Christ Church Pentecostal v. Tenn. State Bd. of Equal.

• Decision Date: 27 August 2013
• Docket Number: No. M2012–00625–COA–R3–CV.,M2012–00625–COA–R3–CV.
• Citation: 428 S.W.3d 800
• Parties: CHRIST CHURCH PENTECOSTAL v. TENNESSEE STATE BOARD OF EQUALIZATION, et al.
• Court: Tennessee Court of Appeals

428 S.W.3d 800

CHRIST CHURCH PENTECOSTAL

v.TENNESSEE STATE BOARD OF EQUALIZATION, et al.

No. M2012–00625–COA–R3–CV.

Court of Appeals of Tennessee.

Nov. 14, 2012 Session.

March 21, 2013.

Application for Permission to Appeal Denied by Supreme Court Aug. 27, 2013.

Kevin Theriot and Erik Stanley, Leawood, Kansas, and Frank Ingraham and Robert Pautienus, Brentwood, Tennessee, for the appellant, Christ Church Pentecostal.

Robert E. Cooper, Jr., Attorney General and Reporter, William E. Young, Solicitor General, Mary Ellen Knack, Senior Counsel, for the appellees, Tennessee State Board of Equalization, Tennessee Assessment Appeals Commission and Robert E. Cooper, Jr., in his official capacity as Attorney General and Reporter for the State of Tennessee.

Saul Solomon, Lora Barkenbus and Emily Herring Lamb, Nashville, Tennessee, for the Metropolitan Government of Nashville and Davidson County.

OPINION

DAVID R. FARMER, J., delivered the opinion of the Court, in which HOLLY M. KIRBY, J., and J. STEVEN STAFFORD, J., joined.

DAVID R. FARMER, J.

This lawsuit concerns the extent to which a bookstore/café area and fitness center/gymnasium contained in a church family life center facility are exempt from property taxation under Tennessee Code Annotated § 67–5–212. The trial court upheld the determination of the State Board of Equalization and the Assessment Appeals Commission that the bookstore/café area was not exempt from taxation, and that the fitness center qualified for a 50 percent exemption under the statute. We affirm.

This case concerns Taxpayer church's appeal of property taxes assessed on approximately seven percent of its real property for the 2004–2008 tax years. Plaintiff/Appellant Christ Church Pentecostal (“CCP”) has been located in Nashville since 1949, and was chartered as a nonprofit corporation in 1979. CCP is not affiliated with any denominational body, but is an independent church. In the mid 1970s, it moved to Old Hickory Boulevard, between the Brentwood and Antioch areas, where it now owns approximately forty acres of real property and several buildings. The estimated value of the real property owned by CCP was $2,057,227 in 2004, and its structures were valued at $15,000,000. CCP now has several thousand members.

In 2004, CCP completed construction of a multi-million dollar building known as the Hardwick Family Life Center (“the family life center” or “the center”). The center encompasses approximately 104,000 square feet on four levels. It contains space for worship and fellowship; classrooms; offices; an indoor playground, the “For His Glory” bookstore/café area; and the Hardwick Activity Center (“HAC”), which includes a fitness center and gymnasium. The entrance to the family life center is separate from the main sanctuary. The bookstore and adjoining café are on level 1 of the center, and HAC complex is on level 3.

In November 2004, CCP filed an application for property tax exemption pursuant to Tennessee Code Annotated § 67–5–212. Following a site visit in January 2007, a staff attorney for the State Board of Equalization (“the Board”) made an initial determination that most of the new building was tax-exempt, but denied the exemption for the portion of the building containing the bookstore/café area and the fitness center/gymnasium on the grounds that they were retail/commercial in nature and not used for religious purposes.

In July 2007, CCP filed an untimely appeal to the Board. On August 2, CCP filed a motion for extraordinary relief pursuant to Rule 60.02 of the Tennessee Rules of Civil Procedure, asserting its failure to file a timely appeal was the result of mistake, inadvertence and excusable neglect. The Board heard the motion as permitted by Tennessee Code Annotated § 67–5–1412(e), granted relief by order entered January 13, 2009, and referred the matter for a hearing on the merits before an administrative judge.

The matter was heard by an administrative law judge (“ALJ”) on August 19, 2009. By order entered November 20, 2009, the ALJ affirmed the denial of the exemption for the bookstore/café area. It granted a 50 percent exemption for the fitness center area on the basis that it was used for CCP's youth recreational activities in addition to general public use on a membership fee basis. CCP appealed that determination to the Assessment Appeals Commission (“the Commission”), which heard the matter on August 5, 2009. By order entered October 8, 2010, the Commission affirmed the Board's determination.¹ The Commission issued its official certificate on November 23, 2010.

On January 12, 2011, CCP filed a petition for review pursuant to Tennessee Code Annotated § 4–5–322 in the Chancery Court for Davidson County. In its petition, CCP asserted that the evidence submitted to the ALJ and the Commission demonstrated that the bookstore/café and fitness center portions of the family life center were integral or directly related to one or more of its religious purposes; that the Commission's decision violated Tennessee's Religious Freedom Restoration Act; and that the Commission's decision violated the Establishment Clause where it made a doctrinal determination as to the religious purposes of CCP. CCP also asserted that the Commission's determination violated the Equal Protection Clause where 1) CCP was required to demonstrate that the facilities were used purely and exclusively for religious purposes while other charities, including community centers and performing centers are required to prove only that their facilities are used for uses necessary and incidental to the purpose of the organization and 2) where family wellness centers and college and university bookstores are exempt from taxation. Following a hearing of the matter on September 2, 2011, the trial court affirmed the Commission's decision by order entered February 23, 2012. In its order, the trial court thoroughly analyzed the issues raised by CCP, the relevant and largely undisputed facts, and the applicable case law, and determined that CCP had failed to meet its burden to demonstrate that the Board's decision was in error. The trial court determined that CCP was not entitled to an exemption from taxation for those portions of its property that were used to conduct retail/commercial business. CCP filed a timely notice of appeal to this Court.

Issues Presented

CCP presents the following issues for our review, as stated in its brief:

(1) Christ Church is entitled to a tax exemption because it established that its facilities are used purely and exclusively for carrying out the purposes of the church.

(2) Denying Christ Church a tax exemption for its facilities violates the Establishment Clause of the First Amendment to the Unites States Constitution because it excessively entangles the State in church doctrine.

(3) Denying Christ Church a tax exemption but statutorily granting similarly-situated entities a tax exemption violates the Equal Protection Clause of the Fourteenth Amendment to the United States Constitution because it treats similarly-situated entities differently without a sufficient basis for the differential treatment.

(4) The Tennessee tax exemption statutes violate the Free Exercise Clause of the First Amendment to the United States Constitution because they are not neutral or generally applicable laws and because they substantially burden the Church's free exercise of religion.

(5) The Tennessee exemption statutes violate Tennessee's Religious Freedom Restoration Act.

Standard of Review

The Administrative Procedures Act governs our review of this matter. Tenn.Code Ann. § 67–5–212(b)(4) (2011). The Act provides, in pertinent part:

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 the rights of the petitioner 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) Arbitrary or capricious or characterized by abuse of discretion or clearly unwarranted exercise of discretion; or

(5)(A) Unsupported by evidence which is both substantial and material in the light of the entire record.

Tenn.Code Ann. § 4–5–322(h) (1998). Review of an agency's findings of fact is limited to the record of the case. Tenn.Code Ann. § 4–5–322(g) (1998); e.g., Youth Programs, Inc. v. Tennessee State Bd. of Equalization, 170 S.W.3d 92, 96 (Tenn.Ct.App.2004). When determining the substantiality of the evidence, however, the court must take into account whatever in the record fairly detracts from its weight, but may not substitute its judgment for the judgment of the agency as to the weight of the evidence on questions of fact. Tenn.Code Ann. § 4–5–344(h)(5)(B). The application of the law to the facts, however, is a question of law for the courts. Youth Programs, 170 S.W.3d at 96 (citation omitted). Whether “the purpose for which property is used qualifies the propertyas exempt from taxation under the statutes” also presents a question of law for the courts. Id. (citing Book Agents of the Methodist Episcopal Church, S. v. State Bd. of Equalization, 513 S.W.2d 514, 521 (Tenn.1974)(citing Oak Ridge Hosp. v. City of Oak Ridge, 57 Tenn.App. 487, 420 S.W.2d 583 (1967))).

Discussion

The “fundamental rule that all property shall be taxed and bear its just share of the cost of government, and no property shall escape this common burden, unless it has been duly exempted by organic or statute law” is a well-settled constitutional mandate in Tennessee. Book Agents of the Methodist Episcopal Church, S. v. State Bd. of Equalization, 513 S.W.2d 514, 521 (Tenn.1974). It is also well-settled that the General Assembly may not grant tax exemptions that are “contrary to the express mandate of” Article II, Section 28, of the Tennessee Constitution. Metropolitan Gov't of...