Franciscan Tertiary Province of Missouri, Inc. v. State Tax Commission
| Citation | 566 S.W.2d 213 |
| Decision Date | 28 April 1978 |
| Docket Number | No. 59788,59788 |
| Parties | FRANCISCAN TERTIARY PROVINCE OF MISSOURI, INC., a corporation, Appellant- Respondent, v. STATE TAX COMMISSION of Missouri et al., Respondents-Appellants. |
| Court | Missouri Supreme Court |
Francis C. Flynn and Mark M. Wenner, St. Louis, for appellant-respondent.
James J. Wilson, Associate City Counselor, St. Louis, for respondents-appellants, State Tax Commission.
The Chariton Apartments, operated by Franciscan Tertiary Province of Missouri, Inc. (Franciscan) as an apartment building to house the elderly, was assessed for ad valorem tax purposes for 1973 by the Assessor of the City of St. Louis. Contending that the property was exempt from ad valorem taxation under the terms of § 137.100(6) 1 because used exclusively for charitable purposes, plaintiff appealed to the State Tax Commission (Commission) which affirmed. On further appeal, the circuit court upheld the ruling that the property was not exempt but reversed and remanded the decision of the Commission on the ground that the assessed valuation found was excessive. The Commission was directed on remand to determine a proper deduction to be allowed for "economic obsolescence" by reason of the restrictions in the agreement between the government and Franciscan under which the property was developed. Cross-appeals by Franciscan and the Commission were taken to this court, Franciscan appealing from the decision that the property was not exempt and the Commission from the decision that the valuation was excessive. We have jurisdiction because construction of the revenue laws of the state is involved. We reverse and remand with directions.
The first question to be considered is whether this apartment building for older people was used exclusively for charitable purposes and, hence, was exempt from ad valorem taxation. As the Commission recognizes in its brief, the facts, insofar as they relate to the issue of whether the building should be exempt as being used for charitable purposes, are undisputed.
Franciscan was incorporated as a Missouri not-for-profit corporation in 1968 for the stated corporate purpose of providing, on a nonprofit basis, rental housing and related facilities and services for elderly or handicapped families and persons. Said facilities and services were to be specially designed to meet the physical, social and psychological needs of the aged or handicapped and to contribute to their health, security, happiness and usefulness in longer living.
Soon after its incorporation, Franciscan entered into a cosponsorship program with the federal government for the construction of an apartment building to house the elderly. Subsequently, Franciscan contracted for construction of Charitan Apartments, to be financed under the provisions of § 236 of Title 12, Section 1701 U.S.C., the "Senior Citizen Housing Act of 1962." The Congressional purpose stated in the Act was:
Franciscan obtained a loan from a private mortgage company for $2,069,000, the total cost of the project. It gave a note and deed of trust on the property in question for said amount, the note bearing interest at 8 1/2% per annum plus a mortgage insurance premium of 1/2% per annum.
The eleven-story apartment building was completed in 1972. It is a reinforced concrete structure, faced with brick. All interior partitions and finish materials are non-combustible and the building has a fire alarm system. The building contains 122 apartments of which 80 are efficiency apartments of one room and a bath and 42 are one-bedroom apartments containing a sitting room, a bedroom and bath. Each floor has a small laundry room. Basic utilities are furnished. On the main floor is the manager's office, a caretaker's apartment, a large communal lounge complete with kitchen and other facilities and a mechanical equipment area.
The residents are provided with numerous activities, such as crafts, books, movies, speakers, card parties, discussion groups, short trips for shopping and sightseeing and similar programs. The project is nondenominational in accordance with HUD regulations but religious guidance and spiritual aid is provided by visiting priests of a nearby church.
Periodic physical checkups are held at Chariton but it is not equipped or operated as a nursing home. Patients requiring such care would have to move to such a facility. There is no provision in the operation of Chariton for payment of such expenses.
If Chariton was to be a self-sustaining operation, that is, one in which income from rent was at least equal to operating expenses plus mortgage payments, rentals charged would have been $265.50 per month for the efficiency units and $326.00 per month for the one-bedroom units. In recognition of the fact that rentals in such amounts would be beyond the ability of lower income families and persons to pay, Congress authorized the Department of Housing and Urban Development (HUD) to make interest reduction payments on behalf of the owner of rental housing projects designed for occupancy by lower income families, such amounts not to exceed the difference between the monthly payments for principal, interest and mortgage insurance premium which the owner is obligated to pay and the monthly payment for principal and interest the owner would be required to pay if the mortgage bore interest at the rate of 1% per annum. HUD administers the interest subsidy and it sets maximum rentals which may be charged where a subsidy is provided. When rentals have been fixed, they may be changed only with HUD's approval.
Under the agreement between Franciscan and the federal government, HUD was to determine a maximum basic rental charge on the basis of the project being operated with payments by Franciscan on the mortgage of principal and interest at 1% per annum. This was done on the premise that HUD would make maximum interest reduction payments authorized by the Act. On that basis HUD fixed maximum rental rates at $105.00 per month for the efficiency apartments and $126.29 per month for the one-bedroom apartments.
In fact, the subsidy actually paid by the government on behalf of Franciscan has been approximately 67% of the difference between payments due from Franciscan under its note and deed of trust and what those payments would have been if the interest rate had been 1% per annum. HUD has not been able to make larger subsidy payments due to the fact that Congress did not appropriate enough money to completely fund all of these programs. Since rentals charged were fixed on the basis of payment in full of the interest subsidy, they have not been sufficient to cover the deficiencies in the amounts paid by the government. As a result, these deficiencies have been paid by Franciscan or on its behalf by related organizations from funds other than rentals from the building. There was testimony that for the year ending June 30, 1973, the auditor's report disclosed a net loss for a one-year operation of the Apartments of $86,596.48. During this period rentals were obtained for the entire 12-month period, but mortgage payments were made for only seven months. The deficiency would have been greater if mortgage payments had been made for the entire 12-month period.
In addition to payment of the operating deficit resulting from the reduced federal subsidy, Franciscan contributed $34,000 in initial organizational and construction expenses, obtained additional land for which it gave a note for $35,000 to the Franciscan Fathers (which testimony indicated had not been and would not be paid), and provided other services (an estimated $50,000 for services of Father Mark Haegner, OFM, a housing consultant recognized as such by HUD; $6,000 for services of Sister Elizabeth, an activities director; and $2,000 in bookkeeping services).
Under the agreement and program, applicable regulations are issued by HUD. In this instance they provided that in order to qualify for the program, tenants must be 62 years of age or older, or physically handicapped or occupying substandard housing. In addition, tenants must have income below the maximum amounts specified for the area. In this instance HUD fixed those amounts at $6,480 for one person or $7,020 for two persons. There was no limitation on the amount of assets. Evidence as to the financial status of tenants was that 79% had incomes of less than $4,800, 63% had less than $4,000 and 42% had less than $3,000 gross per annum. Ninety-five per cent of the residents had assets in excess of $5,000, but only a few in excess of $8,000 to $10,000.
Franciscan administered, through HUD, a rent subsidy program available to persons whose monthly income was less than four times their monthly rental. Up to 20% of the apartments could be occupied by persons receiving rent assistance from the federal government. At the time of suit, 23 of the 142 tenants were receiving such assistance. The amount of such supplement is the difference between the monthly rental charge and one-fourth of the tenant's income. 2
Franciscan passed a resolution to the effect that no one would be evicted if...
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