*1 рart took no Mr. Justice Peterson the consideration or of this matter. decision MacLaughlin, having
Mr. Justice member been of this argument submission, at the time part court took no the consideration or decision of this matter.
IN RE TO PROCEEDINGS ENFORCE PAYMENT OF
REAL ESTATE TAXES FOR THE YEAR 1964. v. NORTH STAR
STATE RESEARCH AND DEVELOPMENT INSTITUTE.
200N. W. 2d 410.
July 7, 42163. 1972No. *2 Gage, Larson, D. Benson, Hayner and Jack N. Faegre & appellant. Mikkelson, County Attorney, E. Scott, David
George and M. respondent. Attorney, County Assistant Kelly, Justice. Development by
Appeal defendant, Research and North Star judgment Institute, nonprofit corporation, of the Hen- a from a holding County ex- nepin is not District that defendant Court empt occupied ad on real estate and leased from valorem taxes by public a from school district. reverse. We upon Star,
Our decision is based our conclusion that North organized Nonprofit Corporation in 1963 the Minnesota under Act, nonprofit corporation St. the mean- Minn. c. is a within ing 317.02, “nonprofit corporation” of Minn. A subd. 5. St. involving (a) purpose defined there as one formed for a gain pecuniary members, (b) paying its to shareholders or no pecuniary remuneration, directly dividends or other or indi- rectly, to its or has shareholders members as such. which, way shareholders, in under its articles no and there is no bylaws state, pay or under the laws this North Star could any directly pecuniary or in- other remuneration dividends or “members”; way directly in it could there is be to gain pecuniary them; to formed for said that North Star was any pecu- received that its “members” evidence nor is there niary gain. stipulated brief, parties to the plaintiff’s pointed
As out beyond stipu- adduced The evidence in this case. basic facts purposes uncontradicted. practical all is for lated facts joint study genesis by found a conducted Star’s Development (Upper Council Mid Upper Midwest Research University Upper west) of Minnesota. Midwest was a and the organized promote economy nonprofit of the joint comprising the Ninth Federal Reserve District. The area $850,000 grant study funded the Ford Founda was $220,000 matching Upper tion contributions of raised University. study purpose and the Midwest “to develop continuing study help finance and economic study upper region.” goal, Midwest Pursuant to that fostered proposal organization for the a research institute. While nonprofit approximately a there are dozen centers research lo country, previously cated around none in the area existed comprising the Ninth Federal District.1 Reserve In June * * * Upper “jointly University Midwest resolved * ** steps incorporate Minnesota take a research [to] in stitute metropolitan in the Twin located Cities area.” *3 plans involving
The the research center came to attention Minneapolis of certain Development Corpora officers of Area (MADC) MADC, profitmaking tion in a corporation, 1962. had organized purpose stimulating been economy bringing into new business the area.2 In pursuant to that goal, acquired it had from various landholders an industrial site
1 large There are three research centers: Battelle Memorial Institute Columbus, Ohio; in Park, Stanford Research Institute in Menlo Califor- nia; Technology Institute, and Illinois Chicago, Research Illinois. Small- Institute, er ones include Antonio, Southwest Research Texas; San Mid- Institute, west City, Missouri; Research Kansas Southern Research Institute, Birmingham, Alabama; Triangle Institute, Research Durham, Carolina; Institute, Philadelphia, Franklin Pennsylvania; Spin- dletop Inc., Lexington, Kentucky; Research and Gulf South Research Institute, Rouge, Baton Louisiana. The substantially last two are sup- ported by respective their states. 2 impetus The for MADC major was the refusal a to move to the Twin large Cities area because lack of a site for a plant. site, County along In the Minnesota River. in Scott 2,100 Valley Park, approximately contained Industrial known as By 1962, having $710,063.15. the fаir mar- acres a cost basis of by experienced site estimated ket value industrial was, however, appraisers $5,000,000. This be over valuation to subject $3,534,250 if land were to be sold to discount to to gain nearly single developer then, per- value —even taxes. cent before proposed that
The believed research officers MADC bringing industry objective of new into the center served their president area. The of MADC wrote a letter to share MADC they proposed site, holders wherein he that donate industrial MADC, percent and 75 their shares and debentures of of their savings3 subsequent tax The proposal, to the research institute. agreement, ly provided all ex shareholders reduced to Railway Company Chicago cept the & North Western donate all railway, largest The of their stock debentures. MADC shareholder, no tax the donation received benefit from due to 8,312 income,4 it of taxable but nonetheless contributed lack remaining 1,288 shares and its MADC deben sold its shares and made the railroad North approximately $300,000. This tures for agreed pledge largest The contributors also contributor. Star’s support the initiation of research $700,000 in cash to at least Additionally, institutions made low- financial certain center. Finally, companies several the institute. interest loans corporate maxi- of MADC the shareholders estimated It was thereby percent return on their receive a would tax bracket mum savings. percent tax of their the contribution after investment given the securities had been the same as if were tax benefits tax brackets of all contribu- do know the While we a church. assumption that, they contributed their tors, if had not secu- is a fair larger *4 them, they an even re- would have received had but sold rities turn. through does, however, passes a railroad line The .the industrial site.
were not MADC shareholdеrs contributed cash to the research center. MADC then dissolved. distinguish important
It is between the contributors to and 317.02, prohibits Minn. “members” of North Star. St. subd. pecuniary receiving members and shareholders from remunera- apply The statute tion. itself does to contributors. Development Institute, object North Star Research and advantageous described, of the generosity was thus Its formed. incorporation articles of state pur- that it exists “for scientific poses public in the public interest and benefit.” Named incorporators University, were three men associated with the Upper Midwest, two Family involved with Hill and one from the incorporators, Foundation. There were three other all of whom employed by private Minneapolis were concerns: The Star and Company, Tribune Minneapolis, Northwestern National Bank of and First incorporators National Bank of St. Paul. The no had power over North Star of kind.
The corporation originally “members” of the per were sons as regents from time to University time were of Minn They esota.5 membership were hold in their capac individual ity. nonprofit corporation organized Members under Minn. corporation. St. c. 317 are Although the “owners” capital stock, Star has no the members serve the function same profit that shareholders See, serve. Minn. St. 3Í7.22, important, however, 317.25. It is the members of nonprofit corporation pecuniary gain derive from the cor poration. 317.02, 5. subd. North § Star has amended its articles incorporation provide the members be individuals Regents. selected the Board of board directors Star consists 48 to 99 in- Regents The members of the Board of legis- are elected the state legislative lature. Vacancies between governor, terms are filled appointed regent
in which case until the serves next session of the legislature. University (Terr. Charter, 1851, 3, 5, 6). L. §§ c. §§ *5 February Subsequent by the “members.”6 elected dividuals associated of the directors than two-thirds no more following persons original board directors of the The of consisted Amundson, organizations: R. Neal Univer the indicated affiliated with sity Andreas, Minnesota; Dwayne Terminal Farmers Union O. Grain of Paul; Baird, Association; Bank of St. Charles First National Julian B. Bag Mills, Inc.; Bemis, Bell, Com Bemis Brothers H. Judson General Berg, University Minnesota; William pany; H. Dean of Sherwood O. Borchert, Paul; Blake, R. Uni Bank of St. John Northwestern National Minnesota; Mining versity Buetow, Manu P. Minnesota and of Herbert facturing Company; Burns, Upper and Midwest Research T. Wendell University Butler; Buttrick, Development Council; A. E. Francis John (Presi Edgar Carlson, Adolphus College Minnesota; of M. Gustavus Inc.; Laboratories, dent); Chesley, Preston Research Frank G. Central Corette, Minnesota; Cloud, Jr., University Power E. of J. E. Montana Granger Company; George Company; Corey, Cos H. H. A. Hormel and Cowles, Minneapolis tikyan, Corporation; First Bank Stock John University Minnesota; Tribune; Bryce Crawford, Jr., Rich and Dean of Company; Crawford, Valley M. Thomas ard E. Crosby, Minnesota Natural Gas Cummings, Fund, Inc.; Minnesota Northwest Harold J. Growth Company; Daggett, Mutual Life Batteries, H. Insurance Albert Gould-National Ray Daniels, Company; Inc.; John Archer-Daniels-Midland (a Darland, University Minnesota; mond re W. of Davis Edward W. developed University professor tired of taconite Minnesota who process); Dayton Company; Dayton, L. Dem Donald C. The Frederick ing, Minneapolis; Faegre, Federal Reserve of Robert Minnesota Bank Paper Company; Company; Felton, Dan and L. E. Ontario Green Giant Gainey, regent Manufacturing Company iel C. Josten and the Univer sity Minnesota; Gamble, R. Com Frederick Montana-Dakota Utilities Grambsch, pany; Gerot, Pillsbury Company; Paul S. V. Uni Paul versity Minnesota; Philip Harris, Bank B. Northwestern National Peavey Minneapolis; Heckman, Foundation; Family A. A. F. Hill Heffelfinger, Peаvey Hess, Company; F. H. E. Minnesota Robert regent University Minne AFL-CIO Federation of Labor and sota; Hurwicz, University Minnesota; Jackson, Paul Leonid A. B. St. Johnson, Company; F. E. F. Johnson Fire and Marine E. Insurance Kelly, Jr., Company; Company; Jordan, A. David G. J. Jordan Millwork Valley Company; King, Power Com Motor Allen S. Northern States Lind, Company; Manufacturing C. pany; Lilly, M. Chester David Toro Lowry, Aberdeen; Bancor- Northwest Goodrich National Bank of First Thus, private apparent it is business. “members” presently insure that none of the directors be can associated with require- as these limitations were máximums not a business doctors, lawyers, clergymen, have elected The members ment. prominent labor leader educators and board in addition leaders. Neither the to industrial business members nor the any compensation for their directors receive services. dissolved, provide If North Star is the articles that all assets University go nonprofit of Minnesota to the or to some other *6 organization 501(c)(3) described of the Internal Revenue § USCA, 501(c)(3) is, organization of an Code § — that exclusively “organized operated religious, and charitable, Lundberg, Institute; poration; O. Hormel Lunden, Walter Laurence R. Minnesota; University Macfarlane, of Robert S. Northern Pacific Rail- Company; Macy, University way Minnesota; Harold of Mayo, C. W. Mayo Clinic; McLellan, Bank; Adrian O. Merchants National Arthur C. Melamed, Organization, Inc.; Coast-to-Coast Stores Central John A. Moorhead, Minneapolis; Northwestern National Bank of Gerald T. Mullin, Minneapolis Company; Murray, Gas Gordon First National Minneapolis; Murray, Bank of Leonard H. Company; Soo Line Railroad Musser, Weyerhaeuser Company; Myers, M. John Will M. University Minnesota; Philip Nason, H. of First Paul; National Bank of St. Alfred Nier, University Minnesota; Norris, O. C. Corporation; of William C. Control Data Nyrop, Airlines, Donald Northwest Incorporated; Jay Phillips, Phillips Company; Ed Jr., and Sons Pillsbury, John S. North- Company; National western Life Ridder, Jr., Insurance B. H. St. Paul Dispatch Press; Schilling, and Pioneer Paper Paul Waldorf Products Company; Shannon, College P. Thomas; James of St. W. Shepherd, G. University Minnesota; Silha, Minneapolis of A. Otto Star and Tribune regent University Minnesota; and Spilhaus, of Athelstan Univer- sity Minnesota; of Sullivan, Sullivan, McMillan, Francis C. Hanft & Hastings; Thomson, Upper J. Cameron Midwest Develop- Research and Council; ment Thorp, W. University T. S. Minnesota; of Maurice B. Visscher, University Minnesota; Watson, Cecil University J. of Min- nesota; Stanley Wenberg, University J. Minnesota; Wishart, P. B. Minneapolis-Honeywell Regulator Company; Woodworth, R. Cargill, C. Incorporated; Cyrus Wright, G. Otter Company; Tail Power Willis D. Wyard, First American National Bank. earnings part “no net purposes, similar other or scientific” any private shareholder indi- benefit of to the inures of which taxing have ruled authorities State the Federal Both vidual.” organization con- is itself that North Star under “charitable contributions” it are deductible tributions tax laws. appropriate exemption income tax accorded has also been North Star The Federal of Minnesota. the State States and both the United Code, Revenue Internal exemption 501 of the arises under § 290.05(9). exemption USCA, is under Minn. St. 501. state § have the concur Voluntary must Star dissolution It is ob members directors. of both rence of three-fourths they so, regents could, a mind to do name if were of that the vious might all of in turn elect directors whom 12 members who could assignment all assets to the Univer and the favor dissolution sity Thus, has been control North Star of Minnesota. all over distinguished contributors, from severed who should be the “members.”8 in accord creation North
The basic idea behind the suggestion area needed Ford Foundation’s facility. many companies were too It was believed that research of their North Star was support research center own. small *7 research to have access a enable such businesses to intended to taxing rulings by and authorities While these Federal State case, that Federal and State in this the fact issues be decisive of classify rulings North institutes such as and administrative laws organizations persuasive effect. have some should charitable nonprofit corporation power importance of and of a member a The language in Mr. Chief Dell Minne- used Justice illustrated is 46, Pillsbury 61, Academy, Baptist 246 Minn. v. Convention sota * * * (1955): any membership right “It doubtful if W. 2d is N. right important vote for the election of than the to more is * * * carry corporation on and conduct business of a who directors agents, appoint a corporation, and and in elect or its officers oper- large measure, which the determine the manner in ates.” stimulating economy. thereby
center, development The of techniques expected a products and industrial new upon employ- positive activity the level of business effect presence center ment. The research would also induce busi- of ness concerns to move into area. University support an additional reason
The had the crea university of tion officials Star. Certain were concerned distinguished applied of about the amount research as from basic by university faculty research which was conducted and stud development ents.9 The of North Star the need would fulfill industry and, thereby, applied for research would relax the pressure upon University in that area. inception
Since its in an im- Star has undertaken pressive variety govern- projects assortment of research for a mental, industrial, Representative proj- other clients. of its Fargo relating are ects studies for the cities of and Moorhead opportunities development; development for industrial aof analysis techniquе surveys mathematical used the cities Minneapolis concerning patterns; Paul housing St. investigation for the Department Minnesota State of Education plans implementing relative to technical made avail- services able government; the Federal study National Health concerning uremia; Institute the causes development for the Department system of Interior of a new film for the desalina- tion of water; project sea water and brackish for the Paul St. designing School Board to assist a new curriculum for the school; technical vocational and studies for Minneapolis Plan- ning Commission, governmental as well as for numerous other agencies. scope The of North Star’s research included com- mendable, disparate development fields as the of a new mem- 9Applied stage research second development in the of new products. step, research, general inquiry first basic ais into the phenomenon. Applied laws nature and natural research the use development specific product basic research toward the pro- of a cess.
[05] a kidney formulation of and new machine artificial for an brane utilizing computer technology. system police communications research, testing, and significant consultation engaged in It also including development a industry, of ma- private services for automatically the dimensions of client’s records chine that control; facilitating establish- quality purposes product for sugar in Minne- corn western plan production of ment of a for of waste materials sota; development process conversion of a jointly (sponsored into animal feed from food industries agency Company, Purina Ealston Federal and Green Giant Soya Mills, Company); Inc., Company, and Central General analysis Peavey Company of an ultrasonic whistle for F. H. & storage menacing grain controlling for use in rodents systems analysis billing processing facilities; a of sales and Dayton Company; procedures analysis for an of sales many determining outlets; client with im- industrial sales proved analysis methods for the of statistical data. government large has served the needs of busi anticipated.10 perhaps than
nesses more In of dollar terms volume, understandably greater companies accounted for large However, companies. volume of small of North work than most appear years clients 1968 154 industrial Star’s of North Star’s been smaller two-thirds businesses. Since government projects receipts from rendered were for services approximately during percent 59.9 of its period, and since concerns, may assumed it 200 contracts with industrial were government. larger projects the Federal involved displayed preference in the manner has not North Star its services. accepted payment for clients assessed has Any cost-plus fee basis. on the same have been billed All clients 1963to 1968. from North Star’s activities The record reviews (cli- “sponsors” following the breakdown chart indicates closely sponsors ents) period the number 1963 to for the year each handled approximating of contracts the number than one more However, involved of the contracts since some Star.
patents might forthcoming be from North Star’s research property become the of the client paid who has for the research any expenses securing incurred a patent.12 in North projects Star’s dollar oper- volume research and the ating gains and losses have been as follows:
Year Volume Gain or Loss 29,290 1963 (223,156) $ P 171,798 1964 (273,883) 1965 424,481 (208,507) 747,873 1966 (121,730) 927,072 1967 ( 72,041) 1,167,491 1968 48,569 $3,468,005 (850,748) Totals $ Taking Valley expenses into account income and at Industrial Park, acquired by liquidаting North Star as a dividend from February 11, 1965, MADC on the institute’s total deficit at the end $943,300. of 1968 was Without contributions that were made, institute could not have succeeded. Star, throughout
North history, its short has maintained its year, designation the total number of contracts was closer to 200. government of “other” projects. includes state and local Year Percentage Federal Industrial Other Total
Industrial Sponsors 1963 3 1 6 50 2 1964 2 22 34 64 10 1965 23 8 9 40 56 1966 13 33 56 12 58 1967 13 30 9 52 57 1968 12 43 67 64 12
49 154 54 257 59.9 12 only There patents have been applied about half dozen for which assigned patents granted. will when and ap- if are North Star has plied for, of, patent and will be the required owner one which was not assigned. to be Minneapolis. At one time in 38th Avenue South at 3100 facilities School, owned and it is still A. Johnson building John 9, 1963, April Minneapolis. On No. of District by Special School years a term of property for Star leased North 21, 1966, was executed February a new lease On months. that, in provided Both leases years 9 months.
period subject to ad premises should any reason become event pay addi taxes, would them real estate Star valorem $5,856.78 have amount of been to the rentals.13 Taxes tion County. by Hennepin against property levied concerning arguments separate two makes First, question. both tax in why pay it should agree owned that the the state North Star and are public “Public schoolhouses” public for use as schoolhouse. *10 taxable, it be exempt is must property taxation.14 If the from part: provides in 272.01, 2, which subd. under Minn. St. personal property any reason real for or
“When thereof, taxes, is exempt lieu ad valorem taxes is from pri- a leased, loaned, and used or otherwise made available individual, connection with or vate association * * * profit imposed be a business conducted there shall for using tax, privilege possessing a or for the of so or such real personal property, in the same amount and to the same extent though property.” the lessee user of as was owner (Italics supplied.) amplified by 273.19,
This statute is Minn. 1: St. subd. “Property a held under lease for term three or of more * * * years, 272.01, 2, and not taxable under section subdivision 13 provision attorney This could have been inserted because the knowledge personal operation, board had no North school Star’s legislature might changed or because the have the law after the lease executed, or out of an It was abundance caution. should bearing on the outcome of this case. 14 1(2). 272.02, Minn. St. subd. property lands,
when the is school or other state shall be consid- ered, purposes taxation, person all property holding the so same.”
Thus, the is whether first issue North is a Star “business con- profit.” Inquiry concerning ducted for must also be made wheth- property er North Star held the “under a lease for a term of years.” three or more
The second issue is whether “purely public North Star is charity.” argues that, Research Star because it an “in- purely public stitution of charity,” its is “used exclu- sively any public purpose” exempt and is from taxation Const, virtue 9, 1, Minn. 272.02, art. Minn. subd. § St. (6, 7).
While primary issue at the trial whether North was Star public charity, exemption the issue under Minn. St. 272.01, 2, upon subd. was pleadings, raised and In ruled below. prayed adjudge the court the tract was exempt from Thus, real pointed estate the trial court taxes. out:
“The dominant exemption issue here is the matter paying defendant, taxes evidence, so if under the de clearly fendant’s exemption claim of shown, I will hold ex it empt although may exempt category under a different than pleaded or (Holen claimed Mpls-St. ad hoc. vs. Paul Metro Air ports, 250 (In 282.) [Minn.] N. 2d re: Junior W. Achievement of Mpls. State, Greater Minn. vs. 881.)” N. W. 2d
The trial issues, covered common to both as ab- areas private sence gain accessibility and the of the facilities to the general public. Both parties issues were discussed in briefs to the trial The trial court. court ruled that the exempt “not from ad valorem taxation.” While trial specifically 272.01, court’s conclusions of law do not refer § subd. it is evident from his memorandum that he considered about three devoted connection, trial court In this that issue. caption: following pages half under PROPERTY and a “PUBLIC t.kaskt) Corporation For Conducted Individual to Private 273.19, Under this M.S.A.” 272.01 Section Profit. Section caption, the court said: question this serious opinion, poses most
“This, my in from me the most trouble —not problem given This has ease. standpoint of lies, equity from the standpoint but of where above described.” interpreting the statutes question pursue this appeal In continues this North Star 272.01, seeking subd. 2. exemption under its claimed § review of “corporation connection If North Research is Star pay assessed tax. profit,” it must a business conducted for rightfully incorporated properly operated and Corporations relating corporations, are nonprofit under Minn. St. c. corporations conducted those which are not “businesses incorporate c. profit.” If North entitled to under Star is years,15 it is public if it holds a lease of lands less than 3 exempt paying assessed tax.16 may corporations provides nonprofit
Section 317.05 purposes: formed for a broad number of nonprofit corporation chapter “A under this be formed including, to, purpose, lawful not limited the follow- but ing athletic, purposes: Agricultural, emergencies, alleviation of benevolent, welfare, education, charitable, civic, community fraternal, general welfare, horticultural, eleemosynary, health, labor, literary, patriotic, professional, recreational, political, religious, scientific, and sоcial.” chapter
The writers section declared “[t]his possible.” intends to all be as inclusive as Committee Notes and 15See, 273.19, 1, quoted Minn. St. above subd. and discussed below. already indicated, Research, fact, As has been did incorporate under Minn. c. St. 317. *12 nonprofit p. Obviously, corpora 324.
Comments, M. S. A. 20A purely purposes.17 formed for charitable tion not be need provided nonprofit legislature specifically that a has cor- The directly purposes poration benefit the business may community: 317, chapter formed
“A under this [c. Nonprofit Corporation to: entitled the Minnesota Act] “(1) information; acquire and useful disseminate business equitable trade; “(2) principles inculcate “(3) establish, uniformity maintain, and enforce in com- usages, transactions, mercial business and trade relations in the 317.64, which it municipality in located.” Minn. St. 1. subd. Thus, community the fact that the business utilized and bene fited from not, North Star’s itself, research facilities in will de prive nonprofit of its status.18 necessary
It is to determine first of all whether North Star reality operated nonprofit corporation has as a or whether has fact profit.” legis- been “business conducted for The phrase lature no doubt intended “business conducted for profit” nonprofit corporations to exclude formed under Minn. operating requirements St. c. 317 and within of that law. legislature clearly The has forth set the relevant criteria for nonprofit coporations. 317.02, 5, provides: Minn. St. subd.
“ ‘Nonprofit corporation’
corporation (a)
means a
formed for
a purpose
involving
gain
pecuniary
to its
or
shareholders
(b)
members
paying
no dividends or other pecuniary re-
organizations
examples
Social
corporations
are
which are non-
profit hut are not charitable.
18 See,
Springs
Barton,
Chamber of Commerce
of Hot
v.
Ark.
(1937) (chamber
112 W.
S.
2d 619
nonprofit); Burley
of commerce held
Co-op.
Rogers,
Tobаcco
App. 469,
Growers
Assn. v.
88 Ind.
dends *13 being es consequence, it corporation of no by is profit aof A profit. no Wis receive or members that shareholders sential the test: aptly describes consin decision disbursements its [taxpayer’s] income exceeds fact that
“The destroy nonprofit necessarily character. Whether its does not contemplated to be are pecuniary benefits or other dividends applied to deter to be generally the test paid is to its members Asso organized profit.” given corporation is mine whether a Milwaukee, City 2d Service, 13 Wis. Hospital v. Inc. ciated 271, (1961).20 447, 466, 280 109 2d N. W. had received “members” that the
If here disclosed the evidence then, Star, gain” of North any the activities “pecuniary that in to hold objectives, we would have spite of in its declared by our reality nonprofit as envisioned it was not “mem- suggestion that nor even statutes. There is evidence Regents by have acted the Board bers” who have been elected in manner not acted “fronts” or have for the contributors good in faith.
Although on its activities within has carried North Star Act, Nonprofit Corporation prescribed our limitations conducting a busi- hold that it was trial would nonetheless court in memorandum profit. In connection that court ness for this stated: profit between world means difference
“In the business
19
(1876);
Mendenhall,
v.
material sold and overhead product, generally reap advantage, but the term ‘to means an many financial are or otherwise.’ There instances where the give companies supplemental same stockholders own other They corporation. operate loss, services to the other aat but many opinion jus- reasons owner is that the loss is tified because benefit the other It would business. easy an purpose having matter evade the this statute arrangement. such an my opinion, It therefore, legis- that the intent, in they lature had mind and was their when used the ‘operated profit’, they general at a words reap meant the term ‘to ” advantage financial or otherwise.’ If “profit” this definition applied is to be phrase to the “in connection with profit,” a business obviously conducted “profit” being word taken Furthermore, out of context. almost any use a lessee would advantage, e., result some kind of i. social, physical, spiritual, Such etc. a nebulous definition would practical result the conclusion purposes legis- that for all *14 exemptions. lature intended no easy
The possibility it purposes would be to evade the of by arrangements suggested the statute by the the trial court has application to this Here, case for several reasons. all control over the placed future of Star was the of hands the Regents, ever-changing of body Board of men and women Legislature. elected the articles, bylaws, State Under its actually operated, as it was North Star offered its services to including all, competitors contributors, the of for the full fair and reasonable value of such services on the same basis as if such by any organization. research had been conducted other Furthermore, procedure the state controlling any has a controlling nonprofit violations of the corporations. statutes general Thus, attorney may, public the if he finds in the is interest, petition requesting corporate the district court that the corporate liquidated affairs be and the existence terminated if regulating provision of a statute violated has corporations. Minn. 317.62. St. such incor of North Star’s that most court’s statement
The trial misleading. the nine Only two of porators clients were companies profitmaking incorporators employed were Minneapolis and Tribune clients: Star were North Star’s the First Na In case of First Bank Paul. National of St. Bank Paul, First Bank of the actual client was tional St. Eighty individuals, employed Corporation. entit Stock original ies,21 of directors. As served on North Star’s board only record, nearly about from the as can determined contracted profitmaking 55 entities have ever businesses of these Mills, Corporation, Bank General with North First Stock Star: Bag Minneapolis Inc., Company, and Tri Star Bemis Brothers Valley Company, bune, Natural Gould-National Minnesota Gas Company, Inc., Dayton Company, Batteries, The Giant Green Pillsbury Manufacturing Company, Company, H. F. Josten Peavey Company, Paul Fire and Insurance St. Marine Com Regulator Company, pany, Minneapolis-Honeywell and The Company. Tail Power Otter serv- were individuals the first members of
While University Regents Minnesota, the ing of on the Board identity subsequent As members. to disclose record fails illegal out, re- any member to pointed been it would be has operation, any pecuniary gain profit North Star’s or ceive gain. profit to disclose and the evidence fails following conclu- to understand basis It difficult in the court’s memorandum: sion trial consideration, including the
“Taking all the evidence into incorporators background other activities representatives if not officers corporations, of whom most were *15 escape Star, corporations I cannot that were served North of to primarily purpose that North the conclusion Star’s University of Minnesota. directors were affiliated with Nineteen corporations incorporators represented serve the that and predominantly of the North Star were facilities used purpose. * * “* [T] he dominating [*] $ service is [*] s|s [*] given corporations and parties profit.” individual
Contrary finding, undisputed court’s the trial it is that most employers incorporators of the of and directors not have done fact, only profitmaking business with North In Star. busi- original nesses the 65 of contributors North Star have con- it, represent only tracted with and percent these 15 its cus- of Furthermore, tomers. most of North Star’s contracts have been organizations companies way and which have in no been otherwise involved with North The Star. trial court at- seems to importance tach considerable to the relationship between incor- porators companies later have who used the services of Incorporators nonprofit corporations Star. of lose all significance corporation their created; once the they longer any control over the All affairs. of passes (in basic control to the members this case the members Regents) become, effect, owners, Board who not as individuals but fiduciaries entrusted with the duties powers imposed upon incorporation, them by- articles of laws, and state laws. temporary and current control of the cor- affairs
poration passed on to directors, the board of which is elected by the showing members. There is no any here that of the direc- employees companies tors doing who were business with Star used their influence for the companies. benefit of those It perhaps practice would be better appearance to avoid even the any having confliсt interest on the board direc- tors employees contracting who are companies with North Star for But minority research. those directors were in the companies paid involved for the services on the same basis general public, presence as the so the of these on the individuals *16 Furthermore, the bearing in this ease. have should board actually first board subsequent to the numerous directors qual- competency and of on the basis by the members chosen been spon- or by the contributors they not chosen ifications, are and hospital nonprofit to a analogy, if a contributor By way of sors. if status the hospital retain its the facilities, would its used general as the the same basis for the services on paid contributor hospital nonprofit of a or “shareholder” public? If “member” a general public, the the as paid same fees its facilities used Similarly, of a if a director hospital its status? the lose should hospital facilities, lose the nonprofit hospital should used its general paid same nonprofit fees as status if the director public? readily distinguishable from State in this case are
The facts
(1887).
Critchett,
The trial court’s decision MADC, who upon the shareholders of the mistaken belief that Research, were cash to deriv- contributed stock and North Star ing North Star. pecuniary gain from their contacts with for income corporations fact involved took a deduction that gift purposes in value tax for a of which had increased can- stock gain. any equated рecuniary pecuniary not be Nor is there with gain having right the same applied to obtain research for competitors public. fee and the same basis as one’s on following findings: In connection the trial court this made the engaging “The Court finds services clients development projects North Star all of the of research 22See, g., Clay Pipe e. Sewer Assn. Inc. v. 139 F. Commr. Int. Rev. (3 1943); Incorporation Phonograph In 2d Cir. re Own Automatic Assn, (1942). Pennsylvania, ers 45 Pa. D. & C. 551 full fair and reasonable value of such
paid North Star basis as if research had been conducted services on same organization. by any other v v
:}: tfr ífc parties “The Court finds members North Star who projects with into contracts entered various development paid rate research and same who others similarly contract would Star and that the member *17 parties special price consideration their con- received on tracts.” light hardly findings,
In the of these it can that the in- said corporators, members, or, matter, for that contributors derived any pecuniary benefits from North Star. gave
The record indicates that the contributors over control all Regents North University to the Board of Star the Minne- Star, regents, sota. As members of North who are elected legislature, the state presume elect the board directors. We doing regents that in acting so would be in their individual capacity officially Regents. and not as the Board of The fact that several of the approximately employed by 80 directors are con- any tributors is no indication way that the contributors in con- trol policies. North Star’s The record is void of infer- profitmaking ence. Fifteen approximately businesses contributors have contracted North with Star: First Bank Stock Corporation, Minneapolis Tribune, Valley Star and Minnesota Company, Natural Pillsbury Gas The Company, Bemis Brothers Bag Company, Mills, General Inc., Batteriеs, Gould-National Green Company, Giant Minneapolis-Honeywell Regulator Com- pany, International Corporation, Business Machines Josten Manufacturing Company, Otter Company, Tail Power Paid St. Fire and Company, Dayton Marine Insurance Company, The Northern Natural Company. -Gas The contributors were not given any special consideration Moreover, North Star. their contracts did not constitute proportion an inordinate of North Only Star’s percent contracts. about 7 North Star’s clients $3,500,000 approximately contributors. Of were rendered, $420,000 was attributable for services received only received The contributors with contributors. contracts right purchase existence —the Star’s one benefit general price as equal and at same basis its services on required to not including competitors, who were public, their research. anything same to obtain contribute nonprofit of a to the establishment who contribute Individuals They the hos- to use hospital are entitled also receive benefit. Again, general public. fact along pital’s with the facilities hospital hospital on same to a use the that contributors hospital nonprofit deprive status. fee not basis should on exemption deny to North Star The lower court would also “* * * theory connection with that it was a profit” in Minn. term used business conducted is 272.01, 2. court St. subd. said:
“* * * It not line that the North Star too out of to hold far many conducted for businesses that were connected large profit. many true While businesses were were, agents representatives incorporators, named as their arrange- companies that this and it was to the interest of their ment was made.” *18 arti- powers or after the
Incorporators have no duties as such conjured Thus, any incorporation are connections cles of filed. when dissolved up contributors were between North Star аnd its nebulous If the lower court’s articles were filed. North Star’s accepted, it would were of the word “connected” construction every nonprofit cor- purposes out almost practical rule for all every hospital contributions nonprofit receives poration. Almost people. doubt banks, businesses, professional No indirectly hospital and get from the hope business some banks businesses officers of banks employees, and at times from its may, and may hospital boards. Businesses on as trustees serve well-equipped being advantages near do, probably consider hospitals emergency they for the services which make available employees may, by timely treatment to em- —services ployees injured job, employer’s doing on the reduce an cost of money hospital business. Should the contribution of to a or the rendering community by competent services businessmen sit- ting unpaid hospital directors on a board considered as being done “in connection profit”? with a business conducted for advantage reap because, particularly Businesses in small communities, hospital only advantages provides con- tributing to community, the health of the but also tends to promote well-being the economic of the area. It is doubtful that legislature contemplated “advantages,” of these contribu- tions, or connections aas connection with a business conducted profit. Such connections should not turn a business not con- profit ducted for a into a “in connection business with a business profit.” conducted for legislature
No doubt the had in nonprofit where a mind corporation is controlled profit a business conducted for might which uses such a as it an affiliate or sub- sidiary, nonprofit organization enjoy should not the advan- tage exemption. of a tax Here thе basic controls are the Board Regents and a board of repre- directors of some 80 individuals sentative community, including entire educators, clergy- men, business, professional, Employees and labor leaders. using of those minority facilities of North Star are a on directors, board of and there is no evidence from which it could even be positions inferred that their advantage were used to the of their employers. Thus, meaningful there are no connections. dissenting
Our brother, Murphy, Mr. Justice is disturbed analogy our nonprofit hospital we use a for illustrative purposes. nonprofit A hospital example was used as an because it is type. Any a well-known nonprofit corporation could have been used for the purposes. same illustrative require- There is no ment 272.01, under Minn. St. 273.19, subd. or Minn. St. subd. organized that a lessee be pur- charitable or humanitarian
79 by government be lessened the burdens poses, that exemption real from an order operations in to tenant’s taxes. estate Development Institute and summary, Research North
In Star exemp- entitled to proving it is its burden of has satisfied nonprofit corpora- 272.01, 2. It is Minn. subd. under St. tion gain. pecuniary Its contribu- its members receive because tion available at the same than those derive no benefits other tors competitors of the cost, only general public, to to the but a business contributors as well. It is not connected with 1, exempt 2, 273.19, profit. Thus, 272.01, subd. subd. § § real estate ad valorem school rented Star taxes. prop- leased the assessed record reveals that North Star
erty years, months, years, and 2 9 months. terms of option There was no to renew in either lease.
apparently cognizant 273.19, 1, quoted above. of Minn. St. subd. pur
The trial court uses the term “evade” to characterize savings pose length and the income tax for the of the two leases terminоlogy fails to distin contributors. Such use of that guish of taxes between “evasion” and “avoidance.” The evasion legal generally refers to a criminal offense.23 The avoidance statutory taxpayers using provisions all taxes available to legal do not income We “avoid” but “evade” both moral. to which we whatever deductions taxes we take when right to conduct its activities in had the entitled.. North Star liability. attorney Its had in the least tax resulted manner which duty client.24 to advise his so 4, 292.11, 290.53, and 609.41. See, g., subd. subd. Minn. St. e. Responsibility, provides Professional Code of A. B. A. Canon govern- represent zealously “In our duty his client. lawyer’s ais society men, our is entitled member of each not of of laws and ment law; regulated judged in accordance have his conduct * * legally permissible through means objective any lawful seek Responsibility. 7-1, A. of Professional A. B. Code Ethical Consideration *20 by taking signing short Star was in fact risk leases. circumstances, could, The school district under these refuse to and, fact, public body in renew the lease at its termination as a required any would have been to offered rent do so if more possible other tenant. interpret plain unambiguous
The trial court would the 273.19, “[pjroperty clause in held under a lease a term § for years,” any property period three or more mean to held for years any interpretation three or under over lease. Under this property the question in could been not have assessd for taxes until the second lease was entered into because second the lease might have any not been executed the board school number of reasons and property North Star have would not held the years three unlikely legislature over. It seems that the intend- ed any event, liberty result. In we are at to construe statutory language precise unambiguous. See, that is Graber v. 24, Peter Lametti Const. Co. 293 Minn. 2d N. W. (1972); Knopp Gutterman, 33, v. 258 Minn. 102 N. 2dW. (1960). dispositive
Our the decision on first is issue of the case necessity determining there is no “purely public the charity” Besides, preferable issue. it give legis would be to opportunity lature an property purely to limit or define public exempt charities status, have an particularly Const, in 9, view of the fact that Minn. art. as amended § 3, 1970, specifically gives legislature November power to public charity limit purely or define the aof to be ex empted See, from tax. L. c. 925. unhesitatingly legislature,
We concede that rather than court, policy regard this should determine the this state exemption, any, corporations to the if taxes such as given. urge legislature North Star should be in We their judgment exemptions to empowered limit or define these as it is to do under our usurp State This court Constitution. should not people legislature to recently granted power so unnecessary so. to do questions these when decide upon “purely passing our not An reason for additional interpretation aof charity” it involves the public is that issue important decide provision. This does not court constitutional necessary in order questions to do unless it so constitutional charity express dispose on To views of the case.25 advisory opinion. indulge issue would be by attempting determine purpose served No useful would be newspaper light articles in the what would be our decision are items outside published case this was submitted. Such after been If there have probative force. the record and have changes operations of North Star or control *21 subsequent adversely taxpayer tax as a affected its status years judicata question, obviously, not be res in decision will this subsequent years. toas taxes in conclusion, question, during years
In in the tax nonprofit corpora- Devеlopment Research a and Institute was tion, exemption those operated such, as and is entitled an 1, years 272.01, 2, 273.19, be- under Minn. subd. St. subd. and § years public held lands leases for terms of 3 cause it has under in with a busi- or less and did enter such leases connection not for a profit. ness conducted
Reversed.
Murphy, (dissenting). Justice majority grants an
I unwarranted believe the decision of enterprise. exemption agency engaged in a tax commercial operation public property The fact that is located on should provide immunity. it with Development Institute is commer-
North Star Research and testing laboratory agency, operating cial a research and 25 Pillsbury Academy, See, Baptist 246 Minn. Minnesota Convention v. 62, 286, (1955). N. W. 2d only provides who have services not to those contributed to its public large. also to the at It establishment but advertises for just any enterprise. other business commercial Its business organized grown year has since it was in 1963. In the last proceedings, involved these North Star’s dollar volume was $1,167,491, profits $48,569. vaguely and its were told, areWe however, public nonprofit that it serves the enterprise weal as cost-plus and that it bills its customers on This basis. cost does include, part overhead, as a of its the item of real estate majority opinion taxes. The would hold that item of cost of operation North Star’s should be subsidized other real estate taxpayers. year The amount the tax for alone near- ly $6,000. opinion I am of the that this is an unwarranted allow- ance exemption, of an respectfully unauthorized tax I dis- sent. original issue, as litigated stated North Star’s brief and
below, is: Development “Whether Star Research and In- stitute, the appellant, is an purely public charity’ ‘institution of within Section of Article IX of the Constitution, Minnesota and, is, if it property whether Special real owned School Dis- City trict No. 1 of the Minneapolis occupied by thе Insti- tute years under a lease for two ‘public eleven months is property exclusively used public purpose’ within the same exempt section and therefore from taxation.” The second presented issue “Alternatively, is: whether the Institute’s use is ‘in connection with a business conducted profit’ subject so as to imposed Institute to the tax for the privilege of such use §272.01, Minn. Stat. 2.” subd.
In' North Star’s proceedings in answer pay- these to enforce ment of taxes, real estate occupancy it admitted a under lease May 1, 1963, since alleged that, time, since that the real occupied by estate has solely “been and used the defendant purposes purely public charity.” court, appeal of On to this vigorously “purely public Star has a contended that char- it ity”; question “public that its pur- use of the in a is for exemption under and, accordingly, entitled to that it is pose”; Const, opinion majority would indicate 9, 1. The Minn. art. § “public is a claim North Star merit to the that there is some major- issue. charity,” the case on that not decide but does term, “purely legislature ity prefer define to have the would charity.” public ap- long of this court contrary to the line of decisions
This is charity public purely well-recognized plying definition they In In re Petition of varying arisen. as situations State, Minneapolis, Inc. v. Greater Junior Achievement of 881, (1965), said: 385, 390, 2d we 135 N. Minn. W. sig- ‘charity’ legal meaning has broader the word
“The expanded in speech has been than common nificance gift, broadly to be Charity as a defined numerous decisions. laws, an in- consistently existing the benefit of applied with ‘by bringing under persons their hearts definite number relieving religion, by their bodies education influence of or assisting to establish disease, suffering, constraint, them or maintaining life, by erecting public build- themselves or or govern- works, lessening ings the burdens or otherwise ” ment.’ This in Madonna Towers v. Commr. definition was restated expresses Taxation, (1969), and 283 Minn. 167 N. 2d 712 W. general It fol majority of courts. was rule followed Homes, v. Church lowed in our most recent ease United of State (1972). Inc. N. Minn. 195 W. 2d presentation court, equated In its func- to this reasoning expressed hospital. with tion that of This line of argument North Star’s counsel follows: help me hospital to going to the between “I no difference see institute research my body going a scientific with ails of respect other matters get help this sort to equally important to me.” *23 obvious, however, that, unlike the commercial service It is Star, “public by hospitals” exempt are conducted business Const, express Minn. 1. taxation terms of art. from § suffering, Hospitals intended to relieve human whereas are project to a North Star owes its existence which fosters com- enterprises important profit-oriented merce and assists in an aspect may it be true that of their business. While North Star public which related has done some work been good, during year is that fact the last covered proceedings, percent pertained record in these of its work majority’s evading industrial contracts. The reason for charity” “purely public escapes issue me. Our decisions on this point persuasive necessarily compel are and clear and a deter- organization may trappings mination that no itself clothe in the nonprofit corporation, engage purely of a in a commercial enter- prise, escape liability by contending tax that what it does ultimately public good might employ- for the because it create profits. ment and judge, long decision of the trial experience who has had
in the area of real estate tax has made substantial contribu- tions to our law as evidenced the landmark case of In re Peti- Realty, State, tion of Dulton Inc. v. Minn. 1, 132 N. 2dW. (1964), helрful. discussing background In the factual case, beginning instant the trial court noted that in the some organizers of North sought acquire might Star’s land which be made plants seeking available to industrial a location in this accomplish they area. To purpose, Minneapolis this formed Area Development Corporation acquired large tract of land in County, Scott the value tremendously of which increased there- after. The trial court observed:
“The land in Scott County skyrocketed so it increased in value they paid what it, neighborhood inwas over $710,000.00, to a value $5,500,000.00. of over However, law of assessment holds that the reasonable market value of real estate is determined on its given market value at a date. it So a market not be because there would $3,500,000.00 assessed at assessor that would it was felt tract and entire parcels. This terrific $5,500,000.00 if sold smaller be worth *24 profits purpose the in made for for accession must be accounted Federal and State Incomes. they incorporators plan where could donate their hit on a “The tax, stupendous evade this to a new and thus stock original per- keeping profit investment with a of over their large profits, companies this could be As their showed cent. operating However, loss, at a taken off as a loss. the railroad was advantageous the not to it. There were others in so this would be corporations they bought situated, that were so were likewise out.
“They company a could then a research with establish basic capital $3,500,000 the form this land. of at least as assets in They company. a also found need for such a Some research companies department the had a research their but found own they carry equipped were not to a their out on some of research special work, compаnies not a research while other did who department researching would out- have had to have the done companies. This, state therefore, to their was addition valuable They venture. question patents, were in as under their safe the They they protected. paid contract the the with were same in payment the nature of rather than for services donations rendered. operations, my opinion,
“North Star in in showed loss be- they getting if cause were assets that income from land brought liquidated $150,000.00 per would have in over at least earnings, suppose the annum. I Donations are not considered so were carried on books received on contracts donations capital. taking their only care of in
“There was business sufficient sending one work, out at other members, advertised for they so doing. they capable of 2,500 showing were time brochures what State, cities, counties, They research did work evidence There not a scintilla of Government. the Federal It showing paid to them service. can this offered what was paid a value for this service. they reasonable inferred were University experiments on made work “They did some grants kidneys. knowledge that It is common heart and as to making experiments, given so isn’t professor to the are testimony they were absence of assume reasonable paid this as well?” correctly that, judge according to noted common
The trial understanding, charity given practice means “that needy; almsgiving.” needy, help act relieve court that no one picture trial noted factual before poor impoverished him was in the broader sense term. Citing In re Petition of Junior Achievement of Greater Minne- State, supra, apolis, charity Inc. v. he characterized as— “* * * gift consistently applied existing to be laws for *25 the persons benefit an by рroviding indefinite number of re- lief in religion, the form physi- of education or alleviation from pain, life, cal public buildings works, assistance in or other government.” relief to lessen the burden of The trial court that observed the far falls short of coming reviewing within this broad After definition. all of the significant subject, authorities the correctly on he observed that by this case is controlled Madonna Towers v. Commr. of Taxa-
tion, supra, and concluded:
“Taking all of the evidence including into consideration, the background of the activities incorporators of the in the other corporations, most whom representatives were if not officers corporations that were served Star, I cannot escape the primarily conclusion that purpose North Star’s was the corporations to serve incorporators that represented and that facilities of predominantly Star were used inci- and both direct were derived purpose. benefits that for commerce chamber of as a manner in like dental —incidental territory by making service- needs the economic would serve might in establish- interested corporations that be able to other business, that region; directly in some ing this their in business department because to maintain a research unable was large corporations giving whose to and service of their size carry re- special equipped out departments not to research were quite representatives business It these true searches. loyalty commu- partly this center established research escape the partly I cannot nity purposes, for altruistic but dominating purpose and activities far conclusion charity. business and not of for benefits of were convey en- this was wish to the idea that endeavor “I not do tax, and gimmick paying an valorem to evade ad into as tered large tаx payment and State Income Federal to evade .provide profits in their endeavor credits on made main and to immunity same, in an especially will but the results they location, present but later and move their also when build property. County into the Scott judgment is not a small matter. The suit asks a tax
“This year successful, $6,000.00 If it will elim- of close to for the 1965. personal tax property payment of ad valorem and inate. the. allowed, exemption taxpayers in the If the other future. only pay amount, must this for the valorem ad tax, police protection but álso for the services fire and provided by special this costs not It is for other assessments. something given of this reason must be in return the loss income. argued has
“It been that these the North services furnished public provided they agree pay Star are available to *26 However, dominating appears for them. it to me that the service given corporations parties profit is to individual and so given special paid to all are classes of which are at in- least
directly by taxpayers they a in that as whole must be assessed by exemption. more fill the void created to suggested “It corporation that the North also Star’s form of purposes are stated purposes to be for charitable and would qualify nonprofit corporation, but, a before, them as as stated using this is not If I corny sufficient. be excused from analogy supposed bride dressed in signify purity, white is —A guarantee is, but it is no that she organized so a as charity corporation, one, guarantee dressed does not it is.
“If there services, were evidence that large all of the or even a part governmental of the services rendered to were units donated by Star; the North if there were evidence that the researches professors made University of Minnesota were Star, might donated the North it be inferred that it lessened government the burdens of the in the first instance and in the might second it charity inferred that this was because it was humanity services donated pain suffering relieve but there is not a scintilla anything of evidence that was donated the North Star. argued
“It is corporations that the were not the board of direc- although tors representatives It were. hard me to con- ceive corporation being an officer or a member of the execu- tive or other corporations. boards They through must act agents.” their officers and
Although the case was originally tried on the issue of whether Star, or not North public was “a purely charity,” the trial court fully examined. North Star’s belated claim that it should be ex- empt because it was not “a business profit” conducted for within meaning 272.01, of Minn. St. subd. 2. Had this issue been properly litigated in the court below, might we meaning- have a ful In event, record. the trial court’s memorandum states: “The theory case was tried on the that the en- defendant was titled to have exemption upon grounds that in- was an
89 charity upon public (pleaded), the state- purely stitution of attorney subject property that ment made the the defendant’s public purpose.’ ‘public property exclusively a used regardless theory, certain a case tried on a how is “Where theory they is, the erroneous that are the result unless bound any party of the cannot recover under law.”1 view identify a commercial simple a matter to Star It is operates manner as commer- enterprise. other It same preferred It clientele and receives its business has cial business. leading Strangely, however, many industries. from of the area’s obliga- right carry to on its without it business asserts understand, pay It to from to real estate taxes. is difficult tion majority opinion, corporation, how such a an examination of motivating purpose to of those it serves whose is creature tax-exempt majority profits, produce can have a The status. privileged corpo- exemption contends that this derives professed purposes, to character and altruistic which are rate background in a and chimerical of real estate be found confused arrangements, transactions, sophisticated tax Federal interre- extravagant connections, proposals corporate as well as lated partly representations partly fact and fiction. — opinion majority appears from the that because North It Star corporation, nonprofit “members” of which are the in form is 1 256, (1957); Annis, 84 W. 256 250 Minn. N. 2d Newcomb v. v. Annis Edgewater (1962); 315, Meiss, N. 2d 593 Lohman 116 W. v. 263 Minn. (3 (1948); Dunnell, Dig. Holding 40, W. 2d 842 IB Minn. 33 N. Co. 130, ed.) See, also, v. A. 84 W. Holen M. C. 250 Minn. N. 2d 282 404. § 491, (1963). Siwek, W. (1957); 266 Minn. 124 N. 2d 191 v. Humenik that North Star’s contention that it has further observed It Const, 9, exemption art. because the § Minn. under completely exclusively any public purpose,” devoid of is so “used elementary require It term not that that it does discussion. merit every “public purpose” means use for benefit of citizen in particular per- community. not a use for It a common use and means ed.) (Perm, pp. particular Phr. 560. 35 Wd. & interests. sons regents University Minnesota, since the state can- any pecuniary establish that these “members” received gain operations, follow from North Star’s must the cor- poration profit. is not connected with a business conducted for Why obligation establishing state should have the gets operation profit someone is not ex- right plained. proof exemp- burden of establish tax Preparatory School, tion is North v. Northwestern Star’s. State (1957). 2d 242 Minn. N. W. *28 regents, It is contended the are who members of an official responsibilities University Minnesota, to body with the of are responsible for major- also the administratiоn of North The Star. ity opinion placed assures us that of control North Star “was Regents, in ever-changing body the hands of the Board of of Legislature.” men majority and women elected the State The gave tells us that “the contributors all control over North Star Regents University to the Board of of the of Minnesota.” The majority repeats: the “Here basic are in Board controls the of Regents a repre- and board of directors of some 80 individuals community, sentative including educators, clergy- of entire the men, business, professional majority and labor leaders.” The “ opinion does admit that hile the first members of North [w] serving Regents Star were individuals on the Board of of the University Minnesota, of the identity fails to record disclose the subsequent of members.” regents a fact,
As matter control, of the they have no nor did control, ever have real They of North Star. were named members of purpose give other than to North Star prestige relationship of University with of Minnesota. The Regents, Board of us, in context of the case before was figurehead purpose. could serve individuals, no real As regents, they chose, if perform could the nominal or ritualistic appointing function of of the members board of directors from may a list of names that provided we assume may to them. It fairly stated that relationship regents between the legal ambiguous, without official passive, North Star was authority permit Regents to has no significance. Board The University of Minne- integrate with the private to institution If suggest they have. to ventured has At least no one sota. Regents in lent their names Board of the the members individually Star, organization so did way they way respected and busi- individuals as other in much same general that the research institute idea endorse did to nesses growth area. economic the constructive contribute to сould body, Regents, could official as an pretense that the Board of The University participation man- in the control and commit the agement is without substance. of North Star may judicial any rate, notice the fact that what- we take
At relationship and the between North Star the nature of ever Regents been, been it has since terminated. Board of Re- According to a statement the chairman of Board January 1972, gents, connection North Star’s made place quote University It not out has severed. been January 22, 3A, Minneapolis Star, p. col. which part: states in
“* * * frequent was not until 1967 criticism of [I]t general university’s tie secret research and the with North *29 began to be heard. Star
$ [*] »<c $ # meeting regents, chairman, “At a of recent board of its remaining Andersen, university’s Elmer L. announced that years tie North relation- with would be cut. ‘Over the Star diminishing,’ pur- ship particular has been Andersen ‘No said. by continuing pose it.’ seems be served “* * * ‘There was just [*****] reason in continuing this tenuous relationship,’ said.” [Andersen] Clegg, president North quotes
The also John W. article pleased saying the new rela- Star, that, as while he was 92 university, any great tionship it “should not have effect with the
upon us.” approval large conceded that endorsement If it is distinguished citizens is not sufficient accord number of privilege, purported special and if the ties with the Univer- correctly appraised, sity are there is little of Minnesota left to give Star the character of an institution which is entitled exemption. Nevertheless, majority a real estate tax falls argument, presented by upon defendant, back which seems exemption corporate its to be that is derived from nature of upon character. Great stress is laid North Star’s character as corporation organized nonprofit pursuant to the Minnesota Nonprofit Corporation Act, majority Minn. c. 317. St. seems organized 317, to assume because North Star was under c. acquired immunity. Here, again, it has North Star fails to proof. nothing provisions meet burden its There is in the c. exemption exists, 317 to warrant such a If conclusion. must objects come constitution or statutes. The declared controlling determining are not whether or not exempt. exemption It is well established that actually determined the activities corpora- carried on Lloyd Wright tion. Frank Wyoming, v. Foundation Town of Wis. 66 N. (1954); S., Taxation, W. 2d 84 C. J. 282b § (1). Experiment In the case of the Living, International Inc. Brattleboro, 41, 47, v. Town of 127 Vt. (1968), A. 2d Supreme Court Vermont stated: Experiment “The fact that has stated in its Articles of Asso- ciation that it is a organization, charitable or that its income is exempt from taxation under the United States ap- Code has no plicability to its claim that personal its real and property in * * * exempt is tax Brattleboro public ‘used for or charitable 2See, also, Daily, January 10, Minnesota 1972, p. 1, 1; col. The Min- neapolis Star, January 15,1972, p. 17A, 5; Minneapolis col. and The Star, January p. 22,1972, 3A, 1. col. *30 and im- claim is direct is determinative uses.’ What ownership, The test property itself. use mediate use.” but Corporation procedural Act is Nonprofit Minnesota Notes and A. Committee and, in 20A M. S. as stated
nature of substantive law.” In primarily a code “It is not Comments: 1965, p. 33, Minn., en- Jan. Bar of 22 Bench and his article in Path, Corporation Tiptoeing Along Walter titled Non-Profit Trenerry states: N. many exemption] price has drawn great pearl
“That [tax Minnesota’s Non- lawyers the show-room of into Minnesota grateful they should be to find Corporation Profit Code—where shaped that One Great End.” entities to the counter infinite on employed provisions be The manner which act’s image charity public nonprofit in the create a only imagination purpose limited the resourcefulness and incorporators. case us its This is еvidenced in the before image gratuitous incorporators acquire efforts of the University public of Min- institution association with nesota, identify having public presumably which would it as advantages purpose and, time, which at the same secure might personnel gained availability and facilities from the tax-supported aof educational institution. exempt under
But to return to North claim that it is Star’s 272.01, it Minn. relies on the fact that St. subd. North Star nonprofit corporation support is a claim its occupies it is not used in connection with a business conducted though provides profit. product the industries Even its work including services, patents, for- support it with valuable merchandising marketing labor-saving devices, mulas, though provides valuable practices, and even techniques and claims, neverthe- benefit, sponsors’ North Star facilities for organization. As we nonprofit less, charitable it is a *31 preferable already noted, had it would have been North Star develop in the to this issue court below. As the the trouble taken stated his memorandum: trial court testimony actually to research that was “There making expense research, time of made or as to the ex-1 cepting the services were as to whom rendered.” explained meaning “prof
The trial court that the of the word expend it” was not limited the difference between returns and reap itures and observed term means “to an advan tage, financial or otherwise.” New International Dic Webster’s “ tionary (2 1947), p. 1976, good; ed. defines it as of ccession [a] results; consequences; avail; gain; as, valuable useful an office profit.” saving expense It also mean “[a] which necessarily would otherwise ex incurred.” State rel. Russell Sweeney, 66, 72, 13, 16, E. v. Ohio St. 91 N. 2d 16 A. L. R. (1950); ed.) (Perm. p. 2d 34 Wd. & Phr. 404. profit a business is question
Whether one conducted for is a of fact to be determined on the basis of the record. The material findings are set forth as follows:
“The engaging Court finds clients the services of projects North Star for all of the development of research and paid to North full fair and reasonable value of such services on the same basis as if such research had been conducted by any organization. other
“North Star also development conducted research pro- grams following in the areas: project
“1. A developed which an recording automatic dimensions of packaged products. the client’s project
“2. A which plant resulted in a production for the sugar corn Minnesota, in Western plant pro- similar jected for one of the Dakotas. project
“3. A developed processing and conversion of waste materials from food industries into animal feed. Such project being jointly sponsored by the Water Pollution Adminis- the Green Giant Com- Government Federal tration Soya, profit- all Central Purina, Mills and General pany, Ralston Minnesota. the State of operating within corporations making be utilized develop an ultra-sonic whistle project A“4. controlling purposes Corporation Cargill [sic] storage grain process- their on or about were rodents which ing facilities. making study Company Dayton project A for the
“5. billing procedures. modern analysis making for an industrial project of sales
“6. A had numerous sales outlets. client who involving improved meth- project the determination of
“7. A analysis data. of statistical ods *32 partial projects as list of indus- identified
“8. Other Exhibit 6 as follows: set forth Defendant’s trial clients on Company, Inc. Bemis Dayton Company
The Company, Inc.
The Donaldson Corporation Bank
First Stock Mills,
General Inc.
Gray Company, Inc. Company
Green Giant
Honeymead Company Products
Honeywell, Inc. Corporation
International Business Machines Minneapolis Company Star and Tribune Valley Company Minnesota Natural Gas Munsingwear, Inc. Company
Otter Tail Power Peavey Company
The Pillsbury Company Engineering Company
Rosemount Company Paul Fire Marine Insurance St. and Plating, Superior Inc.
96 Corporation
Torit Corporation Transistor Electronics Company Life Insurance Western paid “Again, Star, pursuant all clients to North contract, agreed price reasonable for the services rendered Star, price being paid the same as would be for such services performed by any research institute.
“The Court finds way, activities of North case, material to the issues in this gov- lessened the burdens of ernment.
“The Court finds that with reference to the total volume of contracts entered into North Star for the various research development projects years through for the 1963 as said contracts are government broken sponsors, down between sponsors industrial others, per- such contracts and their centages of the total are as follows:
Percentage of Total Govt. Industrial Other Industrial Con- Year Contracts Contracts Contracts Contracts tracts Total 1963 6 2 50% 1964 34 2 22 10 64% 1965 40 8 23 9 56% 1966 58 13 33 12 56% 1967 52 13 30 9 57% 1968 67 12 43 64% Total Average 59.9%
“That the contracts for development research and conducted *33 by North were Star not conducted for purposes charitable but were conducted for the benefit contracting of the sponsors of projects paid such and were for in full such contracting spon- sors, governmental, both industrial and others.
“The parties Court finds that or members of North Star who entered into contracts with North Star for projects various development paid research and the same rate as any others who that the member similarly and with North Star contract would on their contracts. price special consideration parties received ‡ $ $ ‡ companies, mailing list of maintained Star
“North governmental and that North organizations, units Star and by mailing, development contracts and for research solicited advertising means. and other involved in a con- that when North Star was
“The finds Court prod- patentable process, development and research or tract of research, developed as a result оf idea was such uct or contracting party rights belonged event, patent to the agreement concerning pat- and not to North that such sponsor rights part of the contract between ent The further finds North Star project and North Court Star. it, Star, proceed to ob- agreed-with clients that would rights de- if the client so patent on behalf client tain the paid by client North sired, an additional consideration Star. area, general metropolitan that within the
“The Court finds organizations, following commercial local and industrial and development others, among research and maintained their own instances, research labs laboratories, such local some type accord- equipped particular of research and for a were ingly, was contracted for with North Star: such research Honeywell
Minneapolis Company
Archer-Daniels-Midland Data
Control Laboratories, Inc.
Economic Pillsbury Company Manufacturing Company Mining [sic] Minnesota Mills, Inc. General
[*] [*] [*] [*] Research purposes of North Star “That one of dominant to the new industries Development was to attract Institute *34 98 economy stimulating by of trade the area
area and also to assist business. North Development
“The finds that Research and Court Star purely public charity an is not institution of within Institute meaning 1, IX, Article Section of Constitution for the Statutes, Minnesota State of or Minnesota Section 272.02. property “The further finds that Court herein was not academy, college, university seminary an utilized as or of learn- ing meaning IX, 1, within the of Article Section of the Constitu- Statutes, of Minnesota or tion State Minnesota Section 272.02. subject
“The Court finds that case had this by Minneapolis public been abandoned School District as a years immediately preceding school house for the date of the trial of this case and exemption therefore is not to entitled under IX, Article Section of the Constitution for the of Minne- State Statutes, 272.02, sota Minnesota Section as the same had lost identity public aas school house. “The Court finds that the Northwestern National Bank of Minneapolis, the First Minneapolis National Bank of and the Paul, First National being Bank of Saint all directors acting through by Star banking institutions, officers of said extended a line credit to $600,000 amount Star and that North Star had utilized such credit loans said banking institutions $403,000. to extent of Such loans bear paid by interest amounting North Star to one-half of one percent prime over and charged above the interest rate which is banking the said institutions from time time.
“The Court finds that the officers of North Star did not re- ceive direct remuneration for their services as such officers. “The Court finds that North Star was considered Inter- Department nal Revenue for the United States Government and Department the Income Tax Division for the Taxation organization State of Minnesota exempt as an payment from the taxes, of income both State, Federal and and also that contribu- qual- to a eligible as contributions were tions made North purposes.” charity for income tax ified 384, Clinic, 186 Troy Wash. Lumbermen’s
In ex rel. v. State defining court, (1936), word P. 2d *35 “profit,” said: by way necessarily of a direct return not mean
“Profit does saving ex- A of interest, capital dividends, account or salaries. a is also necessarily be incurred pense otherwise which would in- respondent to its renders profit person to the If benefited. they in- are corporators members, in or to businesses or share, they at a profits terested a service cost lower and in whose service, then paid such than that which would be for otherwise respondent’s operations profit a to its members.” result in this the trial court’s discussion also have benefit of
We following quoted portions of Minn. St. issue. The court 272.01, 2: subd. any reason personal property real or which for
“When thereof, is exempt taxes, lieu taxes in from ad valorem and private by a leased, used or made available and loaned otherwise a individual, corporation connection with busi- association or * * * tax, imposed profit a ness conducted for there shall using personal privilege possessing real or of so for though extent as property, the same amount and to same property.” the lessee or user the owner of such was The court went on to observe: and it was subject property public property because
“This to the North Star government. It leased by a unit was is owned $52,500.00 years a and 11 consideration for two months subject to ad provision became if the with a further of taxes pay the sum taxes, was to real estate the lessee valorem thereto. in addition leased property was this not to whether or question is as
“The profit.’ ‘in a business It connection with conducted will be profit’ noted that the statute reads ‘conducted for that not profit.’ gist at ‘was conducted is not business this profit. It whether made will also be noted that prof- the statute ‘connected with a reads business conducted for it.’ It is not far out line hold that the too was many profit. connected businesses that were conducted for many large While it is true that businesses were named incorporators, agents representatives their were, arrangement companies was to of their the interest that this made. profit
“In the business world means the difference between selling expense expense material sold and the or overhead product, generally reap advantage, but the term means ‘to many financial or otherwise.’ There are instances where the companies give same stockholders own supplemental other They corporation. loss, services to the operate other at but many opinion reasons the owner is of the loss is justified because of the benefit to the other business. It would *36 easy be an to purpose by having matter the evade of this statute arrangement. my an opinion, legis- It therefore, is that the lature intent, had in mind they and it was their when the used ‘operated they at words profit’, a meant the [conducted for] ” general reap term advantage ‘to or financial otherwise.’ majority compliance feels as well that with the literal provisions 273.19, of 1, gives immunity Minn. St. subd. to North says Star. merely This statute property when that is “held under a lease a of years, for term three or more and not taxable under ** * 272.01, section subdivision considered, shall be [it] purposes taxation, for all of property as the person so holding though the same.” Even occupied North Star has the premises years more, for 9 says majority the it cannot be ex- posed liability to real estate tax prop- because it has leased the erty for consecutive of years. terms less than 3 state When the argues that the series of leases for stated of terms less than 3 intent the stat- years and of evade to avoid is a contrivance injured and innocence an attitude of ute, North Star assumes permitted under it to do more than is argues it has no done every matter, in this Here, again, as with issue the law. attempt to ignore it has made the fact that asks us to
Star expressed it to that its proof, and feel seems meet its burden pre- toit are sufficient purpose and eminent endorsements vail. over in reliance on form is the ultimate
It to me that this seems govern- permit a Clearly, statute was intended to this substance. temporary with- property a basis unit to vacant on mental lease encumbering necessity proce- with tax the transaction out government permit a lessee It was intended dures. never year year, done occupy it as has been property to use after аnd 273.19, purpose subd. here, the intended and to avoid § con- through leases. This device is of short-term contrivance design Star, legal of North sistent with architecture operation beneath a facade structure a business which tax-exempt al- gives appearance of a institution thing. again, Here, though, reality, no such the trial court it is correctly appraised by saying in his memoran- has situation dum: provision
“In order to this lease was made between evade years period of two the school the North Star gave up per at If these months month. the North Star $1500 subject premises period, to a at the this it would not be end of provision tax under this for the it did not reason lease years for three or more. “A written entered District lease was into between School leasing premises and the North these North Star years period unescapable two It that this and months. assumption applied done under that M.S.A. 273.19 *37 years, that if the lease for than would was less the feeling exempt paying There taxes. must been some might on the part possibility school that there board be a go along theory the that Court would not with this as there was provision a ‘In premises in the lease that the event said shall for any subject taxes, reason to become ad valorem real the estate pay shall lessee said amount taxes addition to the rentals provided. April hereinabove This lease was entered into on [’] 9, expire 1963 so that said did not until lease March 1966. On day February, 1966, 21st into another lease was entered parties $1,500.00 between the on identical per terms of month rental, years but this lease was two and 10 I under- months. expired, stand that this lease before lease third was entered parties into between except the same under identical terms this eight years lease for two third was months. As a result leases, these three рroperty Star has held this as les- period years. for a five sors of over What was intention of legislature three-year making provision? it for Was purpose public property that private could be to leased indi- corporations period viduals or of less than three with- years being subject pay If, out however, ad valorem tax? years property longer, held for three or the lessee would not paying be immune from legis- such a tax. it the Was intent of the that public lature it would procuring assist unit in a renter for a short time but did immunity not intend to continue the for- providing governmental ever the same tenant and the unit made their leases in periods years not for three or It over. seems me sense, to make legislature such was the intention of the statute should be anyone holding construed that years period of three or by over lease would exempt. not be cannot be What done direct method should not be allowed indirect.” strangely, majority, support seems find some for the citing it
result has reached Canon A. B. A. Code of Profes- Responsibility, explains that sional while North con- Star’s taxes, duct have been an “avoidance” of was not an “eva- legally morally culpable. sion” which could be considered
108 not have the did that Star contention has been no There in the resulted right in a manner which activities conduct its suggestion, nor made liability. trial court tax The least was, position writer this trial court’s this does writer. just pay real estate should agrees him, that North real estate expect other to be subsidized and should taxes property owners. majority to con-
Moreover, has failed to me that seems guide in con- a court principles which should of law sider basic relating exemption. struing tax statutes public strictly, exemption are tax viewed Efforts to obtain dictating policy that resolved in favor state doubts be seeking against special Camping In party treatment. 245, 250, State, v. 282 164 N. W. Education Foundation Minn. 369, (1969), Mr. Justice Nelson stated: 2d 372 general long
“There which have been estab- are certain rules relating provisions provid- lished to statutes and constitutional ing exemption exemption all tax from taxes. The basis for accomplishment public purpose opposed is the of some favoring corporations expense particular persons or of at Foreign taxpayers generally. of v. Board of Missions State Augustana (2d) Accord, Synod, 536, 22 221 of Minn. N. 642. W. Ritschel, 673, 578, (2d) 220 20 N. 168 R. State v. Minn. W. A. L. 552, 274; School, Preparatory State 249 v. Northwestern Minn. Institute, (2d) 242; 83 N. W. Northwestern State v. Vocational 377, (2d) 232 Inc. Minn. 45 N. 653. W.
“One of the that is that is rules established taxation well is derogation equal rights. exemption exception rule and Therefore, presumption is a taxable. there all seeking consequence, proof is the one In the burden of on See, exemption. exemption that he is to the to establish entitled Minneapolis, In Inc. Minn. re Junior Achievement of Greater 271 881; 385, (2d) 135 Men’s N. Christian Business Committee W. 104 State, 549, 808; (2d) Ry.
v. 228 Minn. 88 N. Exp. W. American Holm, 328, 169 211 Co. v. Minn. N. 467.W. long-established exemption provisions
“Another rule is strictly See, Ramaley City are to Paul, construed. v. 226 St. 406, (2d) See, also, 33 Minn. N. 19. W. St. Peter’s v. Church County Scott, (395); County Hennepin Minn. v. Bell, 344, County 615; 43 Minn. Ramsey N. W. v. Church Shepherd, of the Good Minn. 47 N. W. A. L. R. 175.” correctly transparent
The trial court saw character *39 North Star. The of realities this case establish that North Star actually agent sponsors, and arm of its the who derive bene- in fits of activities form capital the of reduced in- cost and competitive through position creased improved access to research development benefits, resources. conclusively These property use of the establish in connection with a business con- profit, ducted for as well other discussed, reasons herein require should affirmance. foregoing the reasоns,
For respectfully I dissent. Knutson, (dissenting). Chief Justice agree I by with the conclusion reached the dissent of Mr. Jus- Murphy. difficulty tice concluding I have no that this institute purely public charity. is not a I difficulty find more holding institute provisions the. does not come within the of Minn. 273.19, persuaded I St. subd. but am that the dissent is correct Obviously, on this issue also. the statute was permit intended to public property leases short-term payment to avoid of taxes. made, But when the lease is here, years as was done for 2 months, being subsequent with leases duration, made of similar purpose seems to-me complete- statute has been ly ignored. I think that when lease of this kind is followed subsequent extending aggregate beyond leases in the the statu- tory period, property taxable, initio, should become if ab not from, subsequent at least the time periods. Otherwise, lease evading taxes payment a device used as the statute is than for more lease every was to intention when prop- legislature intended that that the years. I believe cannot drafting slightly less lease erty go simply tax-free could making subsequent continually leases years then than 3 construed, I think it can be so periods. If the statute similar less legislature that when lease for by the so should amended whereby prop- by subsequent years leases is followed than 3 at erty years, taxable than 3 it should become more is held for agree in this I dissent that point in therefore time. some contemplated by legislature. was not used as case the statute beginning. has a troublesome one from We This case been many arguments con- on it and have had heal'd oral twice among that care- I am convinced ferences members of court. given all us even has to the case ful consideration been though agreement. are not in we having MacLaughlin,
Mr. Todd and Mr. Justice Justice argument and sub- at the time members this court been part this case. mission, or decision of in the consideration took OBRASKE, AND INDIVIDUALLY d.b.a. GERALD COMPANY, E. v. EDWARD UNIVERSAL SPRAY *40 AND OTHERS. WOODY COMPANY, INC., BITUMINOUS CONSTRUCTION INTERVENOR. W. 2d 429.
199N.
July 7, 43177. 1972No.