STATE TAX COMMISSION OF MISSOURI
|STANELY M HERZOG||)||Appeal No. 21-32092|
|CHARITABLE FOUNDATION,||)||Parcel/locator No(s): 05-301-00-01-005-01|
|TRACY BALDWIN, ASSESSOR,||)|
|CLAY COUNTY, MISSOURI,||)|
DECISION AND ORDER
Stanley M Herzog Charitable Foundation (Complainant) (hereinafter “Foundation”) appeals the Clay County Board of Equalization’s (BOE) decision finding the subject residential property is not exempt from ad valorem taxation and that its true value in money (TVM) was $348,400 as of January 1, 2021. Complainant asserts the subject property is exempt from ad valorem taxation due to educational and charitable purposes. Complainant did not produce substantial and persuasive evidence showing the subject property is exempt. The BOE decision is AFFIRMED. The parties waived their opportunity for an evidentiary hearing and agreed to submit the appeals on the record. Complainant, represented by counsel, Jerome Brant, and Respondent, represented by counsel, Lucas Wallingford, each submitted their respective evidence for appeal on the record. In addition to exhibits, Complainant and Respondent timely submitted briefs and Complainant submitted a responsive brief, all of which are incorporated into the record.
FINDINGS OF FACT
- Subject Property. The subject property is located at 105 NW 188th St, Smithville, in Clay County, Missouri. The parcel/locator number is 05-301-00-01-005-01.
The subject property consists of a 7.9988 acre lot, which on January 1, 2021, was under construction for the headquarters of the Foundation. The subject property was purchased by Complainant in May 2020. The specific uses of the property will be as a training facility and headquarters to train teachers, school administrators and workers, and short-term residential facilities.
- Respondent and BOE. Respondent classified the subject property as commercial and determined the TVM on January 1, 2021, was $348,400. Complainant appealed Respondent’s 2021 assessment and claimed a charitable and educational exemption. The BOE classified the subject property as commercial and independently determined the TVM on January 1, 2021, was $348,400.
- Complainant’s Evidence. Complainant submitted Exhibits A through AA and Written Direct Testimony (WDT) of Darrell Jones. All exhibits were admitted into evidence and are summarized as follows:
|A||Commercial Construction Contract A201-2007|
|B||Mailer for subject property construction project|
|C||Gastinger Walker letter conception design for construction proposal of subject property|
|D||Nonprofit Analytics form|
|F||Nonprofit Analytics Instructions|
|H||Grant announcement dated August 4, 2021|
|J||Subject Property Deed|
|K||Email from Shannon Galloway to Barbara O’Riley dated May 13, 2021|
|L||Email from Shannon Galloway to Lucas Wallingford dated May 17, 2021|
|M||Clay County Real Estate Tax Statement for subject property year 2021|
|N||Tax payment receipt for subject property year 2021|
|O||Articles of Incorporation|
|P||Certificate of Incorporation|
|Q||Certificate of Amendment|
|R||Articles of Amendment|
|T||Internal Revenue Service Form 1023, Application for Recognition of Exemption|
|U||Internal Revenue Service, Return of Private Foundation for 2019|
|V||Internal Revenue Service Return of Private Foundation for 2020|
|W||2021 Letter for Application for Recognition of Exemption|
|X||Missouri State Sales Tax Exemption|
|Y||Commercial Construction Contract B133-2019|
|Z||Gastinger Walker letter, dated July 1, 2020 for construction proposal of subject property|
|AA||Grants Scholarships and Awards Summary for 2020 – present date|
Complainant submitted the WDT of Darrell Jones, who serves as President of the Stanley M Herzog Charitable Foundation. Mr. Jones testified the Foundation is a 501(c)(3) nonprofit whose “purpose is to advance the K-12 Christian Education in the USA”. (WDT and Exhibit I & S). Mr. Jones testified the Foundation purchased the subject property in order to “carry out the Foundation’s purpose and [serve] as its headquarters; this will include hosting training events, generating both online audio and/or video content for professional development and community education” and will not be used for investment, profit, or rented for income. (WDT at 3). Complainant’s submitted the Foundation’s organizational documents, federal tax exempt status and contracts for construction. (Exhibits A-I and O-AA). The Vision Guidebook explains the subject property will be a national epicenter for the support and growth of Christian K-12 education in the United States and a constant hub of activity for visitors from all reaches of the U.S. as well as a home base for the Board of Directors and Staff carrying out the daily mission and programs of the Foundation. (Exhibit I). Complainant also submitted correspondence with Clay County Assessor’s office and Clay County tax information for the subject property. (Exhibits J – N).
- Respondent’s Evidence. Respondent submitted Exhibit 1 through 18 and WDT of Shannon Galloway.
|1||Property Record Card|
|2||Clay County Land Market Summary 2021|
|3||Assessors Manual Ch. 2 Classification Exemption Appeals|
|4||Missouri Charitable Property Tax Exemption Handout|
|5||Application for Exemption|
|6||IRS application for Exemption|
|8||Complainants Answers to Respondent’s First Interrogatories|
|9||Complainant’s Response to Respondent’s First Request for Production of Documents|
|11||Mailer for Subject Property Construction Project|
|12||Gastinger Walker Letter conception design for construction proposal of subject property|
|13||Nonprofit Analytics Form|
|14||Nonprofit Analytics Instructions|
CONCLUSIONS OF LAW
- Assessment and Valuation
Pursuant to Article X, Sections 4(a) and 4(b), Mo. Const. of 1945 real property and tangible personal property is assessed at its value or such percentage of its value as may be fixed by law for each class and for each subclass. Article X, Sections 4(a) and 4(b), Mo. Const. of 1945. Commercial real property is assessed at 32% of its TVM as of January 1 of each odd-numbered year. Section 137.115.5(1)(c).
The hearing officer is the finder of fact and determines the credibility and weight of the evidence. Kelly v. Mo. Dep’t of Soc. Servs., Family Support Div., 456 S.W.3d 107, 111 (Mo. App. W.D. 2015). The finder of fact in an administrative hearing determines the credibility and weight of expert testimony. Hornbeck v. Spectra Painting, Inc., 370 S.W.3d 624, 632 (Mo. banc 2012). “Although technical rules of evidence are not controlling in administrative hearings, fundamental rules of evidence are applicable.” Mo. Church of Scientology v. State Tax Comm’n, 560 S.W.2d 837, 839 (Mo. banc 1977).
- Complainant’s Burden of Proof
“Tax exemptions are construed strictly against the taxpayer, and any doubt must be resolved in favor of application of the tax.” SEBA, LLC v. Dir. of Revenue, 611 S.W.3d 303, 313–14 (Mo. banc 2020). Exemptions are “allowed only upon clear and unequivocal proof, and any doubts are resolved against the party claiming it.” Id. (internal quotation omitted). A taxpayer does not meet his burden if evidence on any essential element of his case leaves the STC “in the nebulous twilight of speculation, conjecture and surmise.” See, Rossman v. G.G.C. Corp. of Missouri, 596 S.W.2d 469, 471 (Mo. App. 1980).
- Charitable Exemption
Complainant asserts the subject property is exempt from taxation pursuant to section 137.100(5) because it is used exclusively for charitable purposes and is not held for private or corporate profit. “Tax exemption statutes are to be strictly but reasonably construed so as not to curtail the purpose and intended scope of the exemption.” City of St. Louis v. State Tax Comm’n, 524 S.W.2d 839, 843–44 (Mo. banc 1975). A taxpayer claiming an exemption must produce “clear and unequivocal proof” the exemption applies and “all doubts are resolved against the taxpayer.” Ben Hur Steel Worx, LLC v. Dir. of Revenue, 452 S.W.3d 624, 626 (Mo. banc 2015).
In pertinent part, section 137.100(5) exempts from taxation:
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 therefrom is used wholly for religious, educational or charitable purposes[.]
Determining whether the subject property qualifies for the Section 137.100(5) charitable exemption, requires application of “the three-part test established in Franciscan Tertiary Province of Missouri, Inc. v. State Tax Commission, 566 S.W.2d 213, 224 (Mo. banc 1978).” United Cerebral Palsy Ass’n of Greater Kansas City v. Ross, 789 S.W.2d 798, 800 (Mo. banc 1990).
“Franciscan first requires that the property be actually and regularly used exclusively for purposes purely charitable as defined in Salvation Army v. Hoehn, 354 Mo. 107, 188 S.W.2d 826, 830 (1945).” United Cerebral Palsy Ass’n, 789 S.W.2d at 800. “The phrase ‘exclusively used’ has reference to the primary and inherent use as over against a mere secondary and incidental use.” Salvation Army v. Hoehn, 354 Mo. 107, 115, 188 S.W.2d 826, 830 (Mo. 1945). “If the incidental use … does not interrupt the exclusive occupation of the building for [charitable] purposes, but dovetails into or rounds out those purposes,” then the property may be considered to be used exclusively for a charitable purpose. Id. Complainant’s evidence does determine that the property will be used exclusively for charitable purposes as headquarters of the Foundation, therefore this portion of the Franciscan test is met by clear and unequivocal evidence.
The second part of the Franciscan test requires that the property be owned and operated on a not-for-profit basis. Franciscan, 566 S.W.2d at 224. Property is “not held for private or corporate profit” when the profit is incidental to the dominant charitable objective and all profit is devoted to the charitable objectives of the project. Id. Complainant’s evidence does determine that the property is not held for private or corporate profit used only as the Foundation’s meeting space, therefore this portion of the Franciscan test is met by clear and unequivocal evidence.
The final prong of the Franciscan test requires a showing that the dominant use of the property is for the benefit of an indefinite number of people and must directly or indirectly benefit society generally. Franciscan, 566 S.W.2d at 224. Respondent argues in their post hearing brief that Complainant cannot claim exemption under this prong due because “Complainant will restrict its benefits to solely those “K-12 Christian Schools” that (WDT of Darrell Jones, p. 2) it privately chooses to fund” (Respondent’s Brief at 19). Complainant argues their organization is for the benefit of those schools and individuals who apply, who could be an indefinite number, regardless of their faith or lack thereof, wishing to attend a Christian school and that through the support they provide, they indirectly benefit society generally. (Complainant’s Response Brief at 9).
The requirement of showing a benefit to “an indefinite number of persons … is otherwise characterized as a requirement that the humanitarian service be public.” Evangelical Ret. Homes of Greater St. Louis, Inc. v. State Tax Comm’n, 669 S.W.2d 548, 554 (Mo. banc 1984) (internal quotation omitted). A benefit may be “public” if it is not available to all and, instead, is directed at groups with specific needs or interests. Id. Thus,
[a] charity may restrict its admissions to a class of humanity, and still be public; it may be for the blind, the mute, those suffering under special diseases, for the aged, for infants, for women, for men, for different callings or trades by which humanity earns its bread, and as long as the classification is determined by some distinction which involuntarily affects or may affect any of the whole people, although only a small number may be directly benefited, it is public. Salvation Army v. Hoehn, 188 S.W.2d 826, 830 (Mo. banc 1945) (quoting In re Rahn’s Est., 291 S.W. 120, 128 (Mo.1926)).
The record shows the educational benefits of the donations made by Complainant are available only to those who apply and then those whom Complainant chooses to benefit. Complainant asserts that their monetary donations establish a benefit to an indefinite number of people because any child can attend a private Christian school despite their personal religious beliefs. While it is true that the numbers of children educated is mathematically indefinite, Complainant’s burden of proving a benefit to an indefinite number of people entails a showing that the alleged educational service is “public.” Evangelical Ret. Homes, 669 S.W.2d at 554. To the extent the financial support Complainant provides is available only to certain populations, a property is not used exclusively for purposes purely charitable. Frisco Emp. Hosp. Ass’n v. State Tax Comm’n, 381 S.W.2d 772, 779 (Mo. 1964). Consequently, standing alone, the fact that any person may benefit from Christian education does not establish that Complainant is providing a benefit characterized as “public.”
Consequently, the subject property is not exempt from ad valorem taxation for tax year 2021.
School and Colleges Exemption
Complainant asserts the subject property is exempt from taxation pursuant to section 137.100(5) because it is used exclusively for schools and colleges and is not held for private or corporate profit.
In pertinent part, section 137.100(5) exempts from taxation:
All property, real and personal, actually and regularly used exclusively … for schools and colleges … 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) requires a taxpayer to prove the property is: (1) actually, regularly, and exclusively used for schools and colleges; and (2) not held for private or corporate profit.
Complainant stated that “the organization does not anticipate operating any schools. However, supporting Christ-centered, non-denominational, Protestant Christian schools is the primary function of the organization.” (Exhibit T). Property is “used exclusively” for an exempt purpose when that purpose is “the primary and inherent use as over against a mere secondary and incidental use.” Cent. States Christian Endeavors Ass’n v. Nelson, 898 S.W.2d 547, 549 (Mo. banc 1995). A secondary or incidental non-educational use does not preclude a finding the property is used exclusively as a school or college if such use “does not interrupt the exclusive occupation” of the property for an exempt purpose and instead “dovetails into or rounds out that purpose[.]” Id; see also Midwest Bible & Missionary Inst. v. Sestric, 260 S.W.2d 25, 30 (Mo. 1953) (holding a building was “used exclusively” for school purposes because the faculty housing at issue was part of the “entire integrated system of the” school’s mission).
The evidence has established the property is used for non-profit purposes, but as its primary and inherent use is not in the operation of a school, but merely in support of Christian schools, there was not substantial and persuasive evidence presented to qualify the subject property for the educational exemption.
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). Accordingly, the subject property was not exempt for ad valorem assessment purposes as of January 1, 2021.
The BOE’s decision is affirmed. The taxable TVM of the subject property on January 1, 2021, was $348,400.
Application for Review
A party may file with the Commission an application for review of this decision within 30 days of the mailing date set forth in the certificate of service for this decision. The application “shall contain specific detailed grounds upon which it is claimed the decision is erroneous.” Section 138.432. The application must be in writing, and may be mailed to the State Tax Commission, P.O. Box 146, Jefferson City, MO 65102-0146, or emailed to Legal@stc.mo.gov. A copy of the application must be sent to each person 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.
The Collector of Clay County, as well as the collectors of all affected political subdivisions therein, shall continue to hold the disputed taxes pending the possible filing of an application for review, unless said taxes have been disbursed pursuant to a court order under the provisions of section 139.031.
SO ORDERED August 26, 2022.
STATE TAX COMMISSION OF MISSOURI
Erica M. Gage
Senior Hearing Officer
State Tax Commission
Certificate of Service
I hereby certify that a copy of the foregoing has been electronically mailed and/or sent by U.S. Mail on August 26th, 2022, to:
Complainant(s) and/or Counsel for Complainant(s), the County Assessor and/or Counsel for Respondent and County Collector.
 Complainant timely filed a complaint for review of assessment. The State Tax Commission (STC) has authority to hear and decide Complainant’s appeal. Mo. Const. art. X, Section 14; section 138.430.1, RSMo 2000. All statutory citations are to RSMo 2000, as amended.
 Section 138.431.5 provides the “hearing officer, after affording the parties reasonable opportunity for fair hearing, shall issue a decision and order affirming, modifying, or reversing the determination of the BOE, and correcting any assessment which is unlawful, unfair, improper, arbitrary, or capricious.”
 See also Am. Polled Hereford Ass’n v. City of Kansas City, 626 S.W.2d 237, 240 (Mo. banc 1982)(noting the taxpayer bears the burden of establishing a property tax exemption “by unequivocal proof that such release is required by the terms of the statute….”); City of St. Louis v. State Tax Comm’n, 524 S.W.2d 839, 845 (Mo. banc 1975)(noting the taxpayer claiming a charitable exemption must make “a clear and convincing showing that the specific activity in question does fall within an accepted category found in the definition”).