State Tax Commission of Missouri
THE REPERTORY THEATRE OF ST. LOUIS,)
)
Complainant,)
)
v.) Appeal Number 06-10424
)
PHILIP MUEHLHEAUSLER, ASSESSOR,)
ST. LOUIS COUNTY, MISSOURI,)
)
Respondent.)
DECISION AND ORDER
HOLDING
Assessment by Assessor that subject property was not tax exempt was sustained by the St. Louis County Board of Equalization. Hearing Officer finds subject property to be exempt under Section 137.100(5), assessment SET ASIDE.
Complainant appeared by Counsel, Robert J. Droney – Gallop, Johnson & Neuman, L.C. St. Louis, Missouri
Respondent appeared by Assistant County Counselor, Luke E. Meiners.
ISSUE
The Commission takes this appeal to determine whether the subject property is exempt from taxation for the tax year 2006 under Article X, Section 6 Missouri Constitution and Section 137.100(5), RSMo.
SUMMARY
Complainant appeals the decision of the St. Louis County Board of Equalization. Respondent assessed the subject property as residential property. This assessment was sustained by the Board of Equalization. Complainant contends that the subject property is exempt from taxation under the provisions of Section 137.100(5). An evidentiary hearing was conducted on December 6, 2007, before Senior Hearing Officer W. B. Tichenor at the St. Louis County Government Center, Clayton, Missouri.
On February 7, 2008, Attorneys for Complainant and Respondent filed their respective Briefs. Reply Briefs were to be filed on or before February 29, 2008. Attorney for Complainant timely filed Complainant’s Reply Brief. Respondent did not file a Reply Brief.
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.
FACTS
1. Complainant’s Exhibits A through V, as shown on Complainant’s Exhibit List in the Commission File, which is incorporated by reference, as if set out in full herein, and Exhibit W were received into evidence. Tr. 5:10 – 16.
- Respondent’s Exhibits 1 through 9, as identified and contained in the Commission File were received into evidence. Tr. 11:6 – 20.
- The property under appeal is located at 627 Garden Avenue, St. Louis, Missouri, 63119. The property is identified by locator number 23K610488. It was assessed as residential
property at a value of $563,600, assessed value of $107,090. Complaint for Review of Assessment. It is otherwise known as the “Actor’s Residence.”
4. The Repertory Theatre purchased the Actor’s Residence from Webster University in 1995. Exhibit D & W. The Subject Property contains twenty (20) residential apartment units. Exhibit 8:31. Complainant uses the Subject Property as a residence facility to house out-of-town actors who perform in Complainant’s plays. Exhibit W:7. Pursuant to an agreement Complainant has with the Actor’s Equity Association, Complainant is required to provide housing to actors who do not live locally. Exhibit M. Complainant must provide housing to actors at no cost to the actors. Exhibits M & W:7. The Complainant’s housing of the actors that perform in Complainant’s performances comprises approximately seventy-five percent (75%) of the use of the Subject Property. Complainant also rents some of the Subject’s apartments to The Muny and the Opera Theatre of St. Louis. Complainant does not realize a profit from its rental of apartments to The Muny and the Opera Theatre of St. Louis. Exhibit W:8. The Muny and the Opera Theatre of St. Louis are both not-for-profit entities. Tr.8:18 – 22.
5. The Repertory Theatre of St. Louis, was formed as a Department of Webster University in 1966. Exhibit W. Complainant incorporated in 1971 under the name the Loretto-Hilton Theatre, Inc. as a Missouri general not-for-profit corporation. Exhibit A. Complainant changed its name to The Repertory Theater of St. Louis in 1980. Exhibit B. Complainant’s corporate purpose is to “establish and maintain a center for the performing arts and such educational facilities as may prove desirable … to operate a multipurpose theatre … and other facilities useful for a cultural and educational center.” Exhibit A:2. Complainant receives approximately two-thirds of its operating revenue from its operations. Complainant receives the balance of its operating revenue from grants, charitable contributions, and other fund raising activities. Exhibit W.
6. Complainant’s principal place of business is 130 Edgar Road, St. Louis, Missouri 63119 where it operates a performing arts center located in the Loretto-Hilton Center. Exhibits D & I. Complainant is exempt from Federal and State taxes. Exhibits F & G. St. Louis County granted tax-exemption to Complainant for Complainant’s personal property in 1998 for the tax years 1997 and beyond. Exhibit H.
7. Complainant leases the premises at 130 Edgar Road from Webster University. Webster University is a Missouri nonprofit corporation and an institution of higher learning. Complainant has agreed to provide meaningful educational opportunities to Webster University students in the production and performance of Complainant’s plays. Exhibit I:1 & 9. Webster University students who participate in Complainant’s productions and performances receive academic credit for their participation. Exhibit W.
8. Complainant provides educational programs to the community. Complainant’s community educational programs include Kids ArtStart, WiseWrite, Talk Theatre, Theatre Tours, the Imaginary Theatre Company, Family Night, and Student Matinees. Kids ArtStart is a program for families that introduces children to the arts. Complainant does not charge a fee for the Kid’s ArtStart program. WiseWrite is a program for 5th grade students to learn playwriting and playmaking skills from theatre professionals and drama students. Complainant does not charge a fee for the WiseWrite program. Talk Theatre is an adult lecture series that teaches adults and promotes discussion about the Repertory Theatre’s plays. Theatre Tours provide schools and community groups the opportunity to tour Complainant’s performance spaces. Complainant does not charge a fee for Theatre Tours. The Imaginary Theatre Company tours and performs at schools and community venues. The Imaginary Theatre Company’s charges for its performances cover approximately forty percent (40%) of the operating costs of the program. Family Night provides discounted tickets and pre-show discussion to families. Student Matinees provide discounted tickets to school groups. Exhibits T & W:3, 4, & 5.
9. The Subject Property’s use is not for the purpose of generating a profit. Complainant’s use of the property is reasonably incidental, necessary and connected to the corporate purpose of establishing and maintaining a center for the performing arts and a theatre. The Actor’s Residence dovetails into and rounds out the Complainant’s charitable purpose.
10. Complainant’s evidence was substantial and persuasive to rebut the presumption of correct assessment by the Respondent and Board of Equalization and establish the exempt status of the subject property.
CONCLUSIONS OF LAW
Jurisdiction
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, Missouri Constitution of 1945; Constitution of 1945; Sections 138.430, 138.460(2), RSMo. The assessment of a property for ad valorem taxation that is used for an exempt purpose under the constitutional and statutory provisions of Missouri law is an unlawful assessment.
Constitutional and Statutory Exemption Provisions
Article X, Section 6 of the Missouri Constitution allows for the legislature to exempt from taxation real property “not held for private or corporate profit and used exclusively for .. purposes purely charitable.” Section 137.100(5) exempt from taxation real property “actually and regularly used exclusively … for purposes purely charitable and not held for private or corporate profit.” As is discussed below, the evidence establishes that the use of the property under appeal satisfies the statutory mandate.
Complainant’s Burden of Proof
Complainant has the burden to present substantial 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 Complainant 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). Complainant seeks exemption of its property from taxation pursuant to Section 137.100(5) quoted above. As is detailed below, Complainant’s burden of proof has been met in the present case.
Reasonable Doubt Not The Standard
Respondent asserted in his brief that the burden of proof is “beyond a reasonable doubt,” citing to Missouri Church of Scientology v. STC, 560 S.W.2d 837, 844 (Mo. banc 1977). The Hearing Officer is not so persuaded.
The Missouri Supreme Court, in the Scientology decision stated, “The extent of this burden has been characterized as requiring proof beyond a reasonable doubt.” This was citing to a 1900 decision of the court, Fitterer et al. v. Crawford, Collector, 57 S.W. 532, 533 (Mo. Div 2, 1900). In that instance the Court stated:
“In construction of laws exempting property from taxation it is a cardinal principle that they must be strictly construed. As a rule, all property is liable to taxation, and exemption is the exception; and it devolves upon the person claiming that any specific property is exempt to show it beyond a reasonable doubt. It is in no case to be presumed that the law intends to release any particular property from this obligation, and no such exemption will be allowed except upon clear and unequivocal proof that such release is required by the terms of the statute. If any doubt arises to the exemption claimed, it must operate most strongly against the party claiming the exemption.”
Citing to Redemptorist Fathers v. City of Boston, 129 Mass., loc. cit. 190.
The statutory construction of an exemption statute appears to require, under Fitterer, meeting a standard of showing the statute applicable “beyond a reasonable doubt.” However, the burden of proof necessary under Franciscan Tertiary Province v. STC, 566 S.W.2d 213, 223-224 (Mo. banc 1978) is to present substantial and persuasive evidence to establish the three prongs of the test.
Cases Relying Upon Substantial Evidence Standard
A reviewed of numerous cases in Missouri relating to tax exemption produced the following conclusions. The overwhelming majority of cases have characterized the evidence necessary to support a judgment of exemption as “substantial evidence,” not “beyond a reasonable doubt,” or even “clear and unequivocal.” Specifically the following thirteen (13) cases fall within this category: Bethesda Barclay House v. Ciarleglio, 88 S.W.3d, Mo. App. E.D. 2002; Two Pershing Square, L.P. v. Boley, 981 S.W.2d 635 (Mo. App. W.D. 1998); Central States Christian Endeavors Ass’n v. Nelson, 898 S.W.2d 547 (Mo. 1995); Tri-State Osteopathic Hosp. Ass’n, Inc. v. Blakeley, 848 S.W.2d 571 (Mo. App. S.D. 1993); United Cerebral Palsy Ass’n of Greater Kansas City v. Ross, 789 S.W.2d 798 (Mo. 1999); Callaway Community Hosp. Ass’n v. Craighead, 759 S.W.2d 253 (Mo. App. W.D. 1988); Affiliated Medical Transport, Inc. v. State Tax Com’n of Missouri, 755 S.W.2d 646 (Mo. App. E.D. 1988); Missouri Conference Ass’n of Seventh Day Adventists v. State Tax Com’n, 727 S.W.2d 940 (Mo. App. W.D. 1987); Evangelical Retirement Homes of Greater St. Louis, Inc. v. State Tax Com’n of Missouri, 669 S.W.2d 548 (Mo. 1984); Sunday School Board of Southern Baptist Convention v. Mitchell, 658 S.W.2d 1 (Mo. 1983); Pentecostal Church of God of America v. Hughlett, 601 S.W.2d 666 (Mo. App. S.D., 1980); City of St. Louis v. State Tax Commission, 524 S.W.2d 839 (Mo. 1975).
In each of these cases, the evidence necessary to establish an exempt use was characterized as “substantial.” There was no reference to “clear and unequivocal” evidence. Nor was there reference to evidence to establish exempt use “beyond a reasonable doubt.”Thus in thirteen cases from each of the district appellate courts and the Supreme Court of Missouri, over a period of twenty-seven years, the level of the burden of proof to establish an exempt use has been substantial evidence.
Unequivocal, Clear and Unambiguous or Beyond A Reasonable Doubt Cases
Those cases in which the Missouri Supreme Court did use terms such as “unequivocal proof,” or “clear and unambiguous,” or “beyond a reasonable doubt,” are only five cases dating from 1900 (three cases considered together), 1903, 1928, 1982 and a final case in 1992. A reading of these cases leads to the conclusion that what is being addressed is construction of the exemption statute so as to apply to a given claim for exemption.It is not that the burden of proof to meet theFranciscanelements is so characterized by one of these levels of proof. Three of the five cases pre-date the Franciscan decision.
Fitterer, Adeplhis Lodge & Grand River Lodge v. Crawford
Turning first to the Fitterer case, supra, the language cited above with reference to the taxpayer bearing the burden to prove beyond a “reasonable doubt” relates to the application of the language of the then existing statute (Sec. 7504 Rev. St. 1889) as to property being “used exclusively for purposes purely charitable.” The agreed statement of facts in Fitterer established that the subject property (A Masonic lodge building) was a three story building the major portion of which was rented out and the rents from the building were applied for the recognized charitable purpose. The Court specifically found that the lodge was “purely a charity.” However, its “use” of the building, that is renting it to obtain a stream of income with which it could underwrite in part its charitable work, was not using the property exclusively for purposes purely charitable. The Court stated, “… the test of the exemption is the use of the property itself, and not the application of the income derived from it.” Ibid, at 535.
There is simply no discussion that the evidence to establish the lodge’s claim failed to meet a standard of “beyond a shadow of a doubt.” There, in fact, was no dispute as to the material facts of the use of the property, so a standard of proof on evidence could not be the issue. The legal argument as to the construction of the statute was not based upon clear and unequivocal proof that would release the owner from taxation under the terms of the statute.
The other two cases decided by the Court in 1900 on this point were Adelphis Lodge No. 38, K.P. v. Crawford, 57 S.W. 1020 (Mo. 1900) and Grand River Lodge, No. 51, I.O.O.F. v. Crawford, 57 S.W. 1134 (Mo. 1900). These two cases in all their material respects and salient features were parallel to Fitterer. That is they involved the issue of whether a building rented by a charitable entity, the proceeds of which were used for an uncontested charitable purpose satisfied the applicable statue for a property being “used exclusively for purposes purely charitable.”
Accordingly, these cases do not stand for the proposition that a Complainant in a case seeking tax exemption must present evidence to establish it has met the Franciscan Test beyond a reasonable doubt, or to a standard of clear and unequivocal. Evidence to meet each of the three prongs of Franciscan must be substantial.
Young Men’s Christian Ass’n v. Gehner
In the case of State ex rel. St. Louis Young Men’s Christian Ass’n v. Gehner, 11 S.W.2d 30 (Mo. 1928), the Supreme Court, quoted the language from Fitterer (at 533 – Redemptorist cite) set out above. Like Fitterer, there was no dispute in the essential facts. The case was simply an issue of law, not contested facts. As the Court noted at page 31, “The issue is clear-cut. There is no dispute about the facts, counsel having filed in this court an agreed statement, which Judge Sherwood some years ago said was a very good way for lawyers to try a case.”
Like in Fitterer, Adeplhis and Grand River, supra, there was no dispute as to material facts on whether the properties met the Franciscan Test, since these cases predate Franciscan. However, the position that a Complainant’s evidence of charitable use must go beyond substantial was not at issue in Christian Ass’n. The facts of this case are that the YMCA owned three separate buildings in the city of St. Louis. The ten story, Downtown Building at Sixteenth and Locust; the Northside Building at Grand and Sullivan and the Pine Street Building at 2838 Pine. A variety of activities sponsored by the YMCA in carrying out its various charitable activities were conducted. However, each of the buildings was also subject to uses other than the YMCA programs. There was a cafeteria in each of the buildings. In the Downtown building there was a tailor shop, barber shop and a soda fountain. In all buildings rooms were rented to young men as bedrooms.
The sole question placed before the Court was: Is the relator entitled to tax exemption on the ground and buildings erected thereon, in view of the uses made of said buildings? At p.34. Thus there was no claim relative to whether the evidence to establish charitable use was substantial or beyond a reasonable doubt. The question of law upon which Relator (YMCA) bore the sole burden of proof, and beyond a reasonable doubt, was that its use, including non-charitable activities still brought it within the applicable statute (Sec. 12753, R.S.Mo. 1919) which granted tax exemption when the building was “used exclusively for religious worship, for schools or for purposes purely charitable.”
The Court in reaching its decision that the non-charitable use of the building by having commercial operations existing there took from the YMCA its tax exempt privileges to which it would have otherwise been entitled was simply applying the applicable provisions of the Constitution and the
statute. There was no weighing of evidence similar to what is required when applying the Franciscan Test.
American Polled Hereford Association v. City of Kansas City
The next case in which the Missouri Supreme Court used the terms “unequivocal proof” and also the term “clear and unambiguous” was American Polled Hereford Association v. City of Kansas City, 626 S.W.2d 237 (Mo. Div. 2, 1982). A reading of that case leads to the conclusion that the Court’s use of the requirement for unequivocal proof and the term clear and unambiguous, does not have reference to the standard of proof on any elements required by Franciscan. Rather, the two phrases have to do with statutory construction, when a legal argument is being made that a property should be brought under the benefit of an exemption provided by the constitution or statute.
Specifically, the appellant in Polled Hereford contended that it was a non profit agricultural association within the meaning of Article X, Section 6 of the Missouri Constitution and Section 137.100. The Constitution provides that property used exclusively for agricultural and horticultural societies may be exempt from taxation under general law. Section 137.100 makes such an exemption by exempting the real and tangible personal property “used exclusively for agricultural or horticultural societies organized in this state, including not-for-profit agribusiness associations.”
The Court stated the issue as: “Is the appellant an agricultural society within the meaning of Article X, Section 6 of the Missouri Constitution?” The Court then went on to state, at 239-240:
“Appellant’s claimed exemption, being based as it is on the construction of a state revenue law, is subject to the cardinal rule of statutory construction that laws exempting property from taxation must be strictly construed. The burden of establishing by unequivocal proof that such release is required by the terms of the statute devolves upon the party claiming the exemption. The law granting such immunity must be clear and unambiguous and if any doubt exists it must operate most strongly against the party claiming the exemption.”
Citing to St. Louis YMCA, supra.
The Court then examined in detail what constitutes an agricultural society as that term is employed in the Constitution. The Court concluded, at 240:
“It is equally apparent to this Court that appellant, notwithstanding its not for profit status, is not one of these unique quasi state or county organizations referred to in the Constitution and statutes as an agricultural or agricultural and horticultural society. It appears quite clear form this historical review that neither the constitutional nor the statutory provision was intended to exempt all not for profit corporations engaged in agricultural activities, but only those unique societies organized as adjuncts of the State Board of Agriculture. We find the appellant does not come within the term ‘agricultural society’ and that the statutory exemption is inapplicable.”
There was no issue in Polled Hereford as to the use of the property by the not for profit entity. That was not contested. There was no discussion that appellant failed to present evidence which would establish beyond a reasonable doubt or clearly and unequivocally that the use of the subject property was for its not for profit purpose. It appears conceded that the use was in furtherance of the not for profit purpose for which American Polled Hereford was incorporated. However, that was not the issue. Nor was there any issue of the use being an educational, religious or charitable use which would bring the Franciscan Test into play. The issue was one of constitutional construction. On that point appellant bore the burden of carrying its argument that it came within the term “agricultural society” as set out in the constitution by unequivocal proof.
House of Lloyd, Inc. v. Director of Revenue
The final case which uses the “clear and unequivocal proof” language is House of Lloyd, Inc. v. Director of Revenue, 824 S.W.2d 914 (Mo. banc 1992). The case involved sales and use tax on machinery, equipment, and supplies purchased and used by the taxpayer at its principal place of business in Grandview, Missouri. The taxpayer was seeking an exemption from sales and use taxes under Section 144.030.2(5). Specifically, the argument was the process used by the company, “constitutes … fabrication” of the demonstrator kit, which appellant argues is a “product intended to be sold ultimately for final use or consumption within the meaning of” the statute.
The Court had to address the issue of whether appellant’s assertion on whether the distinctions between “manufacturing” and “fabricating” were consistent with the intent of the legislature, and if so, whether the repackaging process fit within the intended scope of the statute. Therefore, the Court examined and discussed in detail what constituted manufacturing and what constituted fabricating. Of course, the Franciscan Test played no role in this case. There was no claim of a charitable, educational or religious use.
The case deals with statutory interpretation. It does not stand for the proposition that in a real property exemption case that the standard of proof to meet the elements of Franciscan is one of beyond a reasonable doubt, or clear and unequivocal.
Franciscan Tertiary Test
Based upon the foregoing review and analysis, the standard which a taxpayer must meet as a burden of proof on the elements of the Franciscan Test is to present substantial and persuasive evidence. 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….” Complainant 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 said:
“The first prerequisite for property to be exempt as charitable under §137.100 is that it be owned and operated on a not-for-profit basis. It must be dedicated un-conditionally to the charitable activity in such a way that there will be no profit, presently or prospectively, to individuals or corporations. Any gain achieved in use of the building must be devoted to attainment of the charitable objectives of the project…. [A]n exemption will not be granted covering property which houses a business operated for the purpose of gaining a profit, even though it is turned over to a parent organization to be used for what are admittedly independently…charitable purposes.
The requirement that the property must be operated as a not-for-profit activity does not mean that it is impermissible for the project at times or even fairly regularly to operated in the black rather than on a deficit basis, provided, of course, that any such excess of income over expenses, is achieved incidentally to accomplishment of the dominantly charitable objective and is not a primary goal of the project, and provided further that all of such gain is devoted to the charitable objectives of the project.
Another prerequisite for charitable exemption is that the dominant use of the property must be for the benefit of an indefinite number of people, for the purpose, as expressed in Salvation Army, of “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 generally stated as follows:
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.
Owned and Operated – Test I
In its simplest terms the first of the three tests only requires that the property seeking exempt status be first owned by a not-for-profit entity. The Actor’s Residence so qualifies. Complainant is a not-for-profit corporation. This fact is not in disputed.
Secondly, the property seeking exempt status must not be operated for profit. Here, again the Subject so qualifies. The Residence does not make a profit. Income does not equal a profit. The primary purpose of having the Residence is not to make a profit. Even on the rental to two other not-for-profit entities, Complainant does not realize a profit from the Residence. These facts were not disputed. The operation of the Residence is clearly in accordance with the mandate of Franciscan quoted above, in that any income from the Residence is “devoted to attainment of the charitable objectives of” Complainant.
The Actor’s Residence meets the first of the Franciscan tests.
Used Exclusively – Test II
The Repertory Theatre’s operation of the Subject Property qualifies as tax-exempt under Section 137.100, RSMo. The Repertory Theatre’s primary operation of a performing arts theatre qualifies as a charitable endeavor because the performances constitute a “gift which brings the hearts of individuals under the influence of education.” Eagle Forum Education Center v. Philip Muehlheausler, STC Appeal Nos. 01-10968, 02-11310 & 03-12276 at 9 (2004) (citing City of St. Louis v. State Tax Commission, 524 S.W. 2d 839 (Mo. banc 1975)); Salvation Army v. Hoehn et al., 188 S.W.3d 826, 830 (Mo. 1945). The Repertory Theatre offers specific educational programs to the community, for free or below cost, and produces plays with significant educational value at ticket prices that generate less revenue than the cost to produce such plays. St. Louis County has recognized the charitable nature of the Repertory Theatre’s primary operation.
The Repertory Theatre’s Actor’s Residence is “reasonably connected to [The Repertory Theatre’s] charitable purpose” and “dovetails into and rounds out the [Repertory Theatre’s] charitable purposes.” Bethesda General Hospital v. State Tax Commission, 396 S.W.2d 631, 635 (Mo. 1965). The Actor’s Residence furnishes The Repertory Theatre with necessary residential facilities under the Actor’s Equity Association contract. The Repertory Theatre’s cost savings from housing actors at the Actor’s Residence enables The Repertory Theatre to provide the specific educational programs to the community and maintain reasonable ticket prices for The Repertory Theatre’s plays.
Bethesda General Hospital v. State Tax Commission
The Missouri Supreme Court has held that separate but nearby residence facilities that are reasonably connected to a main charitable purpose meet the exclusive use for charitable purposes under 137.100 R.S.Mo. Bethesda General at 635. In Bethesda General, the hospital owned residences near the hospital. Id. at 631. The hospital-owned residences housed a maintenance supervisor, an assistant maintenance supervisor, a laboratory technician, a nurse, two physicians, all of whom were employees of the hospital, and their families. Id. The residences were not used for any hospital functions. Id. at 633. The occupants of the hospital-owned residences were on call 24 hours a day and the court found that the doctors, the nurse, and the maintenance personnel, were key personnel to the operation of the hospital. Id. at 635.
The court ruled that the exclusive use under §137.100 “was and is reasonably connected to the respondent’s charitable purpose of operating the hospital.” Id. at 635. The court further ruled that “the use by the employees of the properties as residences is not the dominant purpose but is merely incidental to the respondent’s main charitable purpose.” Id. While many of the cases the Bethesda General court cites involved hospitals, this is not the determining factor in the court’s analysis. Id. at 634-35.
The court cites Y.M.C.A v. Sestric, where the exemption was granted to dormitories, Gifford Memorial Hospital where the exemption was denied for physicians’ offices located near a hospital, and Doctors Hospital where the exemption was denied for intern residence quarters located near a hospital. Id. at 634 (citations omitted). The court’s analysis focused on the nexus between the residential use of the property and the main charitable purpose of the charitable owner. Id. The court focused on whether the use of the property is “reasonably incident,” “reasonably necessary” or “reasonably connected” to and “dovetails into and rounds out” the main charitable purpose or whether the use of the property was “too remote” or only “incidental” to the main charitable purpose. Id.
Reasonable Connected to Charitable Purpose
The Repertory Theatre’s use of the Actor’s Residence meets the second prong of the Franciscan Tertiary Test, because the use of the Actor’s Residence is reasonably connected to The Repertory Theatre’s main charitable purpose. The Repertory Theatre’s main charitable purpose includes specific educational programs offered to the community, for free or below cost, and the production of plays with significant educational value at ticket prices that generate revenues less than the cost to produce such plays. The Repertory Theatre cannot produce plays without actors. Actor’s Equity Association Union members receive the benefits required under the terms and conditions of that union contract. Exhibit 8:35.
Actor’s Equity Association Contract
Pursuant to the Actor’s Equity Association contract, The Repertory Theatre must provide housing for all out of town actors. The housing must be clean, safe, secure and sanitary. The Repertory Theatre must provide actors in residence for more than eight (8) days access to cooking facilities, including a refrigerator, a stove with an oven, and a kitchen sink. The Repertory Theatre must provide actors with local telephone service at the housing at no cost to the actor. If the actor is housed in hotel or private residence, The Repertory Theatre must reimburse the actor for four local telephone calls per day. The Repertory Theatre must provide transportation to the theatre for actor housing that is more than one-half mile from the theatre. Exhibit M.
The cases cited in Bethesda General contain no evidence that the property owner seeking exemption was required to house the occupants of the residential properties. The Repertory Theatre, pursuant to the Actor’s Equity Association contract, is required to house out-of-town actors. In addition to the minimal housing requirements, the Actor’s Equity Association contract requires that the housing meet certain conditions, as described above. The ownership and operation of the Actor’s Residence provides the most efficient means for The Repertory Theatre to provide housing that meets all of the conditions of the Actor’s Equity Association contract. Exhibit W:7-8. The use of the Subject Property is the means by which Complainant, in carrying out its charitable purpose, can comply with the housing requirements of the Actor’s Equity Association contract.
Reasonably Connected, Incident and Necessary
The Repertory Theatre’s use of the Actor’s Residence property is “reasonably connected,” “reasonably incident,” and “reasonably necessary” to The Repertory Theatre’s production of plays, which under Bethesda General qualifies such use as the exclusive use of property. The rental of the Actor’s Residence to The Muny and the Opera Theatre of St. Louis, serves the identical purpose for those not-for-profit entities. Therefore, the limited use by these two not-for-profit entities of the Subject Property is reasonably connected, incident and necessary to their production of plays also.
Approximately 75% of the use of the Actor’s Residence in any given year is for the housing of actor involved in productions for Complainant. Exhibit 9. The balance of the use is leasing space to The Muny and the Opera Theatre of St. Louis for housing of out of town actors involved in their productions. In United Cerebral Palsy Ass’n of Greater Kansas City v. Ross, 789 S.W.2d 798 (Mo. banc 1990), the Supreme Court explained:
We find no requirement in Section 137.100(5) that the exclusive and purely charitable use of the property for which an exemption is granted is limited to circumstances in which the property is used entirely by the charitable owner. Instead, the requirements of the statute are met if the property’s use is purely charitable, irrespective of the number of charities using the property, and no private or corporate profit is intended.
See also BJC Health System v. Eugene Zimmerman, Assessor for St. Charles County, Appeal No.: 99-32534, at 4 (2000). The Muny and the Opera Theatre of St. Louis are both not-for-profit entities. Complainant does not realize a profit from its rental of the Subject Property to The Muny and the Opera Theatre of St. Louis. Therefore, 100% of the use of the property is to house-out-of town actors for not-for-profit performing arts entities
This primary use of the Actor’s Residence is reasonably connected to the charitable and educational purposes of producing plays and educational programs. This is in accord with a number of Missouri cases which are analogous to the present case. See: Spillers v. Johnston, 113 S.W. 1083 (Mo. 1908) (finding that use of certain portions of a military school as a family residence did not render it taxable); Central States Christian Endeavors Ass’n v. Nelson, 898 S.W.2d 547 (Mo. banc 1995) (holding that a building was exclusively used for religious purposes where certain rooms were rented to student leaders); Jackson County v. State Tax Comm’n, 521 S.W.2d 378, 384-85 (Mo. banc 1975) (Residence quarters used by nurses and other medically involved persons working for charitable hospital were entitled to charitable purpose tax exempt status as incident to the hospital’s basic objectives); Stonecraft, Inc. v. James Strahan, Assessor for Taney County, Missouri, Appeal Nos.: 01-89503 and 01-89504 (2003) (holding that renting accommodations to staff members at a religious retreat facility was incidental to the primary use of providing religious based programs and ministries and did not turn the property into a “for profit” endeavor).
Use Dovetails Into and Rounds Out Charitable Purpose
In addition to meeting the requirements of the Actor’s Equity Association contract, the ownership and operation of the Actor’s Residence dovetails into and rounds out the charitable purpose of The Repertory Theatre. The Repertory Theatre used 3,642 room nights at the Actor’s Residence for 2006-2007 performance season. Exhibit 9. The Repertory Theatre pays to house actors at motels when the Actor Residence exceeds its capacity. The Repertory Theatre expends approximately $193,000 per year for actor’s travel, housing, and meals. Exhibit W:7. The cost savings from the ownership and operation of the Actor’s Residence enables the Repertory Theatre to maintain affordable ticket prices for its plays. The cost savings from the ownership and operation of the Actor’s Residence enables The Repertory Theatre to fund specific educational programs. Exhibit W:8-9. The Repertory
Theatre expended approximately $269,000 for educational programs and approximately $150,000 for the Imaginary Theatre Company for 2006. Exhibit N:3; Exhibit W:4.
The Actor’s Residence meets the second of the Franciscan tests.
Benefit Indefinite Number of Persons and Society in General – Test III
The Repertory Theatre’s use of the Actor’s Residence meets the third of the Franciscan tests. The Repertory Theatre’s cost savings from the operation of the Actor’s Equity Association enables The Repertory Theatre to provide specific educational programs to the community and produce plays of cultural and social significance at affordable prices. The Repertory Theatre provides a gift to the children of the community through the Kid’s ArtStart Program, WiseWrite, Talk Theatre, and Theatre Tours.
Each of these programs provides the opportunity to learn about the performing arts free of charge. Kid’s ArtStart introduces children to theatre. WiseWrite teaches 5th grade students playwriting and playmaking which enhances communication skills. Talk Theatre provides adults the opportunity to learn more about the plays produced by The Repertory Theatre. The Repertory Theatre publishes information about these programs, which are generally available to the community. Exhibits T & U.
The Repertory Theatre provides Webster University students with the opportunity to participate directly in every Repertory Theatre production. Webster University students receive credit for their participation in Repertory Theatre productions. Exhibit W:3. The Imaginary Theatre Company brings the performing arts to children in school and community centers throughout the State of Missouri. Exhibit W:4. The Imaginary Theatre Company’s production of Hansel and Gretel: The Next Generation educates students about classic tales and about elements of theatre, and provokes thought about family relationships, selfishness, growth, change, and how personal history can influence life events. The Imaginary Theatre Company’s production of the Velveteen Rabbit compares theatre with literature and provokes thought about the importance of friendship, the value of others, and identifying problem solving strategies. The Imaginary Theatre Company’s production of A Thousand Cranes educates students about World War II and the atomic bomb and provokes thought about the differences between cultures, history as a learning tool, and the means by which theatre communicates stories and emotions. Exhibit V. While The Repertory Theatre charges for the Imaginary Theatre Company performances, the charges cover only about forty percent (40%) of the costs; The Repertory Theatre subsidizes the balance of the costs for the Imaginary Theatre Company. Exhibit W:4.
The Repertory Theatre’s discounted tickets for Family Night and Student Matinees constitute a gift that brings the hearts of individuals under the influence of education. The Family Night program provides study guides prior to the production and the program includes a pre-show discussion about the production. Exhibit T. The Family Night and Student tickets are discounted below The Repertory Theatre’s already below cost admission tickets. Exhibit W:5. All of these programs reveal the educational mission of The Repertory Theatre. The Repertory Theatre does not simply produce plays and collect ticket revenues. The Repertory Theatre seeks to teach the community about the elements of theatre and how to derive relevant meaning from its performances.
In addition to the specific educational programs, The Repertory Theatre provides a gift of education to an indefinite number of people through the production of plays with educational value. The Repertory Theatre produces plays that have significant cultural and consequently educational value. Exhibit W:5. The Repertory Theatre’s performances are open to the general public. Exhibit W:6. The Repertory Theatre’s plays have recognized value in the context that the plays provide a critical perspective on society, culture, or human nature. The Repertory Theatre’s plays are part of high school, college and university curricula. Exhibit W:5.
The Repertory Theatre’s production of Ace educates the audience about WWI and WWII and provokes thought about family/child relationships, the impact of separation, friendship, loneliness and isolation. The Repertory Theatre’s production of The Heidi Chronicles educates the audience about the feminist movement and social change in America and provokes thought regarding gender roles and defining oneself through family, friends, job, causes and other outside influences. The Repertory Theatre’s production Of Mice and Men educates the audience about the Great Depression and provokes thought about duty and devotion to friends and mental illness. The Repertory Theatre’s production of Sherlock Holmes: The Final Adventure provokes thought about character motivation, behavior and its effect on others, personal biases affecting judgment and deductive reasoning and problem solving. Exhibit S.
The substance of these plays further reveals The Repertory Theatre’s educational mission. The Repertory Theatre selects thought provoking plays about relevant topics in our culture. The Repertory Theatre seeks more than to entertain the audience, it seeks to “engage the community in a dialogue about the social, or historical, or cultural issues.” Exhibit 8:13.
The Commission has held that “an exemption for educational use does not require exclusive use by a school or college… the case law definition of charity in Missouri includes bringing the hearts of people under the influence of education.” Eagle Forum Educ. Center, Appeal Nos. 01-10968, 02-11310, and 03-12276, at 12. See, e.g., Engineers’ Club of St. Louis v. State Tax Commission, 524 S.W.2d 839, (Mo. banc 1975) (holding that technical programs and symposiums on a wide variety of engineering issues were educational in nature). Further, “the fact that [such programs] do not lead to the awarding of an elementary or high school diploma or a college degree, make them no less educational in nature.” Eagle Forum Educ. Center, at 9.
The Repertory Theatre produces plays with significant educational value at ticket prices that generate less revenue than the cost to produce such plays. The Repertory Theatre offers tickets for Family Night and Student Matinees at even lower prices. Complainant’s plays and programs benefit an indefinite number of theatergoers, children and Webster University students. Though entertaining, the Repertory Theatre’s plays and educational programs also educate, prompt self-reflection, and generate dialogue and awareness about salient social, cultural and interpersonal issues. By inviting an indefinite number of patrons to learn, think and grow, Complainant indirectly bestows a benefit on society generally. See generally, Engineers’ Club, supra.
None of this would be possible without the existence of the subject property and its use to provide temporary residences for out-of-town actors. The use of the Actor’s Residence is an integral and inseparable part of the Complainant’s purpose to operate a performing arts center, educational facilities, a theatre and other facilities useful for the cultural and educational center. The subject property is part and parcel of providing the benefit to an indefinite number of people and to the society of the St. Louis metropolitan area in general.
The Actor’s Residence meets the last of the Franciscan tests.
Conclusion
The Repertory Theatre bestows the gift of educational theatre programs and thought provoking plays that bring audiences in the St. Louis community under the influence of education and the use of the Actor’s Residence facilitates The Repertory Theatre’s main charitable purpose. The Repertory Theatre, a not-for-profit corporation, owns and operates the Actor’s Residence on a not-for-profit basis. The Repertory Theatre uses the Actor’s Residence exclusively for a charitable purpose, under Bethesda General, in that the Actor’s Residence use is “reasonably necessary,” “reasonably connected” and “reasonably incident” to The Repertory Theatre’s main charitable purpose of educational theatre programs and the production of thought-provoking plays. The Repertory Theatre’s use of the Actor’s Residence “dovetails into and rounds outs” the main charitable purpose of The Repertory Theatre. The Repertory Theatre realizes a cost savings from the operation of the Actor’s Residence that enables the Theatre to fund specific educational programs and produce high caliber plays with significant cultural value at affordable prices. The Repertory Theatre’s cost savings enhances the gift component of its mission. In sum, the use of the Actor’s Residence contributes functionally and financially to The Repertory Theatre’s main charitable purpose: to educate the community about theatre and produce plays with significant educational value.
ORDER
The assessment of the subject property made by the Assessor and sustained by the Board of Equalization for St. Louis County for the subject tax day is SET ASIDE.
The Assessor is ordered to enter the subject property on the list of exempt property into the supplemental tax book for the county for the tax year 2006.
Respondent may file with the Commission an application for review of a hearing officer 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 and an order to the Collector to release and disburse the impounded taxes. §139.031.3, RSMo. The Collector will be advised by Order of the Commission if an application for review is filed.
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 St. Louis County, as well as the collectors of all affected political subdivisions therein, shall refund to the Complainant the protested taxes presently in an escrow account. The Collector will be advised by Order of the Commission if an application for review is not filed.
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 March 14, 2008.
STATE TAX COMMISSION OF MISSOURI
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W. B. Tichenor
Chief Hearing Officer
Certificate of Service
I hereby certify that a copy of the foregoing has been mailed postage prepaid on this 14th day of March, 2008, to: Robert Droney, 101 South Hanley, Suite 1700, St. Louis, MO 63105, Attorney for Complainants; Office of the County Counselor, County Government Center, 41 South Central Avenue, Clayton, MO 63105, Attorney for Respondent; Philip Muehlheausler, Assessor; John Friganza, Collector, County Government Center, 41 South Central Avenue, Clayton, MO 63105.
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Barbara Heller
Legal Coordinator