Fraternal Order of Eagles Lodge No. 255 v. Indiana State Bd. of Tax Com'rs, Ind.Tax, No. 80T05-8609-TA-00010.

• Citation: 512 N.E.2d 491
• Decision Date: 19 February 1987
• Docket Number: No. 80T05-8609-TA-00010,80T05-8609-TA-00010
• Parties: FRATERNAL ORDER OF EAGLES LODGE NO. 255, Petitioner, v. INDIANA STATE BOARD OF TAX COMMISSIONERS, Respondent.
• Court: Indiana Tax Court

Page 491

512 N.E.2d 491

FRATERNAL ORDER OF EAGLES LODGE NO. 255, Petitioner, v. INDIANA STATE BOARD OF TAX COMMISSIONERS, Respondent.

No. 80T05-8609-TA-00010.

Tax Court of Indiana.

Feb. 19, 1987.

Thomas J. Simmons, Simmons & Fleming, Kokomo, for petitioner.

Linley E. Pearson, Atty. Gen., by James R. Green, Joel Schiff, Deputy Atty. Gen., Indianapolis, for respondent.

FISHER, Judge.

STATEMENT OF THE CASE

This is a case brought upon the State Board of Tax Commissioners' (hereinafter the Respondent) denial of the Fraternal Order of Eagles' Lodge No. 255 (hereinafter the Petitioner) Petition for review of Petitioner's application for property tax exemption for the year 1983. The exemption was sought pursuant to IND.CODE 6-1.1-10-16 (1979 Supp.). Reversed and Remanded.

FACTS

The Court finds the following to be the facts to-wit:

1. That on the assessment date, March 1, 1983, the Petitioner was the owner of real property commonly known as 1221 East Lincoln Road in Kokomo, Indiana. That the land consisted of 6.8 acres. On the land there was a lodge building consisting of a social room, dining room, lodge room, bowling alley, card and game room, and an office. In addition to the lodge building, there was also a covered pavilion on the land.

2. That on May 25, 1983, as required by the law, the Petitioner filed with the Howard County Auditor a State Form 5743, entitled "Required Information for Property Tax Exemption." In that application for exemption, the Petitioner claimed its property should be exempt from real property taxes for the 1983 tax year. The Petitioner stated the following reasons why the use of its property qualified for an exemption from real property taxes:

To strengthen the bonds of fraternalism and social activities between members. To promote patriotic, humanitarian and fraternal teaching of the F.O.E. and to inculate (sic) among the members a sense of service to their state and to their nation.

To work and raise funds for charitable and humanitarian funds set up specifically for the purpose by the F.O.E.

3. That on July 15, 1983, the Howard County Board of Review met regarding the Petitioner's application for exemption from real property taxes for the 1983 tax year, and disallowed the claim for exemption.

4. That on August 15, 1983, a petition for review of the exemption was filed by the Petitioner with the Respondent requesting review of the Petitioner's application for exemption from real property taxes for the 1983 tax year.

5. That on January 20, 1984, the Respondent sent to the Petitioner a notice entitled "Notice and Review of Exemption" notifying the Petitioner that on February 8, 1984, the Respondent would hold a hearing at the Howard County Auditor's Office for the purpose of reviewing the action of the Howard County Board of Review in denying the Petitioner's application for exemption.

6. That on February 8, 1984, the Petitioner appeared at the hearing by its secretary, E. Doyle Hayes, and its treasurer, James Stout. The Respondent appeared at the hearing by its hearing officer, Edward F. Airhart.

7. At the hearing the Petitioner introduced exhibits, including its articles of incorporation, financial statements, a letter from Hayes regarding some of the charitable 8. At the hearing, Airhart asked Hayes and Stout questions about the Petitioner, its activities, and how it used its property. Hayes and Stout testified about the fraternal benefits a person gained from being a member, but also testified that the lodge building was used by the Petitioner only 2% of the time for charitable functions, while the remaining 98% of the time the lodge building was used for social functions for the benefit and enjoyment of its members. Those social functions included dining, dancing, drinking, bingo, bowling, card playing, and the general relaxation of its members. Hayes and Stout also testified, with respect to the Petitioner's use of the covered pavilion, that it was used 25% of the time by groups who were not charged a fee, while the remaining 75% of the time it was used by Petitioner's members for picnics and the like.

donations made by the Eagles' national organization, and projected donations the Petitioner made to charities in 1983.

9. At the hearing, Airhart also asked Hayes and Stout whether the property was used for income producing purposes. Hayes and Stout testified that it was, and that the gross income earned from the use of the property for 1983 was approximately $438,000. That the $438,000 gross income the Petitioner earned from the use of the property was derived from the sale of food, $228,000; from the sale of drinks, $200,000; from the playing of bingo, $5,000; and from bowling, $5,000. Of that $438,000 gross annual income earned from the use of its property, Hayes and Stout estimated that the Petitioner contributed $12,160, or 2.8% of Petitioner's gross income, in charitable donations. At the hearing Airhart did not solicit evidence of Petitioner's operating expenses nor did Petitioner offer any such evidence.

10. Hayes and Stout also testified at the hearing that in the prior tax years, the Howard County Board of Review had granted to the Petitioner an exemption from real property taxes, and they further testified that other Eagle lodges in the state had been granted their applications for exemption for the 1983 tax year.

11. That the day following the hearing, Airhart viewed the Petitioner's property. Airhart, however, was unable to gain entrance to the lodge building because it was closed at the time he visited the property.

12. Airhart then reviewed the evidence that had been presented by the Petitioner and made written findings to the Respondent regarding the Petitioner's application for exemption. He found, based on how the Petitioner was using its property, that the Petitioner's use of its property was for non-exempt purposes. Those non-exempt uses of the property were "dining, drinking, dancing, meetings, and the general relaxation of its members." He found, based on the evidence, that the use of the property for charitable purposes was only 2% for the lodge building and 25% for the covered pavilion. He concluded that any charitable use of the property by the Petitioner was only an incidental use and was not a primary or dominant use of the property. Based on his findings, Airhart in his report made the following recommendation to the Respondent:

Recommend disapproval pursuant to IC 6-1.1-10-16. Buildings and land are not used predominantly for charitable purposes; but instead are used predominantly for the relaxation and benefit of its members.

Airhart recommended 100% disapproval of the exemption application of the Petitioner's real property for the 1983 tax year.

13. Airhart then forwarded the jacket on the case containing all of the information he had collected at the hearing, his reports, notes and recommendations to the Respondent. The Respondent adopted Airhart's recommendation and denied the Petitioner's application for exemption for the 1983 tax year. The Respondent, on February 25, 1985, sent to the Petitioner notice of its decision, entitled "Notice of Action on Review of Application for Exemption." Respondent gave the following reasons why the exemption application was denied:

Pursuant to IC 6-1.1-10-36, property used or occupied for a purpose other than recited in Sec. 16. Property not set aside or exclusively used for the purpose 14. That the Petitioner had been granted a property tax exemption for at least ten (10) consecutive years prior to the application made in 1983.

recited in Sec. 16. Also, pursuant to IC 6-1-1-10-36.5, property used "in a trade or business not substantially related to the exercise or performance of the organization's exempt purpose."

15. That the Petitioner's applications for exemption in 1984, 1985, and 1986 were likewise granted.

16. That Petitioner's activities and uses of its land and property have been essentially and substantially the same for at least the last fourteen consecutive years, including 1983.

17. That Petitioner then initiated this suit pursuant to IND.CODE 6-1.1-15-5 by filing its complaint on March 19, 1985, against the Respondent requesting the Court review the decision made by the Respondent in denying the Petitioner's application for exemption of its real property from property tax for the 1983 tax year.

DISCUSSION AND DECISION

It is well settled that this Court's review of the Respondent's determination is limited to a consideration of whether or not there is any substantial evidence to support the finding and if there is, the Court may not disturb it. Uhlir v. Ritz (1970), 255 Ind. 342, 264 N.E.2d 312; Dept. of Fin. Insts. v. State Bank of Lizton (1969), 253 Ind. 172, 252 N.E.2d 248.

Contrary to the general rule that the tax laws are to be construed in favor of the taxpayer, exemption statutes are to be strictly construed against the taxpayer and the burden is on the taxpayer to establish his right to an exemption. Indiana Dept. of State Revenue v. Cave Stone, Inc. (1983), Ind., 457 N.E.2d 520, 524; Beasley v. Kwatnez (1983), Ind.App., 445 N.E.2d 1028, 1030. Hence the burden is on the Petitioner to establish that it is entitled to an exemption.

The Petitioner does not argue that the evidence presented at the hearing does not support the Respondent's determination (if that were the only issue, on the evidence presented, Respondent would prevail herein,) but rather it relies on the theory that the Respondent is estopped from denying the exemption since the exemption was granted for at least 10 years prior to the year in question and for the years since.

Respondent argues that the prior exemptions are irrelevant since under IND.CODE 6-1.1-11-3 ¹, an owner is required to apply annually for an exemption and to prove that the use of the property for that particular tax year qualifies for the exemption claimed. Respondent also argues that even if the prior exemptions are not...