Common Fund v. Town of Fairfield
| Decision Date | 25 January 1994 |
| Docket Number | No. 14674,14674 |
| Citation | 228 Conn. 375,636 A.2d 795 |
| Court | Connecticut Supreme Court |
| Parties | , 89 Ed. Law Rep. 161 The COMMON FUND v. The TOWN OF FAIRFIELD. |
John F. Fallon, with whom were Richard J. Preminger, Fairfield, and Lawrence P. Weisman, Westport, for appellant (plaintiff).
Roy H. Ervin, with whom, on the brief, was Roy H. Ervin, Jr., Fairfield, for appellee (defendant).
George J. Markley, Bridgeport, filed a brief for the town of Westport as amicus curiae.
Before PETERS, C.J., and BORDEN, BERDON, PALMER and HENNESSY, JJ.
The issue in this property tax appeal is whether a nonprofit corporation that manages investment funds solely for tax exempt schools, colleges and universities is itself eligible for the tax exemption that General Statutes § 12-81(7) 1 provides for exclusively educational or charitable institutions. The plaintiff, The Common Fund (taxpayer), filed an action in the trial court, pursuant to General Statutes § 12-119, 2 to contest the validity of taxes on its real and personal property that it had paid, under protest, to the defendant, the town of Fairfield (town). 3 Both parties filed motions for summary judgment in the trial court. The trial court granted the town's motion and the taxpayer appealed to the Appellate Court. We transferred the appeal to this court pursuant to Practice Book § 4023 and General Statutes § 51-199(c) and now affirm the judgment of the trial court.
The facts relevant to this appeal are undisputed. The taxpayer is a New York nonstock corporation that, since 1971, has pooled the endowment or other investment funds of nonprofit private schools, colleges and universities in order to maximize investment returns for the participating educational institutions. The taxpayer has been able to generate enhanced investment income because the size of the total investment pool affords the taxpayer access to professional investment advice at a cost lower than that which would otherwise be charged to each participating educational institution individually. Only educational institutions benefit from the taxpayer's investment activities, and the educational institutions use their enhanced investment returns exclusively to further their educational purposes. The educational institutions exercise control over the taxpayer's operations by selecting its board of trustees, which in turn, through its committees, monitors investment advice received from professional investment advisors.
The taxpayer has total assets approximating $12 billion. The chief executive officer of the taxpayer earns an annual salary of approximately $500,000, and its top eight executives earn annual salaries totaling $1,200,000. 4 In exchange for its investment advice, the taxpayer charges each of the participating educational institutions an annual fee of $1.80 per $1000 of investment.
In 1985, the taxpayer moved its operations from the state of New York to this state. Its principal office and place of business are now located in the defendant town. In 1988, the taxpayer's real property was assessed for tax purposes at a value of $799,610, and its personal property, consisting primarily of office equipment and computers, was assessed at $280,020. Calculated on the basis of these assessments, the taxpayer's annual tax bill for 1989 was approximately $8500. 5
By the enactment of § 501(f) of the Internal Revenue Code (I.R.C.), 6 the Congress has expressly exempted the taxpayer from federal income taxation by providing that it "shall be treated as an organization organized and operated exclusively for charitable purposes." The state of Connecticut has granted the taxpayer's application for a tax exemption permit, so that the taxpayer is not liable for the state sales and use tax.
The trial court concluded that the taxpayer had failed to prove that it is "a charitable institution within the meaning of the exemption statute [§ 12-81(7) ], as one organized and operating exclusively for charitable purposes." Starting from the principle that a tax exemption is an act of legislative grace that must be strictly construed against the taxpayer, the trial court emphasized the significance of two facts: (1) the taxpayer is a corporate entity distinct from the participating educational institutions that it serves; and (2) the taxpayer charges the participating educational institutions a fee for the services that it renders. Accordingly, the trial court rendered judgment for the town.
In its appeal, the taxpayer continues to assert its claim for a property tax exemption under § 12-81(7). It emphasizes that: (1) the sole purpose for the creation of the taxpayer was to facilitate collective investment of the endowment and operating funds of the participating educational institutions; (2) in its constitution and its operations, the taxpayer has adhered to this purpose by limiting participation to educational institutions; and (3) the investment returns generated by the taxpayer, with the exception of a fee charged by the taxpayer, are used exclusively to fulfill the educational purposes of the participating educational institutions. It contends that these undisputed facts require the conclusion that it is entitled to a tax exemption in the same manner as if the participating educational institutions had either created a common trust for the advancement of education or had, without any formal joint association, continued the separate management of their own funds.
Resolution of the taxpayer's claim for a tax exemption depends upon the proper construction of the language of § 12-81(7). The provision of I.R.C. § 501(f) that entitles the taxpayer to be treated as a charitable organization applies only "[f]or purposes of this title " and does not, therefore, confer an automatic state tax exemption upon the taxpayer. (Emphasis added.) See Waterbury First Church Housing, Inc. v. Brown, 170 Conn. 556, 558-59, 367 A.2d 1386 (1976). As a matter of state law, the legislature bears the responsibility for establishing a proper balance between two worthy but competing policy goals: the protection of local tax revenues and the advancement of the charitable goals of corporate adjuncts to educational institutions. To ascertain the intention of the legislature with respect to a tax exemption, we employ three overlapping presumptions. Plastic Tooling Aids Laboratory, Inc. v. Commissioner of Revenue Services, 213 Conn. 365, 369, 567 A.2d 1218 (1990); United Illuminating Co. v. Groppo, 220 Conn. 749, 752-53, 601 A.2d 1005 (1992); United Church of Christ v. West Hartford, 206 Conn. 711, 718-19, 539 A.2d 573 (1988).
Although § 12-81(7) establishes an exemption from local property taxes for "a corporation organized exclusively for ... educational ... or charitable purposes," this section contains no definition of what constitutes such a corporation. We must, therefore, inquire whether related provisions elsewhere in the General Statutes shed light on the scope of the § 12-81(7) exemption. "Because the legislature is always presumed to have created a harmonious and consistent body of law, the proper construction of any statute must take into account the mandates of related statutes governing the same general subject matter." Dart & Bogue Co. v. Slosberg, 202 Conn. 566, 575, 522 A.2d 763 (1987); Felia v. Westport, 214 Conn. 181, 187, 571 A.2d 89 (1990); State v. West, 192 Conn. 488, 494, 472 A.2d 775 (1984); Connecticut Light & Power Co. v. Costle, 179 Conn. 415, 422, 426 A.2d 1324 (1980).
For present purposes, a definition of eligibility for exemption from property taxes under § 12-81(7) may be inferred from the provisions of General Statutes § 12-89a, which sets out the procedures that govern the pursuit of such claims. The section states: "Any organization claiming exemption from property tax in any municipality in which real or personal property belonging to such organization is situated, which exemption is claimed with respect to all or a portion of such property under the provisions of any of the subdivisions (7), (8), (10), (11), (12), (13), (14), (15), (16), (18), (27), (29), (49) or (58) of section 12-81, may be required upon request, at any time, by the assessor or board of assessors in such municipality to submit evidence of certification from the Internal Revenue Service, effective at the time of such request and in whatever form is then in use under Internal Revenue Service procedure for purposes of such certification, that such organization has been approved for exemption from federal income tax as an exempt organization under Section 501(c) or 501(d) of the Internal Revenue Code." (Emphasis added.)
Section 12-89a specifically limits a charitable or educational exemption under § 12-81(7) to organizations that are exempt under I.R.C. § 501(c) or (d). The cross reference in § 12-89a to specific subsections of I.R.C. § 501, rather than to I.R.C. § 501 in its entirety, parallels a similar usage found throughout the General Statutes. In numerous other circumstances in which the legislature has granted special exemptions from taxation or regulation to nonprofit organizations, eligibility for the state exemptions has been conditioned, in the first instance, on the nonprofit organizations' federal exemption under I.R.C. § 501(c). See, e.g., General Statutes §§ 7-185a(b), 12-412(29), 12-498(a)(14) and (15), 36-435l, and 52-557m. 7 By contrast, our research has uncovered no exemption, anywhere in the General Statutes, that expressly includes this taxpayer, whose federal tax exemption arises not under I.R.C. §...
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