Electric Power Research Institute, Inc. v. City and County of Denver, No. 85SA134

• Docket Nº: No. 85SA134
• Citation: 737 P.2d 822
• Case Date: May 26, 1987
• Court: Supreme Court of Colorado

Page 822

737 P.2d 822 The ELECTRIC POWER RESEARCH INSTITUTE, INC., a District of
Columbia corporation, Plaintiff-Appellee,
v.
The CITY AND COUNTY OF DENVER, and Thomas P. Briggs, the
Manager of Revenue for the Department of Revenue
for the City and County of Denver,
Defendants- Appellants. No. 85SA134. Supreme Court of Colorado,
En Banc. May 26, 1987.
Rehearing Denied June 15, 1987.

Page 823

Kelly, Stansfield & O'Donnell, William F. Skewes, Denver, for plaintiff-appellee.

Stephen H. Kaplan, City Atty., Robert F. Strenski, Asst. City Atty., Denver, for defendants-appellants.

KIRSHBAUM, Justice.

The City and County of Denver (Denver) appeals ¹ the district court's reversal of a decision of the Manager of Revenue of Denver's Department of Revenue (the Department) that the Electric Power Research Institute, Inc. (EPRI) is not a charitable corporation exempt from payment of sales tax pursuant to section 53-26(2) of the Denver Revised Municipal Code (the Municipal Code). The district court ruled that EPRI is a charitable corporation for purposes of Denver sales tax exemption and that EPRI was denied due process of law by delay in the administrative review process. We affirm in part, reverse in part, and remand with directions.

I

EPRI, incorporated as a nonprofit corporation in the District of Columbia, conducts and sponsors research and development projects with respect to the production, transmission, distribution and use of electricity. To further its nationwide activities, it employs approximately 750 people and owns property, facilities and equipment valued at over $26 million. EPRI's projects are usually costly in light of the requisite materials, equipment and personnel, and

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most of them are undertaken by other entities and agencies pursuant to contracts.

EPRI's activities are funded primarily by membership dues, which in 1980 amounted to over $254 million. EPRI also receives licensing fees from entities using EPRI's patents and copyrights. Pursuant to its bylaws, EPRI's membership consists of five classes: entities owned by the federal government (Class I); cooperative associations and cooperative corporations engaged to a substantial degree in providing electric power for public use (Class II); nonfederal governmental or other public entities (Class III); private investor-owned corporations (Class IV); and individual members (Class V). Several entities have memberships in more than one class; there are no individual (Class V) members.

In August 1976, pursuant to a plan to construct and operate an air pollution control research facility at an electric power station in Denver, EPRI applied for exemption from Denver sales and use taxation. ² EPRI's application was denied by the Department, which concluded that EPRI did not qualify for tax exemption as a charitable corporation under the then-applicable Municipal Code. ³ Upon reconsideration in July 1977, the application was again denied, at which time EPRI was informed by the Department that further administrative relief could be sought by paying sales tax to a supplier and filing a claim for a refund.

In May 1980, EPRI filed a claim for a sales tax refund ⁴ of $8.10, relying on section 53-26 of the Municipal Code, which provides in pertinent part:

There shall be exempt from taxation under the provisions of this article the following:

....

(2) All sales made to religious or charitable corporations when purchased for their regular religious or charitable functions and activities.

Denver, Colo., Rev.Mun.Code § 53-26 (1981). In August 1982, the claim for refund was denied by the Department. EPRI petitioned for a hearing, but at

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EPRI's request the hearing was twice postponed, ultimately being held in October 1983.

In March 1984, the hearing officer for the Department entered his order. He concluded that EPRI is primarily an investor-owned, profit-motivated organization that exacts payment from nonmembers for all its research reports and other information and, therefore, is not a charitable corporation for purposes of exemption from payment of Denver sales taxes. EPRI appealed to the district court pursuant to C.R.C.P. 106(a)(4), which court reversed the hearing officer's determination. The district court concluded that certain of the hearing officer's findings were not supported by the evidence, that the hearing officer applied an erroneous standard in determining EPRI's status, and that application of the correct standard required the conclusion that EPRI is a charitable corporation for purposes of exemption from payment of Denver sales taxes. ⁵

II

Denver initially suggests that the district court improperly substituted its own findings of fact for those of the hearing officer. It is true that administrative findings of fact supported by the record may not be overturned by a reviewing court in C.R.C.P. 106 proceedings. See, e.g., Ross v. Fire & Police Pension Ass'n, 713 P.2d 1304 (Colo.1986); Denver Center for Performing Arts v. Briggs, 696 P.2d 299 (Colo.1985). A review of the district court's order and of the record reveals that the court did not substitute its own factual findings for those of the hearing officer, but rather that the court carefully measured certain critical findings of the hearing officer against the record and found those findings not supported by any evidence.

Rule 106(a) of the Colorado Rules of Civil Procedure states in pertinent part:

In the following cases relief may be obtained in the district court by appropriate action under the practice prescribed in the Colorado Rules of Civil Procedure:

....

(4) Where any governmental body or officer or any lower judicial body exercising judicial or quasi-judicial functions has exceeded its jurisdiction or abused its discretion, and there is no plain, speedy and adequate remedy otherwise provided by law:

(I) Review shall be limited to a determination of whether the body or officer has exceeded its jurisdiction or abused its discretion, based on the evidence in the record before the defendant body or officer.

7A C.R.S. (1986 Supp.). Thus, Rule 106(a)(4) requires district courts to set aside final orders of an administrative agency if the agency, in the exercise of quasi-judicial authority, exceeds its jurisdiction or abuses its discretion. City & County of Denver v. Eggert, 647 P.2d 216 (Colo.1982). In fulfilling this role, the reviewing court may determine whether there was any competent evidence to support the agency's findings of fact, Denver Center

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for Performing Arts v. Briggs, 696 P.2d 299, as well as whether an erroneous legal standard was applied by the agency, see, e.g., de Koevend v. Board of Educ., 688 P.2d 219 (Colo.1984); Shearer v. Board of Trustees, 121 Colo. 592, 218 P.2d 753 (1950); cf. Rosenberg v. Board of Educ., 710 P.2d 1095 (Colo.1985) (whether hearing officer misconstrued the law may be considered in determining whether officer abused discretion).

The determination of whether EPRI is a "charitable corporation" for purposes of obtaining a sales taxation exemption under the Municipal Code, while dependent to a large extent upon factual analysis, does not involve only questions of evidentiary fact. The determination is one of ultimate fact, involving a conclusion of law or a mixed question of law and fact. See, e.g., Denver Center for Performing Arts v. Briggs, 696 P.2d 299 (in reviewing decision of local Manager of Revenue under Rule 106(a)(4), interpretation of language of a contract is question of law to be resolved by the court). An administrative agency's determination of ultimate fact may be set aside on review if there is no reasonable basis for the determination. Lee v. State Bd. of Dental Examiners, 654 P.2d 839 (Colo.1982).

III

The City also argues that EPRI failed to satisfy its burden of establishing that it is a charitable corporation entitled to sales taxation exemption under the Municipal Code. We disagree. Before addressing this evidentiary issue, however, we must consider whether the hearing officer and the district court applied correct legal principles to the evidence.

Both the hearing officer and the district court noted that the term "charitable corporation" is not defined by the Municipal Code. This court has not previously had occasion to interpret this provision of the Municipal Code. However, in United Presbyterian Association v. Board of County Commissioners, 167 Colo. 485, 448 P.2d 967 (1968), in determining that a nonprofit association was not entitled to an exemption from payment of ad valorem property taxes on a senior citizens' residential home owned by the association, we quoted with approval the following definition of "charity" articulated in 1867 by the Massachusetts Supreme Judicial Court in the case of Jackson v. Phillips, 96 Mass. (14 Allen) 539 (1867):

A charity, in the legal sense, may be more fully defined as a gift, to be applied consistently with existing laws, for the benefit of an indefinite number of persons, either by bringing their minds or hearts under the influence of education or religion, by relieving their bodies from disease, suffering or constraint, by assisting them to establish themselves in life, or by erecting or maintaining public buildings or works or otherwise lessening the burdens of government.

Id. at 556. See also West Brandt Found., Inc. v. Carper, 652 P.2d 564 (Colo.1982); Board of County Comm'rs v. Denver & R.G. R.R. Co. Employes' Relief Ass'n, 70 Colo. 592, 203 P. 850 (1922); Bishop and Chapter of Cathedral of St. John The Evangelist v. Treasurer of Denver, 37 Colo. 378, 86 P. 1021 (1906); American Water Works Ass'n v. Board of Assessment Appeals, 38 Colo.App. 341, 563 P.2d 359 (1976).

In view of the vast array of beneficial activities presently undertaken by numerous nonprofit entities to improve the conditions under which all citizens live, the attempts to define the term "charity" as a "gift" must inevitably prove problematic. Nevertheless,...