Alpha Rho Zeta of Lambda Chi Alpha, Inc. v. Inhabitants of City of Waterville

• Decision Date: 18 June 1984
• Citation: 477 A.2d 1131
• Parties: 18 Ed. Law Rep. 648 ALPHA RHO ZETA OF LAMBDA CHI ALPHA, INC., et al. v. INHABITANTS OF the CITY OF WATERVILLE.
• Court: Maine Supreme Court

Page 1131

477 A.2d 1131

18 Ed. Law Rep. 648

ALPHA RHO ZETA OF LAMBDA CHI ALPHA, INC., et al. v. INHABITANTS OF the CITY OF WATERVILLE.

Supreme Judicial Court of Maine.

Argued Nov. 22, 1983.

Decided May 25, 1984.

Rehearing Denied June 18, 1984.

Jim Mitchell & Jed Davis, P.A., Jed Davis (orally), Augusta, for plaintiffs.

William A. Lee, City Sol. (orally), Waterville, for defendant.

Before NICHOLS, ROBERTS, VIOLETTE, GLASSMAN and SCOLNIK, JJ., and DUFRESNE, A.R.J.

DUFRESNE, Active Retired Justice.

As of April 1, 1980, the assessors of the City of Waterville for the first time assessed a real estate tax upon eight separate buildings located on the Colby College campus and operated individually as fraternity houses respectively for the local chapters of the eight plaintiff-fraternities, ¹ all organized as non-stock, non-profit corporations under the laws of the State of Maine. These fraternity houses, affixed to land owned by the College, were nevertheless taxed to the fraternities as the entity or "person" in possession pursuant to 36 M.R.S.A. § 553. ² See also 36 M.R.S.A. § 551. ³

On October 17, 1981, each plaintiff-fraternity applied to the Waterville City Council for abatement of the tax assessed against it pursuant to 36 M.R.S.A. § 841. ⁴ The basis for the abatement at all levels of the litigation, including the claim made before this Court, is that these fraternity buildings, pursuant to 36 M.R.S.A. § 652(1)(B) (1978 & Supp.1982-1983), are tax exempt as

[t]he real estate ... owned and occupied or used solely for their own purposes by literary and scientific institutions.

We agree, and vacate the Superior Court judgment for the defendant City of Waterville which declares that the plaintiff-fraternities are not entitled to the tax exemptions they seek. We remand to the Superior Court for the entry of a declaratory judgment in favor of each of the plaintiff-fraternities and against the City of Waterville to the effect that each of the plaintiff-fraternities is entitled to the abatement of the real estate tax assessed against it. ⁵

I. Findings.

The Superior Court justice in his opinion found that the plaintiff-fraternities are not themselves literary and scientific institutions qualifying for exemption in their own right, and that their primary purpose is to provide housing and social life for their resident membership. He further found that there may be incidental literary and scientific results from this housing accommodation and social life betterment, just as there are incidental literary and scientific results from the operation of a private bookstore, but such incidental results do not qualify the real estate for literary and scientific exemption. From these findings, he concluded that the fraternities were not entitled to tax exemption as literary or scientific institutions. This reasoning reveals a misconception of the nature of the issue before the Superior Court. Few would dispute the Superior Court's assessment that fraternities are social organizations and not literary or scientific institutions. But the issue in the instant case is not, whether the use of the fraternity buildings by the fraternities to house, and provide social activities for, students of Colby College infused the fraternities with the characteristics of literary or scientific institutions entitling them to tax exemption of the fraternity houses for that reason. Rather, the issue is, whether these fraternity buildings in the context of the attending circumstances of the instant case respecting the actual oversight and control by Colby College over the fraternity houses and the fraternities themselves, must, by reason of the use of these buildings for housing student members of the several fraternities, forfeit the tax exempt status which these buildings of Colby College would otherwise enjoy, where there can be no doubt but that Colby College is a literary and scientific institution.

We do agree that findings of the trial court sitting without a jury are binding on the appellate court if based upon reasonable and credible evidence, but the rule presupposes that there is no error of law involved in connection therewith. See Inhabitants of Town of Owls Head v. Dodge, 151 Me. 473, 480, 121 A.2d 347, 350 (1956); Lutick v. Sileika, 137 Me. 30, 32, 14 A.2d 706, 708 (1940).

Furthermore, we are dealing here with a tax on the property itself, the fraternity houses, and not with a corporate tax on the fraternities; and, by force of 36 M.R.S.A. § 551, such buildings located on and affixed to land of the College were taxable, if at all, as real estate, to the owner or person in possession. See also 36 M.R.S.A. § 553. Where, as in this case, different parties may have distinct property rights in real estate, such as one having rights in the land and the others in the buildings on the land, and some are entitled to tax exemption while the others are not, it is the use of the property that will determine taxability. The way in which the property is used is the key to whether or not it is tax exempt. Inhabitants of Town of Owl's Head v. Dodge, 151 Me. at 481, 121 A.2d at 352. Thus, it is the relationship of the fraternity buildings and their use to Colby College and not to the fraternity corporation that will control the tax status of the property.

II. Historical facts

The historical record reveals a close association between Colby and the design, finance, construction, operation and supervision of the fraternity houses. In the 1930's Colby considered moving its campus to Mayflower Hill, then on the outskirts of Waterville. Because of the role fraternities were playing in housing Colby students, this move was viewed possible only if fraternity houses were constructed in this new location. The reconstruction of the fraternity buildings was an integral component of the relocation of the Colby campus.

Colby did build these houses on land owned by the College. Colby provided 40-year loans to the fraternity corporations to cover one-half the cost of construction. By erecting fraternity houses contemporaneously with the development of the rest of the campus, Colby was able to fit the fraternity buildings architecturally into the general scheme of the College. They are located well within the borders of the campus, near its center. Their water, electrical, sewerage and telephone services are integrated with those of the other buildings on the campus. In some cases they do not have separate meters, and the fraternities are billed on a pro rata basis for various utility services.

The fraternity corporations have a right to use and occupy the buildings subject to certain conditions. Colby has promulgated standards governing residency requirements respecting the physical plants themselves, setting minimum occupancy figures and establishing social and academic guidelines for the fraternities. If a fraternity's membership occupancy falls below its minimum, the College fills the vacancies with non-fraternity members. In recent years between 12 and 20 non-fraternity members have lived in the fraternity houses and, in 1981, one fraternity's occupancy fell to the point where Colby used it solely as a dormitory for non-member students that whole year. The College may impose penalties, including expulsion, on fraternities that fail to conform to the College's standards. Each fraternity has an advisor drawn from the Colby faculty and fraternities frequently hold faculty forums and conduct tutoring sessions in the buildings.

Colby handles finances for all of the fraternities. All fraternity members and residents pay their fraternity rent and dues to the College which places the funds in special fraternity accounts. These funds are available to the fraternities which may spend them subject to College approval. Colby requires the fraternities to set room rents no lower than dormitory rates and these rates generally are the same as for dormitory rooms.

All persons living in the fraternity houses are Colby students. The fraternities have no separate dining facilities and the fraternity brothers eat with the rest of the student body. The College provides supplies and maintenance services for the fraternities which are financed from the fraternity accounts. The College treats the fraternity buildings as College property and considers the fraternities agents of the College. Colby maintains insurance on the fraternity houses, holding policies in the name of the College as beneficiary. If a fraternity should cease to have a chapter at the College, Colby under the agreement may exercise one of three options: 1) it may pay the fraternity corporation the fair value of the building, 2) permit a transfer to another campus organization on terms satisfactory to the College, or 3) pay a fair rental based on the net return reasonably to be expected from the use of the building for dormitory purposes.

III. The exemption statute

Section 652 of title 36 provides that the following property of institutions and organizations is exempt from taxation:

(1)(B).

The real estate and personal property owned and occupied or used solely for their own purposes by literary and scientific institutions.

The test to be applied to determine the tax exempt status of the property in question, here the fraternity houses, is whether the property is actually owned and used solely by Colby College for its own purposes as a literary and scientific institution, notwithstanding their occupancy by the fraternities. This very statute was construed in State Young Men's Christian Ass'n v. Town of Winthrop, 295 A.2d 440 (Me.1972). We said in that case that the rule of strict construction of exemption statutes does not require that the narrowest possible meaning must be given to words descriptive of exemption. Hence, the statutory language was viewed as specifically exempting property which was owned by the institution, whether a benevolent and charitable organization or a literary and...