Avenue, Excelsior Springs, Clay County, Missouri.  The property is identified by map parcel number 12-311-00-42-003.00 (Respondent’s Exhibit 15)
  4. Subject Property. As of January 1, 2017, Complainant owned the subject property, a 111-unit, 11-story apartment building, built in 1980.  All of the units are one-bedroom apartments.  The subject property includes an office, a meeting room, a laundry area, a vending area, a library, and an entry area.  Lot improvements include a 324-square foot patio area and asphalt parking area.

On July 14, 1999, Complainant was formed under the Missouri Limited Partnership Law by POAH, Inc.’s predecessor as General Partner.  As of January 1, 2015, Complainant was owned 50% by Preservation for Affordable Housing, Inc., (POAH, Inc.) and 50% by Preservation of Affordable Housing, LLC (POAH, LLC).  POAH, Inc., is a 501(c)(3) organization under the Internal Revenue Service Code.  POAH, LLC, is a limited liability company.  POAH, LLC, is wholly owned by POAH, Inc.  In other words, Complainant’s partners are an IRS-recognized not-for-profit corporation and a for-profit limited liability company, and the for-profit limited liability company is owned by the not-for-profit corporation.

As of January 1, 2017, the subject property was governed, in part, by a 30-year Land Use Restriction Agreement (LURA) with the Missouri Housing Development Commission (MHDC).[1]  Under the terms of the LURA, the amount of rent for 107 of the 111 units was restricted but could be increased with approval of the MHDC, and the units were required to be occupied by individuals whose income was 60% or less of Area Median Income.  Additionally, the LURA restricted the age of occupants to 55 years of age or older.  Under the terms of a separate Housing Assistance Payments (HAP) contract with the U.S. Department of Housing and Urban Development, 110 of the 111 units received federal rent subsidies, which essentially make up the difference between the amount of the total rent and the income-based amount of rent a tenant pays.  Additionally, the HAP restricted the age of occupants to 62 years of age or older.  In 2014, the MHDC allowed Complainant to rent the units for a total of $641 per month.  In 2015, the MHDC allowed Complainant to rent the units for a total of $650 per month.  According to Complainant’s exhibits and evidence, this amount of rent is full market rent.

Complainant provides some services to tenants of the subject property, including assistance with budgeting, payment plans (but not waivers) for those who are behind on their rent, arranging for a local pharmacy to come to the property to provide flu shots, and providing information on the availability of Meals-On-Wheels and other similar services.  Complainant employs one staff person, who works 12 hours per week, to coordinate the services available for tenants.  The staff person’s salary is included in the operating expenses for the subject property.  The subject property has laundry and vending machines available for tenants; however, the machines are operated by an outside vendor and Complainant receives a portion of the profits – $8,813 in 2014 and $9,106 in 2013.

According to Complainant’s Statements of Operations, at the end of 2014, the subject property had total revenue of $853,615. Complainant’s expenses totaled $589,927.  This resulted in a net income of $263,688.  One of the line items included in Complainant’s Statements of Operations for 2014 included a payment of real estate taxes in the amount of $34,460.  Mortgage interest paid along with miscellaneous financial expenses totaled $190,225.  After paying the mortgages and financing costs, the operation of the subject property still showed a profit of $73,463 in 2014.  Complainant deducted depreciation and amortization “expenses” totaling $230,222, and Complainant reported an “Operating Loss” of $156,759.  Complainant also paid to POAH, Inc., a partnership fee of $25,529 and other miscellaneous expenses of $2,582.  Complainant’s Statement of Operations showed a net loss of $184,870 for 2014.

  1. No Change in Ownership or Operation. The parties stated in their Joint Stipulation and Request to Submit Appeal for Decision Based Upon Evidentiary Record in Appeal Number 15-32015 “there has been no significant change with respect to the ownership and/or operation of the Colony Plaza property that is the subject of this appeals since the Hearing Officer’s decision in Appeal No. 15-32015 or the Commission’s order affirming this decision.
  2. Assessment. The Assessor denied exemption to Complainant.
  3. Board of Equalization. The BOE denied exemption to Complainant.
  4. Rent Never Waived. Complainant will work with tenants when they are behind on their rent payments; however, Complainant will not waive rent payments that are due when tenants are unable to pay.  (Testimony of Baptista)
  5. Credit Checks On Potential Tenants. Complainant performs credit checks on potential tenants.  Some potential tenants are rejected due to bad credit.  (Testimony of Baptista)
  6. Credit Checks Versus Services. Complainant spends more time performing credit checks on potential tenants than providing services to tenants.  (Testimony of Baptista)
  7. POAH, LLC May Transfer Its Partnership Interest. POAH, LLC may transfer its interest in the subject property to a for-profit entity with approval of POAH, Inc.  (Exhibit 22 and Testimony of Baptista).
  8. Taxation of the Property.   The evidence was not substantial and persuasive to establish the property qualifies as exempt under Article X, Section 6 of the Missouri Constitution.

CONCLUSIONS OF LAW AND DECISION

Jurisdiction

The Commission has jurisdiction to hear this appeal and correct any assessment which is shown to be unlawful, unfair, arbitrary or capricious.  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.  Article X, Section 14, Mo. Const. of 1945; Sections 138.430, 138.431, 138.431.4, RSMo

 

Issuance of Decision Absent Evidentiary Hearing

            The Hearing Officer, after affording the parties reasonable opportunity for fair hearing, shall issue a decision and order affirming, modifying or reversing the determination of the BOE, correcting any assessment which is unlawful, unfair, improper, arbitrary or capricious.  Section 138.431.5 RSMo; 12 CSR 30-3.080 (2).   Both parties agreed to submit the appeal upon the record of Appeal 15-32015.  The filing of exhibits and written direct testimony establishes the basis upon which opportunity for an evidentiary hearing can be held.  The Complainants have the burden to present substantial and persuasive evidence.  The Hearing Officer considered all the exhibits and written direct testimony and then proceeded to ascertain if said exhibits and written direct testimony met the standard of substantial and persuasive evidence to establish proper classifications for the subject properties.

Presumption In Appeal

There is a presumption of validity, good faith and correctness of assessment by the County Board of Equalization.  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 Board’s valuation is erroneous and what the fair market value should have been placed on the property. Hermel, supra; Cupples-Hesse Corporation v. State Tax Commission, 329 S.W.2d 696, 702 (Mo. 1959).

 

 Exemptions

The following subjects are exempt from taxation for state, county or local purposes:  “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.”  Section 137.100(5).  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 SW2d 921,923 (Mo. Banc 1979).

Charitable Exemption

The legal test for a charitable exemption is whether:

(1)        The property is owned and operated on a not-for-profit basis;

  • The property is dedicated unconditionally to the charitable activity; 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 Commission, 566 S.W.2d 213, 224 (Mo Banc 1978); Twitty v. State Tax Commission, 896 S.W.2d 680, 684 (Mo. App. S.D. 1995).

 

Complainant’s failure to prove any single element of this legal test is sufficient for denial of exemption.

 

 Discussion

The property must be owned and operated 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 objectives of the project.” Franciscan Tertiary Province v. State Tax Commission, 566 S.W.2d 213, at 224 (Mo. banc 1978).  This does not mean that the property or charity cannot operate “in the black.”

In this appeal, Complainant’s exhibits and evidence were not substantial and persuasive on the issue of exemption.  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). 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).

“The first prerequisite for property to be exempt as charitable under Section 137.100 is that it be owned and operated on a not-for-profit basis.”  Green Hills Community Action Agency v. Beverly Alden, Assessor, Caldwell County, Missouri, et.al (2012 WL 3637332 Mo.St.Tax.Com); Bethesda Barclay House v. Ciarleglio, 88 S.W.3d 85, 95 (Mo. App. E.D. 2002).  “The requirement that the property must be operated as a not-for-profit activity does not mean that it is impermissible for the project at times or even fairly regularly to operated in the black rather than on a deficit basis, provided, of course, that any such excess of income over expenses, is achieved incidentally to accomplishment of the dominantly charitable objective and is not a primary goal of the project, and provided further that all of such gain is devoted to the charitable objectives of the project.”  Green Hills Community Action Agency.  However, Missouri case law “clearly establish[es] that the providing of housing to elderly, handicapped, or other low-income persons is a charitable use of real property, when done under the auspices of a not-for-profit owner.”  Id. (emphasis added).

The record clearly shows that Complainant, a limited partnership registered with the State of Missouri, owns the subject property.  Complainant is owned equally by two partner organizations.  The first, POAH, Inc., is a not-for-profit organization.  The second, POAH, LLC, is a for-profit organization.  Complainant cannot be characterized as a not-for-profit organization simply because one of its equal partners is a not-for-profit organization.  Even if Complainant operates the subject property on a not-for-profit basis, Complainant is not organized or registered as a not-for-profit entity, and “a tax exemption will not be granted to property which houses a business operated for gaining profit, even if the profit is turned over to a parent organization to be used for a charitable purpose.”  Bethesda, 88 S.W.3d at 94, citing S.S. Bd. of S. Baptist Convention, 658 S.W.2d 1, 6 (Mo. banc 1983).    In Franciscan Tertiary Province of Missouri v. State Tax Commission, 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 notforprofit 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 notforprofit 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 property to be exempt it has to both be “owned” and be “operated” on a not-for-profit basis.  Complainant does not meet this test.

Furthermore, the overall tenor of the evidence implies that the primary and inherent use of the subject property is not as a charity.  “The phrase ‘used exclusively’ refers to the primary and inherent use as opposed to a mere secondary and incidental use.”  Bethesda, 88 S.W.3d at 95.  “A charity must be available to all who need it and must not appear to place obstacles of any character in the way of those who need and would take advantage of the charitable benefits.” Id. “Providing retirement homes for the elderly in a non-profit manner rises to a charitable purpose if the home is available to both rich and poor.”  Id., citing Cape Retirement Community v. Kuehle, 798 S.W.2d 201, 203 (Mo.App. E.D.1990).  “The essence of the charitable nature of homes for the aged is that they accommodate the ability to pay of the less financially fortunate elderly.”  Bethesda, 88 S.W.3d at 95, citing Evangelical Ret. Homes v. State Tax Com’n, 669 S.W.2d 548, 556 (Mo.banc 1984).

The Limited Partnership Agreement provides that Complainant’s purposes were not purely charitable but include acquiring land and improvements through tax-exempt bond financing, loans, grants and/or capital contributions to operate, manage, and lease said acquired land and improvements as low-income housing.  The Limited Partnership Agreement does not contemplate and Complainant presented no evidence indicating that Complainant provides housing for those who are unable to pay; rather, the evidence in the record indicates that Complainant does not waive rent when a tenant is unable to pay and that tenants pay the difference between the market rent and the income-based subsidy the tenants receive from the government.  Other evidence established that Complainant conducts credit reviews of potential tenants and that some potential tenants are rejected due to bad credit.

Complainant failed to carry its burden of proving the subject property qualified for exemption by satisfying all three prongs of the Franciscan test.  Complainant’s evidence was not substantial and persuasive to the Hearing Officer.

Conclusion

Complainant failed to meet its burden of proof to present substantial and persuasive evidence to qualify for exemption.  Complainant’s failure to prove any single element is sufficient for denial of exemption.  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. 1991).  Consequently, Complainant is denied exempt status for ad valorem tax purposes.

ORDER

The assessed valuation for the subject property as determined by the Board of Equalization for Clay County for the subject tax day is AFFIRMED.

Application for Review

A party may file with the Commission 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, and a copy of said application must be sent to each person at the address 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 this 18th day of September, 2018.

STATE TAX COMMISSION OF MISSOURI

 

John Treu

Senior Hearing Officer

 

Certificate of Service

 

I hereby certify that a copy of the foregoing has been emailed on 18th day of September, 2018 to: trish.hughes@libertylawoffices.com; crinehart@claycountymo.gov; sclancy@rosenblumgoldenhersh.com; tphelps@rgsz.com

 

Jacklyn Wood

Legal Coordinator

 

[1] Complainant entered into the LURA with the MHDC in 2001.  At that time, US Bank was a partner of Complainant with a 99.99% ownership interest.  Under the terms of the LURA, in exchange for Complainant limiting rent and renting to low income individuals, Complainant’s then-partner, US Bank, received $3,024,720 in Low Income Housing Tax Credits, half from the Federal Government, and half from the State of Missouri.  The LURA restrictions expire in May 2030, but the tax credits were paid out over a 10 year period, ending in 2011.  After receiving all of the over $3 million in tax credits, US Bank transferred, and POAH, Inc., accepted, US Bank’s partnership interest in the property.  US Bank received no cash payment, but, in the transfer, Complainant assumed the obligation to pay mortgages for the subject property in the amount of over $6 million and the obligation to continue to operate the subject property under the terms that POAH, Inc., would indemnify US Bank against any losses associated with the transfer, including potential recapture of the tax credits.  No deed or other public record documents the transfer of the partnership interest, but following the transfer, all of the partners of Complainant were, and are as of the 2015 tax date, entities owned and controlled by POAH, Inc.  Complainant argues that this means Complainant is “indirectly” owned by POAH, Inc., and, as a consequence, a not-for-profit due to POAH, Inc.’s IRS 501(c)(3) status.