Dep't of Revenue v. New Friends of Beaverton City Library

• Decision Date: 26 November 2019
• Docket Number: TC 5311
• Parties: DEPARTMENT OF REVENUE, State of Oregon, Plaintiff, and WASHINGTON COUNTY ASSESSOR, Plaintiff-Intervenor, v. THE NEW FRIENDS OF THE BEAVERTON CITY LIBRARY, Defendant.
• Court: Oregon Tax Court

DEPARTMENT OF REVENUE, State of Oregon, Plaintiff,andWASHINGTON COUNTY ASSESSOR, Plaintiff-Intervenor, v. THE NEW FRIENDS OF THE BEAVERTON CITY LIBRARY, Defendant.

TC 5311

OREGON TAX COURT REGULAR DIVISION Property Tax

November 26, 2019

ORDER DENYING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

I. INTRODUCTION

For the property tax year 2016-17, the Washington County Assessor (the "County") denied an application for exemption filed by Defendant, The New Friends of the Beaverton City Library ("Taxpayer") for a lot and buildings at which Taxpayer conducts operations, including sales of used books. The County's stated grounds were that the property was "primarily used for the generation of income/fundraising for a charitable institution * * * [p]er OAR 150-307.130-(A) (5)(a)." (Stip Facts at 10-11; Stip Ex 41.)

Taxpayer timely appealed to the Magistrate Division, which decided in Taxpayer's favor, concluding that Taxpayer's operation of a bookstore was a use qualifying the property for tax exemption¹ under ORS 307.130(2).² Plaintiff Department of Revenue (the "Department") timely appealed as the plaintiff by operation of law in this division of the court, and the County joined as Plaintiff-Intervenor. See ORS 305.501(1). Taxpayer moves for summary judgment on the substantive claim that it is a charitable or literary institution, and that its use of the subject property entitles the property to exemption under ORS 307.130(2). The Department and the County join in opposing Taxpayer's motion.³

II. FACTS

The following facts are not in dispute and, unless otherwise indicated, applied at all relevant times. Taxpayer is an Oregon nonprofit corporation and is exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code. (Stip Facts at 2-3 ¶¶ 2, 7; Stip Exs 1, 6); see ORS 65.001(29); IRC § 501(c)(3)). Taxpayer's bylaws state that its mission is to (1) "Support and strengthen" the Beaverton City Library; (2) "Cooperate with the library in expanding the library services for the community;" (3) "Create an appreciation of library services;" and (4) "Promote the development of library programs." (Stip Ex 3 at 1.) The bylaws also state that Taxpayer "will accomplish this mission by acquiring and selling books, as well as audio visual materials in various formats and levels of ability." (Id.) The Beaverton City Library (the "Library") is part of, and is operated by the City of Beaverton, a municipal corporation. (Stip Facts at 5, ¶ 18.)

The subject property is located at 12470 SW 5th Street, Beaverton, OR 97005, essentially across the street from the Library and a large public park. (Stip Ex 9 at 5; Decl of Winkle-Bryan,Ex 1 at 2.) It includes a two-story former residence with a total interior area of 1,812 square feet on an approximately 2,430 square foot lot with exterior landscaping, access ways, and areas for parking. (Stip Ex 9 at 6; see also Decl of Winkle-Bryan, Ex 1 at 1.) A sign in the front yard, shaped like three large hardcover books, reads: "Book Corner Used Books." (Id. at 4-5.) Taxpayer's website shows that an open space on the first floor is lined with bookshelves to a height of approximately six feet and otherwise holds a long table full of books in the middle of the room, an office desk and chair, a fireplace, and two large windows. (Id. at 6-7.) A back room is used for sorting, pricing and temporary storage of inventory, and upstairs space is used to process online sales. (See Decl of Bartos, Ex B (Kathy Schertz, Recommendations for the New Friends of the Beaverton City Library (June 27, 2016).) Taxpayer leases the subject property from the City of Beaverton at a rate that the parties agree is below market for purposes of ORS 307.166(1). (Def's Mot Summ J at 4 (citing Stip Facts at 3-4, ¶¶ 10-14, Stip Ex 9 at 7; Stip Ex 12).)

Taxpayer operates under the name "The Book Corner." (Stip Facts at 4, ¶ 16.) In 2015 and 2016 Taxpayer offered for sale and sold to the public at the subject property used books donated by the public and used books the Library removed from circulation, as well as CDs and DVDs. (Stip Facts at 4-5, ¶ 17). During 2015 and through the end of July 2016, Taxpayer also sold used books and other materials to the public through Amazon at the subject property. (Id. at 6, ¶ 24.) During 2015 and through the end of October 2016, Taxpayer employed two part-time employees at the subject property to manage in-store and online sales. (Id. at 6, ¶ 25.) All other activities at the subject property were undertaken by volunteers, members of Taxpayer's board of directors, or the public. (Id. at 7, ¶ 27.) For tax years 2015-2017, Taxpayer gave a total of $49,455 to the Library. (Stip Ex 13 at 1; Stip Ex 14 at 1; Stip Ex 15 at 1.)

The court will discuss additional facts where appropriate.

III. ISSUES

(1) Is Taxpayer a charitable institution within the meaning of ORS 307.130(2)?

(2) If Taxpayer is a charitable institution, does Taxpayer's use of the subject property entitle the property to exemption?

(3) Alternatively, is Taxpayer a literary institution within the meaning of ORS 307.130(2)?

(4) If Taxpayer is a literary institution, does Taxpayer's use of the subject property entitle the property to exemption?

IV. ANALYSIS

A. Summary Judgment Standard

The court grants a motion for summary judgment only if "the pleadings * * * declarations, and admissions on file show that there is no genuine issue as to any material fact and that the moving party is entitled to prevail as a matter of law." Tax Court Rule (TCR) 47 C. See Christensen v. Dept. of Rev., ___OTR ___ (Sept 7, 2018) (slip op at 5) (citing Two Two v. Fujitech America, Inc., 355 Or 319, 331, 325 P3d 707 (2014)). "No genuine issue as to a material fact exists if, based upon the record before the court viewed in a manner most favorable to the adverse party, no objectively reasonable [factfinder] could [find] for the adverse party on the matter that is the subject of the motion for summary judgment." TCR 47 C. The adverse party has the burden of producing evidence on any issue raised in the motions as to which the adverse party would have the burden of persuasion at trial. Id. As applied to this case, this standard means that Taxpayer as the party moving for summary judgment must point to facts in the record that prove Taxpayer's right to the exemption such that no reasonable factfinder could find in favor of the Department, even though the court must view the record in a manner most favorable to the Department.

B. Legal Framework and Taxpayer's Factual Assumption for Purposes of Its Motion

Oregon law provides a property tax exemption for properties owned by or leased to certain organizations.⁴ ORS 307.130(2) reads, in pertinent part:

"(2) * * * the following property owned or being purchased by * * * incorporated literary, benevolent, charitable and scientific institutions shall be exempt from taxation.

"(a) * * * [O]nly such real or personal property, or proportion thereof, as is actually and exclusively occupied or used in the literary, benevolent, charitable or scientific work carried on by such institutions."

Id. (Emphasis added.) The court views the statute as imposing two sets of requirements, which the court refers to here as the "entity-level" requirements contained in the flush language of subsection (2), and the "property use" requirements contained in paragraph (2)(a). The entity-level requirements differ, depending on whether the organization seeks exemption as a charitable,⁵ literary or scientific institution. Claims of exemption on the basis that the taxpayer is a "charitable" institution using the property in its "charitable work" are common and are governed by an extensive body of Oregon Supreme Court decisions that this court, as a lower court, is bound to follow. See, Re v. PERS, 256 Or App 52, 54, 301 P3d 932, rev den, 353 Or 867 (2013) ("It is not this court's role to overrule, directly or indirectly, Supreme Court case law."); State v. Turner, 235 Or App 462, 466, 234 P3d 993 (2010) (declining state's invitation to cease treating venue as a material allegation that must be proved beyond a reasonable doubt "because we remain bound by Supreme Court precedent until such time as that court reconsiders and disavows it."). Regarding the use requirement, courts have long required the use to be "primarily," rather than literally "exclusively," dedicated to the exempt work. E.g., Mult. School of Bible v. Mult. Co.,218 Or 19, 31, 343 P2d 893 (1959). Taxpayer first argues that it fulfills the entity-level requirements as a charitable institution and that it fulfills the use requirements by primarily using the subject property to carry on its charitable work of supporting the Library and advancing literacy. (Def's Mot Summ J at 3, 14-23.) Alternatively, Taxpayer contends that it is a "literary institution" primarily using the subject property to further its literary objectives, a claim governed by fewer Supreme Court decisions. (Id. at 13; 24-28.)⁶ In contrast to the Magistrate Division proceedings, where the County appears to have agreed that Taxpayer satisfies the entity-level requirements, the Department now challenges Taxpayer's status as a charitable or literary institution, and in either event it contends that Taxpayer does not satisfy the property use requirements. Solely for purposes of its motion, Taxpayer asks the court to assume that it charged market rate prices for its inventory. (Def's Mot Summ J at 18 n 12; Ptfs' Resp Def Mot Summ J at 1 n 2, 24 n 22; see Jnt Ltr at 1-2 (Aug 30, 2018) (explaining Taxpayer's requested assumption and outlining consequences based on whether the court grants or denies Taxpayer's motion).)

C. Is Taxpayer a Charitable Institution?

To satisfy the entity-level requirements for a charitable institution under ORS 307.130(2): "(1) the organization must have charity as its primary, if not sole, object; (2) the organization must be performing in a manner that furthers its charitable object; and (3) the...