Idaho Youth Ranch, Inc. v. Ada Cnty. Bd. of Equal.

• Decision Date: 19 September 2014
• Docket Number: No. 41256.,41256.
• Citation: Idaho Youth Ranch, Inc. v. Ada Cnty. Bd. of Equal., 335 P.3d 25, 157 Idaho 180 (Idaho 2014)
• Court: Idaho Supreme Court
• Parties: IDAHO YOUTH RANCH, INC., Idaho Youth Ranch Nagel Center, LLC., Petitioner–Appellant, v. ADA COUNTY BOARD OF EQUALIZATION, Respondent.

157 Idaho 180

335 P.3d 25

IDAHO YOUTH RANCH, INC., Idaho Youth Ranch Nagel Center, LLC., Petitioner–Appellant,

v.ADA COUNTY BOARD OF EQUALIZATION, Respondent.

No. 41256.

Supreme Court of Idaho.

Sept. 19, 2014.

Law Office of John B. Hinton, Boise, for appellant. John B. Hinton argued.

Ada County Prosecuting Attorney, Boise, for respondent. Gene A. Petty argued.

HORTON, Justice.

The Ada County Board of Equalization (the BOE) denied an application for a property tax exemption made by the Idaho Youth Ranch, Inc. (the Youth Ranch) and Idaho Youth Ranch Nagel Center, LLC (the LLC). The Idaho Board of Tax Appeals affirmed that decision. The Youth Ranch and the LLC then sought judicial review. Ruling on the parties' cross-motions for summary judgment, the district court held that the property was not exempt from taxation. We affirm.

I. FACTUAL AND PROCEDURAL BACKGROUND

In August of 2006, Nagel Beverage Company (Nagel) approached the Youth Ranch and the Idaho Youth Ranch Foundation, Inc., about the sale of the real property and improvements at 5465 Irving Street in Boise. Nagel was looking to sell the property as part of a 1031 exchange and offered it to the Youth Ranch for $1,136,000 below the appraised value as a noncash donation. The Youth Ranch wanted to purchase the property and began to explore financing options with Key Bank.

In order to expedite the loan approval and to secure a favorable interest rate, Key Bank encouraged the Youth Ranch to form a separate LLC to purchase and hold the property.¹ The Youth Ranch did so, and the LLC was formed on August 15, 2006, for the purpose of purchasing and holding the property. The sole member of the LLC was the Idaho Youth Ranch Foundation, Inc. After acquiring the property on August 24, 2006, the LLC and the Youth Ranch entered into a twenty-five year triple-net commercial lease. Under the terms of the lease, the LLC was the landlord, and the Youth Ranch was the tenant. The rent under the lease agreement was a monthly amount of "$25,000, or an amount equal to [the LLC's] mortgage payment on the premises, whichever is greater...."

The Youth Ranch and the LLC applied for a property tax exemption for the year 2009 pursuant to Idaho Code section 63–602C, claiming that the property belonged to a charitable entity. The BOE denied the application, and the Board of Tax appeals affirmed the denial. The Youth Ranch and the LLC petitioned the district court for judicial review of the Board of Tax Appeals' decision. The parties filed cross-motions for summary judgment, agreeing that there were no genuine issues of material fact and that the district court could decide the case as a matter of law. The district court issued its memorandum decision on June 19, 2013. To determine whether the LLC was a charitable organization, the district court applied the eight-factor test this Court articulated in Appeal of Sunny Ridge Manor, Inc., 106 Idaho 98, 675 P.2d 813 (1984). The district court concluded:

Applying the factors that the Idaho Supreme Court has set forth, and looking at the totality of this case, the Court concludes that the LLC was not a charitable limited liability company within the meaning of Idaho Code § 63–602C ; therefore, the property owned by the LLC is not exempt from taxation.

The district court issued its judgment on June 19, 2013, affirming the Board of Tax Appeals' decision denying the application for a property tax exemption. The Youth Ranch and the LLC timely appealed.

II. STANDARD OF REVIEW

Idaho Code section 63–3812 governs appeals from the Board of Tax Appeals. This statute provides that the district court is to decide the appeal "without a jury in a trial de novo on the issues in the same manner as though it were an original proceeding in that court." I.C. § 63–3812(c). Thus, "this Court defers to the district court's findings of fact that are supported by substantial evidence, but exercises free review over the district court's conclusions of law." Kimbrough v. Idaho Bd. of Tax Appeals, 150 Idaho 417, 420, 247 P.3d 644, 647 (2011) (quoting Canyon Cnty. Bd. of Equalization v. Amalgamated Sugar Co., 143 Idaho 58, 60, 137 P.3d 445, 447 (2006) ). When reviewing a grant of summary judgment, this Court employs the same standard as the district court. Cnty. of Boise v. Idaho Cntys. Risk Mgmt. Program, Underwriters, 151 Idaho 901, 904, 265 P.3d 514, 517 (2011). Summary judgment is proper when "the pleadings, depositions, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." I.R.C.P. 56(c). "The interpretation of a statute is a question of law subject to free review." Kimbrough, 150 Idaho at 420, 247 P.3d at 647 (citing Callies v. O'Neal, 147 Idaho 841, 847, 216 P.3d 130, 136 (2009) ). "Interpretation of the requirements for charitable exemptions from property tax are questions of law over which this Court exercises free review." Student Loan Fund of Idaho, Inc. v. Payette Cnty., 138 Idaho 684, 687, 69 P.3d 104, 107 (2003) (citing Housing Southwest, Inc. v. Washington Co., 128 Idaho 335, 337, 913 P.2d 68, 70 (1996) ).

III. ANALYSIS

The sole issue before this Court on appeal is whether the district court erred when it found that the LLC was not entitled to the charitable property tax exemption.

The governing statute is Idaho Code section 63–602C, which provides:

The following property is exempt from taxation: property belonging to any fraternal, benevolent, or charitable limited liability company, corporation or society, the World War veteran organization buildings and memorials of this state, used exclusively for the purposes for which such limited liability company, corporation or society is organized; provided, that if any building or property belonging to any such limited liability company, corporation or society is leased by such owner or if such limited liability company, corporation or society uses such property for business purposes from which a revenue is derived which, in the case of a charitable organization, is not directly related to the charitable purposes for which such charitable organization exists, then the same shall be assessed and taxed as any other property, and if any such property is leased in part or used in part by such limited liability company, corporation or society for such purposes the assessor shall determine the value of the entire building and the value of the part used or leased for commercial purposes. If the value of the part used for commercial purposes is determined to be three percent (3%) or less than the value of the entirety, the whole of said property shall remain exempt. If the value of the part used for commercial purposes is determined to be more than three percent (3%) of the value of the entirety, the assessor shall assess such proportionate part of such building including the value of the real estate as is so leased or used for such purposes, and shall assess the trade fixtures used in connection with the sale of all merchandise; provided however, that the lease or use of any property by any such limited liability company, corporation or society for athletic or recreational facilities, residence halls or dormitories, meeting rooms or halls, auditoriums or club rooms within the purposes for which such limited liability company, corporation or society is organized, shall not be deemed a business or commercial purpose, even though fees or charges be imposed and revenue derived therefrom.

The district court carefully considered the text of this statute, and concluded that application of its plain language would be dispositive, if not for our previous decision in Boise Central Trades & Labor Council, Inc. v. Bd. of Ada Cnty. Comm'rs, 122 Idaho 67, 831 P.2d 535 (1992).² The district court stated:

According to the plain language of the statute, if a property is leased by the owner, the property is not exempt from taxation. The plain language of the statute does not require an analysis of the purpose of the lease—whether commercial or charitable. The purpose of the lease is irrelevant.

The district court then identified the statutory language it perceived would be controlling: "if any building or property belonging to any such limited liability company, corporation or society is leased by such owner ... then the same shall be assessed and taxed as any other property...." The district court concluded:

If this Court were to apply the plain language of the statute as written, the Court would find that the property at issue is not exempt from taxation for the sole reason that the property at issue was leased. Under the plain language, that is the beginning, middle, and end of the inquiry. It was leased, it is not exempt.

The district court then considered our decision in Boise Central, concluding that it was constrained to determine whether the LLC was a charitable limited liability, applying the eight criteria identified by this Court in Appeal of Sunny Ridge Manor, Inc., 106 Idaho 98, 100, 675 P.2d 813, 815 (1984). The district court's conclusion is understandable in light of Boise Central, where this Court stated: "it is clear that the legislature intended to exclude from exemption only those portions of an otherwise exempt property which are leased or used for commercial purposes. " 122 Idaho at 72, 831 P.2d at 540 (emphasis in original).

Because we agree with the district court's view that the plain language of Idaho Code section 63–602C is controlling, we revisit our decision in Boise Central. There, we said:

To better understand what is deemed a "lease" for purposes of I.C. § 63–105C, a look at the entire language of the statute is necessary. Such an analysis can be made easier if the statute is broken into five parts as follows:

63–105C. Property exempt from taxation—Fraternal, benevolent, or charitable corporations or societies.—[1] The following property is exempt from taxation: Property belonging

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