Aof/Shadybrook Affordable Hous. Corp. v. Yazel

• Court: Oklahoma Supreme Court
• Writing for the Court: GURICH
• Citation: Aof/Shadybrook Affordable Hous. Corp. v. Yazel, 2012 OK 59, 282 P.3d 775 (Okla. 2012)
• Decision Date: 16 July 2012
• Docket Number: No. 107,508.,107,508.
• Parties: AOF/SHADYBROOK AFFORDABLE HOUSING CORPORATION, an Oklahoma not-for-profit corporation, Plaintiff–Appellee, v. Ken YAZEL, Tulsa County Assessor, and Tulsa County ex rel. Tulsa County Board of Equalization and Dennis Semler, Tulsa County Treasurer, Defendants–Appellants.

282 P.3d 775

2012 OK 59

AOF/SHADYBROOK AFFORDABLE HOUSING CORPORATION, an Oklahoma not-for-profit corporation, Plaintiff–Appellee,

v. Ken YAZEL, Tulsa County Assessor,andTulsa County ex rel. Tulsa County Board of Equalization and Dennis Semler, Tulsa County Treasurer, Defendants–Appellants.

No. 107,508.

Supreme Court of Oklahoma.

June 19, 2012.

AS Corrected on Rehearing July 16, 2012.

Held Unconstitutional

68 Okl.St.Ann. § 2887(8)(a)(2)(b)

ON APPEAL FROM THE DISTRICT COURT OF TULSA COUNTY, STATE OF OKLAHOMA, HONORABLE P. THOMAS THORNBRUGH

¶ 0 The Tulsa County Assessor's office assessed ad valorem taxes on the Shadybrook Apartment Complex for the years 2004, 2005, and 2006. Shadybrook, under protest, timely paid the taxes each year, but appealed the Assessor's valuation to the Tulsa County Board of Tax Roll Corrections and the Tulsa County Board of Equalization. After receivingunfavorable decisions, Shadybrook appealed to the district court. The trial court granted summary judgment in favor of Shadybrook, determining that Shadybrook qualified for an exemption from ad valorem taxation pursuant to the Oklahoma Constitution, Article 10, § 6A. The Assessor appealed. On the first appeal in this case, the Court of Civil Appeals, Division IV, upheld the trial court's ruling in part but reversed and remanded with instructions to the trial court to determine whether Shadybrook's use of the property was for charitable purposes under Article 10, § 6A so as to overcome this Court's ruling in London Square Village v. Oklahoma County Equalization and Excise Board.¹ Neither party petitioned this Court for certiorari from that opinion. On remand, the trial court found in favor of Shadybrook and the Assessor appealed. We retained the appeal. We hold that Shadybrook's operation of the low-income housing complex was a charitable use under the constitutional ad valorem tax exemption in Article 10, § 6A of the Oklahoma Constitution. The statutory language in 68 O.S.2004 § 2887(8)(a)(2)(b) excluding property funded with proceeds from the sale of federally tax-exempt bonds from ad valorem exemption is unconstitutional.² London Square Village is overruled.

AFFIRMED

Mark R. Reents, Clark & Williams, Tulsa, Oklahoma, for Plaintiff–Appellee.

Leisa S. Weintraub, Tulsa County Assessor's Office, Tulsa, Oklahoma, for Defendants–Appellants.

Facts & Procedural History

GURICH, J.

¶ 1 This is an appeal from the Journal Entry of Judgment, filed on September 22, 2009, in Tulsa County, Honorable P. Thomas Thornbrugh.³ The case involves the assessment of ad valorem taxes on the Shadybrook Apartments for the years 2004, 2005, and 2006.⁴ AOF/Shadybrook Affordable Housing Corporation is an Oklahoma not-for-profit corporation. ⁵ In 1998, AOF acquired Shadybrook using proceeds from the sale of Tulsa County Industrial Revenue Bonds. The income from those bonds is exempt from federal income tax.⁶

¶ 2 The Shadybrook apartment complex is located in Tulsa and consists of 120 one-bedroom apartment units. Shadybrook was rented almost exclusively to persons of little financial means who were either disabled or over the age of sixty-two (62). Annual Department of Housing and Urban Development Income Guidelines were used in determining tenant eligibility. Income of the tenants at Shadybrook fell primarily in the “Extremely Low” and “Very Low” income categories for the years 2004, 2005, and 2006.⁷

¶ 3 The fair market rent established for Shadybrook was $559.00 per month. While the rent paid by every tenant was based on his or her ability to pay, all tenants were required to pay a minimum $25.00 contribution. Except for one or two HUD-approved tenants who paid fair market rent, no tenant paid the total cost of rent. The rent receipts collected at Shadybrook were applied to the upkeep, maintenance, and equipment of the Shadybrook Apartments, and all residents occupying Shadybrook received the same treatment, regardless of the amount of rent they paid.⁸

¶ 4 From 1998 through 2003, the Tulsa County Assessor granted Shadybrook an exemption from ad valorem taxation pursuant to 68 O.S. § 2887(8) because Shadybrook was organized as a charitable institution and satisfied the income standards of IRS Revenue Procedure 96–32.

¶ 5 However, in 2003, § 2887(8) was amended to exclude properties acquired or improved with proceeds from the sale of federally tax-exempt bonds. ⁹ Because Shadybrook was acquired with proceeds from the sale of federally tax-exempt bonds, the Assessor's office assessed ad valorem taxes on Shadybrook beginning in 2004 and ending in October of 2006 when AOF sold the property.¹⁰ The taxes assessed against Shadybrook were $41,530.00 in 2004; $39,847.00 in 2005; and $40,847.00 in 2006. Shadybrook, under protest, timely paid the taxes each year, but appealed the Assessor's valuation to the Tulsa County Board of Tax Roll Corrections and the Tulsa County Board of Equalization.¹¹

¶ 6 At each administrative hearing, Shadybrook objected to being taxed, claiming exemption from ad valorem taxation under Article 10, § 6A of the Oklahoma Constitution. The Assessor's office argued that since Shadybrook was acquired with proceeds from the sale of federally tax-exempt bonds, Shadybrook was not exempt from ad valorem taxes under 68 O.S.2004 § 2887(8)(a)(2)(b). Both Boards denied Shadybrook's request for exemption from payment of ad valorem taxes. Shadybrook timely appealed the Boards' rulings to the district court of Tulsa County.

¶ 7 On appeal to the district court, the parties did not dispute that Shadybrook fell within the exception to exemption stated in 68 O.S.2004 § 2887(8)(a)(2)(b). However, Shadybrook argued that the exception was invalid under the Oklahoma Constitution because it imposed stricter requirements for exemption from ad valorem taxation than those set by the Oklahoma Constitution. ¹² Although the Assessor treated Shadybrook as a charitable institution from 1998 to 2003, the Assessor argued in response that even if the statute imposed greater burdens on the exemption than allowed by the Constitution, the property was not being used for charitable purposes and not exempt from ad valorem taxes.

¶ 8 The trial court granted Shadybrook's motion for summary judgment, finding that 68 O.S.2004 § 2887(8)(a)(2)(b) imposed impermissible barriers on the exemption of property in charitable use beyond those provided for in Article 10, § 6A of the Oklahoma Constitution. The Assessor appealed.

¶ 9 In the first appeal in this case, the Court of Civil Appeals held that “ if AOF's use of Shadybrook constitute[d] a charitable purpose, then § 2887(8)(a)(2)(b) would impose a greater burden on the receipt of the Article 10, § 6A charitable exemption than does the Constitution.” ¹³ COCA upheld the trial court's ruling in part but reversed and remanded for further proceedings in the trial court to determine the factual issue of whether Shadybrook's use of the property was for charitable purposes under Article 10, § 6A, “so as to overcome the Supreme Court's ruling in London Square Village v. Okla. County Equalization and Excise Board.” ¹⁴

¶ 10 On remand, the trial court held a bench trial to determine these issues. The trial court held that Shadybrook was “physically dedicated to a charitable purpose” under Article 10, § 6A of the Oklahoma Constitution and that Shadybrook's use of the property during 2004, 2005, and 2006 did not fall under the rule announced by this Court in London Square Village. The Assessor's office timely appealed this judgment, filing a Petition in Error and a Motion to Retain the appeal in the Supreme Court. This Court granted the Assessor's motion on November 16, 2009, and retained the appeal.¹⁵

Standard of Review

¶ 11 Whether property is being used exclusively for charitable purposes so as to qualify for the Article 10, § 6A exemption from ad valorem taxation presents a question of law concerning the scope of the constitutionally mandated exemption. Integris, 2002 OK 85, ¶ 6, 58 P.3d at 203. Questions of law are reviewed de novo, which necessitates a plenary, independent, and non-deferential examination of the trial court's legal rulings. Id. This Court has long held that whether property is exempt from taxation under Article 10, § 6A depends on whether it was actually used for charitable purposes as determined by the facts in evidence and that each case must stand on its own merits. In re Farmers' Union Hosp. Ass'n of Elk City, 1942 OK 128, ¶ 8, 126 P.2d 244, 246.¹⁶ The burden of proving the existence of an exemption is on the individual seeking the exemption, and constitutional provisions are strictly construed against those claiming the exemption. Austin, Nichols & Co. v. Okla. Cnty. Board of Tax–Roll Corrections, 1978 OK 65, ¶ 19, 578 P.2d 1200, 1203–04.

Analysis

¶ 12 Article 10, § 6, subsection A, of the Oklahoma Constitution states: “Except as otherwise provided in subsection B of this section, all property used for free public libraries, free museums, public cemeteries, property used exclusively for nonprofit schools and colleges, and all property used exclusively for religious and charitable purposes ... shall be exempt from taxation.” ¹⁷ In this Court's most recent discussion of the charitable use exemption in Integris, several Integris-related nonprofit, charitable entities used office space in a multi-story office building for charitable, educational, and scientific purposes and sought a pro rata exemption from ad valorem taxation. Integris, 2002 OK 85, ¶ 2, 58 P.3d at 202. Even though the entity that owned the building was not a charitable organization and part of the building was leased to for-profit entities that were not charitable, this Court allowed an exemption for the portion of the building that was physically used for charitable purposes. Id. ¶ 16, 58 P.3d at 206. We stated that the proper interpretation of the words “used exclusively for charitable purposes” in Article 10, § 6 is “the use to which the property is...