City of Louisville v. Presbyterian Orphans Home Soc. of Louisville

• Decision Date: 06 March 1945
• Citation: 186 S.W.2d 194,299 Ky. 566
• Parties: CITY OF LOUISVILLE v. PRESBYTERIAN ORPHANS HOME SOC. OF LOUISVILLE, and eight other cases.
• Court: Kentucky Court of Appeals

186 S.W.2d 194

299 Ky. 566

CITY OF LOUISVILLE v. PRESBYTERIAN ORPHANS HOME SOC. OF LOUISVILLE, and eight other cases.

Court of Appeals of Kentucky

March 6, 1945

Appeal from Circuit Court, Jefferson County, Chancery Branch, First Division; John R. Moreman, Special Judge.

Separate suits by Presbyterian Orphans Home Society of Louisville, by Louisville Presbyterian Theological Seminary, by Nazareth Literary & Benevolent Institution, by Kentucky Title Trust Company, trustee, and others, by Home for the Aged of the Little Sisters of the Poor, and others, by the Right Reverend John A. Floersh, Roman Catholic Bishop of Louisville, by the Congregation of the Resurrection, by the Fidelity & Columbia Trust Company, trustee for St. Vincent's Orphan Asylum and others, and by St. Catherine's Convent of Sisters of Mercy, against the City of Louisville, to enjoin collection of taxes on the ground that the property sought to be assessed is exempt from taxation. From an adverse judgment in each case, the defendant appeals.

Affirmed.

Lewis C. Carroll and Richard H. Hill, both of Louisville, for appellant.

Thomas J. Wood and Doolan, Helm, Stites & Wood, all of Louisville for appellees Presbyterian Orphans Home Society and another.

Robert T. Burke, of Louisville, for appellees Home for the Aged of the Little Sisters of the Poor and others.

Lorenzo K. Wood, Samuel J. Boldrick, and Anne McDonald, all of Louisville, and Wm. A. Minihan and Robt. M. O'Dear, both of Lexington, amici curiae.

REES Justice.

May a municipality collect taxes upon the income producing real estate of charitable and educational institutions is the question raised by these nine appeals, and we are again called upon the consider and construe section 170 of the Kentucky Constitution, which reads:

'There shall be exempt from taxation public property used for public purposes; places actually used for religious worship, with the grounds attached thereto and used and appurtenant to the house of worship, not exceeding one-half acre in cities or towns, and not exceeding two acres in the country; places of burial not held for private or corporate profit, institutions of purely public charity, and institutions of education not used or employed for gain by any person or corporation, and the income of which is devoted solely to the cause of education; public libraries, their endowments, and the income of such property as is used exclusively for their maintenance; all parsonages or residences owned by any religious society, and occupied as a home, and for no other purpose, by the minister of any religion, with not exceeding one-half acre of ground in towns and cities and two acres of ground in the country appurtenant thereto; household goods and other personal property of a person with a family, not exceeding two hundred and fifty dollars in value; crops grown in the year in which the assessment is made, and in the hands of the producer; and all laws exempting or commuting property from taxation other than the property above mentioned shall be void. The General Assembly may authorize any incorporated city or town to exempt manufacturing establishments from municipal taxation, for a period not exceeding five years, as an inducement to their location.'

In 1943 the City of Louisville undertook to assess for taxation all income producing real estate within its limits belonging to charitable and educational institutions, and thereupon a large number of institutions filed suits in the Jefferson circuit court to enjoin the collection of the taxes on the ground that the property sought to be assessed is exempt from taxation under the provisions of section 170 of the Constitution. An answer in four paragraphs was filed in each case. In the first paragraph it was denied that the property was exempt under section 170 of the Constitution. The second paragraph described the property and the uses to which it was put, and alleged that it was susceptible of actual use as a site for plaintiff's charitable or educational activity, but that plaintiff elected to put it to other uses under an income producing lease. In paragraph 3 it was alleged that section 170 of the Constitution of Kentucky does not contain any language specifically granting a tax exemption to real property owned by charitable or educational organizations, or held in trust for their benefit, which is leased for income and not used as a site for or to house any charitable or educational activity of such organization; that the section is subject to a construction which would make such property subject to taxation, and that this construction should be adopted because its exemption from taxation results in abuses. In paragraph 4 the defendant pleaded certain facts which it alleged constituted such a change of conditions as to demonstrate the unreasonableness of the construction of the language of section 170 of the Constitution by the courts. Demurrers to the various answers were sustained, the city declined to plead further in the nine cases before us, and in each case it was adjudged that the property was exempt from taxation.

Different types of charitable and educational institutions are represented by these nine appeals, but it is conceded that all of them are institutions of purely public charity or institutions of education not used or employed for gain by any person or corporation and the income of which is devoted solely to the cause of education. The property sought to be taxed is real property located in the City of Louisville, and all of it is leased and is income producing. It consists of office buildings, store buildings, restaurants, rooming houses, parking lots, and other kinds of property leased for business purposes. The question sharply presented is whether this property is exempt from taxation under section 170 of the Constitution. The City claims no right to collect taxes upon the property actually occupied by the respective organizations. The question was first presented to this court in Turstees of Kentucky Female Orphan School v. City of Louisville, 100 Ky. 470, 36 S.W. 921, 925, 19 Ky.Law Rep. 1091, 1916, 40 L.R.A. 119, which was decided on May 23, 1896, less than five years after the adoption of our present Constitution. In that case the Kentucky Female Orphan School, located at Midway in Woodford county, owned certain real estate in Louisville which was leased for business purposes. The income was used for the purposes for which the school was organized. It was held that the institution was one of 'purely public charity' within the meaning of section 170 of the Constitution and was an institution of education 'not used or employed for gain by any person or corporation, and the income of which is devoted solely to the cause of education,' and that its income producing real estate located in Louisville was exempt from taxation under the constitutional provision. This case will be referred to hereafter as the Midway School case. It has been cited and approved in more than twenty cases, a list of which may be found in Shepard's Kentucky Citations. We shall refer to only a few of them. Counsel for appellant assert with assurance that the construction of section 170 of the Constitution by this court in the Midway School case and the cases following it is clearly erroneous, and that these cases ought now to be overruled. They further assert that even though the original decision was correct when delivered, conditions have so changed as to warrant a departure from the construction then announced. In the Midway School case the lower court, after concluding that the plaintiff was an institution of purely public charity and an institution of education such as is contemplated by the Constitution, adjudged that the word 'institution' was used in the Constitution as descriptive of the building or place where the activities of the school were carried on and did not embrace income producing real estate located in Louisville. The Court of Appeals reversed the judgment, and held that the meaning of the word institution should not be so limited but should be construed to embrace all the property of the school wherever situated. In the course of the opinion it was said: 'Finding no exception to the rule indicated, that when an 'institution' of the character named is exempted, the charitable being, including necessarily the whole of its estate, is to be exempted, and having determined the Kentucky Female Orphan School to be an institution of purely public charity, we might rest here with our investigation. But it is proper in this case, and necessary in some of the others connected with it, to consider the succeeding clause of the section: 'And institutions of education not used or employed for gain by any person or corporation, and the income of which is devoted solely to the cause of education.''

The court concluded that the income of educational institutions 'devoted solely to the cause of education' means 'the income of the corporate body' and not 'income from the buildings, grounds, etc.' The court then said: 'We think, therefore, a proper construction of the language used in the section requires the exemption of the entire property of this institution, wherever situated, and in whatever form its investments may be found.'

The question was again presented in Commonwealth v Gray's Trustee, 115 Ky. 665, 74 S.W. 702, 25 Ky.Law Rep. 52, decided May 27, 1903. Certain property had been devised in trust, the income to be used for the education of poor children to be selected by the trustees. An effort was made to tax it, and this court held that it was exempt under section 170 of the Constitution. After citing the Midway School case, the court, speaking through Judge O'Rear said: 'It was argued in that case for...