City of Ann Arbor v. University Cellar, Inc.
| Decision Date | 06 October 1977 |
| Docket Number | No. 57822,57822 |
| Citation | 258 N.W.2d 1,401 Mich. 279 |
| Parties | The CITY OF ANN ARBOR, Plaintiff-Appellant, v. The UNIVERSITY CELLAR, INC., Defendant-Appellee. |
| Court | Michigan Supreme Court |
R. Bruce Laidlaw, Acting City Atty., Ann Arbor, for plaintiff-appellant.
Forsythe, Campbell, Vandenberg, Clevenger & Bishop, P. C. by Raymond F. Clevenger, David T. Bell, Ann Arbor, for defendant-appellee University Cellar, Inc.
The University Cellar, Inc., was incorporated at the direction of the Board of Regents of the University of Michigan to maintain and operate a non-profit book store at the University.
The issue is whether the Cellar is exempt from property taxation by the City of Ann Arbor because its inventories of textbooks, other books and supplies, household appliances and sundries, fixtures and other personal property are "public property belonging to the state" 1 or are the "personal property of charitable, educational, and scientific institutions, incorporated under the laws of this state." 2
The State Tax Commission, finding that the University "is not in control" of the Cellar, rejected the Cellar's claim that its inventories "belong to" and are the "property of" the University. The Commission reasoned that whether the University controls the Cellar depends on whether the Regents have voting control of the Cellar's board of directors and, through its board, its officers. Finding that the Regents do not control the Cellar's board and hence do not control its management, the Commission concluded that the Cellar's property is not the property of the University.
The Court of Appeals reversed; it concluded that "the University retains sufficient ownership and control" over the Cellar "so that its property can be said, as a matter of law, to be the property of the University of Michigan." 3
My colleague, emphasizing the relationship between the Cellar's purpose and the University's educational mission, the Regents' sponsorship of the Cellar and their power to inhibit its successful operation by withdrawing funding and other support and to terminate its corporate existence, concludes that it would not be consistent with the purpose or the policy of the exemption to deny it in this case, and that, in substance, the property of the Cellar is the property of the University.
We reverse the Court of Appeals and affirm the State Tax Commission's determination that the Cellar's property is not University property.
There is no need to reach the question implicitly decided by the Court of Appeals and in my colleague's opinion of whether a tax exempt organization may extend its exemption to a separate corporation, albeit one organized to carry out the exempt purpose. The predicate of any such extension must, as my colleague states, be that the property of the corporation not itself exempt is, in substance, the property of the exempt organization.
The relationship between the Cellar's purpose and the University's educational mission indicates that exemption of the Cellar's stock-in-trade is consistent with the purpose of the exemption but does not touch the question whether the Cellar's property is, in substance, the property of the University.
The question whether the property of the Cellar is, in substance, University property depends essentially on whether the Regents or persons acting for and responsible to them so dominate the management and operation of the Cellar that its separate corporate identity should be ignored. The substance of the matter is thus more a question of fact than of law.
The State Tax Commission found that the University is not in control of the Cellar. That factual determination is evidentially supported and, indeed, there is no evidence that would support any other finding.
The Regents authorized the incorporation of the Cellar, contributed $100,000 from the Student Vehicle Fund to its capital and imposed a mandatory, refundable $5 deposit on the students.
The Regents retained the power to terminate the Cellar's corporate existence and, upon termination, any assets remaining after the payment of liabilities reverts to the Regents. The Regents could also eliminate the $5 student deposit.
Six of the ten directors are selected by the Student Government Council, three by the Faculty Assembly, and one by the University president. It does not appear whether there are members or stockholders of the Cellar and who they may be. It therefore does not appear whether the Regents or anyone acting for them is a member or stockholder of this corporation.
Corporations are controlled by their directors and those who, under the articles of incorporation, have the right to select them. 4 The students, who select a majority of the directors, control the Cellar's board of directors. That control is shared with three faculty members.
While the Student Government Council and Faculty Assembly are part of the overall University community, both organizations are independent of and not in any sense subservient to the Regents or to the administration of the University. It cannot be seriously contended that the student-designated directors represent the Regents.
The Court of Appeals erred in equating the "administration, faculty and students" with the "University," 5 and in "conclud(ing) that the University of Michigan does, in fact, own and control the defendant corporation." 6
The Cellar is not the University or controlled by the Regents even though "its board is selected only by institutional bodies officially recognized by the Regents as integral parts of the University."
There is no evidence that the Cellar is required to make any report to the Regents or someone designated by them. Nor is there any evidence that the Regents or the administration are informed about the course or results of operations or influence operations or management, let alone attempt to exercise control, directly or indirectly.
The Regent's power to deny the Cellar space in University buildings, withdraw financial support and terminate its corporate existence provides no assurance that the Regents exercise any supervision or control or, indeed, that operations have been conducted in a manner consistent with the purpose for which the Cellar was organized.
The University sought to divorce itself from any responsibility for the results of operations; a stated reason for organizing a separate corporation was to insulate the Regents from responsibility and the University from liability to creditors of the Cellar. The Regents have made it abundantly clear that they do not wish to hazard any responsibility or accountability for the success or failure of this enterprise.
It was the Cellar's burden to establish entitlement to exemption from taxation. Although a purpose of organizing the Cellar was to provide the students with books and supplies at a reduced cost and it was intended that the Cellar would operate on a non-profit basis, there is no evidence whatsoever whether and to what extent these goals have in fact been achieved.
There is no record support for the Court of Appeals statement that the Cellar operates on a "break-even" basis. The Cellar offered no history of operations or financial information. It does not appear, for example, how the prices of its textbooks and supplies compare with those sold by privately operated stores. The Cellar has a substantial inventory of phonograph records, household appliances, and other articles; there is no indication of the percentage of its total dollar volume represented by sales of textbooks and supplies. Nor is there any information regarding salaries or other compensation paid to the managers and other executive employees of this enterprise or the services performed or time devoted by them to its business.
We are in agreement that in deciding whether the Cellar's personal property is the property of the University within the meaning of the statute our duty is to ascertain and give effect to the Legislature's intent. As aptly stated by my colleague, "strict construction, does not mean strained construction adverse to the Legislature's intent." 7
Sometimes it is helpful to describe what a case is not about. This case is not about education or student welfare, but personal property taxes. The issue is not whether the Cellar is a good idea, beneficial to students and a laudable, well-operated store, or even whether it operates on a break-even basis. The issue is whether its inventories and other personal property are University property.
It has been stressed that many colleges and universities have a school-sponsored book store. It does not appear, however, whether such book stores are operated through separate corporations controlled by students without ongoing supervision by the school. Nor does it even appear whether the personal property of such book stores is exempt from property taxation and, if so, whether under a general or special exemption.
The corporation deemed to be a part of Catholic University in District of Columbia v. Catholic Education Press, Inc., 91 U.S.App.D.C. 126, 199 F.2d 176 (1952), was directed, controlled and managed by a board of trustees consisting of the same persons comprising the university's board of trustees. The corporation in State ex rel. Wisconsin University Building Corp. v. Bareis, 257 Wis. 497, 44 N.W.2d 259 (1950), was organized to acquire real estate for the exclusive use and benefit of the university. The court concluded that property so acquired was beneficially owned by the state and exempt from taxation. The inventory of goods in this case is not held for the exclusive benefit of the University. The association operating a book store in Stanford University Book Store v. Helvering, 65 U.S.App.D.C. 364, 83 F.2d 710 (1936), was denied tax exempt status. There, officers and directors of the association were selected from its membership, which was restricted to faculty members.
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