Bannon v. Wise

• Decision Date: 10 August 1990
• Docket Number: No. 261280,261280
• Citation: 586 A.2d 639,41 Conn.Supp. 469
• Court: Connecticut Superior Court
• Parties: Timothy F. BANNON, Commissioner of Revenue Services v. Stephen A. WISE, Executor (ESTATE OF Dorothy A. HEWLETT) et al.

Page 639

586 A.2d 639

41 Conn.Supp. 469

Timothy F. BANNON, Commissioner of Revenue Services v. Stephen A. WISE, Executor (ESTATE OF Dorothy A. HEWLETT) et al.

No. 261280.

Superior Court of Connecticut Judicial District of Fairfield.

Aug. 10, 1990.

William J. Friedeberg, Asst. Atty. Gen., and Albert E. Sheary, Asst. Com'r of Revenue Services, Hartford, for plaintiff.

Moller, Horton & Fineberg, Hartford, for defendant.

IRVING LEVINE, State Trial Referee.

The plaintiff commissioner of revenue services (commissioner) has appealed the ruling of the Probate Court for the District of New Canaan, determining that in the will of Dorothy A. Hewlett, a bequest to the New Canaan Inn, Inc. (the Inn), is exempt from succession taxes by virtue of the status of the Inn as a charitable organization under General Statutes § 12-347(a). The plaintiff's reasons for appeal set forth the foregoing facts and add that the Inn does not qualify for this exemption since it is not being operated exclusively for charitable purposes as § 12-347(a) requires and that the Probate Court erred in sustaining the Inn's claim for the exemption and in ordering the commissioner to recompute the succession tax due from the Hewlett estate and to issue an amended assessment exempting the bequest to the Inn. The plaintiff contends that the Inn does not qualify as a charitable organization and that the judgment of the Probate Court was in error.

Dorothy A. Hewlett died on September 27, 1987. In her will, she left the entire residuary estate to seven organizations, one of which was the Inn. The commissioner ruled that the portion of the residuary left to the Inn was not entitled to exemption under § 12-347(a) and assessed a tax on it.

The Inn is a congregate living facility for elderly people and provides support services for its residents including living quarters, meals, concerts and a wide variety of programs designed to improve and to enhance their lives. It has been in operation for nine years. The Inn has qualified under § 501(c)(3) of the Internal Revenue Code for tax exempt status from federal income tax and under General Statutes § 12-412(8) for tax exempt status from state sales tax and from local property taxes. The Inn is organized as a nonstock corporation. Under Article II of its certificate of incorporation, the nature of its activities is described as: "This corporation is a non-profit corporation established to build, own and operate housing and related facilities suited to the special needs and living requirements of occupants of housing for the elderly: to conduct research and planning and to take action directed toward the improvement of living and working conditions housing, recreation and education for the elderly and any and all related activities not in conflict with the provisions of Section 501(c)(3) of the Internal Revenue Code as the same may be amended from time to time." Thereafter, the certificate states the usual powers and privileges given to all corporations including Article V, which states that the corporation is nonprofit, shall not issue stock or pay dividends and that no part of its net earnings or assets shall inure to the benefit of any individual or its officers and directors. Article VI provides that the corporation shall not engage in acts prohibited by General Statutes § 33-281b et seq., governing private foundations and charitable trusts as defined in § 4947(a)(2) of the Internal Revenue Code. The income schedule shows that the Inn was built with initial contributions of $650,441 beginning in 1978 and a commercial mortgage and that the contributions from 1978 to 1987 totalled $2,193,536. The mortgage payment of interest and principal on the real property mortgage are met annually entirely from contributions. In 1987, income from residents totalled $611,287 and expenses totalled $667,476, less depreciation of $59,410, so that cash outlay was $608,066. Significantly, in addition to other expenses, mortgage and interest payments totalling $158,160 were made. These payments were, as previously stated, covered by charitable contributions. It follows, therefore, that excess expenses are covered by charitable contributions. Volunteers perform services of substantial value. The Inn anticipates that staff hours with a value of $26,235 annually are performed by volunteers, reducing the cost of each occupant's maintenance. The income of the twenty-nine residents based on the Connecticut median family levels published by the federal Department of Housing and Urban Development (HUD) shows the following categories for the Inn: "very low," 45 percent; "low," 24 percent; "moderate," 14 percent; and "other," 17 percent. The agreement executed between the Inn and each resident requires that for admission the applicant be sixty-five or older, healthy enough to live independently, desire and need the Inn's facilities and services, cooperate with the Inn's communal living requirement, guarantee the standard charges and obtain a sponsor who will also execute the lease and assist with emergencies and financial concerns. The admissions policy further states that the Inn will not accept persons who are chronically disoriented, nonambulatory, unable to manage their affairs or incapable of attending to their personal needs. The applicants must meet the Inn's criteria for housekeeping, meals, entry, mobility, health, toilet, social, emotional and psychological conditions, community living, grooming, hygiene, safety, communication, finances, legal affairs and substance abuse. The residence agreement requires the resident to pay a stated monthly amount which may be varied, as the Inn determines, for which it provides a room or suite, three meals per day, bed linen and towels and maid service. The lease also provides that the resident will not transfer assets listed in admission documents, will provide one month's security deposit and will pay the fees promptly. While the Inn requires no down payment for the quarters occupied, it does receive monthly payments from each resident which average $15,282.17 annually or $1273.51 monthly. The annual incomes of the residents range from $5016 to $91,200 annually. Of twenty-nine residents, twelve have incomes that are less than the average maintenance costs of each resident.

The pertinent part of General Statutes § 12-347, entitled "Exemptions," of chapter 216, entitled "Succession and Transfer Taxes," provides: "EXEMPTIONS. (a) There shall be exempt from the tax imposed by the chapter all transfers to or for the use of the United States, any state or territory, or any political subdivision thereof, the District of Columbia, any public institution for exclusively public purposes, any corporation or institution located within this state which receives money appropriations made by the general assembly, or any corporation, institution, society, association or trust, incorporated or organized under the laws of this state or of any state whose laws provide a similar exemption of transfers to any similar Connecticut corporation, institution, society, association or trust, formed for charitable, educational, literary, scientific, historical or religious purposes, provided the property transferred is to be used exclusively for one or more of such purposes; but no such transfer shall be exempt if, at the time such transfer occurred, any officer, member, shareholder or employee of such corporation, institution, society, association or trust is receiving or previously received any pecuniary profit from the operation thereof, except reasonable compensation for services in effecting one or more of such purposes or as proper beneficiaries of a strictly charitable purpose, or if the organization of any such corporation, institution, society, association or trust for any of the foregoing avowed purposes is a guise or pretense for directly or indirectly making for it, or for any of its officers, members, shareholders or employees, any other pecuniary profit, or if it is not in good faith organized or conducted for one or more of such purposes; and any transfer to any person, association or corporation in trust for the care of any cemetery lot."

It is the commissioner's claim that the Inn does not qualify for an exemption under that section as a charitable institution and that its property is not used exclusively for charitable purposes.

The purposes for which a corporation is organized are to be found in its certificate of incorporation. Whether the property for which exemption is claimed is actually and exclusively used for these purposes must be determined from the facts of the case. Camp Isabella Freedman of Connecticut, Inc. v. Canaan, 147 Conn. 510, 514, 162 A.2d 700 (1960). "The definition of charitable uses and purposes has expanded with the advancement of civilization and the daily increasing needs of men.... It no longer is restricted to mere relief of the destitute or the giving of alms but comprehends activities, not in themselves self-supporting, which are intended to improve the physical, mental and moral condition of the recipients and make it less likely that they will become burdens on society and more likely they will become useful citizens.... Charity embraces anything that tends to promote the well-doing and the well-being of social man.... An institution is charitable when its property and funds are devoted to such purposes as would support the creation of a valid charitable trust." (Citations omitted.) Id., 147 Conn. at 514-15, 162 A.2d 700. "A charitable trust is one which performs some governmental function, such as fostering education, relief of poverty, care of the sick or aged, burial of the dead, or performs some other public task which relieves the governmental burden of the state. Because charitable trusts perform such governmental duties, they are accorded state recognition and protection and receive the benefit of state and federal tax exemptions as well as...