First Church of the Nazarene v. Waybill (Adair)

FIRST CHURCH OF THE NAZARENE,	)
	)
Complainant,	)
	)
v.	)	Appeal No. 12-40001
	)
DONNIE WAYBILL, ASSESSOR,	)
ADAIR COUNTY, MISSOURI,	)
	)
Respondent.	)

  

DECISION AND ORDER 

HOLDING 

Hearing Officer finds subject property to be not exempt under Section 137.100(5); assessment of property as commercial real estate with an appraised value of $280,000, assessed value of $89,600 is AFFIRMED.

Complainant represented by Attorney Theodore Bruce, Jefferson City, Missouri.

Respondent represented by Matt Wilson, Prosecuting Attorney, Adair County.

Case heard and decided by Senior Hearing Officer, W. B. Tichenor.

ISSUE

Complainant appeals the decision of the Assessor to assess the subject property on the ground of exemption from taxation.The Commission takes this appeal to determine whether the subject property is exempt from ad valorem taxation under Section 137.100(5), RSMo for the tax year 2012.

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

FINDING OF FACTS

1.Jurisdiction.Jurisdiction over this appeal is proper.Complainant timely appealed to the State Tax Commission upon receipt of the 2012 tax bill.[1]Complainant filed its Post –Hearing Brief on September 5, 2013.[2]

2.Evidentiary Hearing.The evidentiary hearing was held on Tuesday, July 30, 2013.Transcript was filed with the Commission on September 3, 2013.

3.Identification of Subject Property.[3]The subject property is identified by property number 24-00214.01, map parcel number 08-08.0-33-004-01-04.001000.It is located at 2500 N. Baltimore Street, Kirksville, Missouri.

4.Description of Subject Property.[4]The subject property consists of 15 acres, of unimproved land, with city sewer, water and natural gas available to the site.

5.Assessment.[5]The Assessor appraised the propertyat $280,000, a commercial assessed value of $89,600.

6.Complainant’s Evidence.Complainant offered into evidence Exhibit A,[6] the written direct testimony of Mark Hager, Pastor of First Church of the Nazarene, and his testimony at the evidentiary hearing.[7]

7.Respondent’s Evidence.Respondent offered into evidence the following exhibits:

 

Exhibits 1 through 8 were received into evidence.[8]Mr. Waybill testified at the evidentiary hearing.[9]

8.Subject Property Use.The following specific Findings of Fact are made relative to Complainant’s ownership and use of the property:

a.Complainant’s Status.Complainant is organized for religious purposes and is tax-exempt.[10] 

b.Ownership of Subject Property.[11]The property was owned by Complainant as of 1/1/12.The property was donated to Complainant by Jeff Blanton on or about 12/31/11. 

c.Operation of Subject Property on a Nonprofit Basis.[12]The property was not being operated as part of the work and ministry of the Complainant as of 1/1/12. 

d.Use of Subject Property[13].The property was not used on a regular basis to conduct religious worship or other ministries of the Complainant during 2012. 

e.Subject Property Offered for Sale.[14]The property was offered for sale in March 2012 to pay on Complainant’s debt. 

CONCLUSIONS OF LAW

Jurisdiction

The Commission has jurisdiction to hear this appeal and correct any assessment shown to be unlawful, unfair, arbitrary or capricious.[15]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.[16]

Burden of Proof

Complainant has the burden to present substantial evidence to establish that the property under appeal falls within an exempted class under the provisions of Section 137.100.[17] It is well established that taxation is the rule and exemption from taxation is the exception.Exemption is not favored in the law.[18]The Hearing Officer concludes based upon the Findings heretofore made that Complainant has not satisfied the substantial burden to establish exemption.

Section 137.100(5), RSMo

Complainant seeks exemption of its property from taxation pursuant to Section 137.100(5):

“The following subjects are exempt from taxation for state, county or localpurposes: . . . 

(5) All property, real and personal, actually and regularly used exclusively for religious worship, . . . 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 . . .purposes;” 

Actually and Regularly Used Exclusively

The statutory requirement for the actual and regularly use to be exclusively for an exempt purpose has been addressed by various court decisions.Specifically, the phrase “used exclusively” in Section 137.100(5) refers to the primary and inherent use of a given property, as against mere secondary and incidental use.[19]The history and consistency of the courts on this point provide no basis for the Hearing Officer to conclude or apply any other meaning for this phrase to the present appeal.In the absence of the primary and inherent use of Complainant’s properties being for an exempt purpose the claim for exemption from ad valorem taxation must be denied.

The initial plan of the Complainant for the property was to sell the property where the existing church facility is located and build a new church facility on the subject property.To this extent set up a land committee and had some planning sessions at the beginning of 2012.However, the Church suffered a significant financial setback due, in part, to a rift within the congregation.Several members left the church.This forced a re-evaluation of the financial picture for the church.Other options had to be considered.The Church was not in a position to develop the property under appeal for a new church building and facility.Because of the financial needs of the Church the plan was changed to sell the subject property and use the proceeds to pay on the Church’s existing debt.[20]As early as 3/28/12 the property was advertized for sale by the Church at a list price of $595,000.[21]

These facts fall directly within the statutory prohibition of 137.100 for granting of a religious exemption.The property, since the time the Church abandoned its plans for development of the site for a new church building and facility, has simply been held as an investment to be sold and the proceeds used to pay its debt.Assuming, without concluding, that using income from the sale of a donated property for payment of a religious entity’s debt constitutes a use for a “religious purpose” the statute clearly bars an exemption in this instance.The plain language stating “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 . . .purposes” governs the decision in this instance.

The Hearing Officer clearly understands that the property was not acquired for “investment purposes.”Likewise, it is accepted that the Church did not originally intend to use the property for any “commercial” purpose.However, the property during the entirety of 2012 was simply sitting unused.The property was never actually “used or occupied” to carry out any mission or ministry of the Church.It was plainly held for the purpose of obtaining income to pay its debt.Under the statute even if the property had been held for the purpose of obtaining income to carry on the mission and ministry of the Church, as opposed to paying down its debt, the outcome could be no different under the statute.The statutory mandate prohibits any not for profit entity from using real estate it owns as simply an investment or income mechanism.

The primary and inherent use to which the property was put early in March 2012 was to liquidate to obtain funds, in effect a profit, since the property had been a donation to the Church. The evidence for the primary and inherent use of Complainant’s property for an exempt purpose is not established under the plain language of the statute.

Franciscan Tertiary Test

In meeting its burden of proof that the subject property is “actually and regularly used exclusively” for religious, educational and charitable purposes and not held for private or corporate profit, Complainant must meet the three prong test set forth by the Missouri Supreme Court in Franciscan Tertiary Province v. STC.[22]The court said:

The first prerequisite for property to be exempt as charitable under §137.100 is that it be owned and operated on a not-for-profit basis.It must be dedicated un-conditionally 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 attainment of the charitable objectives of the project…. [A]n exemption will not be granted covering property which houses a business operated for the purpose of gaining a profit, even though it is turned over to a parent organization to be used for what are admittedly independently…charitable purposes.

 

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.

 

Another prerequisite for charitable exemption is that the dominant use of the property must be for the benefit of an indefinite number of people, for the purpose, as expressed in Salvation Army, of “bringing their hearts under the influence of education or religion, by relieving their bodies from disease, suffering, or constraint by assisting them to establish themselves for life, . . . .” 188 S.W.2d at 830. Thus it is required that there be the element of direct or indirect benefit to society in addition to and as a result of the benefit conferred on the persons directly served by the humanitarian activity.[23]

 

The three tests to be met under Franciscan are:

1.Property must be owned and operated on a not-for-profit basis; 

2.Property must be actually and regularly used exclusively for a charitable purpose; and

3.Property must be used for the benefit of an indefinite number of persons and for society in general, directly or indirectly. 

Complainant must satisfy each of the Franciscan tests in order for its property to be exempt for tax year 2012.As will now be addressed, Complainant has failed to satisfy any of the three tests.

Complainant Fails to Prove Exemption

Ownership & Operation

The Hearing Officer has assumed the not-for-profit status of Complainant and therefore can conclude, based upon that assumption, that the subject property is owned on a not-for-profit basis.That is that as of 1/1/12, a nonprofit legal entity was the owner of the property.

The word “operate” is defined as “to be in action so as to produce an effect; act; function; work; to bring about a desired or appropriate effect; have a certain influence.”[24]As of 1/1/12 and during calendar year 2012 there was no operation of the Complainant’s property for any not for profit use.No action was being carried on so as to produce an effect, act, function or work that would involve the advancement of the religious ministry and mission of the First Church of the Nazarene.

Charitable Purpose

The second test is that the property for which an exemption is sought must be in use for the “charitable purpose” or in this instance the religious purpose of Complainant.The record is devoid of any evidence that the property during any time after the Church obtained title was used on a regular basis for any religious purposes.[25]There was no plan for utilization of the property in any fashion on a month to month basis to hold worship services, youth or congregational activities.The original intention of development for a new church facility does not qualify as any actual religious use.The property failed to be used for any religious purpose during 2012.

Benefit Indefinite Number of People & Society In General

The final test involves a benefit to an indefinite number of people and to society in general in the operation of the property.Benefit to an indefinite number of people does not require that everyone in the general area of the property receive a benefit.It is sufficient that the bestowing of the benefit is open and not restricted to a set number of individuals.In the present case, having the property simply sitting and offered for sale provided no religious benefit to any individuals.The offering of the property for sale to obtain the proceeds of the sale is nothing more than a commercial transaction.It is not an act of religious worship or ministry.

As to the benefit to society in general, the Hearing Officer recognizes that religious worship, ministry and practice in the society and culture of this nation is generally recognized to provide a general benefit to society in the mind and eyes of many citizens.At the same time, the Hearing Officer would certainly accept the argument that other citizens see no benefit to society provided by any form of organized religion.Be that as it may, the activity of holding the subject property and listing it for sale does not bestow a religious benefit upon society in general.The only benefit to accrue, directly or indirectly to anyone is that Complainant, upon the sale of the property will be able to pay down part of its debt and its creditor will receive

Conclusion – Franciscan Tests

The use to which the property under appeal was put during 2012 fails each of the three tests under the standard set by the Franciscan decision.

Complainant’s Brief Not Persuasive

The Hearing Officer has read Complainant’s Brief and is not persuaded by the arguments advanced therein.It is understood the property was not purchased as an investment.Nor was it donated for purpose of an investment.Complainant’s argument based upon a comparison to a cash donation instead of a property donation misses the point.The tax-exempt status of cash or property donations relates to state and federal income taxation, not local ad valorem real property taxation.

Counsel for Complainant asserts that this is no different than the Church having received a cash donation, because all the church must do is take the intermediate step of selling the property in order to receive the cash.The difference is that all real property not being used for an exempt purpose as of January first of each year is subject to ad valorem real estate taxes.Cash held by a not for profit entity on the first of January are not subject to ad valorem taxes.

The argument advance relying on Franciscan that Complainant’s property is, and has been “dedicated unconditionally to the charitable active in such a way that there will be no profit, presently or prospectively, to individuals or corporations” is not persuasive.The Church stands to make a sizeable profit from the sale of the subject property.It paid nothing for the real estate and it will receive all of the income, i.e. profit upon the sale of the property.Under 137.100 it matters not that all of those proceeds may be used for a religious purpose or ministry, such an arrangement, as addressed above runs afoul of the legislative enactment on exemption.To follow the Complainant’s line of reasoning just one step further would permit any Church to go out and buy up all sorts of land and turn around and sell it so it can use the funds for its “religious purposes.”Such activity would simply result in a smaller percentage of profit than in the donated land situation.

Complainant’s brief make reference to a sentence from Franciscan at 224 which states, as set out in the Brief, “Any gain achieved in use of the [land] must be devoted to attainment of the charitable objectives of the project.”The Hearing Officer notes, as set out above, the entire statement in context is as follows:

Any gain achieved in use of the building must be devoted to attainment of the charitable objectives of the project…. [A]n exemption will not be granted covering property which houses a business operated for the purpose of gaining a profit, even though it is turned over to a parent organization to be used for what are admittedly independently…charitable purposes.

 

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.

It is observed that in the context of the Franciscan case, the discussion as to “gain” clearly relates to the ongoing operation of a property “which houses a business operated for the purpose of gaining a profit.”That is clearly not the present case.There is no business operating for the purpose of gaining a profit.There is only a vacant, undeveloped 15 acres being held and marketed for sale to gain income from the sale.It is further noted that using the profit from operation of the property for the charitable, or in this instance religious purpose does not salvage an exemption for property not unconditionally devoted to the exempt purpose.

Furthermore, making of income or receiving a profit cannot be the primary goal of the use of the property.Any resulting income or profit can only come as a secondary or incidental factor for a property to qualify as exempt.Clearly, this is not the case in this instance.Notwithstanding the original intention of constructing a church facility, the primary goal of holding the property is to sell it to receive a profit to pay against the Church debt.This is not a charitable or religious use or purpose.

Intention to Develop

The Hearing Officer will address briefly the matter of an intention to develop for a charitable or religious use or purpose.It is clearly understood in many instances, a church or some other religious, educational or charitable entity may, either through purchase or by donation, obtain an unimproved or partially improved tract of land for which it is intended that the property be developed and used for a tax exempt purpose.If the land is improved with some structure that can readily be put to the exempt use, then no serious problem is presented. There is no intention to use for exempt purpose issue present.

However, if the land is vacant then the issue becomes how a not-for-profit entity might obtain the benefit of its statutory right under 137.100 while it intends and seeks to develop the land for what would clearly otherwise be an exempt purpose and use.Taking the present fact situation as the basis for the illustration, it appears that had there been in place various factors, that exemption of the property for 2012 might have been obtained.It is assume that the Church received the donated land just as occurred.Vacant property donated to the Church via deed on 12/31/12.However, the Church had previously been looking forward to the very real eventuality of constructing a new church building and facility.

For example, had there been in place such elements as a fund raising program for a new building, a building committee, plans and drawings in place for the new church building, or plans for consultations with architects and government officials about locating of a new facility, these activities would clearly manifest a definite intention to develop the property for the Church’s religious use.A service of groundbreaking and erection of a sign noting the site to be the future home of the First Church of the Nazarene would be further tangible evidence of the realistic intention that the property was to be utilized in the future for the church worship and ministry site.Conducting of some church activities or ministry on the site would provide an actual use in anticipation of the property being fully developed.Certainly, bringing on site the equipment to actually commence initial construction is clear evidence of development for the exempted use.

Such activities as have just been outlined provide a basis that the “intention” to develop is something more than just a hope or dream that is some time away from realization and actualization.Each case will vary from fact situation to fact situation and no hard and fast rule can be laid down to address every case of the acquisition of undeveloped land and the elements and steps that would qualify as the property being in use for an exempt purpose.It would to this Hearing Officer be something far less than having the facility ready and presented as a turnkey operation and simply an entity agreeing that at some time in the future when things are right that development of the land would be commenced.

Conclusion

The evidence failed to establish that Complainant’s property could be granted exemption under Section 137.100 or Franciscan.Accordingly, the assessment made by the Assessor must be affirmed.

ORDER

The assessment of the subject property made by the Assessor for Adair County for the subject tax day is AFFIRMED.

The assessed value of the subject property for tax year 2012 is set at $89,600.

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.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 appeal is based will result in summary denial. [26]

The Collector of Adair 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 December 17, 2013.

STATE TAX COMMISSION OF MISSOURI

W. B. Tichenor

Senior Hearing Officer