Friendship Center West, Inc. v. Harman

• Decision Date: 23 October 1990
• Docket Number: No. 89-1433,89-1433
• Citation: 464 N.W.2d 455
• Parties: FRIENDSHIP CENTER WEST, INC., Appellant, v. Donald G. HARMAN, Chairman, Board of Review of the City of Marshalltown, Iowa, and Members of the Board of Review of the City of Marshalltown, Iowa, Appellees.
• Court: Iowa Court of Appeals

Page 455

464 N.W.2d 455

FRIENDSHIP CENTER WEST, INC., Appellant, v. Donald G. HARMAN, Chairman, Board of Review of the City of Marshalltown, Iowa, and Members of the Board of Review of the City of Marshalltown, Iowa, Appellees.

No. 89-1433.

Court of Appeals of Iowa.

Oct. 23, 1990.

Roger R. Schoell of Grimes, Buck, Schoell & Beach, Marshalltown, for appellant.

Patrick W. Brooks of Brooks, Ward & Trout, Marshalltown, for appellees.

Heard by SCHLEGEL, P.J., and SACKETT and HABHAB, JJ.

SCHLEGEL, Presiding Judge.

Appellant Friendship Center West, Inc., a nonprofit corporation and retirement center appeals a district court judgment affirming the Marshalltown Board of Review's decision denying it tax exempt status. Appellant attacks the district court's conclusion that it is not entitled to a tax exemption as provided in Iowa Code section 427.1(9). We agree with the district court's conclusion and affirm the judgment and decree.

Friendship Center West (FCW) was founded in 1984 and incorporated under the Iowa Nonprofit Corporation Act, Iowa Code § 504A.1 et seq. (1983). Its articles of incorporation stated:

The corporation is formed for purely charitable purposes....

The purposes of the corporation are to provide housing needs for aged and retired persons in need of said housing, and to enhance and develop the quality of life for those persons and to generally engage in such other charitable, benevolent, and educational endeavors as are necessary to, convenient for, or incidental to such objects and purposes.

Like sentiments are expressed again elsewhere in the articles.

FCW was the brain child of a Marshalltown ministerial alliance of six pastors plus community leaders who sought and realized a goal of converting an old hospital building into a retirement community. To this end, FCW raised approximately $1.3 million in gifts and pledges and $5.5 million through small business development bonds. The building was renovated and now contains seventy-five independent living units, four short-term nursing care or post-hospital recuperative units, a dining facility, and common areas. The common areas include a library, a chapel, a laundry, a game room, a swimming pool, a crafts area, a reception office, guest rooms, and meetings rooms. Significant for our purposes, the common areas also include a barber or beauty shop, an ice cream shop, and a convenience store.

Residents pay an entrance fee that depends on the size of the living unit. These fees range from $20,000 to $68,000 for an individual, but the fee is increased by $2,000 if a couple takes up residence. Each resident is then entitled to lifetime residence and services, but residents acquire no real interest in the unit or the project.

Each resident pays a mandatory monthly service fee. The fee ranges from $500 to $865 per month, and an additional $225 extra person fee is charged for couples. The basic fee covers an unfurnished living unit, bi-weekly cleaning, one meal per day (tray service or special diets if necessary), a garden plot, basic utilities, parking, scheduled transportation, planned activities and common areas, and an emergency call system. Residents may obtain additional meals or a garage for an additional fee.

To apply for residency, one must be at least 62 years of age and, at least initially, be in sufficiently good health to live without assistance. Upon taking up residency, all residents must maintain Medicare coverage, if eligible, and participate in FCW's comprehensive health care plan. A portion of each monthly fee is placed in a fund for nursing care.

FCW's stated policy is that residency will not be terminated because of a resident's inability to pay the monthly service fee. If inability is proven, FCW may subsidize the resident's fee; however, in its short existence, this has never happened. Moreover, the record demonstrates that FCW extensively screens an applicant's health and finances, presumably minimizing the risk that FCW will have to underwrite a resident's expenses. Applicants must disclose any severe or chronic health problems and provide a current doctor's report. Applicants must also have adequate assets to pay all current fees and to provide for future financial security. Some applicants had to obtain a guarantor before they were considered. FCW maintains the right to terminate a residency if the monthly service fee is in default for three months. The evidence also shows that persons who did not meet the financial requirements were, in no uncertain terms, deterred from even applying.

The record reveals that there was no money available for financial assistance. The funds on hand are from entrance and monthly service fees, and the fee represents the cost of all services given. Any assistance given appears to have come from outside sources.

FCW sought and received tax exempt status from the Internal Revenue Service and the Iowa Department of Revenue. FCW also sought tax exempt status from the Marshalltown City Assessor under Iowa Code section 427.1(9), which states, in pertinent part, that the following property may not be taxed:

9. Property of religious, literary, and charitable societies. All grounds and buildings used or under construction by ... charitable, benevolent, ... and religious institutions and societies solely for their appropriate objects, ... not leased or otherwise used or under construction with a view to pecuniary profit....

Iowa Code § 427.1 (Supp.1989). The assessor denied the application, finding that FCW did not meet charitable guidelines for tax exemption. FCW appealed to the Marshalltown Board of Review, but it likewise determined FCW had failed to prove that the petitioned property is used solely for the appropriate objects as defined in Iowa Code section 427.1. FCW then appealed to the district court, which affirmed the board's decision.

FCW broadly contends the district court erred in concluding that the property was not entitled to exemption under section 427.1(9). Its argument tends to focus on its claim that it is performing "charity." Appellees contend that FCW failed to carry its burden showing entitlement to an exemption based on charitable operations; however, they focus on the requirement of section 427.1(9) specifying that "[a]ll grounds and buildings" be used for "appropriate objects" and that they "not [be] leased or otherwise used ... with a view to pecuniary profit."

The petition in the district court was in equity seeking review of the review board's decision denying tax exempt status. The district court found, and we concur, that tax exemption appeals are equitable in nature. Southside Church of Christ v. Des Moines Board of Review, 243 N.W.2d 650, 651-52 (Iowa 1976); Aerie 1287, Frat. Order of Eagles v. Holland, 226 N.W.2d 22, 24 (Iowa 1975). Our scope of review, therefore, is de novo. Iowa R.App.P. 4. While we are not bound by the trial court's findings of fact, we give weight to them, especially when those findings depend on the credibility of witnesses. Iowa R.App.P. 14(f)(7).

Statutes exempting property from taxation must be strictly construed. Southside Church of Christ, 243 N.W.2d at 654; Holland, 226 N.W.2d at 24; Evangelical Lutheran Good Samaritan Society v. Board of Review, 200 N.W.2d 509, 511 (Iowa 1972); Wisconsin Evangelical Lutheran Synod v. Regis, 197 N.W.2d 355, 356 (Iowa 1972). Any doubts are resolved in favor of taxation. Southside Church of Christ, 243 N.W.2d at 655; Regis, 197 N.W.2d at 356. The exemption claimant carries the burden of showing the property falls within the exemption statute. Southside Church of Christ, 243 N.W.2d at 651; Holland, 226 N.W.2d at 24-25; Evangelical Lutheran Good Samaritan Society, 200 N.W.2d at 511; Regis, 197 N.W.2d at 356 (Iowa 1972).

The actual use of the property governs whether an exemption should be granted. Statements of purpose in an organization's articles of incorporation and its nonprofit status are not controlling. Evangelical Lutheran Good Samaritan Society, 200 N.W.2d at 511; South Iowa Methodist Homes, Inc. v. Board of Review, 173 N.W.2d 526, 530, 532 (Iowa 1970). Whether the organization and its "appropriate objects" are charitable is a question of fact. Dow City Senior Citizens Housing, Inc. v. Board of Review, 230 N.W.2d 497, 499 (Iowa 1975); see also Southside Church of Christ, 243 N.W.2d at 655. "Homes will be taxed where 'admission is limited to the physically and financially independent.' " Atrium Village, Inc. v. Board of Review, 417 N.W.2d 70, 72 (Iowa 1987) (quoting South Iowa Methodist Homes, 173 N.W.2d at 533).

First we examine appellees' contention that FCW is not entitled to an exemption because "[a]ll grounds and buildings" are not being used for "appropriate objects" because they are "leased or otherwise used ... with a view to pecuniary profit." The record indicates that FCW receives 20 percent of the income from a lessee beauty shop housed in its facility. The record also indicates that FCW leases garages to its tenants. FCW claims that the presence of the beauty shop is merely an attempt "to insure that its residents [have] additional services available to them on premises."

Strictly construing the exemption statute, Southside Church of Christ, 243 N.W.2d at 654, and resolving doubts against the exemption claimant in favor of taxation, id. at 655; Regis, 197 N.W.2d at 356, we conclude that the leasing of the beauty shop causes FCW to fall out of the exemption statute. In clear and unambiguous language, the legislature has created a specific condition precedent to granting exemption status, that is that all grounds and buildings, in this case, be used for charitable objects, and it further states in unambiguous language that these same grounds and buildings neither be leased nor otherwise used for pecuniary profit. We are bound to give statutes reasonable interpretations based on what the legislature has said, Iowa R.App.P. 14(f)(13), and here it appears that "all" means...