Honeywell Information Systems, Inc. v. County of Sonoma

• Citation: 118 Cal.Rptr. 422,44 Cal.App.3d 23
• Court: California Court of Appeals Court of Appeals
• Decision Date: 23 December 1974
• Parties: HONEYWELL INFORMATION SYSTEMS, INC., etc., Plaintiff and Appellant, v. The COUNTY OF SONOMA, etc., et al., Defendants and Respondents. HONEYWELL, INC., etc., Plaintiff and Appellant, v. The COUNTY OF SONOMA, etc., et al., Defendants and Respondents. Civ. 33445 and Civ. 33446.

Page 422

118 Cal.Rptr. 422

44 Cal.App.3d 23

HONEYWELL INFORMATION SYSTEMS, INC., etc., Plaintiff and Appellant, v. The COUNTY OF SONOMA, etc., et al., Defendants and Respondents.

HONEYWELL, INC., etc., Plaintiff and Appellant, v. The COUNTY OF SONOMA, etc., et al., Defendants and Respondents.

Civ. 33445 and Civ. 33446.

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

Dec. 23, 1974.

Clyde R. Maxwell, Newport Beach, for plaintiff and appellant.

James P. Botz, County Counsel, Thomas B. Sawyer, Deputy County Counsel, County of Sonoma, Santa Rosa, for defendants and respondents.

KANE, Associate Judge.

Honeywell, Inc. and Honeywell Information Systems, Inc. (hereinafter 'appellant') ¹ appeal from the trial court's judgment denying relief in their respective actions brought for refund of property taxes assessed and collected on certain leased property.

The summarized facts reveal that under a three-year agreement appellant leased on electronic computer and data processing system ('computer system') to Sonoma County Schools (hereinafter 'County') in return for payment of a flat monthly charge. By the terms of the original agreement, the County was allowed a 25 percent educational discount, which rate, however, was reduced to 10 percent under a two-year extension of the contract. While the County was free to utilize the leased equipment for hire for both educational and noneducational purposes, under the provisions of the agreement it was entitled to the educational discount only if the computed system was used for internal or joint instructional, academic and scientific programs. ²

The computer system was installed on the County's premises and was operated exclusively by personnel employed by the County. Soon after the data processing center became operational in 1967--1968, the County entered into contracts with parochial schools to furnish them specified materials which were either similar or identical to those processed for the participating public schools, and utilized the computer system also for local private businesses which were unrelated to any educational activity. The total time devoted to processing material for the parochial schools averaged about three percent, while the time used for private businesses amounted to approximately 0.56 percent of the total computer time available. The dollar amounts derived from these outside services were, however, quite substantial. The evidence shows that during the disputed period the County received from the parochial schools about $22,500 to $29,300 per year, whereas the private firms paid about $2,000 to $8,000 per year during the same period. The record is undisputed that all income derived from both the parochial schools and private businesses was used by the County for its general purposes.

Since under the explicit terms of the agreement personal property taxes were to be paid by appellant lessor, respondent levied property taxes on the leased equipment against appellant for certain fiscal years. Appellant paid the taxes under protest, then filed a claim for refund of taxes along with interest accrued thereon on the ground that the computer system in question was used exclusively for public school purposes and was exempt from taxation under California Constitution, article 13, section 1, and Revenue and Taxation Code, section 202, subdivision (c). After respondent denied the claim for refund, appellant took recourse to the court, reiterating that the assessment and collection of the property taxes at issue were unlawful because the equipment was exempt from taxation on the aforesaid grounds. Upon the evidence submitted by the parties, ³ the trial court found that the property in question was not used exclusively for public schools, and that the use of the equipment for parochial schools and private businesses destroyed the exemption secured by the Constitution and the statute. We affirm.

In the controversy at hand we are invited to define the scope and interpret the meaning of the phrase 'property used exclusively for public schools.' ⁴ The question here raised is admittedly one of first impression.

In resolving the issue at hand, preliminarily we note that as a general rule constitutional provisions and statutes granting exemption from taxation are stric strictly construed to the end that such concession will not be enlarged nor extended beyond the plain meaning of the language employed (Cypress Lawn C. Assn. v. San Francisco (1931) 211 Cal. 387, 390, 295 P. 813; San Francisco v. San Mateo (1941) 17 Cal.2d 814, 817, 112 P.2d 595; Seventh Day Adv. Kan. Conf. A. v. Board of Cty. Com'rs. (1973) 211 Kan. 683, 508 P.2d 911, 917). In this regard, it is immaterial that the institutions upon which the tax exemption is conferred may contribute to the public welfare and serve the interests of the state; for they too, like other owners of property, have the burden of showing that they clearly come within the terms of the exemption (Cedars of Lebanon Hosp. v. County of L.A. (1950) 35 Cal.2d 729, 734, 221 P.2d 31). But the rule of strict construction does not require that the narrowest possible meaning be given to words descriptive of the exemption, for a fair and reasonable interpretation must be made of all laws with due regard for the ordinary meaning of the language employed and the object sought to be accomplished thereby. Strict construction must still be a reasonable construction (Church Divinity Sch. v. County of Alameda (1957)152 Cal.App.2d 496, 500, 314 P.2d 209; Cedars of Lebanon Hosp. v. County of L.A., supra 35 Cal.2d at p. 735, 221 P.2d 31; Multnomah School of the Bible v. Multnomah County (1959) 218 Or. 19, 343 P.2d 893, 897).

Under the rule of strict but reasonable construction the phrase 'exclusively used' may not be given a literal interpretation so as to mean that the property exempted must be used only solely and purely for the purposes stated to the total exclusion of any other use. Rather, the expression 'exclusively used' has been interpreted to mean not only primary but also certain types of incidental use as well. However, contrary to appellant's position, in order to secure tax exemption based on 'incidental use,' such Incidental use must be directly connected with, essential to, and in furtherance of the primary use (84 C.J.S., § 287, p. 579; Salvation Army v. Hoehn (1945) 354 Mo. 107, 188 S.W.2d 826) And must be reasonably necessary for the accomplishment of the primary purpose for which the tax-exampt institution was organized (Greater N.Y. Corp. of 7th-Day A. v. Town of Dover (1968) 29 A.D.2d 861, 288 N.Y.S.2d 334, 336; Multnomah School of the Bible v. Multnomah County, supra 343 P.2d at p. 899).

The California cases are in full accord with the aforesaid premises. Thus, in Cedars in Lebanon Hosp. v. County of L.A., supra, interpreting the phrase 'property used exclusively for . . . hospital . . . purposes' (Cal.Const., art. 13, § 1c; Rev. & Tax.Code, § 214), our Supreme Court laid down the rule that the phrase an question should be held to include any property which is used exclusively for any facility which is Incidental to and reasonably necessary for the accomplishment of hospital purposes, or in other words, for any facility which is Reasonably necessary for the fulfillment of a generally Recognized function of a complete modern Hospital. In consonance with this principle, the court upheld the tax exemption of a nursing school attached to the hospital and a tennis court maintained as a recreational facility for hospital employees because both were deemed incidental and reasonably necessary for the accomplishment of hospital purposes. But the court took a different view with regard to the hospital property used to house a thrift shop which sold donated clothing and furnishings, the proceeds of which were used for charitable purposes. The court said: 'But such enterprise, laudable as its purpose manifests it to be, cannot escape classification as an independent undertaking to raise revenue, and cannot be said to have been incidental to and reasonably necessary for the accomplishment of hospital purposes.' (Cedars of Lebanon Hosp. v. County of L.A., supra 35 Cal.2d at p. 745, 22 P.2d at 41.)

The principles pronounced in Cedars of Lebanon were followed in Church Divinity Sch. v. County of Alameda, supra, an analogous case, where the court undertook to interpret the phrase 'property 'used exclusively for . . . purposes of education" within the meaning of California Constitution, article 13, section 1a and Revenue and Taxation Code, section 203. Applying the test laid down in Cedars of Lebanon, the court sustained the tax exemption of college facilities used by married students and the faculty members, and a contiguous parking lot used by the students and staff...