Cfm Buckley/North v. Board of Greenfield

• Citation: 453 Mass. 404,902 N.E.2d 381
• Decision Date: 16 March 2009
• Docket Number: SJC-10175,SJC-10174,SJC-10176
• Parties: CFM BUCKLEY/NORTH, LLC v. BOARD OF ASSESSORS OF GREENFIELD. John Adams Nursing Home, LLC v. Board Of Assessors Of Quincy. Longmeadow Of Taunton, LLC v. Board Of Assessors Of Taunton.
• Court: United States State Supreme Judicial Court of Massachusetts

902 N.E.2d 381

453 Mass. 404

CFM BUCKLEY/NORTH, LLC v. BOARD OF ASSESSORS OF GREENFIELD.

John Adams Nursing Home, LLC v. Board Of Assessors Of Quincy.

Longmeadow Of Taunton, LLC v. Board Of Assessors Of Taunton.

SJC-10174

SJC-10175

SJC-10176

Supreme Judicial Court of Massachusetts, Suffolk.

Argued December 4, 2008.

Decided March 16, 2009.

Daniel E. Will for the taxpayers.

Rosemary Crowley, Springfield, for Board of Assessors of Greenfield & another.

Janet S. Petkun, Assistant City Solicitor, for Board of Assessors of Quincy, was present but did not argue.

Present: MARSHALL, C.J., IRELAND, SPINA, COWIN, CORDY, & BOTSFORD, JJ.

MARSHALL, C.J.

These three appeals from a decision of the Appellate Tax Board (board) denying tax exemptions and abatements of taxes require that we consider whether a limited liability company (LLC) may qualify as a "charitable organization" for purposes of G.L. c. 59, § 5, Third.¹ The taxpayers each operate a nursing home facility, and each claims exemptions from taxes assessed on both realty and personalty for one or more fiscal years. In each case, the municipality refused the taxpayer's application or applications for exemption and tax abatement, and the taxpayers filed separate petitions challenging those decisions under the board's formal procedure. G.L. c. 58A, § 7. The board allowed the municipalities' motions for judgment on the pleadings² and, because the "relevant facts necessary for resolution of this issue are essentially identical and are not in dispute," issued a single report and findings of fact. See G.L. c. 58A, § 13. The taxpayers appealed, and we transferred each of the cases here on our own motion. We conclude that an entity organized as a LLC does not come within the definition of a "charitable organization," for purposes of G.L. c. 59, § 5, Third, and that a "charitable organization" must occupy real property for the property to be considered for a tax exemption.

1. Background. The board's factual findings are not disputed on appeal and, in any event, are treated as final so long as the "evidence is sufficient to support the board's findings." Olympia & York State St. Co. v. Assessors of Boston, 428 Mass. 236, 240, 700 N.E.2d 533 (1998). Each of the taxpayers, CFM Buckley/North, LLC; Longmeadow of Taunton, LLC; and John Adams Nursing Home, LLC, operates a facility that provides skilled nursing home care exclusively to indigent elderly and infirm patients on a nonprofit basis. They each are organized as a limited liability company (LLC) under the laws of Delaware, and each has as its sole member ElderTrust of Florida, Inc. (ElderTrust). ElderTrust is a corporation organized under the laws of Tennessee, having as its stated purpose the ownership and operation of elder care facilities, including nursing homes. There is no dispute that ElderTrust is organized for charitable purposes, or that it qualifies for Federal tax exemption, pursuant to 26 U.S.C. § 501(c)(3) (2006). The board found that there were no "impermissible financial benefits flowing to investors."

The certificates of formation for the LLCs, see 6 Del.Code § 18-101 (2005 & Supp.2008), provide that the entity "shall serve only such purposes and functions and shall engage only in such activities as are consistent with ... the charitable purposes and objectives of its sole member." Similarly, the entities' operating agreements provide that ElderTrust "shall have full and complete authority, power, and discretion to manage and control the business affairs, and properties of [the LLCs], to make all decisions regarding those matters and to perform any and all acts or activities customary to the management of [the LLCs'] business."

2. Discussion. We begin with the premise that "[a]ll property, real and personal, situated within the commonwealth [shall be subject to taxation] ... unless expressly exempt." G.L. c. 59, § 2. The board concluded that neither the real nor the personal property of the taxpayers qualified for a G.L. c. 59, § 5, Third, charitable exemption because the taxpayers were not incorporated but were, instead, organized as limited liability companies. It also concluded the taxpayers could not claim exemption based on holding the property "in trust" for a qualifying charitable organization. We attach "some significance to the fact that the Board [is the] State agency charged with administration" of the tax abatement process of the law, and "that we deal here with a clause which exempts from tax and thus is to be construed without particular generosity toward taxpayers." Henry Perkins Co. v Assessors of Bridgewater, 377 Mass. 117, 121-122, 384 N.E.2d 1241 (1979). See McCarthy v. Commissioner of Revenue, 391 Mass. 630, 632, 462 N.E.2d 1357 (1984). We agree with the board a. Organizational form. General Laws c. 59, § 5, Third, accords exemption from taxation to a "charitable organization," defined by statute as "(1) a literary, benevolent, charitable or scientific institution or temperance society incorporated in the commonwealth, and (2) a trust for literary, benevolent, charitable, scientific or temperance purposes"³ (emphasis added). As this court noted more than seventy years ago: "It is a familiar principle that no exemption from taxation can be allowed except upon its being fairly shown that it was intended by the terms of the statute. It is impossible to extend by construction the operation of such exemption beyond the plain words of the statute." William T. Stead Memorial Ctr. of N.Y. v. Wareham, 299 Mass. 235, 239, 12 N.E.2d 725 (1938). The language plainly limits tax-exempt status to those "charitable organizations" that are incorporated. See, e.g., Brennan v. Election Comm'rs of Boston, 310 Mass. 784, 789, 39 N.E.2d 636 (1942) (court will "construe the statutes as they are written").

A limited liability company is not a corporation. Indeed, G.L. c. 156C, § 2(5), specifically defines a LLC as "an unincorporated organization formed under [G.L. c. 156C] and having 1 or more members." For purposes of G.L. c. 59, § 5, Third, a LLC lacks the legal form necessary to qualify for tax exemption. See RCN-BecoCom, LLC v. Commissioner of Revenue, 443 Mass. 198, 206-207, 820 N.E.2d 208 (2005) (RCN). In RCN, we considered whether a LLC was entitled to a property tax exemption under G.L. c. 59, § 5, Sixteenth, which applies to "corporations" and banks. We concluded that "[t]he Board determined, and we agree, that § 5, Sixteenth, is not ambiguous. By its plain language, it applies to corporations, not limited liability companies." Id. at 207, 820 N.E.2d 208. While RCN involved a telecommunications services provider, and the taxpayers here contend that different considerations should apply to nonprofit corporations, "[a] word used in one part of a statute in a definite sense should be given the same meaning elsewhere in the statute, barring some plain contrary indication." Connolly v. Division of Pub. Employee Retirement Admin., 415 Mass. 800, 802-803, 616 N.E.2d 59 (1993). We conclude that the taxpayers failed to demonstrate "clearly and unequivocally that [they] come[ ] within the terms of the exemption." Western Mass. Lifecare Corp. v. Assessors of Springfield, 434 Mass. 96, 102, 747 N.E.2d 97 (2001), quoting Boston Symphony Orchestra, Inc. v. Assessors of Boston, 294 Mass. 248, 257, 1 N.E.2d 6 (1936) ("Any doubt must operate against the one claiming tax exemption ..."). See Harvard Community Health Plan, Inc. v. Assessors of Cambridge, 384 Mass. 536, 543, 427 N.E.2d 1159 (1981) ("party claiming exemption bears a grave burden of proving the claim").

We acknowledge the taxpayers' suggestion that the "functional test" used to evaluate whether a particular organization is entitled to a charitable exemption under G.L. c. 59, § 5, Third, requires that the substance of the charitable activity, rather than the form of organization, should determine application of the exemption. See H-C Health Servs., Inc. v. Assessors of S. Hadley, 42 Mass.App.Ct. 596, 678 N.E.2d 1339 (1997). The functional test, however, cannot be used to supplant the express statutory requirement of incorporation. In the H-C Health Servs. case, for example, a taxpayer was granted an exemption under § 5, Third, notwithstanding that it was organized as a business corporation pursuant to G.L. c. 156B, rather than a nonprofit corporation pursuant to G.L. c. 180. As the Appeals Court noted, the clause does not require that a taxpayer be incorporated under a specific chapter. Id. at 598-599, 678 N.E.2d 1339. The statute does, however, require that the taxpayer be incorporated.

Similarly, in Brown, Rudnick, Freed & Gesmer v. Assessors of Boston, 389 Mass. 298, 302, 450 N.E.2d 162 (1983), this court noted that "bare statutory compliance" does not necessarily warrant a tax benefit, and that, when "a corporation has claimed an exemption as a charitable institution under G.L. c. 59, § 5, Third, we have refused to allow form to control. Instead, we have looked to the declared purposes of and the actual work performed by the corporation to determine whether it was in fact operated for charitable purposes." Id. at 303, 450 N.E.2d 162. Our cases teach that, while "bare compliance" with statutory requirements is minimally necessary, the nature of the activities performed by the organization also is relevant. Id. See Fisher Sch. v. Assessors of Boston, 325 Mass. 529, 533, 91 N.E.2d 657 (1950), quoting Jacob's Pillow Dance Festival, Inc. v. Assessors of Becket, 320 Mass. 311, 313, 69 N.E.2d 463 (1946) ("[T]o obtain an exemption it is not enough for a corporation to show merely that the purposes for which it was incorporated were charitable. It must also `prove that it is in fact so conducted that in actual operation it is a public charity'"). As the board noted in these cases, while the nature of the functions performed by an organization is a factor in determining whether a tax exemption is available, it is not the only relevant...