State Tax Commission of Missouri
|GLENWOOD MANOR ASSOCIATES, LP||)|
|v.||)||Appeal No. 16-33001|
|RICK KESSINGER, ASSESSOR,||)|
|GREENE COUNTY, MISSOURI,||)|
DECISION AND ORDER
Decision of the Greene County Board of Equalization sustaining the assessment made by the Assessor is AFFIRMED. Complainant Glenwood Manor 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 appeared by Counsel Theresa Phelps.
Respondent Rick Kessinger, Assessor, Greene County, Missouri, (Respondent) appeared by Counsel Aaron Klusmeyer.
Case heard and decided by Senior Hearing Officer John Treu (Hearing Officer).
Complainant appealed on the grounds of exemption.
Complainant filed the following exhibits and written direct testimony (WDT), which were admitted into the record:
|Exhibit A: Legal Description, Organizational Chart and Reason for Request for Property Tax Exemption|
|Exhibit B: Articles of Incorporation of Preservation of Affordable Housing, Inc. (“POAH”)|
|Exhibit C: Bylaws for POAH|
|Exhibit D: IRS Determination Letter for POAH/ Missouri Sales and Use Tax Exemption Letter|
|Exhibit E: Description of Resident Services and Selected Information of Glenwood Manor and POAH|
|Exhibit F: Brief Narration of Purpose of POAH|
|Exhibit G: Land Use Restriction Covenants for Low Income Housing Tax Credits (“LURA”) for Glenwood Manor Associates, L.P.|
|Exhibit H: Project-based Section 8 Housing Assistance Payments Basic Renewal Contract|
|Exhibit I: Rent Roll as of May 1, 2016|
|Exhibit J: Other Factors Favoring a Property Tax Exemption|
|Exhibit K: Foreign Nonprofit Corporation Authorization Certificate for POAH|
|Exhibit L: Third Amended and Restated Limited Partnership Agreement of Glenwood Manor Associates, L.P.|
|Exhibit M: 2012 Amended and Restated Operating Agreement of Preservation of Affordable Housing, LLC|
|Exhibit N: Audited Financial Statements for 2013 – 2015|
|Exhibit O: Selected Missouri Cases to Support Property Tax Exemption|
|Exhibit P: Greene County Real Estate Tax Statement|
|Exhibit Q: Glenwood Manor Demographic and Unit Statistics Report Dated January 10, 2017|
|Exhibit R: Glenwood Manor Demographics Snapshot Report Dated January 11, 2017|
|Exhibit S: Glenwood Manor Demographics Detail Resident Profile Report Dated January 11, 2017|
|Exhibit T: HUD Area Median Income Information from HUD Website for Greene County, Missouri (December 31, 2016)|
|Exhibit U: Sample POAH Communities Resident Survey|
|Exhibit V: “Findings from the Work Support Strategies Evaluation: Streamlining Access, Strengthening Families,” Urban Institute in June of 2016.|
|Exhibit W: Selected Pages from Missouri State Tax Commission Assessor’s Manual|
|Exhibit X: Form 990(s) for Preservation of Affordable Housing, Inc. (2013-2014)|
|Exhibit Y: Selected Pages from Preservation of Affordable Housing, Inc.’s Corporate Policies and Operating Procedures Manual|
|Exhibit Z: Greene County Application for Real Property Tax Exemption for Real Property – Tax Exemption (please note Exhibit A-P were attached to original application; Exhibit E to application was updated to reflect more recent information)|
|Exhibit AA: Prefiled WDT of Kevin Baptista|
Respondent filed no exhibits or WDT.
FINDINGS OF FACT
- Jurisdiction. Jurisdiction over this appeal is proper. Complainant timely appealed to the State Tax Commission from the decision of the County Board of Equalization.
- Evidentiary Hearing. The issue of exemption was presented at an evidentiary hearing on January 18, 2018, at the Greene County Historic Courthouse in Springfield, Missouri.
- Identification of Subject Property. The subject property is located at 2540 North Delaware, Springfield, Greene County, MO. The property is identified by map parcel number 88-12-06-401-106. (Complaint for Review and Exhibit AA)
- Subject Property. The subject property is a 119 unit apartment complex consisting of 41 one-bedroom units, 64 two-bedroom units and 14 three bedroom units. (Exhibit H)
A Property Restrictions and Ownership.
Complainant is a Limited Partnership. 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, 2015, the subject property was governed, in part, by a 30-year Land Use Restriction Agreement (LURA) with the Missouri Housing Development Commission (MHDC). Under the terms of the LURA, all 119 units are required to be occupied by individuals whose income was 60% or less of area median income. Under the terms of a separate Housing Assistance Payments (HAP) contract with the U.S. Department of Housing and Urban Development, 70% of the units must be “low-income units” (80% of area median income), 30% have to be “very low-income units” (50% of area median income) and it is required that annually 40% of any new vacant units be marketed and targeted to persons who meet “extremely low-income unit” (30% of area median income) criteria. (Exhibits A and B)
B Section 8
POAH has a contract with HUD through MHDC, to administer a Section 8 voucher program. (Exhibit 8 and Testimony of Baptista)
C Benefits to Tenants
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 and assistance with connecting to outside services. Complainant employs one staff person to coordinate the services available for tenants. The staff person’s salary is included in the operating expenses for the subject property.
D Profits and losses of Complainant
According to Complainant’s Statements of Operations, at the end of 2014, the subject property had total revenue of $871,262. Complainant’s operating expenses totaled $651,362. Mortgage interest paid along with miscellaneous financial expenses totaled $186,195. After paying the mortgages and financing costs, the operation of the subject property still showed a profit of $33,705 in 2014. Complainant deducted depreciation and amortization “expenses” totaling $180,652, and Complainant reported an “Operating Loss” of $146,947. Complainant also paid to POAH, Inc., a management fee of $64,185 and other miscellaneous expenses of $2,895. Complainant distributed $140,061 to the partners. Complainant’s Statement of Operations showed a net loss of $149,842 for 2014.
E Profits of POAH
Mr. Baptista testified and has previously testified that POAH is in the business of owning and operating low income housing, and that they wanted to make a profit and expected to make a profit, although it does not always happen. POAH had net assets of $136,927,543 as of the end of 2014 and $130,442,033 as of the end of 2013, an increase of over $6 million in one year. (Exhibit X) POAH’s portfolio shows it owns over 82 properties, 14 of which are in Missouri. (Exhibit X) POAH’s 2014 990 income tax form shows it held net assets of $130,442,033 at the end of 2013, and $136,927,543 at the end of 2014, an increase of over $6 million in one year. POAH paid five individuals compensation of over $300,000 each and a sixth person over $500,000 in 2014. (Exhibit X)
- 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)
- Credit Checks On Potential Tenants. Complainant performs credit checks on potential tenants. (Testimony of Baptista)
- 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 L).
- POAH, Inc. May Add Members or Transfer its Interest. Pursuant to the operating agreement, POAH, Inc. is allowed to admit additional members without regard to whether such additional members are owned or operated on a not-for-profit basis. The property agreement also allows POAH, Inc. to transfer its entire membership interest to another entity, again without regard to whether such additional members are owned or operated on a not-for-profit basis. (Exhibit M)
- Property as Investment. POAH, Inc. states “[o]ur depth of experience allows us to recognize the potential in a property and bring it to life as a sound, long term investment…” (added for emphasis) (Exhibit E)
- 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
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.
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).
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).
The legal test for a charitable exemption is whether:
1 The property is owned and operated on a not-for-profit basis;
2 The property is dedicated unconditionally to the charitable activity; and
3 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.
I Owned and Operated on a Not-for-Profit basis
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.”
Section 137.100 (5) states: “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 purpose.”
“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 operate 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).
Complainant argues that POAH, Inc., a not-for-profit organization, “indirectly owns 100%” of Complainant due to the structure of the limited partnership that created Complainant. Complainant argues that, because POAH, Inc., “indirectly owns 100%” of Complainant, the subject property is, by extension, owned and operated on a not-for-profit basis. The Hearing Officer finds this argument to be without merit. 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, one of which, POAH, Inc., is a not-for-profit organization while the other, 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).
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.
Finally, in Franciscan the entire Missouri Supreme Court, analyzed multiple types of situations for exemption. However, the Court stated 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.”
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.
II 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, 830 (Mo. banc 1945): “. . . 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 religion, by relieving their 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.” Exemption rests 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 or 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 Commission, 522 S.W.2d 745 (Mo. 1975).
Complainant did not offer substantial and persuasive evidence to meet this element of its burden of proof. Complainant provides services to its tenants such as coordination of community based services. The fact that Complainant does not have to pay for such services does not diminish one’s charitable purpose by coordination of the provision of such services to one’s tenants. Nevertheless, the Hearing Officer was not persuaded that the property is owned purely for a charitable purpose. Although Complainant may be providing housing to low income, elderly and handicapped tenants and providing certain rudimentary services, no tenant has been provided free rent or had rent waived. All other tenants pay a portion of market rent with the government subsidizing the entire remainder of such market rent.
Complainant competes with other apartments and subsidized housing in Greene County, Missouri and the surrounding area. Complainant does nothing to lessen the burden of government nor do they provide a gift for the benefit of an indefinite number of persons.
III 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 hearts 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 Commission, 669 S.W.2d 548, 554 (Mo. banc 1984). Complainant did not offer substantial and persuasive evidence to meet this element of its burden of proof. The evidence did not induce belief in the Hearing Officer that it is unconditionally dedicated to charitable activity. Complainant may evict tenants for non-payment of rent. Complainant rejects tenants based upon bad credit. Complainant does not offer free rent and Complainant does not offer reduced cost housing by making any monetary contribution to any tenant’s portion of the market rent charged by Complainant. The property is not available to an indefinite number of people.
Benefit to Society
To fulfill the Franciscan test, the subject property must benefit society. Although Respondent put forth evidence that the subject property operates under Low Income Housing Tax Credit restrictions, Complainant put forth no evidence of how the subject property benefits society in general. Based upon the evidence presented, Complainant simply operates a subsidized housing complex. Providing subsidized housing alone is not charitable in nature. In fact, many for profit entities do the same. The government pays a large portion of the rent and finances the construction of the property through credits.
Complainant’s services are largely based upon coordination of other community based services. Although such coordination may benefit Complainant’s tenants in particular, such coordination does not appear to relieve any burden on society in general. Complainant simply failed to present substantial and persuasive evidence that it somehow provides something that helps to limit the burdens on the Greene County, Missouri community or the State of Missouri community. The fact that Complainant simply appears to be a subsidized housing complex that provides some services to its tenants also does not lend itself to a finding of exemption. In fact, Section 137.076 RSMo. specifically provides for how subsidized housing projects are to be valued and taxed:
- In establishing the value of a parcel of real property the county assessor shall consider current market conditions and previous decisions of the county board of equalization, the state tax commission or a court of competent jurisdiction that affected the value of such parcel. For purposes of this section, the term “current market conditions”, shall include the impact upon the housing market of foreclosures and bank sales.
- 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.
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.
The assessed valuation for the subject property as determined by the Board of Equalization for Greene 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.
The Collector of Greene 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 27th day of March, 2018.
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 27th day of March, 2018, to: Complainants(s) counsel and/or Complainant, the County Assessor and/or Counsel for Respondent and County Collector.
 Complainant entered into the LURA with the MHDC in 2001. At that time, US Bank was a partner of Complainant. Subsequently, US Bank transferred, and POAH, Inc., accepted, US Bank’s partnership interest in the property. 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.