Associated Sch. Bds. v. Hughes County

• Decision Date: 03 April 2002
• Docket Number: No. 21985.,21985.
• Citation: 643 N.W.2d 417,2002 SD 41
• Parties: ASSOCIATED SCHOOL BOARDS OF SOUTH DAKOTA, INC., Petitioner and Appellant, v. HUGHES COUNTY, South Dakota, Respondent and Appellee.
• Court: South Dakota Supreme Court

643 N.W.2d 417

2002 SD 41

ASSOCIATED SCHOOL BOARDS OF SOUTH DAKOTA, INC., Petitioner and Appellant, v. HUGHES COUNTY, South Dakota, Respondent and Appellee.

No. 21985.

Supreme Court of South Dakota.

Considered on Briefs February 11, 2002.

Decided April 3, 2002.

Charles P. Schroyer of Schmidt, Sehroyer & Moreno Pierre, South Dakota, Attorneys for petitioner and appellant.

Mark Smith, Hughes County State's Attorney, Pierre, South Dakota, Attorney for respondent and appellee.

GILBERTSON, Chief Justice.

[¶ 1.] The Associated School Boards of South Dakota, Inc., (ASBSD) appeals the tax assessed by Hughes County (County) on ASBSD's new building at 306 East Capitol Avenue, Pierre, South Dakota. ASBSD claims that it is entitled to exempt status for more than 42.5 percent of the value of its property because the entities renting ASBSD's property are, themselves, benevolent organizations using the property for benevolent purposes. The circuit court upheld the tax for 57.5 percent of the property. We reverse and remand.

FACTS AND PROCEDURE

[¶ 2.] ASBSD is an educational organization that provides assistance for 176 member school boards across South Dakota. As a not-for-profit, § 501(c)(3) corporation, ASBSD is exempt from federal income tax. The organization has also been exempt from real property tax since 1987, when it acquired the original building at 306 East Capitol Avenue in Pierre.

[¶ 3.] In 1998, ASBSD obtained additional adjoining land, removed the old buildings, and constructed a larger building at the same location. ASBSD executed a condominium agreement whereby it retained and now owns those portions of the basement and the first two floors (designated Unit B) that are not "common elements," plus 72.96 percent of the "common elements" located throughout the entire building. "TDK & E, Inc.," (a private corporation not party to this action), purchased and currently owns the third floor of the building (designated Unit A) and the remaining associated "common elements." This dispute is over the taxability of the portions owned, but not occupied by ASBSD.

[¶ 4.] ASBSD occupies 47.7 percent of Unit B, or 6,786 square feet.¹ The value of this portion, as well as the value of the "common elements" attributable to ASBSD, is $569,375. The value of ASBSD's portion of the lot upon which the building rests, also 47.7 percent, is $103,418.² Accordingly, the total value of the building attributable to ASBSD is $672,793, or 42.5 percent of the total value of the property owned by ASBSD.³

[¶ 5.] ASBSD leased out its remaining property to either governmental entities or entities that would, on their own, normally qualify for the benevolent exemption from real estate tax found in SDCL 10-4-9.2. These entities include: (1) the School Administrators of South Dakota (SASD), renting 1,097 square feet under a 15-year lease; (2) the South Dakota Board of Regents (Regents), renting 5,243 square feet under a 5-year lease; and (3) the South Dakota Association of County Commissioners and the South Dakota Association of County Officials (Associations), renting 1,086 square feet under a 10-year lease. All of these entities are essentially nonprofit, tax exempt organizations.⁴

[¶ 6.] Following ASBSD's application for exemption and a subsequent investigation, County's Board of Equalization gave a preliminary determination that the property would be 64 percent taxable, leaving only 36 percent exempt. Following notice and a hearing, the Board determined that the property was actually 66.5 percent taxable. ASBSD appealed this decision to the circuit court pursuant to SDCL 10-4-18 and 10-11-44.

[¶ 7.] The circuit court reviewed the Board's decision and found that only 57.5 percent of Unit B, that property owned but not occupied by ASBSD, was taxable. The court held that ASBSD was exempt from real estate tax for the remaining 42.5 percent of the property. ASBSD now appeals to this Court, contending that it is entitled to an exemption greater than 42.5 percent because the property is owned by a benevolent organization, occupied by benevolent organizations, and used exclusively for benevolent purposes. Thus, ASBSD raises the following issue:

Whether ASBSD qualifies for a real estate tax exemption greater than 42.5 percent.

STANDARD OF REVIEW

[¶ 8.] On an appeal from an administrative agency decision, this Court reviews the agency findings in the same manner required of the circuit court. See Alpha Gamma Zeta House Ass'n v. Clay County Bd. of Equalization, 1998 SD 101, ¶ 7, 583 N.W.2d 167, 168

. This standard is set forth in SDCL 1-26-36:

The court shall give great weight to the findings made and inferences drawn by an agency on questions of fact. The court may affirm the decision of the agency or remand the case for further proceedings. The court may reverse or modify the decision if substantial rights of the appellant have been prejudiced because the administrative findings, inferences, conclusions, or decisions are:

(1) In violation of constitutional or statutory provisions;

(2) In excess of the statutory authority of the agency;

(3) Made upon unlawful procedure;

(4) Affected by other error of law;

(5) Clearly erroneous in light of the entire evidence in the record; or

(6) Arbitrary or capricious or characterized by abuse of discretion or clearly unwarranted exercise of discretion.

A court shall enter its own findings of fact and conclusions of law or may affirm the findings and conclusions entered by the agency as part of its judgment. The circuit court may award costs in the amount and manner specified in chapter 15-17.

For reversal on questions of fact, the administrative agency must be determined to have been clearly erroneous. Butte County v. Vallery, 1999 SD 142, ¶ 8, 602 N.W.2d 284, 286-87 (citations omitted). When, however, the issue is a question of law, we review the decisions of both the administrative agency and the circuit court de novo. Id.

[¶ 9.] This case also involves statutory interpretation, which is reviewed de novo. Steinberg v. S.D. Dep't of Military and Veterans Affairs, 2000 SD 36, ¶ 6, 607 N.W.2d 596, 599

; Zoss v. Schaefers, 1999 SD 105, ¶ 6, 598 N.W.2d 550, 552. Our rules of statutory construction are as follows:

The purpose of statutory construction is to discover the true intention of the law, which is to be ascertained primarily from the language expressed in the statute. The intent of a statute is determined from what the Legislature said, rather than what the courts think it should have said, and the court must confine itself to the language used. Words and phrases in a statute must be given their plain meaning and effect. When the language in a statute is clear, certain and unambiguous, there is no reason for construction, and [this] Court's only function is to declare the meaning of the statute as clearly expressed.

Martinmaas v. Engelmann, 2000 SD 85, ¶ 49, 612 N.W.2d 600, 611 (citations omitted).

[¶ 10.] In this case, the statutes to be interpreted involve property taxation and exemption. While statutes imposing a tax are construed liberally in favor of the taxpayer, "[s]tatutes exempting property from taxation should be construed in favor of the taxing power." Alpha Gamma Zeta, 1998 SD 101 at ¶ 7, 583 N.W.2d at 168; Appeal of Real Estate Tax Exemption for Black Hills Legal Services, Inc., 1997 SD 64, ¶ 7, 563 N.W.2d 429, 430. "The words should be given a reasonable, natural, and practical meaning to effectuate the purpose of the exemption." Id. (additional citations omitted). The burden lies on the taxpayer to show its entitlement to the exemption. Alpha Gamma Zeta, 1998 SD 101 at ¶ 7, 583 N.W.2d at 168-69 (citations omitted).

ANALYSIS AND DECISION

[¶ 11.] Whether ASBSD qualifies for a real estate tax exemption greater than 42.5 percent.

[¶ 12.] There is no question that ASBSD is entitled to a real estate tax exemption for the property it owns and occupies under SDCL 10-4-9.2. This provision states:

Property owned by a benevolent organization and used exclusively for benevolent purposes is exempt from taxation. A benevolent organization is any lodge, patriotic organization, memorial association, educational association, cemetery association or similar association. A benevolent organization must be nonprofit and recognized as an exempt organization under section[] 501(c)(3) ... as amended, and in effect on January 1, 1992. However, if any such property consists of improved or unimproved property located within a municipality not occupied or directly used in carrying out the primary objective of the benevolent organization owning the same, such property shall be taxed the same as other property of the same class is taxed. * * * For the purposes of this section, an educational association is a group of accredited elementary, secondary or postsecondary schools. * * * For purposes of this section, benevolent purpose means an activity that serves the poor, distressed or underprivileged, promotes the physical or mental welfare of youths or disadvantaged individuals, or relieves a government burden.

SDCL 10-4-9.2 (emphasis added). The circuit court held, and County does not disagree, that ASBSD owns and occupies Unit B as a benevolent organization, using this property exclusively for benevolent purposes. ASBSD is an educational association using its property to relieve a government burden. The question, however, arises in the property not occupied by ASBSD.

[¶ 13.] SDCL 10-4-23 allows property being leased on a long-term basis to be treated as if it were owned by the lessee instead of the lessor.

Property held under a lease for a term of three or more years, ... belonging to the state or to any religious, scientific, or benevolent society or institution ... whose property is not taxed in the same manner as other property, shall be considered for all purposes of taxation as the property of the person so holding the same.

SDCL 10-4-23. In this case, all three entities are leasing their...