Goodwill Industries of Southern Cal. v. Los Angeles County

• Decision Date: 26 March 1953
• Citation: 117 Cal.App.2d 19,254 P.2d 877
• Parties: GOODWILL INDUSTRIES OF SOUTHERN CALIFORNIA v. LOS ANGELES COUNTY et al. Civ. 19267.
• Court: California Court of Appeals Court of Appeals

Page 877

254 P.2d 877

117 Cal.App.2d 19

GOODWILL INDUSTRIES OF SOUTHERN CALIFORNIA v. LOS ANGELES COUNTY et al.

Civ. 19267.

District Court of Appeal, Second District, Division 2, California.

March 26, 1953.

Rehearing Denied April 20, 1953.

Hearing Denied May 21, 1953.

Snyder & Fletcher and Owen E. O'Neil, So. Pasadena, for appellant.

Ray L. Chesebro, City Atty., Louis A. Babior, Deputy City Atty., Los Angeles, for respondent City of Los Angeles.

Harold W. Kennedy, County Counsel, Arvo Van Alstyne, Deputy County Counsel, Los Angeles, for respondent Los Angeles County.

FOX, Justice.

The trial court sustained a demurrer without leave to amend to plaintiff's second amended complaint. A judgment of dismissal was accordingly entered. Plaintiff appeals from this judgment.

Plaintiff is a nonprofit, charitable welfare corporation. It is exempted from federal revenue tax and state income and sales tax. Plaintiff is engaged in collecting castoff personal property, reconditioning it and selling it through the stores which the corporation maintains and operates. The Goodwill Industries exist for the purpose of employing handicapped, aged, and needy persons in this process and thereby assisting in training its employees for independent living and self-support. All income from the sale of plaintiff's merchandise goes to its workers in wages after deducting the cost of operations. Capital investment in buildings and equipment comes from contributions of outside supporters.

This action is (1) to recover the 1949-1950 taxes, paid under protest, on plaintiff's stores which it alleges are necessary for the disposition of its reconditioned merchandise, and (2) for a declaration that its property is exempt from taxation. Plaintiff's theory is that it comes within the welfare exemption law. California Constitution, art. XIII, § 1c; Revenue & Taxation Code, § 214. In order to be entitled to the benefit of such tax exemption, plaintiff must show that its property is 'irrevocably dedicated' to exempt purposes.

Section 214 of the Revenue and Taxation Code ¹ provides that property used exclusively for religious, hospital, scientific or charitable purposes, and owned and operated by a corporation organized and operated for such purposes, is exempt from taxation if the property is 'irrevocably dedicated' to these purposes and upon liquidation, etc will not inure to the benefit of any private person but only to an organization which is organized and operated for such purposes. It thus becomes necessary to determine whether plaintiff's property is irrevocably dedicated to the aforesaid purposes. We must, therefore, examine plaintiff's articles of incorporation to ascertain the purposes to which plaintiff may devote its property. Pasadena Hospital Ass'n v. County of Los Angeles, 35 Cal.2d 779, 786, 221 P.2d 62; Moody Institute of Science v. County of Los Angeles, 105 Cal.App.2d 107, 109, 233 P.2d 51. These articles provide as follows:

'That the purposes for which said association is formed and incorporated are educational, industrial, spiritual and benevolent; to secure the Americanization of the foreign born; to provide for the educational and industrial welfare of the poor and neglected by the inspiration of industrial education and mental and spiritual uplift, and by the encouragement of thrift and helpful conditions of living and labor, to endeavor to prevent pauperism, and by means of Christian cooperation to relieve the temporary distresses of the unfortunate; to build, equip, and operate trade schools and workshops and allied and coordinate institutions, to establish and conduct industries, stores and medical clinics, to carry on any and all kinds of welfare and benevolent work among the poor and needy; to receive by gift, devise, or purchase and otherwise acquire, to own, hold and enjoy, to sell, lease, give and otherwise encumber any and all and every kind or kinds of real and personal property, and to carry or any and all operations necessary or convenient in connection with any of its objects or the transaction[s] of any of its business.' (Italics added.)

In determining whether the purposes stated in plaintiff's articles constitute an irrevocable dedication of its property to exempt purposes 'a strict but reasonable construction' must be given to the language used to the end that a tax exemption may be neither enlarged nor extended beyond 'the plain meaning' of such language. Cedars of Lebanon Hospital v. County of Los Angeles, 35 Cal.2d 729, 736, 221 P.2d 31, 15 A.L.R.2d 1045. In this connection it should also be pointed out that the fact that plaintiff is a worthy institution whose activities are of great value of the people who are related to its operations nad that it contributes to the public welfare, is immaterial here because it, like other private owners of property, has the burden of showing that it 'clearly' comes within the terms of the exemption. Cedars of Lebanon Hospital v. County of Los Angeles, supra. It is thus to be noted that the requirement, that property be irrevocably dedicated to exempt purposes in order to be relieved of taxation, is concerned with purposes rather than uses. Hence the crucial factor in such an exemption is not the past or present use of the property but the ultimate purpose to which it is dedicated. Pasadena Hospital Ass'n v. County of Los Angeles, supra, 35 Cal.2d at page 785, 221 P.2d 62. Consequently, '[t]he sole consideration in determining the question of irrevocable dedication of its properties is that of plaintiff's powers with respect thereto.' Pasadena Hospital Ass'n v. County of Los Angeles, supra, 35 Cal.2d at page 787, 221 P.2d at page 67. So, '[i]f the articles of incorporation permit not only a present use but also the ultimate and permanent diversion of its assets to non-exempt purposes no exemption may be allowed.' Moody Institute, etc. v. County of Los Angeles, supra, 105 Cal.App.2d at page 109, 233 P.2d at page 52.

Applying these principles, it is clear that plaintiff was not entitled to exemption from taxation.

An examination of the quoted section of plaintiff's articles of incorporation discloses that its purposes are, among others, 'educational' and 'industrial'; to provide 'industrial education'; 'to build, equip, and operate trade schools and workshops and allied and coordinate institutions, to establish and conduct industries, [and] stores * * *,' and 'to carry on any and all operations necessary or convenient in connection with any of its objects or the transaction of any of its business.' The plain meaning of this language makes it clear that plaintiff could, in the tax year here involved, or at any later period, without violating its charter, build, equip, and operate schools of less than collegiate grade, such as, for example, trade schools, and could devote all of the property upon which it presently seeks exemption to any or all of such purposes. This would be contrary to the express provisions of section 214, Revenue and Taxation Code, and the principles enunciated in the Pasadena Hospital case and the holding in Moody Institute of Science v. County of Los Angeles, supra.

In an effort to escape the effect of these decisions plaintiff emphasizes that the present and intended future use of all of the subject properties is purely and exclusively charitable. This, however, does not provide any legal basis for a conclusion that the property is irrevocably dedicated to exempt purposes during plaintiff's corporate life. The identical contention was made by the Pasadena Hospital. It was fortified by a background of more than 50 years' exclusive use as a charitable hospital. It was, however, squarely rejected by the Supreme Court. Pasadena Hospital Ass'n v. County of Los Angeles, supra, 35 Cal.2d at pages 786-787, 221 P.2d 62.

Plaintiff also contends that the Pasadena Hospital and Moody Institute cases are inapplicable on the theory that these cases dealt only with corporations which had 'extra curricular nonexempt powers,' that is, nonexempt powers which were 'apart from or in addition to the general purposes for which they were formed.' From this premise plaintiff argues that it has no such extra curricular powers, and that its property should therefore be treated as irrevocably dedicated exclusively to exempt purposes.

A careful reading of these cases fails to disclose anything indicating that the court drew such a distinction as that contended for by plaintiff. If any such distinction were possible, however, plaintiff's argument would result in a non sequiture for plaintiff's nonexempt powers are clearly included among, and constitute in part, its general and primary powers and purposes. As in the Moody Institute case, there is nothing in plaintiff's articles of incorporation which in any way limits or restricts its nonexempt purposes (e. g., educational powers) or subordinates them to the status of powers which are merely incidental to a program of charitable rehabilitation of the handicapped or aged. Plaintiff's alleged intent to employ its nonexempt powers in such a restricted manner does not cure this deficiency in its articles of incorporation. Plaintiff attempts to use the Cedars of Lebanon case in support of his argument. There the property under consideration for tax exemption was used for a nurses' school which was held to be a necessary and incidental function of a modern hospital, and thus an exempt use of property for hospital purposes. That case is not applicable here because the present issue relates not to use bot to purposes as expressed in plaintiff's articles of incorporation. Therefore, since plaintiff's powers are not limited to exempt purposes, but expressly include also taxable purposes, its property is not entitled to tax exemption. Pasadena Hospital Ass'n v. County of Los Angeles, supra; Moody Institute, etc. v. County of Los Angeles,...