Butler University v. State Bd. of Tax Com'rs
| Decision Date | 25 August 1980 |
| Docket Number | No. 2-577A177,2-577A177 |
| Citation | 408 N.E.2d 1286 |
| Parties | BUTLER UNIVERSITY, Appellant (Plaintiff Below), v. STATE BOARD OF TAX COMMISSIONERS et al., Appellees (Defendants Below). |
| Court | Indiana Appellate Court |
Ben J. Weaver, Charles G. Reeder, Johnson & Weaver, Indianapolis, for appellant.
Theodore L. Sendak, Atty. Gen., Alfred K. B. Tsang, Deputy Atty. Gen., Indianapolis, for appellees.
On September 10, 1975, the Marion County Board of Review denied an application for a tax exemption for certain property owned by Butler University. This denial was affirmed upon appeal to the State Board of Tax Commissioners. Butler filed its appeal in the Circuit Court of Marion County. Upon motions for summary judgment by both parties, the trial court determined that the exemption was properly denied, and made the following findings of fact and conclusions of law:
"FINDINGS OF FACT
1. That there is no genuine issue of material facts.
2. All of the property claiming tax exemptions for the year of 1975 were used solely by Butler University for rental income which were in turn used to maintain, sustain and perpetrate (sic) Butler University as an institute of learning for the education of youth of all parts of the U.S.
And upon the foregoing the Court now makes the following:
CONCLUSIONS OF LAW
1. That the law is with the defendant, State Board of Tax Commissioners and against the plaintiff, Butler University.
2. That the 1850 Act of the Indiana General Assembly Chapter CCCXXXI does not exempt North Western Christian University or its successor, Butler University from property tax on property held by either of them used solely for income producing purpose.
3. That IC 6-1.1-10-16 does not exempt Butler University from property tax on property owned by the university used solely for income producing purpose."
Butler rests its claim for an exemption solely upon the grant from the Indiana legislature, which passed an act on January 15, 1850, specifically establishing and incorporating North Western Christian University. 1 The charter of that University was set forth in the Act. See Acts of January 15, 1850, Chapt. CCCXXXI, pp. 524-528 (1850).
An exemption from taxation was granted for certain property now held by Butler, as follows:
The property to be so subjected and the purposes contemplated by the legislature were more fully described in the charter which, in pertinent part, reads as follows:
The property sought to be exempted by Butler consists of real property which, while not directly employed in the physical plant of the university, produces rental income used exclusively in its support and maintenance.
Butler contends that the legislature in 1850 intended for the exemption set forth in the charter to apply to property used indirectly, as well as directly, to sustain Butler as an institution of higher education. Butler argues that the denial of the requested exemption impairs a valid, legal contract between itself and the State of Indiana, in violation of Article I, Section 10, Clause 1, of the United States Constitution, and Article I, Section 24, of the Indiana Constitution.
The State Board of Tax Commissioners apparently defends the denial of the exemption upon three alternative grounds:
(1) that the charter enacted by the legislature in 1850 does not grant the broad exemption claimed by Butler;
(2) that I.C. 6-1.1-15-5 (Burns Code Ed. 1978) supersedes any specific grant of an exemption set forth in Butler's charter; and
(3) assuming that the legislature did grant Butler the exemption it claims, changed circumstances and the passage of time render the exemption no longer viable.
The United States Supreme Court long ago established in Trustees of Dartmouth College v. Woodward (1819) 17 U.S. (4 Wheat.) 518, 4 L.Ed. 629, that any legislative act impairing the contract of a private institution violates Article I, Section 10, Clause 1 of the United States Constitution. See also Minot v. The Philadelphia, Wilmington and Baltimore Railroad Co. (1873) 85 U.S. (18 Wall.) 206, 21 L.Ed. 888; Humphrey v. Pegues (1872) 83 U.S. (16 Wall.) 244, 21 L.Ed. 326. Such protection is also afforded by the contract impairment clause of the Indiana Constitution. See State ex rel. Carlton v. Dawson (1864) 22 Ind. 272.
Specific grants of property tax exemptions to educational or charitable institutions have been recognized as falling within the ambit of the contract impairment clause. See University v. People (1878) 99 U.S. (9 Otto) 309, 25 L.Ed. 387; Washington University v. Rouse (1869) 75 U.S. (8 Wall.) 439, 19 L.Ed. 498. But compare Rector, Church Wardens, and Vestrymen of Christ Church v. The County of Philadelphia (1860) 65 U.S. (24 How.) 300, 16 L.Ed. 602.
Cooley in his treatise on taxation stated:
"There is no room for any question, therefore, that when the state has stipulated by contract to give exemption from taxation, or has commuted the uncertain taxes for a definite and fixed sum or sums, and afterwards undertakes to tax, in the same manner as it taxes other subjects, the persons, corporations, or property which were the subject of the exemption or commutation, the obligation of the contract is impaired." Cooley on Taxation § 708 (4th Ed.).
In the case at bar, the contractual right now claimed by Butler was obtained pursuant to the special Act passed by the 1850 legislature. Subsequently, in 1851, a new constitution was adopted in Indiana which limited the ability of the legislature to grant such broad exemptions. See Compiler's Notes, Burns Ind.Stat.Ann. Indiana Constitution, Article 10, Section 1. Pursuant to the constitutional provision, the legislature enacted a general exemption statute which restricted exemptions granted to such educational institutions for property used for educational purposes. I.C. 6-1.1-10-16. 2
The State Board's attempt to impose the mandates of I.C. 6-1.1-10-16 to deny Butler its exemption obtained prior to the adoption of that statute, strikingly parallels a similar attempt made in University v. People, supra, 99 U.S. 309, 25 L.Ed. 387. Northwestern University was established by an act of the Illinois State Legislature in 1855. The pertinent portion of Northwestern's charter, as construed by the court, was as follows:
"The first section constitutes certain individuals therein named the body corporate under the name of 'Trustees of Northwestern University, with succession, and power to acquire, hold, and convey, real and personal property . . .'
The fourth section . . . gives the corporators power in their corporate name to take property by gift, grant, conveyance, or devise and to grant, sell, devise, let, place out at interest, or otherwise dispose of the same for the use of the institution, and to apply the funds collected or the proceeds of the property to erecting buildings, supporting teachers, officers, and servants of the institution, in procuring books and apparatus." 99 U.S. at 310-311.
And, as further quoted by the court:
"All property, of whatever kind or description, belonging to or owned by said corporation, shall be for ever free from taxation for any and all purposes." 99 U.S. at 322-323.
In 1870, Illinois adopted a new constitution which, in 1872, provided the authority for a general exemption statute limiting the granting of such exemptions to property used for educational purposes. The attempt to apply the new exemption statute to deprive Northwestern of its specifically-granted exemption was thwarted by the United States Supreme Court, which stated:
"If our construction of the constitution of 1848 (Illinois Constitution) is sound, the judgment of the Supreme Court (of Illinois) must be reversed; for the stipulation of facts on which the case was tried says that, 'it is admitted that all the lots and land mentioned and described in the objections filed in said proceeding for judgment, whereon said taxes were levied, excepting improvements on the same, are leased by said university to different parties for a longer or shorter period, and that all said lots and lands are held for sale or lease, for the use and support of said institution and the objects contemplated by said charter.'
We are of the opinion that such use and such holding bring the lots within the class of property which by the Constitution of 1848 the legislature could, if it deemed proper, exempt from taxation, and the legislature did so exempt it." 99 U.S. at 325.
See also Trustees of William Jewell College of Liberty v. Beavers (1943) 351 Mo. 87, 171 S.W.2d 604; Brown University v. Granger (1897) 19 R.I. 704, 36 A. 720; compare Trustees of Pillsbury Academy v. State (1939) 204 Minn. 365, 283 N.W. 727.
Thus, any exemption obtained by Butler via a specific legislative grant prior to the adoption of the 1851 constitution is a contractual right which is protected from impairment under the United States and Indiana Constitutions. 3
This was also the conclusion of the Attorney General of this state when the identical issue was presented to that office in 1931. The following questions were...
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