Com., Dept. of Taxation v. Progressive Community Club of Washington County, Virginia, Inc., 740601

• Decision Date: 28 April 1975
• Docket Number: No. 740601,740601
• Citation: 213 S.E.2d 759,215 Va. 732
• Parties: COMMONWEALTH of Virginia, DEPARTMENT OF TAXATION v. The PROGRESSIVE COMMUNITY CLUB OF WASHINGTON COUNTY, VIRGINIA, INCORPORATED. Record
• Court: Virginia Supreme Court

Page 759

213 S.E.2d 759

215 Va. 732

COMMONWEALTH of Virginia, DEPARTMENT OF TAXATION v. The PROGRESSIVE COMMUNITY CLUB OF WASHINGTON COUNTY, VIRGINIA, INCORPORATED.

Record No. 740601.

Supreme Court of Virginia.

April 28, 1975.

Charles K. Trible, Asst. Atty. Gen. (Andrew P. Miller, Atty. Gen., on briefs), for appellant.

James P. Jones, Abingdon (Penn, Stuart & Eskridge, Abingdon, on brief), for appellee.

Before I'ANSON, C.J., and CARRICO, HARRISON, COCHRAN, HARMAN, POFF and COMPTON, JJ.

HARRISON, Justice.

The court below held that Code § 58--441.6(t) exempts the Progressive Community Club of Washington County, Virginia, Incorporated from the payment of sales taxes on tangible personal property purchased and used by it in connection with its child development headstart program. The Commonwealth appeals an order directing a refund of the amounts held to be erroneously assessed.

On October 10, 1973, the Department of Taxation assessed Progressive for failure to pay state sales taxes during the period December, 1966, through May, 1973. Progressive filed its application for correction of the erroneous assessment alleging, in part, that it was exempt from such taxation by Code § 58--441.6(t). This section provides a tax exemption for '(t)angible personal property for use or consumption by a college or other institution of learning, a hospital or a licensed nursing home, provided such college, institution of learning, hospital, or licensed nursing home is not conducted for profit'.

Progressive is a nonstock, nonprofit corporation operated 'to promote the social welfare of the citizens of the County of Washington and the City of Bristol, Virginia, and for charitable and educational purposes. . . .' It was established under a federal program as one of the community action agencies of the Office of Economic Opportunity, Department of Health, Education and Welfare. Among its wide range of programs Progressive administers the 'Child Development Headstart Program'. In connection with this program it operates three child care centers, two in churches and one in a former elementary school. At the time of the trial below the program had eighty-one children enrolled, ages three and four, and a total of twenty-four employed personnel, twelve of whom worked directly with the children. The staff members working with children were required to have a high school education. Three of the twelve persons so employed held college degrees, and one of these three had received formal training in early childhood education.

The centers are operated according to standards established by the Department of Health, Education and Welfare, and the program is licensed by the Virginia Department of Welfare and Institutions as 'child care centers'. The license relates to the quality of the facility and not to the educational aspects of the program. Ninety percent of all children enrolled were required to fall within the low income level established by the federal government.

The centers maintain a curriculum involving 'units of work'. These units run from two to four weeks and include 'math concepts, science, reading readiness, nature, the community around them, art, music and various things of this nature'. Although 'basic learning skills' are taught, the children are not taught to read or to write. Their eye and hand coordination is developed; they learn to differentiate between a large block and a small one; and they take nature walks, look at picture books and use art materials in a supervised environment. The program involves an open classroom concept which is unstructured and allows a child to select the activity in which he will participate at a given time. The centers primarily offer educational programs for preschool children. The children are present at the center for at least four hours each day. Because the majority of the children are from economically disadvantaged homes, one of the objectives of the program is to care for children while their parents work and to place them in a stimulating environment.

When the centers were originally established they were primarily for the benefit of five-year-olds. After a public kindergarten program was established in the public schools, the centers commenced the policy of accepting five-year-olds only upon referral by the public school system or the health and welfare departments.

A great deal of evidence revolved around the name of the program operated by Progressive. We think it immaterial whether the program is called day care, prekindergarten, child care or child development headstart. It is obvious that Progressive provides custodial care, training and instruction to the three-and four-year-old children entrusted to its care. Neither do we think that it can be successfully argued that children of this age, or younger, are not benefited by the type of program which is offered, or that the program does not have educational value.

The issue in this case is not whether a headstart program has educational value for those exposed to it, but whether, in the operation of this program, Progressive is a 'college or other institution of learning'. Obviously it is not a college, so the issue narrows to whether Progressive is an 'other institution of learning' within the purview of Code § 58--441.6(t).

We would observe that Article X, Section 6(f) of the revised Virginia Constitution, adopted July 1, 1971, provides that 'Exemptions of property from taxation as established or authorized hereby shall be strictly construed'.

In the Report of the Commission on Constitutional Revision submitted January 1, 1969, the Commission noted that the entire area of tax exemptions was one of major concern to which it gave extensive study. While recognizing the desirability of modernizing and shortening the provisions of then Section 183 of the Constitution, it concluded that it would not be practical to attempt the removal of exemptions then existing, especially in the case of specifically named organizations. The Revisors then said in their Commentary that:

'At the same time, the Commission believes that it would not be in the best interests of the Commonwealth to create yet more exemptions from taxation. The basic policy ought to be one of equality in the tax structure, and exemptions, widely applied, undercut this policy. Moreover, tax exemptions already are having serious effects on local finances, and widening the circle of exemptions would only magnify that problem.' Report at 305.

The Commission proposed certain changes and, with reference to the paragraph which is presently Article X, Section 6(f), said:

'In paragraph (h) a requirement of strict construction is included. The Supreme Court of Appeals of Virginia in City of Richmond v. Southside Day Nursery Ass'n, 207 Va. 561, 151 S.E.2d 370 (1966), stated at page 565: 'Since the early case of Commonwealth v. Lynchburg Y.M.C.A., 115 Va. 745, 80 S.E. 589 (1914), this court has applied a liberal interpretation to the exemption provisions of § 183 of the Virginia Constitution.'

'The Commission believes that in light of the apparent inclination of the General Assembly to expand the statutory definition of the constitutional exemptions, a strict construction of the Constitution is desirable. This recommendation is in accord with the general rule that tax exemptions should be strictly construed.

'A proviso has been added to paragraph (h) which is intended to protect existing exemptions from the strict construction requirements.' Report at 306.

The Commission's recommendation that the Constitution be amended to require a strict construction of exemptions of property from taxation was approved by the General Assembly of Virginia and by vote of the people.

This general rule of strict construction has been applied by us in all cases involving Code § 58--441.6 decided since the adoption of the revised Constitution. In Commonwealth v. Community Motor Bus, 214 Va. 155, 157, 198 S.E.2d 619, 620--21 (1973), which involved the sales and use tax, we said: 'Statutes granting tax exemptions are construed strictly against the taxpayer. When a tax statute is susceptible of two constructions, one granting an exemption and the other not granting it, courts adopt the construction which denies the exemption.' To the same effect, see Commonwealth v. Research Analysis, 214 Va. 161, 163, 198 S.E.2d 622, 624 (1973), also involving the retail sales tax, where we said: (W)e must keep in mind that taxation is the rule and not the exception; and that statutory tax exemptions are strictly construed against the taxpayer, with doubts resolved against the exemptions.' In Golden Skillet Corp. v. Commonwealth, 214 Va. 276, 278, 199 S.E.2d 511, 513 (1973), we stated:

'Here, the taxpayer claims to be exempt from the taxes assessed against it, relying upon an exemption contained in the first paragraph of Code § 58--441.6. In determining whether the taxpayer is entitled to that exemption, we follow a rule of strict construction. Exemption from taxation is the exception, and where there is any doubt, the doubt is resolved against the one claiming exemption. (Citing case).'

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