Heritage Preparatory School v. Stokely (Christian)

 

HERITAGE PREPARATORY SCHOOL, INC,)

)

Complainant, )

)

v. ) Appeal No. 12-50500 through 12-50503

)

DAVID STOKELY, ASSESSOR, )

CHRISTIAN COUNTY, MISSOURI, )

)

Respondent. )

 

 

DECISION AND ORDER

HOLDING

 

Assessment by Assessor that subject property was not tax exempt was sustained by the Christian County Board of Equalization.

Complainant failed to present substantial and persuasive evidence to establish that the use of the subject properties qualify for exemption from ad valorem taxes under section 137.100 (5) RSMo.

Assessments of the subject properties are AFFIRMED.

Complainant appeared by Counsel Harry Styron, Styron Law Firm, Ozark, Missouri, .

Respondent appeared by Counsels John W. Housley and Aaron Klusmeyer, Lowther Johnson, Springfield, Missouri.

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

ISSUE

The Commission takes this appeal to determine whether the subject properties are exempt from 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 and the Briefs filed by the parties, 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 from the decision of the Christian County Board of Equalization.

2. Evidentiary Hearing. The Evidentiary Hearing was held on March 12, 2013, at the Christian County Courthouse, Ozark, Missouri. The parties elected to not brief the case. Transcript was filed with the Commission on May 29, 2013.

3. Identification of Subject Properties.[1]

a. The property in Appeal 12-50500 is identified by map parcel number 13-9-29-6, it is located at 366 Haynes Dr., Sparta, Missouri.

 

b. The property in Appeal 12-50501 is identified by map parcel number 13-9-30-13, it is located at 366 Haynes Dr., Sparta, Missouri.

 

c. The property in Appeal 12-50502 is identified by map parcel number 17-4-18-2.003, it is located at 250 Aviation Avenue, Ozark, Missouri.

 

d. The property in Appeal 12-50503 is identified by map parcel number 17-3-7-3.027, it is located at 2820 State Highway W, Ozark, Missouri.

 

4. Description of Subject Properties.[2]

a. The property in Appeal 12-50500 consists of 40.8 acres improved by a house and swimming pool.

 

b. The property in Appeal 12-50501 consists of 40.8 acres improved by a barn and two sheds.

 

c. The property in Appeal 12-50502 consists of 7.14 acres improved by a house, garages, a pool and other residential structures.

 

d. The property in Appeal 12-50503 consists of 6.42 acres improved by residential, agricultural and commercial structures. The structures on said land consist of: (1) barn with theatre-style classroom, music instruction room, bathroom, farm and maintenance equipment storage area, equine facilities, and agricultural facilities; (2) library building with upstairs study area; (3) office building; (4) flammables storage; and (5) aviation building – hangar area, lobby and headmaster’s residence.

 

5. Assessment.[3]

a. The property in Appeal 12-50500 was assessed at $21,550 – residential, and $660 – agricultural, for a total assessed value of $22,210.

 

b. The property in Appeal 12-50501 was assessed at $2,040 – agricultural.

 

c. The property in Appeal 12-50502 was assessed at $71,160 – residential.

 

d. The property in Appeal 12-50503 was assessed at $90,610 – residential, $5,390 – agricultural, and $11,620 – commercial, for a total assessed value of $107,620.

 

The Board of Equalization sustained the assessments.[4]

6. Complainant’s Evidence. Complainant offered into evidence the following:

 

No objections were made to Exhibits A through G, they were received into evidence.[5] Mr. Peak testified at the evidentiary hearing.

7. Presumption of Correct Assessment Not Rebutted. Complainant’s evidence was not substantial and persuasive to rebut the presumption of correct assessment by the Board and establish the subject properties to be exempt from ad valorem taxes under section 137.100 (5) RSMo. See, Presumption In Appeal, Burden of Proof, Franciscan Tertiary Test, & Complainant Fails To Prove Exemption, infra.

8. Respondent’s Evidence. Respondent offered into evidence the following:

 

9. Specific Findings.

a. 501 (c) (3) Status. Heritage Preparatory School Inc. was issued a 501 (c) (3) letter dated 2/8/1998 by the Internal Revenue Service.[8] The status of 501 (c) (3) set by the Internal Revenue Service establishes that a corporation is exempt from federal income taxes and that donations to the organization may be claimed as a deduction on a donor’s federal income tax return. Being a 501 (c) (3) entity does not establish that the Complainant’s use of the subject properties qualifies for exemption from ad valorem taxes under Section 137.100(5), RSMo.

b. Corporate Status. Heritage Preparatory School, Inc. was issued a Certificate of Good Standing by the Office of the Corporation Commission of the State of Arizona,[9] and Certificate of Authority Foreign Nonprofit by the Secretary of State of the State of Missouri.[10] Status as a nonprofit corporation in Arizona and Missouri does not establish that the Complainant’s use of the subject properties qualifies for exemption from ad valorem taxes under Section 137.100(5), RSMo.

c. History of Heritage Preparatory Schools, Inc. The history of activities conducted by Complainant in Arizona on property not subject to the laws of the State of Missouri does not establish that the Complainant’s use of the subject properties qualifies for exemption from ad valorem taxes under Section 137.100(5), RSMo.

d. Character of Affairs. The character of affairs Complainant intends to actually conduct are to operate and maintain the operation of a fully functioning private school and be involved in various educational activities for the benefit of local community members and/or the general citizenry of the United States of America.[11] The character of affairs of what Complainant intends to conduct does not establish that the Complainant’s use of the subject properties qualifies for exemption from ad valorem taxes under Section 137.100(5), RSMo.

e. Operation of Private School. Complainant has not received, since being established in Missouri, any accreditation, certification, or licensure from any local, state of national government or educational body or accrediting board.[12] Complainant’s properties are located in the Ozark High School system. Complainant has nothing from that school system (or any other) that verifies that a high school age student taking courses from Complainant can receive high school credit (or elementary credit).[13]

Complainant has no course curricula, syllabi or other documents relating to the content, objectives, or completion requirements for any course or program offered.[14] There is no admission policy or criteria. The only requirements for completion of any of the classes, workshop and seminars offered by Complainant are “attendance, participation, and completion of the course work.” Individuals do not earn grades for any of the activities.[15] The activities described as being conducted by Complainant do not establish that any of Complainant’s property is being operated primarily as a fully functioning private school or other educational facility. See, Activities Do Not Qualify as Primary and Inherent School/Educational Use, infra.

f. Various Educational Activities. The entirety of the “course” work or educational activities conducted by Complainant on its property during 2012 consist of four students in elementary Spanish; 14 high school Spanish students and 56 adults and four high school and middle school students who attended “workshops and seminars” on American History and Government; Natural Health Remedies; General Education; Aviation Training; and “How to Re-Program Your Life.”[16] These activities do not establish that any of Complainant’s property is being operated primarily for the providing of educational activities. These activities do not qualify as a primary and inherent use of the property for any educational or charitable use. See, Activities Do Not Qualify as Primary and Inherent School/Educational Use, infra.

g. Appeals 12-5000 & 12-5001 – Haynes Drive Property. The portion of these properties with no structures has been used as agricultural pasture.[17] No educational classes were held on this property during 2011, 2012 or at the time of the evidentiary hearing, with the possible exception of a single health class. The house on the property serves as the residence of the farm manager – Mr. Peak’s son, daughter-in-law and grandchildren.[18] The primary use of this property was not established to be a use for which tax exemption may be granted. See, , infra.

h. Appeal 12-50502 – Aviation Avenue Property. This property was purchased by Complainant after 1/1/12 and is to be sold to raise funds for Complainant’s educational efforts. No classes have been held on the property and there was never any intention to hold classes on the property.[19] The property was not listed as a property that was appealed to the Christian County Board of Equalization on 7/12/12.[20] The portion of the property with no structures has been used as agricultural pasture.[21] It was not as of 1/1/12 owned by a not for profit entity and was not operated on a not for profit basis, but was being held as an investment. This property does not meet the statutory requirement for exemption for ad valorem taxation. See, Section 137.100(5), RSMo, infra. The property was not appealed to the Christian County Board of Equalization and therefore Complainant does not have standing to appeal this property to the Commission.[22] Accordingly, the appeal must be dismissed on that basis.[23]

i. Appeal 12-50503 – Hwy W Property. The portion of this property with no structures has been used as equine pasture or is restricted by a landing strip right-of-way owned by another entity.[24] No educational classes were being held on this property on 1/1/11 or on 1/1/12, an initial meeting occurred in May, 2012 and classroom instruction began in July, 2012.[25] Mr. Peak, his wife and father reside in the residence on this property.[26] The primary use of this property was not established to be a use for which tax exemption may be granted. See, , infra.

CONCLUSIONS OF LAW

Jurisdiction

The Commission has jurisdiction to hear this appeal and correct any assessment 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.[27]

Burden of Proof

Complainant has the burden to present substantial evidence to rebut the presumption of correct assessment by the Board of Equalization.[28] 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.[29] It is well established that taxation is the rule and exemption from taxation is the exception. Exemption is not favored in the law.[30]

Section 137.100(5), RSMo

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

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, 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 therefore is used wholly for religious, educational, or charitable purposes;”

 

As will now be addressed, Complainant’s substantial burden of proof has not been met in the present case. The subject properties do not satisfy the statutory or case law mandates for the granting of a tax exemption.

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 137.100 (5) refers to the primary and inherent use of a given property, as against mere secondary and incidental use.[31] 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 and properties. 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 evidence for the primary and inherent use of any one of the four properties identified in this appeal being for an exempt purpose is totally lacking. None of Complainant’s properties are actually and regularly used exclusively as a school or for an educational purpose.

Franciscan Tertiary Test

In order to satisfy the required burden of proof that the subject property is used “exclusively for … purposes purely charitable, 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.[32] The court held:

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 “relieving their bodies of disease, suffering, or constraint…or by erecting or maintaining pubic buildings…lessening the burdens of government.” 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.[33]

 

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’s evidence has failed to establish that the actual and regular, primary and inherent use of the subject properties comports with a use which qualifies for exemption under the Franciscan tests.

Complainant Fails To Prove Exemption

In order to qualify for an educational or charitable exemption for an educational use all three of the Franciscan tests must be satisfied. Failure to qualify as to any one of the tests requires a denial of exemption under 137.100 (5).

Owned and Operated On A Not-For-Profit Basis

The ownership of the properties is in a foreign nonprofit corporate entity recognized by the State of Missouri. Since no financial records were produced by Complainant for tax years 2011 and 2012, it is impossible for the Hearing Officer to arrive at any conclusion as to the operation of the property, especially with regard to any income produced on the portions of the properties that were put to agricultural uses, during 2011 and 2012. It is not enough that income received from the agricultural operation of the properties was used for Complainant’s asserted school/educational purpose. The inherent operation of the property must be a charitable use. See, Actually and Regularly Used Exclusively, supra. Accordingly, as to those portions of the properties which were put to an agricultural use, land and supporting structures/improvements, such real estate was not established to have been operated on a not-for-profit basis. Therefore, the only remaining point of inquiry is as to an inherent and primary school/education use of the remaining structures on Complainant’s properties.

Activities Do Not Qualify as Primary and Inherent School/Educational Use

The second Franciscan test that must be met is that the primary and inherent use must be for the claimed school/educational use. The stated character of affairs of Complainant is only for operation of a fully functioning private school and educational activities. The limited activities Complainant conducted in 2012, in apparently only the residential structure on the Highway W Property (Appeal 12-50503), fall far short of demonstrating a primary use of the property for an educational use. An elementary and high school Spanish course, for which no actual credit that could be applied toward any certificate, degree or diploma, apparently met in the Peak residence during part of 2012. No evidence was presented that any Spanish student was actually required to establish any level of proficiency in speaking the language in order to be deemed to have successfully completed the course. No schedule as to when during 2012 these Spanish classes actually met was provided.

No material was provided to establish the exact content of any of the five workshops or seminars that apparently convened in the Peak residence. There were no course curricula or syllabi for any of these events. None of the activities had any stated objectives or completion requirements.

The most the Hearing Officer can deduce from the evidence is that Mr. Peak or some other unidentified individuals serve as the teacher, lecturer, facilitator or group leader for individuals who want to come and listen to a lecture, discuss some topic, or watch a video on some subject. No schedule for these events was provided. It is unclear if they actually did meet on a regular basis at stated times and dates over a given period of time.

If the very limited activities reported as being the entirety of the “fully functioning private school and educational activities” on Complainant’s property were qualify for ad valorem tax exemption in Missouri, then every family, home schooling their children, could form a not for profit corporation and transfer title to the family home to the corporation so they would not be required to pay real estate taxes. However, such is not the case. The primary and inherent use of Complainant’s properties is not to operate a fully functioning private school. It cannot be considered in any real sense of the word that any of the property is used for a “school.” The activities otherwise conducted from time to time on a limited portion of the Peak’s residential property in the very broadest sense of the word are educational, however, the manner in which the activities apparently are conducted reach far beyond what could reasonably and logically be concluded as the manner and methodology for educational activities in a school setting.

Thomas Jefferson Education

Mr. Peak sought to explain away the lack of structure, curricula, syllabi, objectives or completion requirements for the various activities sponsored by Complainant under the claim that Complainant’s “fully functioning private school and educational activities” are based on the Thomas Jefferson Education methodology. The Hearing Officer will not burden the record with a listing of his readings on Jefferson. Suffice it to say, the Hearing Officer is well enough read and versed in the life, times and education of Thomas Jefferson to understand that what he received as his education and what are being offered by Complainant as a “fully functioning private school and educational activities” are significantly different.

The Hearing Officer is aware of and possesses some knowledge relative to the movement that has been labeled as Thomas Jefferson Education (TJE) by its founders.[34] Complainant elected to not attempt to illuminate the record on the topic of TJE. It was, in fact, left to Respondent to provide the only documentation – a tri-fold pamphlet prepared by Complainant which makes only a passing reference to TJE.[35] However, that piece of information failed to establish that TJE actually has been recognized within accepted educational standards and educational communities as an appropriate methodology for the operation of a “fully functioning private school.” There is no evidence to establish any entity recognized as a private or public school in Missouri actually functions under the methodology of TJE. The Hearing Officer’s understanding is that this relatively new approach to education in the United States developed, and has found its broadest recognition, in the area of home schooling and not in the actual operation of any private or public school.

Charitable Use – Benefit Indefinite Persons and Society

The final test under Franciscan is that the Complainant’s asserted educational use must provide a benefit for an indefinite number of persons and for society in general, directly or indirectly. This test is connected to and follows from the two preceding tests. The use, that is the claimed primary and inherent educational/charitable use, must benefit indefinite persons and society. Since, as in this instance, the Complainant’s activities failed to reach the threshold standard of being an exempt use, the third test has, like tests 1 and 2, not been met.

Summary and Conclusion

The subject properties in Appeals 12-50500 and 12-50501 during 2011 and 2012 were not primarily and inherently used for any exempt purpose, they must be assessed according to the assessment properly concluded by the Assessor and sustained by the Board of Equalization.

The primary and inherent use of the subject property in Appeal 12-50502 was as in investment property. It was not owned by Complainant as of 1/1/12 and was not appealed to the Board. For all the foregoing reasons, Complainant’s request for exemption as to this property must be denied.

The proper in Appeal 12-50503 has its primary and inherent use as providing a residence for Mr. and Mrs. Peak. The property does not function as an operating private school. The gatherings for Spanish classes and the miscellaneous discussion groups do not establish or qualify the property or any portion of the residential structure to be granted the benefit of tax exempt status.

ORDER

The assessments of the subject properties made by the Assessor and sustained by the Board of Equalization for Christian County for the subject tax day are AFFIRMED.

The assessed value for the subject property in Appeal 12-50500 for tax year 2012 is set at $22,210, $21,550 – residential, and $660 – agricultural.

The Assessed value for the subject property in Appeal 12-50501 for tax year 2012 is set at $2,040 – agricultural.

The Assessed value for the subject property in Appeal 12-50502 for tax year 2012 is set at $71,160 – residential.

The Assessed value for the subject property in Appeal 12-50503 for tax year 2012 is set at $$107,620; $90,610 – residential, $5,390 – agricultural, and $11,620 – commercial.

Complainant 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. [36]

The Collector of Christian 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 June 25, 2013.

STATE TAX COMMISSION OF MISSOURI

_____________________________________

W. B. Tichenor

Senior Hearing Officer

 

Certificate of Service

 

I hereby certify that a copy of the foregoing has been mailed postage prepaid on this 25^th day of June, 2013, to: Harry Styron, 302 E. Church Street, Ozark, MO 65721, Attorney for Complainant; Aaron Klusmeyer, 901 St. Louis St., 20^th Floor, Springfield, MO 65806, Attorney for Respondent; David Stokely, Assessor, 100 W. Church, Room 301, Ozark, MO 65721; Kay Brown, Clerk, 100 W. Church, Room 206, Ozark, MO 65721; Ted Nichols, Collector, 100 W. Church, Room 101, Ozark, MO 65721.

___________________________

Barbara Heller

Legal Coordinator

 

Contact Information for State Tax Commission:

Missouri State Tax Commission

301 W. High Street, Room 840

P.O. Box 146

Jefferson City, MO 65102-0146

573-751-2414

573-751-1341 Fax