CARROLL AREA CHILD CARE v. Bd. of Review

• Decision Date: 06 July 2000
• Docket Number: No. 98-1047.,98-1047.
• Parties: CARROLL AREA CHILD CARE CENTER, INCORPORATED, Appellee, v. CARROLL COUNTY BOARD OF REVIEW, Appellant.
• Court: Iowa Supreme Court

613 N.W.2d 252

CARROLL AREA CHILD CARE CENTER, INCORPORATED, Appellee, v. CARROLL COUNTY BOARD OF REVIEW, Appellant.

No. 98-1047.

Supreme Court of Iowa.

July 6, 2000.

John C. Werden Jr., County Attorney, for appellant.

A. Eric Neu of Neu, Minnich, Comito & Hall, P.C., Carroll, for appellee.

Considered en banc.

TERNUS, Justice.

The appellant, Carroll County Board of Review, allowed a partial property tax exemption to the appellee, Carroll Area Child Care Center, Incorporated. On the Center's appeal to the district court, the district court granted the Center a full exemption. The Board appeals. Upon our de novo review, we affirm the district court.

I. Background Facts and Proceedings.

The Center is a non-profit corporation, established in 1978 pursuant to Iowa Code chapter 504A (1977). According to its articles of incorporation, the Center is to be operated exclusively for educational and charitable purposes. Its main function has been to provide quality day care services for persons in and about Carroll County. The Center has qualified for exemption from state and federal income taxation.

In 1996, the Center filed a claim for property tax exemption with the Carroll County assessor. See Iowa Code § 427.1(8) (1997) (providing that property of charitable institutions is exempt under certain circumstances). The assessor denied the Center's claim for exemption and assessed the property at its full value. The Center protested this assessment to the Carroll County Board of Review. See id. § 441.37(1)(c) (allowing dissatisfied property owner to protest an assessment on the basis that the property is exempt from taxation). The Board found that thirty per cent of the value was exempt. See id. § 427.1(14) para. 2 (providing for partial exemptions).

The Center appealed the Board's decision to the district court. See id. § 441.38(1) (permitting appeals to district court from actions of a board of review). After trial, the district court determined that the Center's property was fully exempt. See id. § 441.39 (stating that the district court "shall hear the appeal in equity and determine anew all questions arising before the board"). The Board has brought this appeal.

II. Scope of Review.

"Tax exemption appeals are equitable in nature and, therefore, our review of the district court's decision is de novo." Partnership for Affordable Housing, Ltd. Partnership Gamma v. Board of Review, 550 N.W.2d 161, 163 (Iowa 1996); see also Iowa R.App. P. 4. Although this court is not bound by the trial court's findings of fact, we give them weight, particularly when considering the credibility of witnesses. See Care Initiatives v. Board of Review, 500 N.W.2d 14, 16 (Iowa 1993)

; Iowa R.App. P. 14(f)(7).

III. Issues on Appeal.

On appeal to this court, the Board argues, as it did in the district court, that the Center is entitled to no exemption, not even a partial one. We do not think the law permits the Board to challenge on appeal its own determination that the Center was entitled to a partial exemption from property taxation. In an early case under a predecessor statute, we held that a board of review could not argue on appeal that the assessment should be raised above the value determined by the board itself. First Nat'l Bank v. City Council, 136 Iowa 203, 208, 112 N.W. 829, 830 (1907); see also Iowa Code § 441.38(1) (providing for appeal from board's decision by property owner or assessor; no provision made for the board to challenge its own assessment); Aerie 1287, Fraternal Order of Eagles v. Holland, 226 N.W.2d 22, 25 (Iowa 1975) (holding that only issue before the appellate court was whether the partial exemption granted by the district court should be higher; in the absence of a cross-appeal, presumably by the assessor, court would not consider whether exemption should be less than that allowed).

We adhere to this principle in the case before us and hold that the Board may not take the position on appeal, either in the district court or this court, that its decision was wrong and that the assessment should be raised. Because the assessor did not appeal, the only issue to be considered is whether the Center is entitled to the partial exemption granted by the Board or to a full exemption as determined by the district court. We turn first to the governing legal principles.

IV. General Principles Governing Property Tax Exemptions.

The Center's request for an exemption from property taxation is based on Iowa Code section 427.1(8):

The following classes of property shall not be taxed:

...

8. Property of religious, literary and charitable societies. All grounds and buildings used or under construction by literary, scientific, charitable, benevolent, agricultural, and religious institutions and societies solely for their appropriate objects, not exceeding three hundred twenty acres in extent and not leased or otherwise used or under construction with a view to pecuniary profit.

Authority for a partial tax exemption is found in section 427.1(14):

The assessor, in arriving at the valuation of any property of the society or organization, shall take into consideration any uses of the property not for the appropriate objects of the organization and shall assess in the same manner as other property, all or any portion of the property involved which is leased or rented and is used regularly for commercial purposes for a profit to a party or individual. If a portion of the property is used regularly for commercial purposes an exemption shall not be allowed upon property so used and the exemption granted shall be in the proportion of the value of the property used solely for the appropriate objects of the organization, to the entire value of the property.

Iowa Code § 427.1(14) para. 2 (emphasis added). We strictly construe these statutes and any doubt about an exemption is resolved in favor of taxation. Care Initiatives, 500 N.W.2d at 16-17.

This court has repeatedly held that an entity must prove the following three factors by a preponderance of the evidence to establish the tax-exempt status of its property:

(1) [the entity] was a charitable institution at the time of the claimed exemption,

(2) [the entity] did not operate [the facility] with a view to pecuniary profit, and

(3) the actual use of [the facility] was solely for the appropriate objects of the charitable institution.

Partnership for Affordable Housing, 550 N.W.2d at 164. See generally Care Initiatives, 500 N.W.2d at 17

(stating that party claiming the exemption has the burden of proof). Because the Board granted a partial exemption to the Center, it necessarily found that the Center was a charitable institution at the time it claimed exempt status. Due to the fact that the assessor filed no appeal from the Board's decision, we accept for purposes of our review that the Center qualifies as a charitable institution under chapter 427. See Aerie 1287,

226 N.W.2d at 25 (concluding that board's allowance of a partial exemption obviated need on appeal to determine whether the taxpayer qualified as a charitable organization). With respect to the second factor, the Board concedes in its brief that the Center is not operated with a view towards pecuniary profit.

That brings us to the third factor—whether the actual use of the Center's day care facility was solely for the appropriate objects of the institution. By virtue of the fact that the Board allowed a partial exemption, it obviously concluded that at least a portion of the facility was employed for appropriate charitable purposes, namely the care of children. Thus, the only issue in contention on this appeal is the extent to which the day care center was actually used for this charitable object.

V. Applicable Legal Principles for Determining Whether Use of Property is Charitable.

This court has referred to the requirement that the property be "used solely for the appropriate objects of the charitable institution" as the "actual use" test. See St. Ambrose Univ. v. Board of Review, 503 N.W.2d 406, 407 (Iowa 1993)

. Consistent with this characterization, in cases involving partial tax exemption, our courts have examined the extent to which the property was actually used for the charitable purpose. See Aerie 1287,

226 N.W.2d at 25; Mayflower Homes, Inc. v. Wapello County Bd. of Review, 472 N.W.2d 632, 633-34 (Iowa App.1991). Before we can undertake such an analysis, however, we must identify the nature and scope of the charitable purpose or use at issue. See South Iowa Methodist Homes, Inc. v. Board of Review, 173 N.W.2d 526, 531 (Iowa 1970) (noting that the first step is to determine what objects are charitable). This preliminary step is of particular importance here, because in the Board's view only child care provided to low-income families qualifies as a charitable endeavor. We turn to our prior cases for guidance on this matter.

A review of our prior cases demonstrates that this state is committed to a broad definition of "charity." See Care Initiatives, 500 N.W.2d at 17

("We give the term `charitable' in the tax exemption statute a broad definition."); Richards v. Iowa Dep't of Revenue, 414 N.W.2d 344, 351 (Iowa 1987) ("Iowa law has long embraced the broad view of charity."). As we noted in Richards, charity is not limited to providing assistance to the needy. 414 N.W.2d at 351; accord South Iowa Methodist Homes, 173 N.W.2d at 531 (noting that the recipients of charity need not be limited to the financially destitute to qualify for a charitable exemption). It encompasses "all humanitarian activities." Richards, 414 N.W.2d at 351 (quoting Elizabeth T. Tsai, Annotation, Receipt of Pay From Beneficiaries as Affecting Tax Exemption of Charitable Institutions, 37 A.L.R.3d 1191, 1197 (1971)). Such activities include "`the gratuitous or partly gratuitous improvement of spiritual, mental, social and physical conditions of young people,'" as well as of the elderly. Id. (quoting Andrews v. Young Men's Christian...