NUCI PHILLIPS MEMORIAL FOUNDATION, INC. v. ATHENS-CLARKE COUNTY BOARD OF TAX ASSESSORS
S10G0448
Supreme Court of Georgia
November 8, 2010
Reconsideration Denied December 14, 2010
288 Ga. 380 | 703 SE2d 648
CARLEY, Presiding Justice.
Paul L. Howard, Jr., District Attorney, Marc A. Mallon, Bettieanne C. Hart, Assistant District Attorneys, Thurbert E. Baker, Attorney General, Paula K. Smith, Senior Assistant Attorney General, for appellant.
Tony L. Axam, Cinque M. Axam, for appellees.
CARLEY, Presiding Justice.
Linda Phillips established the Nuci Phillips Memorial Foundation, Inc. in honor of her son, Nuci Phillips, a talented young musician who suffered from depression, which ultimately led to his suicide while he was a student at the University of Georgia. The Foundation owns and operates a facility called Nuci‘s Space, which provides a healthy, safe place for the Athens community where musicians and others may come to seek help for anxiety, depression or other emotional disorders. The Foundation applied for an exemption from ad valorem taxation for the property on which its facility is located, and the exemption was granted by the Athens-Clarke County Board of Equalization. The Athens-Clarke County Board of Tax Assessors (Board) challenged the grant of exemption in the trial court, which affirmed the exemption. The Board appealed from the trial court‘s ruling to the Court of Appeals, which reversed in Athens-Clarke County Bd. of Tax Assessors v. Nuci Phillips Memorial Foundation, 300 Ga. App. 754 (686 SE2d 371) (2009). The Court of Appeals found that since the Foundation rents out rehearsal space as well as space for private birthday parties and wedding receptions, then the Foundation does not use its property exclusively in furtherance of its charitable pursuits as required by
The General Assembly, pursuant to the
After passage of the
In response to a referendum approved in November 2006, the General Assembly amended
real estate or buildings which are owned by a charitable institution that is exempt from taxation under Section 501 (c) (3) of the federal Internal Revenue Code and used by such charitable institution for the charitable purposes of such charitable institution may be used for the purpose of securing income so long as such income is used exclusively for the operation of that charitable institution.
Ga. L. 2006, pp. 376, 377, § 1. However, not long after this amendment was passed, the legislature further amended
a building which is owned by a charitable institution that is otherwise qualified as a purely public charity and that is exempt from taxation under Section 501 (c) (3) of the federal Internal Revenue Code and which building is used by such charitable institution exclusively for the charitable purposes of such charitable institution, and not more than 15 acres of land on which such building is located, may be used for the purpose of securing income so long as such income is used exclusively for the operation of that charitable institution.
Ga. L. 2007, p. 341, § 1.
According to the Board and the dissent, the amendments to
As a result of the added language in
The Board and the dissent apparently agree that the 2006 amendment would have allowed exempt charitable institutions to raise income from non-charitable activities, but believe that the
By emphasizing in the 2007 amendment the previous qualifications for a “purely public charity,” including that the property must be used “exclusively” for the charitable purposes of the institution, the General Assembly sought to clarify that the tax exemption continues to be unavailable to certain charitable institutions. First, an exemption is still unavailable in those situations where a public
Finally, the Board argues that allowing an institution that otherwise qualifies as a purely public charity to raise income from non-charitable activities, including rental of property, would lead to a greatly expanded tax exemption and would be vulnerable to abuse by commercial developers wishing to evade property tax. However, even though we conclude that
2. To summarize, in order for an institution to be granted a property tax exemption pursuant to
As to the York Rite factors, the property owned by the Foundation is devoted entirely to charitable purposes. The building provides a safe haven for musicians, or others, who are coping with mental illness. The Foundation conducts a referral program whereby
The charitable purposes of the Foundation are for the benefit of the public. Help is available to all who walk through the door. Although the Foundation works primarily with musicians and artists, anyone who seeks help is assisted. Moreover, “to qualify as public it is not necessary that the home be open to the entire public. It is sufficient that it be open to the classes for whose relief it was intended. [Cits.]” Central Bd. on Care of Jewish Aged v. Henson, supra at 629-630 (1). The Foundation‘s use of its property is exclusively devoted to its charitable purpose of providing a safe environment as well as assistance to those suffering from mental illness. Most activities that take place on the property, such as the professional counseling assistance program, the provision of group meeting space for Survivors of Suicide and other groups, and the career resources board, are at the core of the organization‘s charitable purposes. In light of the 2007 amendment to
The Foundation is not disqualified from the tax exemption under the restrictions in
Finally, the Foundation fulfills the requirements of
The Foundation has established that it qualifies as a purely public charity pursuant to
Judgment reversed. All the Justices concur, except Melton and Nahmias, JJ., who concur specially and Hunstein, C. J., Benham and Hines, JJ., who dissent.
NAHMIAS, Justice, concurring specially.
In my view, Presiding Justice Carley‘s plurality opinion reaches the correct result in this difficult tax exemption case, but its reasoning improperly limits the expanded exemption for property of purely public charities that the people of Georgia endorsed in a 2006 referendum and the General Assembly codified in
I write separately now to explain my interpretation of this complex statute, about which I have somewhat more confidence after reviewing the motion for reconsideration, but also to explain that I see the plurality opinion as governing the outcome of future cases raising this issue, which may affect many charities throughout the state. Thus, if the General Assembly wishes to have what I believe was the purpose of the 2006 and 2007 amendments recognized by this Court as the law, the Legislature will need to amend
Fundamental to my view is the understanding that virtually all activities that produce income — such as the sale or rental of property, goods, or services — are not themselves “charitable,” but instead compete with the sale or rental of similar property, goods, or services for non-charitable purposes. As explained further below, Georgia law has never distinguished between “charitable” and “non-charitable” income-producing activities or looked to whether income-producing activities were sufficiently “charitable,” because those are not real distinctions; I respectfully submit that this is the basic defect in the reasoning of both the plurality and the dissenting opinions.
However, since 1946 our law has recognized that income-producing activities are consistent with “charitable pursuits” when all of the income is then returned to the charitable institution to be used to further its charitable purposes and operations. Thus, for more than a half-century now, the General Assembly has authorized an ad valorem tax exemption for charities that use their property to generate income, with restrictions to limit the extent of such property use and to ensure that the income is not diverted for private profit. The 2006 and 2007 amendments to
1. The Law from 1878 to 1946
For well over a century, Georgia law has exempted from ad valorem taxation the property of “institutions of purely public charity.” Ga. L. 1878-1879, pp. 32, 33, § 1. However, the December 1878 statute also required that “property so exempted be not used for the purposes of private or corporate profit or income.” Id. The statute reflected a policy judgment that tax-exempt institutions should not be allowed to compete with tax-paying businesses to any extent.
This Court‘s decision in Mundy v. Van Hoose, 104 Ga. 292 (30 SE 783) (1898), illustrates the correct understanding of the non-charitable nature of income production generally as well as the applicable law during this period. Mundy involved the Georgia Female Seminary, an institution that used its property for the education of girls. See id. at 292, 301. The school was open to all girls who wished to attend, with no one turned away because of inability to pay, but it charged those who could afford to pay for tuition, board, uniforms, and entertainment. See id. at 293-294, 301. These charges constituted income from the use of the property, and even though the income was then used to pay the expenses of the school, it was no
The Court explained:
“Property used to produce income to be expended in charity is too remote from the ultimate charitable object to be exempt. If property is allowed to be used as taxed property, it also is to be taxed. If it competes in the common business and occupations of life with the property of other owners, it must bear the tax which theirs bears. Thus, if even a synagogue or a church were rented out during the week for a storeroom or a shop, though divine service might be performed in it on Saturday or Sunday, and though the rents were all appropriated to religious or charitable uses, its exemption would be lost.”
Id. at 297-298 (quoting Trustees of the Academy of Richmond County v. Bohler, 80 Ga. 159, 164 (7 SE 633) (1887)).
2. The Law from 1946 to 2006
While highly protective of tax-paying competitors, the policy codified in the 1878 law effectively limits charities to obtaining their operating funds solely from donations and significantly limits how charitable institutions may use their property. As Mundy holds, a charity‘s property would not be tax-exempt even if the charity charged those using it only if they could afford to pay and used the proceeds to help even more people who cannot pay for what the charity provides — thereby increasing the total amount of charity provided. The balance between the pro-competition policy and the pro-charity policy was shifted by the
The first set of restrictions prevented property owned by charities from being used to generate income that was diverted for private gain; these restrictions remain essentially unchanged today. See Ga. L. 1946, pp. 12, 13, § 1 (a), now codified with minor revisions as
In addition, to seek a tax exemption, an institution like the Nuci Phillips Memorial Foundation, Inc. must qualify as a “purely public charity.”
Beyond the restrictions that ensured that the new authorization of income-producing activity would be utilized solely to increase the funds available for the charity‘s good works, the 1946 amendment limited the extent to which charitable property could be used to produce income. The tax exemption would not “apply to real estate or buildings... which [are] rented, leased, or otherwise used for the primary purpose of securing an income thereon.” Ga. L. 1946, p. 13, § 1 (a), codified with minor revisions as
In accordance with this new legal regime, this Court upheld tax exemptions for charitable institutions that used their property to produce a limited amount of income and satisfied the restrictions on how that income was then used. In the leading post-1946 case of Elder v. Henrietta Egleston Hosp. for Children, 205 Ga. 489 (53 SE2d 751) (1949), the charitable hospital was open to all patients but charged 31% of its patients for all of their medical care, 24% for part
On the other hand, under the 1946 law the tax exemption was denied where income production was clearly the primary purpose of the property — like where a medical facility required all patients to pay and only charged off as charity the bills that it was unable to collect, see Georgia Osteopathic Hosp. v. Alford, 217 Ga. 663, 668 (124 SE2d 402) (1962), and when a medical facility provided services only when paid and could deny services to the poor and needy, see United Hospitals Service Assn. v. Fulton County, 216 Ga. 30, 32-34 (114 SE2d 524) (1960). See also Cobb County Bd. of Tax Assessors v. Marietta Educational Garden Center, Inc., 239 Ga. App. 740, 741, 745 (521 SE2d 892) (1999) (denying exemption not because the Garden Center generated income by charging membership dues and renting its facilities for social events, using the income to offset the center‘s expenses, but rather because the Center provided substantial benefits, including free use of the Center, only to dues-paying member clubs).
Notably, in reaching these holdings, the Court did not focus on whether the income-producing activity was itself “charitable” or whether the property was being used “exclusively” for a charitable purpose, as the plurality and dissent would respectively require. Providing medical care for compensation is a common business rather than an inherently “charitable activity,” and charging 55% of patients at least partly for their care is not “exclusively” charitable. Likewise, selling food in a restaurant is an everyday business activity and not one directly related to the religious purposes of a church. But when these activities were conducted in the charity‘s building and when all of the income was returned to the charity to further its charitable purposes, this Court permitted the tax exemption, in accordance with the rules laid down by the General Assembly.
3. The 2006 Referendum and the 2006 Amendment
In the November 2006 statewide election, the following referendum question was presented to the people of Georgia:
Shall the Act be approved which grants an exemption from
ad valorem taxation on property owned by a charitable institution which generates income when that income is used exclusively for the operation of such charitable institution?
The question was answered “yes” by 68.5% of the voters.
This approval resulted in an amendment to
With respect to paragraph (4) of subsection (a) of this Code section [which provides the tax exemption for institutions of “purely public charity“], real estate or buildings which are owned by a charitable institution that is exempt from taxation under Section 501 (c) (3) of the federal Internal Revenue Code and used by such charitable institution for the charitable purposes of such charitable institution may be used for the purpose of securing income so long as such income is used exclusively for the operation of that charitable institution.
Read in its legal and historical context, it is clear that the 2006 amendment and the referendum that allowed it to be enacted were meant to expand the tax exemption for a charity‘s property that is used to generate income for the charity. A referendum was not required to reduce or repeal an ad valorem tax exemption granted to institutions of purely public charity, see
It is also clear that the only significant difference between the 2006 statute and its predecessor — and the only element of the new provision that expanded the existing tax exemption — was the deletion of the “primary” purpose qualifier present in the old subsection (d). Thus, while before the 2006 amendment real estate and buildings owned by all exempt institutions could not be “used for the primary purpose of securing an income thereon,” the amendment allowed such property of purely public charities to be “used for the purpose of securing income.” Importantly, the other restrictions on the use of charitable property to generate income — including the restrictions that prevent the income from being diverted to private
Even with these remaining restrictions, the value of the new law to some charities is apparent. For example, a building owned and used by the Salvation Army or Goodwill Industries entirely as a thrift store — selling low-cost clothes and other goods — might now qualify for the property tax exemption (assuming all other restrictions are satisfied), whereas before 2007 only a building not used “primarily” for such income-generating activity would have qualified. Similarly, a historic building owned and preserved by a purely public charity but used more than incidentally as rental space for parties could now qualify for the tax exemption (again assuming all other restrictions are satisfied, including the return of all income generated to the operation of the charitable institution).
4. The 2007 Amendment
Just a few months after the 2006 amendment took effect, the General Assembly revised subparagraph (d) (2), effective May 23, 2007, to read as follows, with the deletions indicated by strike-out and the additions indicated by underlining:
With respect to paragraph (4) of subsection (a) of this Code section [which provides the tax exemption for institutions of “purely public charity“],
real estate or abuildings whichareis owned by a charitable institution that is otherwise qualified as a purely public charity and that is exempt from taxation under Section 501(c)(3) of the federal Internal Revenue Code and which buildingandis used by such charitable institution exclusively for the charitable purposes of such charitable institution, and not more than 15 acres of land on which such building is located, may be used for the purpose of securing income so long as such income is used exclusively for the operation of that charitable institution.
Ga. L. 2007, p. 341, §§ 1, 2.
I agree with the plurality that the 2007 amendment, enacted shortly after the 2006 amendment took effect, clarified rather than substantially modified the statute, with one exception that does not affect this case. See Plurality Op. at 383-384. The preamble to the 2007 amendment expresses that its purpose was “to clarify an ad valorem tax exemption for certain charitable institutions,” Ga. L. 2007, p. 341 (emphasis supplied), and the 2007 amendment obviously did not have the effect of reverting the law to its pre-2006 state, as
The first two changes were plainly clarifications. By its express cross-reference to subsection (a) (4), the opening phrase of subparagraph (d) (2) limits what follows to “institutions of purely public charity“; the 2007 amendment simply confirms that the existing qualifications for such institutions are unchanged. One of those qualifications was that the property at issue must be “exclusively devoted to [the institution‘s] charitable pursuits,” York Rite, 261 Ga. at 558; the 2007 amendment clarifies that this restriction also has not changed.
The only substantial change made by the 2007 amendment was to limit — to the building owned by the charity and not more than 15 acres on which the building sits — the extent of property that may be used primarily to generate income. The reason for this limitation is not apparent from the statute, but its effect is to prevent a charity from receiving the tax exemption if it owns a large amount of income-producing land. An amicus brief notes that between passage of the 2006 amendment and the 2007 amendment, a private timber company had donated 67,000 acres of timberland to its charitable foundation, which supports animal rights; the foundation then applied for about $700,000 in property tax exemptions in 18 counties. That, the Legislature may have decided, tips the balance too far.
5. The Dissenting Opinion
In my view, the dissent errs in interpreting the phrase in the current subparagraph (d) (2), “which building is used exclusively for the charitable purposes of such charitable institution,” as a limit on the type of income-generating activity in which a purely public charity may engage. The dissent says that “the receipt of donations at [Nuci‘s] coffee bar, the sale of limited music supplies, and the rental of rehearsal space” may be “consistent with its [charitable] purpose of providing a safe haven for musicians and others to gather,” but that “providing a venue for private birthday parties and wedding receptions cannot be viewed as advancing the Foundation‘s mission.” Dissenting Op. at 401-402. The statutory text of
Instead, as recognized by this Court more than a century ago, income-generating activity is not itself charitable; it is “too remote from the ultimate charitable object,” Mundy, 104 Ga. at 297. Indeed, selling music supplies and renting rehearsal space is income-
The General Assembly has put significant restrictions on such income production for other reasons — to limit unfair competition with tax-paying businesses and to ensure that income generated by charities is not diverted for private gain — but it has not restricted the type of income-producing activity in which the charity may engage. Nor has this Court — until today. Between 1946 and 2006, as I understand the law, a purely public charity might have a small gift shop or cafeteria in its building and still qualify for a tax exemption, even if the items sold had nothing to do with the charity‘s mission, so long as the income was all used for the charity‘s operations and the income-generating activity was not the primary purpose of the property. Only the last restriction was affected by the 2006 and 2007 amendments, and it was meant to be loosened. The dissent would turn the amendments on their head and make it more difficult for a charity to obtain a tax exemption than it was even under the 1946 law.
6. The Plurality Opinion
In my view, the plurality opinion reaches the correct result in this case, but its analysis of
In an attempt to read some other meaning into subparagraph (d)
In this respect, the dichotomy offered by the plurality suffers from the same problems as the dissent‘s effort to determine which income-producing activities are “consistent” with the charity‘s purpose. The distinction has no foundation in the statutory text.
In discussing its “charitable activities” versus “non-charitable activities” distinction, the plurality opinion cites several cases, but none of them use that terminology nor rely on that reasoning. Indeed, Church of God appears to refute the plurality‘s approach as well as the dissent‘s, as that case upheld, under the pre-2006 law, a tax exemption for a church building used in part as a restaurant selling food to members of the public, see 216 Ga. at 662 — but selling food is no more obviously a “charitable activity” than it is an activity obviously related to a church‘s purposes. Under our precedent and the tax exemption statute since 1946, however, using the charity‘s property to sell food and returning all the income produced to the charity to further its charitable purposes is “exclusively devot[ing]” that property to the institution‘s charitable pursuits.
Like the dissent‘s approach, the plurality‘s approach is also amorphous, leaving it to judges after the fact to decide whether, in their opinion, the uses to which a charity devotes its property are “charitable” enough (or, in the dissent‘s view, “consistent” enough with the charity‘s mission). For example, the plurality describes the Foundation‘s “rental of property” as a “non-charitable” activity, Plurality Op. at 385, 386, but it is unclear why the Foundation‘s sale of music supplies (which the plurality apparently would deem a “charitable” activity) is any more “charitable.” Instead of these uncertain distinctions, I believe the General Assembly has drawn a clearer line to guide both charities and taxing authorities.
Finally, the plurality notes the Board of Tax Assessor‘s argument that “allowing an institution that otherwise qualifies as a purely public charity to raise income from non-charitable activities, including rental of property, would lead to a greatly expanded tax exemption and would be vulnerable to abuse by commercial developers wishing to evade property tax.” Plurality Op. at 385. The plurality responds that this policy concern is avoided because “all previous requirements for qualifying as a purely public charity under
Contrary to the plurality‘s claim, however, the restrictions do not include the “primary purpose” requirement of
With the exception of its determination that the Nuci Phillips Foundation engages in “non-charitable” and “charitable” income-producing activities only incidentally, which is irrelevant in my view, I believe the plurality opinion correctly applies the law to the Foundation. See Plurality Op. at 386-387. The Nuci‘s Space property qualifies as an institution of “purely public charity” under
Finally, the Foundation‘s “use of the property [is] exclusively devoted to those charitable pursuits.” York Rite, 261 Ga. at 558. To be sure, the building is used to generate income in various ways, including the sale of musical supplies and the rental of rehearsal space and space for receptions and parties. But as the plurality recognizes, those activities “have the sole purpose of raising funds to be used for the organization‘s charitable services.” Plurality Op. at 386. Thus, in accordance with the statute, the income is “used exclusively for the operation of [the] charitable institution,”
8. The Implication of This Case
It is important to recognize that the plurality opinion is narrower than my opinion, because it would impose an additional, “primary” purpose restriction on “non-charitable” and “charitable” income-producing activities engaged in by purely public charities seeking the ad valorem tax exemption under
For these reasons, I respectfully concur only in the judgment of the Court.
I am authorized to state that Justice Melton joins in this special concurrence.
HUNSTEIN, Chief Justice, dissenting.
Because the majority incorrectly analyzes the recent amendments to
1.
[i]n determining whether property qualifies as an institution of “purely public charity” as set forth in
OCGA § 48-5-41 (a) (4) , three factors must be considered and must coexist. First, the owner must be an institution devoted entirely to charitable pursuits; second, the charitable pursuits of the owner must be for the benefit of the public; and third, the use of the property must be exclusively devoted to those charitable pursuits.
York Rite Bodies of Freemasonry of Savannah v. Bd. of Equalization of Chatham County, 261 Ga. 558 (2) (408 SE2d 699) (1991). Recent amendments to
Shall the Act be approved which grants an exemption from ad valorem taxation on property owned by a charitable institution which generates income when that income is used exclusively for the operation of such charitable institution?
With respect to [
OCGA § 48-5-41 (a) (4) ], real estate or buildings which are owned by a charitable institution that is exempt from taxation under Section 501 (c) (3) of the federal Internal Revenue Code and used by such charitable institution for the charitable purposes of such charitable institution may be used for the purpose of securing income so long as such income is used exclusively for the operation of that charitable institution.
Ga. L. 2006 at 377, § 1. However,
With respect to [
OCGA § 48-5-41 (a) (4) ], a building which is owned by a charitable institution that is otherwise qualified as a purely public charity and that is exempt from taxation under Section 501 (c) (3) of the federal Internal Revenue Code and which building is used by such charitable institution exclusively for the charitable purposes of such charitable institution, and not more than 15 acres of land on which such building is located, may be used for the purpose of securing income so long as such income is used exclusively for the operation of that charitable institution.
(Emphasis supplied.) Ga. L. 2007, p. 341, §§ 1, 2. The emphasized changes are critical in that they plainly restrict the circumstances under which income-generating property will be exempt from taxation. They are also noteworthy in that they, in essence, encompass the provisions of York Rite, supra, 261 Ga. at 558 (2).2
The majority errs by addressing the separate 2006 and 2007 amendments to
2. As this Court has recently reiterated, “where the language of a statute is plain and unambiguous, judicial construction is not only unnecessary but forbidden.” (Citation and punctuation omitted.) Anthony v. American General Financial Svcs., 287 Ga. 448, 450 (1) (a) (697 SE2d 166) (2010). See also Telecom*USA v. Collins, 260 Ga. 362, 363-364 (1) (393 SE2d 235) (1990) (“golden rule” of statutory construction requires Court to follow literal language of statute unless it produces contradiction, absurdity or such an inconvenience as to insure that the legislature meant something else). The majority points to no ambiguity or conflict in the language of
The plain language of
- the property is owned by a Section 501 (c) (3) charitable institution that is otherwise qualified as a purely public charity;
- the property is used by such charitable institution exclusively for the charitable purposes of such charitable institution; and
- such income is used exclusively for the operation of that charitable institution.
Pretermitting whether the first and third criteria have been met here, I agree with the Court of Appeals that the Foundation has failed to show that the Nuci‘s Space property is used exclusively for its charitable purposes. See York Rite, supra, 261 Ga. at 559 (2) (a) (facts of each case must be viewed as a whole and property owner has the burden of proving entitlement to tax exemption).
Although there may be only limited circumstances under which a given use of property is both income-generating and “for the charitable purposes of [the] charitable institution,”
In briefs filed in support of the Foundation, amici argue that affirming the Court of Appeals would have “catastrophic” consequences for countless charitable organizations throughout Georgia, rendering many unable to continue their valuable work.4 However, the Legislature in its wisdom chose to amend
I am authorized to state that Justices Benham and Hines join in this dissent.
Timmons, Warnes & Anderson, James C. Warnes II, for appellant.
William C. Berryman, Jr., Amy S. Gellins, for appellee.
Nelson, Mullins, Riley & Scarborough, Stanley S. Jones, Jr., Sarah A. Whalin, amici curiae.