Friendsview Manor v. State Tax Commission

CourtSupreme Court of Oregon
Citation420 P.2d 77,247 Or. 94
PartiesFRIENDSVIEW MANOR, an Oregon non-profit corporation, Appellant, v. P. F. Liniger, C. H. Mack and F. H. W. Hoefke, as members of and constituting the STATE TAX COMMISSION of the State of Oregon, Respondents.
Decision Date16 November 1966

Donald A. Schmechel, Seattle, Wash., argued the cause as amicus curiae, in support of appellant, on behalf of American Ass'n of Homes for the Aging. With him on the brief were Black, Kendall, Tremaine, Boothe & Higgins and H. Stewart Tremaine, Portland, and Wright, Innis, Simon & Todd and P. Cameron DeVore, Seattle, Wash.

William K. Shepherd, Portland, argued the cause for appellant. With him on the briefs was G. Bernhard Fedde, Portland.

Gerald F. Bartz, Asst. Atty. Gen., Salem, argued the cause for respondents. With him on the brief were Robert Y. Thornton, Atty. Gen., and Alfred B. Thomas, Asst. Atty. Gen., Salem.


DENECKE, Justice.

The issue is whether Friendsview Manor, a retirement home, is a charitable institution and, therefore, exempt from real property taxation. The State Tax Commission found that it was not and the Tax Court affirmed such decision. 2 O.T.R. Adv.Sh. 137 (1965). The Manor appeals.

ORS 307.130 provides:

'* * * the following property owned or being purchased by incorporated literary, benevolent, charitable and scientific institutions shall be exempt from taxation:

'(1) Except as provided in ORS 740.080, only 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'.

The Manor is the product of the inspiration of the Oregon Yearly Meeting of Friends Church (Quakers). In 1956 the plaintiff was organized as a nonprofit corporation; there are no members. Later, the Board of Directors hired a Quaker pastor at $480 per month as executive director.

The principal money raising device was the founder's fee paid by those who wished to have a room in the Manor. Initially, the fee was $5,000 for a single person. It was ultimately raised to as high as $8,500 for the best rooms. The first $100 from the founder's fee was irrevocably placed in the Charitable Assistance Fund. This fund also received donations which totaled $15,000 in August, 1964.

The founder's fee may be partially refunded if a resident leaves. However, one-eighth of such fee is considered expended for each year of residency and is not refundable. If a resident dies, any unexpended balance of the founder's fee is then considered expended and no part of the fee is refunded to anyone. When a room is vacated, by death or otherwise, it is resold by the Manor. The first $100 of the purchase price is again transferred to the Charitable Assistance Fund and the balance is handled just as is the founder's fee.

In 1959 a loan of $1,450,000 was obtained. The loan was secured by a mortgage on the land and the about-to-be-built Manor and was guaranteed by the Federal Housing Administration. In 1961 the 125-unit building with the community facilities common to retirement homes was completed and residents moved in.

In addition to the living and community accommodations, the Manor provides board and health care. These are paid for by monthly fees. Initially, the fee was set at $85 per month per person; increased expenses forced a raise to $117.50.

In making financial projections at the beginning of the operation it was assumed that the founder's fees and resale fees would be the primary source of funds for the mortgage payments. It was also assumed that the Manor would receive $5,000 in gifts per year to apply on mortgage payments. The mortgage payments in 1961--1962 were $77,000. It was assumed that the monthly payments for board and health care, plus miscellaneous income, would pay operating costs.

These assumptions have not proved out. By August 31, 1964, the Manor had lost $133,613. The loss in 1961--1962 was $60,000 and in 1962--1963, $54,000. However, in 1963--1964 the loss was only $800. From the financial statements in evidence it appears that the loss occurred both in operations and in funds for capital payments.

Thirty-four thousand dollars has been expended from the Charitable Assistance Fund for the four years ending August, 1964. Expenditures took the form of payment of all or part of the founder's fees for certain needy residents and payment of part of the monthly fees for board and health care. The Articles of Incorporation provide:

'This corporation is formed solely and exclusively for religious, charitable and non-profit purposes, and the earnings, if any, of this corporation shall be used exclusively for the purposes for which this corporation is formed, as hereinabove described. All property, acquired by the corporation, real or personal, and all increments, interests, or earnings thereof are and shall be devoted in perpetuity and irrevocably dedicated to religious, charitable and non-profit purposes, and in the event of the liquidation, dissolution, or abandonment of this corporation, its property will not inure to the benefit of any private person.'

The Bylaws provide:

'Section 2.--Distribution on Dissolution

'In the event of liquidation, dissolution or abandonment of this corporation, after the payment of all of its legal liabilities and obligations, the excess shall be paid to Oregon Yearly Meeting of Friends Church for use in providing for the needs of the aged on an impartial basis without regard to race, color, nationality, creed, or political beliefs.'

The Articles of Incorporation further provide:

'No applicant will be denied the right to occupy housing facilities provided by this corporation on the basis of his race, color, creed or national origin.'

In Oregon Methodist Homes, Inc., Willamette View Manor, Inc. v. State Tax Commission, 226 Or. 298, 360 P.2d 293 (1961), we held that a retirement home for the elderly was not entitled to the charitable real property tax exemption. The financial plan and the operation of the Manor in that case were different in several significant respects from those of Friendsview Manor. The founder's-fee plan was used, however. At Willamette View Manor each founder acquired a contractual right to life care for a monthly fee of $100 and each founder could name his successor, which successor could occupy such room for life with no additional payment for the room. All initial residents paid their full founder's fee and monthly care fee. Upon dissolution the assets were to be distributed to each member in proportion to the contribution made.

We agree with the observation of the Tax Court that Friendsview Manor has qualified for a charitable exemption in many of the respects which were lacking in the Willamette View Manor claim. We also agree with the Tax Court that, nevertheless, Friendsview does not qualify for the charitable exemption.

The Manor does in a few instances pay all or part of the founder's fee and monthly care charges for persons unable to pay. Admittedly, most of the residents pay their own way. The exemption statute only exempts property 'exclusively occupied or used in the * * * charitable * * * work carried on by such institutions.' ORS 307.130. (Emphasis added.) If the application of the charitable exemption were dependent upon whether or not the property was used for caring for those unable to pay for room or care, the Monor could not meet the 'exclusive' requirement of the statute.

The Manor's principal contention is that care for the elderly, whether rich or poor, is a 'charitable work' and, therefore, real property used in carrying on such work is real property 'actually and exclusively occupied or used in * * * charitable * * * work.' The Manor points out that § 368, 2 Restatement (Second), Trusts, states:

'Charitable purposes include

'(a) the relief of poverty;

(b) the advancement of education;

(c) the advancement of religion;

(d) the promotion of health;

(e) governmental or municipal purposes (f) other purposes the accomplishment of which is beneficial to the community.'

We will assume, without deciding, that caring for the aging, rich or poor, is a charitable purpose. 1

The Manor reasons that if a group of persons pays funds to a corporation to construct facilities to provide services to the same group and the providing of such services is a charitable work, as we are assuming it is here because it was caring for the aging, the facilities are exempt because they are used 'exclusively in charitable work.' The Manor contends that it is immaterial that the group that provides the funds by payment of past, present and future founder's fees is also the group that is receiving the benefits. This is identical to what exists when an individual aged person provides his own home or a group of aging persons constructs a cooperative apartment. The purpose in all three is providing housing for the aging, a charitable purpose. It is not suggested that the latter two categories also should have tax-exempt housing.

We conclude that the basic deficiency in the Manor's reasoning is that it would grant a charitable tax exemption to housing for aging persons paid for by these same aging persons.

If the Manor's contention is correct, the charitable tax exemption must be granted to many other self-help projects that provide services which if provided To others are held to be for charitable purposes.

The construction of a swimming pool or golf course can be a charitable purpose. Such facilities benefit the community by promoting health and teaching physical education. According to the reasoning of the plaintiff, a group can pay its funds into a nonprofit corporation, organize as Friendsview Manor is, have a pool or golf course built, and credit each hour spent in the pool or a round upon the course against the ...

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