State Tax Commission of Missouri
JOHN AND JOYCE IVEY,)
DIRECTOR OF ASSESSMENT,)
JACKSON COUNTY, MISSOURI,)
AFFIRMING HEARING OFFICER DECISION
UPON APPLICATION FOR REVIEW
On November 2, 2006, Senior Hearing Officer W. B. Tichenor entered his Decision and Order (Decision) affirming the assessment by the County Board of Equalization and finding the property under appeal was not exempt from taxation under §137.100, RSMo.
Complainants timely filed their Application for Review of the Decision.Respondent did not file a Response.
CONCLUSIONS OF LAW AND DECISION
A review of the record in the present appeal provides support for the determinations made by the Hearing Officer.There is competent and substantial evidence to establish a sufficient foundation for the Decision of the Hearing Officer.A reasonable mind could have conscientiously reached the same result based on a review of the entire record. The Commission finds no basis to support a determination that the Hearing Officer acted in an arbitrary or capricious manner or abused his discretion as the trier of fact and concluder of law in this appeal.Hermel, Inc. v. STC, 564 S.W.2d 888 (Mo. 1978); Black v. Lombardi, 970 S.W.2d 378 (Mo. App. E.D. 1998); Holt v. Clarke, 965 S.W.2d 241 (Mo. App. W.D. 1998); Smith v. Morton, 890 S.W.2d403 (Mo. App. E.D. 1995);Phelps v. Metropolitan St. Louis Sewer Dist., 598 S.W.2d 163 (Mo. App. E.D. 1980).
The Commission finds the Hearing Officer properly and adequately addressed the controlling issue in this appeal.The subject property is owned by the Complainants.It is not owned on a not-for-profit basis.This ownership is a bar to granting tax exempt status under the controlling case of Franciscan Tertiary Province v. STC, 566 S.W.2d 213, at 223-224 (Mo. banc 1978).There is no need for the Commission to duplicate the Decision of the Hearing Officer in this Order.The Hearing Officer properly applied the controlling law to the facts in this case. He did not err in his determinations as challenged by Complainants.
The Commission upon review of the record and Decision in this appeal, finds no grounds upon which the Decision of the Hearing Officer should be reversed or modified.Accordingly, the Decision is affirmed.
Judicial review of this Order may be had in the manner provided in Sections 138.432 and 536.100 to 536.140, RSMo within thirty days of the date of the mailing of this Order.
If judicial review of this decision is made, any protested taxes presently in an escrow account in accordance with this appeal shall be held pending the final decision of the courts.If no judicial review is made within thirty (30) days, this decision and order is deemed final and the Collector of Jackson County, as well as the collectors of all affected political subdivisions therein, shall disburse the protested taxes presently in an escrow account in accord with the decision on the underlying assessment in this appeal.If any or all protested taxes have been disbursed pursuant to Section 139.031(8), RSMo, either party may apply to the circuit court having jurisdiction of the cause for disposition of the protested taxes held by the taxing authority.
SO ORDERED January 23, 2007.
STATE TAX COMMISSION OF MISSOURI
Bruce E. Davis, Chairman
Jennifer Tidwell, Commissioner
Charles Nordwald, Commissioner
DECISION AND ORDER
Decision of the Jackson County Board of Equalization sustaining the assessment made by the Assessor, AFFIRMED.Hearing Officer finds true value in money for the subject property for tax years 2005 and 2006 to be $544,000, assessed value of $174,080.
Complainant appeared by Counsel Michael LeVota, Independence, Missouri.
Respondent appeared by Counsel William Snyder, Chief Deputy County Counselor.
Case submitted on documents and decided by Senior Hearing Officer W. B. Tichenor.
The Commission takes this appeal to determine whether the subject property is exempt from taxation under the provisions of Section 137.100, Revised Statutes of Missouri (RSMo) and applicable case law.
Complainants appeal, on the ground of exemption, the decision of the Jackson County Board of Equalization, which sustained the assessment of the subject property as taxable.The Assessor determined an appraised value of $544,000, assessed value of $174,080, as commercial property.Complainants did not challenge valuation, but asserted the property was exempt under Section 137.100, RSMo.
Evidentiary hearing was waived and case was submitted for decision on exhibits, written direct testimony and brief filed by Complainant.Case was assigned on September 21, 2006, to Hearing Officer Karin Spradlin.Case is reassigned to Senior Hearing Officer, W. B. Tichenor.
The Hearing Officer, having considered all of the competent evidence upon the whole record, enters the following Decision and Order.
Exhibit C-1, IRS 501 (c) (3) exemption letter for Seed of Faith Church, Inc.
Exhibit C-2, Missouri Sales and Use Tax exemption letter issued to Seed of Faith, Inc., and Certificate of Amendment of a Missouri Nonprofit Corporation for Seed of Faith Church, Inc.
Exhibit C-3, Financial records for Seed of Faith Church.
Exhibit C-4, Commercial Lease Agreement, dated January 8, 2002, between Triple JD Management Company, LLC and Seed of Faith Church.
Exhibit C-5, Letter dated November 12, 2003, to Triple JD Management Company, LLC from Seed of Faith Church, exercising purchase option clause under lease agreement.
Exhibit C-6, Contract for Deed, dated November 1, 2003, recorded July 1, 2005, between John W. Ivey and Joyce C. Ivey and Seed of Faith Church, Inc.
Exhibit C-7, Nine photographs showing stages of construction of Seed of Faith Church, starting November 8, 2001.
Exhibit C-8, Six pages showing brief history of Seed of Faith Church.
Exhibit C-9, Written direct testimony of Rev. Herman Scales, pastor of Seed of Faith Church.
Exhibit C-10, Written direct testimony of John Ivey.
Counsel for Complainants submitted legal brief on the issue of exemption.
Respondent did not file exhibits, written testimony or legal brief.
FINDINGS OF FACT
1.Jurisdiction over this appeal is proper.Complainant timely appealed to the State Tax Commission from the decision of the Jackson County Board of Equalization.
2.The subject property is located at 1126 Delta School Road, Lee’s Summit, Missouri.The property is identified by locator number 43-620-11-80-00-0-00-000.
3.Complainants are individuals and are not a not-for-profit corporation or entity.
4.The subject property is the subject of a Contract for Deed entered into on November 1, 2003, John W. and Joyce C. Ivey, Sellers and Seed of Faith Church, Inc., a Missouri not-for-profit corporation, Buyer.Said Contract for Deed was recorded on July 1, 2005, Instrument Number 200510056140.Under the terms of the Contract the purchase price for the subject property is to be paid in installments beginning on January 1, 2004, and continuing until December 1, 2006, when, if all installments have been paid the “Warranty Deed shall be delivered to Buyer for the recording thereof.”Exhibit C-6, pp. 1 & 2.
5.The testimony of Rev. Herman Scales (Exhibit C-9, Q & A. 7) and John Ivey (Exhibit C-10, Q & A. 5) that the subject property was owned by Seed of Faith Church on January 1, 2005, was testimony as to a conclusion of law to be determined by the Hearing Officer.As testimony on a conclusion of law from non-experts it is irrelevant in determining ownership of the subject property as of January 1, 2005, and January 1, 2006.
6.Exhibits C-1, C-2, C-3, C-4, C-5, C-7, C-8, C-9 and C-10 are irrelevant on the issue of the ownership of the property under appeal as of January 1, 2005, and January 1, 2006.
7.The subject property was owned by Complainants on January 1, 2005, and January 1, 2006.Exhibit C-6.
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.Article X, section 14, Mo. Const. of 1945; Sections 138.430, 138.431, RSMo.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.Section 138.431.4, RSMo.
Presumptions 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).
The Supreme Court of Missouri has found there is a presumption of correct assessment by the assessor.Snider v. Casino Aztar/Aztar Missouri Gaming Corp., 156 S.W.3d 341 (Mo. 2005).Citing to Hermel, supra; and Cupples Hesse Corp. v. State Tax Commission, 329 S.W.2d 696, 702 (Mo. 1959).
Burden of Proof
Complainants have the burden to present substantial and persuasive evidence to rebut the presumption of correct assessment by the Board of Equalization.Hermel, Inc. v. State Tax Commission, 564 S.W.2d 888, 895 (Mo. banc 1978).In order to meet this burden in an appeal seeking exemption from taxation, the Complainants must meet the substantial burden to establish that the property falls within an exempted class under the provisions of Section 137.100. State ex rel. Council Apartments v. Leachman, 603 S.W.2d 930, 931 (Mo. 1980).It is well established that taxation is the rule and exemption from taxation is the exception.Exemption is not favored in the law.(See, Missouri Church of Scientology v. STC, 560 S.W.2d 837, 844 (Mo. banc 1977); CSCEA v. Nelson, 898 S.W.2d 547, 548 (Mo. banc 1995), citing Scientology).Complainants seeks exemption of their 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 …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 — charitable purposes;
Franciscan Tertiary Test
In meeting its burden of proof that the subject property is used “exclusively for … purposes purely charitable, and not held for private or corporate profit….”Complainants must
meet the three prong test set forth by the Missouri Supreme Court in Franciscan Tertiary Province v. STC, 566 S.W.2d 213, 223-224 (Mo. banc 1978).
The court in Franciscan 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.Emphasis added.
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 thepurpose, 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.
Id. at 224.
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.
In the present case, the only issue is: whether the property is owned by the not-for-profit Seed of Faith Church under the contract for deed.Complainants’ Brief, p. 2.Therefore, there is no need to reach the second and third prongs of the Franciscan test in this Decision.Only the first part of the two parts of the first prong need be analyzed.If the property was owned by Complainants, on January 1, 2005, and January 1, 2006, the property fails the first part of the test because it is not owned by a not-for-profit entity.If the property was owned, on January 1, 2005, or January 1, 2006, by the Seed of Faith Church, then the property would met the first prong of Franciscan and as a church, it would likewise meet the other two parts of the Franciscan test.
Ownership Under A Contract for Deed
The determination of exemption, therefore, rests upon the legal question of who holds title – is owner, for ad valorem tax purposes, under a contract for deed.Counsel for Complainants cites the Commission to the case of Shelter Mutual Insurance v. Crunk, 102 S.W.3d 560, 564 (Mo. App. S.D. 2003) in support of the argument that Seed of Faith Church is the “equitable owner of the property,” thus meeting the first prong of the Franciscan test.Because this particular point – ownership under a contract for deed – is a case of first impression before the Commission.The Hearing Officer has reviewed the Shelter case in detail and other cases addressing the issue ownership under a contract for deed.The Hearing Officer found no court case directly on point, holding that a purchaser under a contract for deed is the owner of or holds legal title to real property for purposes of meeting the Franciscan test on ownership by a not-for-profit entity.
The Shelter Court stated the following, at p. 564:
“A contract for deed, also referred to as an installment land sale contract, is used as a substitute or alternative to a mortgage or deed of trust.Under a contract for deed, the buyer of real estate makes a down payment and agrees to make remaining payments at a specified rate of interest in installments to the seller.The buyer normally takes possession of the property at the time the contract for deed is made.The seller agrees to convey the property to the buyer by delivering a warranty deed upon completion of the installment payments.Long v. Smith, 776 S.W.2d 409, 413 (Mo.App. 1989).“The relation of vendor and purchaser exists as soon as the contract for the sale and purchase of land is entered into.Thereafter equity regards the purchaser as the owner and the vendor as holding the legal title in trust for him.”Brewer v. Devore, 960 S.W.2d 519, 521 (Mo.App. 1998).
The Shelter Court, relying on the Long decision notes that the actual conveyance of the property is accomplished by the deliver of a warranty deed upon completion of the installment payments.Therefore, under a contract for deed, the deed is not delivered until the contract is completed.Without a deed being recorded, the seller and not the buyer is the owner of record.The status of vendor and purchaser is not the same as grantor and grantee under a deed.Nor has the purchaser under a contract for deed reached the status of owner of the property that is subject of the contract.That status cannot be achieved until a deed is delivered to the grantee upon satisfactory completion of the contract.
In the present instance, although the warranty deed, under the terms of the contract for deed has been placed in escrow, there was no evidence that it had been delivered on or before January 1, 2005, or on or before January 1, 2006, to the Seed of Faith Church.Only upon the payment of the purchase price by Seed of Faith Church to Complainants, which is not scheduled to be completed under the Contract for Deed until December 1, 2006, will the warranty deed be delivered to Seed of Faith Church.Exhibit C-6.
The Long Court held the following, at p. 413:
“Unlike a mortgagor who holds legal title to the mortgaged property, the buyer under a contract for deed does not receive legal title to the property until the contract price is paid and a warranty deed delivered by the seller.Prior to this event, the buyer has only an equitable interest in the property.”
Missouri courts regard the contract for deed, not as an instrument to convey title, but rather as a method of financing as an alternative to the deed of trust or mortgage.See, Community Title Co. v. Roosevelt Federal Savings & Loan Association, 670 S.W.2d 895, 898 (Mo. App. E.D. 1984); Shelter and Long, supra.Legal title or ownership cannot be conveyed absent the delivery of the warranty deed.An equitable interest, which has the potential, however strong or great that potential may happen to be is not legal ownership of real property.
Blacks Law Dictionary (7th ed.) defines contract for deed as “a conditional sales contract for the sale of real property – Also termed installment land contract, land sales contract, land contract.”The document is not a deed which conveys ownership – legal title.The document is a contract.A deed is the written instrument by which land is conveyed.Blacks – deed.
Complainants, as of January 1st of 2005 and 2006 held legal title to the real property at 1126 Delta School Road, Lee’s Summit, Missouri.They were the owners.Therefore, the property was not owned by a not-for-profit corporation – Seed of Faith Church.Accordingly, the property not being owned by a not-for-profit entity did not meet the first prong of the Franciscan test.The property does not quality for exemption from ad valorem real estate taxes for 2005 and 2006 under Section 137.100(5), RSMo.The Assessor and the Board properly denied exemption from taxation and their decision must be affirmed.
The assessed valuation for the subject property as determined by the Assessor and sustained by the Board of Equalization for Jackson County for the subject tax day is AFFIRMED.
The subject property is taxable and the assessed value for tax years 2005 and 2006 is set at $174,080.
A party may file with the Commission an application for review of this decision within thirty (30) days of the mailing of such decision.The application shall contain specific grounds upon which it is claimed the decision is erroneous.Failure to state specific facts or law upon which the appeal is based will result in summary denial.Section 138.432, RSMo 2000.
If an application for review of this decision is made to the Commission, any protested taxes presently in an escrow account in accordance with this appeal shall be held pending the final decision of the Commission.If no application for review is received by the Commission within thirty (30) days, this decision and order is deemed final and the Collector of Jackson County, as well as the collectors of all affected political subdivisions therein, shall disburse the protested taxes presently in an escrow account in accord with the decision on the underlying assessment in this appeal.If any or all protested taxes have been disbursed pursuant to Section 139.031(8), RSMo, either party may apply to the circuit court having jurisdiction of the cause for disposition of the protested taxes held by the taxing authority.
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 November 2, 2006.
STATE TAX COMMISSION OF MISSOURI
W. B. Tichenor
Senior Hearing Officer