In re Mental Health Ass'n of Heartland

Decision Date11 December 2009
Docket NumberNo. 98,956.,98,956.
Citation221 P.3d 580
PartiesIn the Matter of the Appeal of the MENTAL HEALTH ASSOCIATION OF The HEARTLAND for Exemption from Ad Valorem Taxation in Leavenworth County, Kansas.
CourtKansas Supreme Court

Matthew P. Clune, of Spradley & Riesmeyer, a Professional Corporation, of Kansas City, Missouri, argued the cause and was on the briefs for appellant, and Frederick H. Riesmeyer, II, of the same firm, was with him on the supplemental brief.

No appearance by appellee.

The opinion of the court was delivered by ROSEN, J.:

The Mental Health Association of the Heartland (MHAH) is a tax-exempt organization that qualifies for federal income tax exemption under Internal Revenue Code § 501(c)(3), see 26 U.S.C. § 501(c) (2006). It is incorporated as a public-benefit, nonprofit corporation in Missouri. In October 2006, MHAH sought an exemption from ad valorem taxation beginning in the year 2002 on real property that it owns and operates as an apartment building (the Marion House) for chronically homeless, low-income people who suffer from severe mental handicaps and other physical disabilities. The building contains a total of 11 apartments, 10 of which are occupied by mentally handicapped residents, with the remaining apartment serving as an office for a full-time residential counselor who provides on-site non-Medicaid/Medicare reimbursable services. A peer support worker also works on-site providing the residents with nonclinical, noncrisis interventions. Collaborative meetings between MHAH staff and other service providers, such as social workers and case managers, occasionally take place on the property.

In order to qualify for apartments at the site, residents must demonstrate that they are homeless and have severe and persistent mental illness. Residents pay a rental fee consisting of no more than 30% of their monthly gross income, in addition to a deposit of $601. Depending on the residents' incomes, the monthly rental fee ranges from $0 to $601. The average monthly rental fee of $234 is below the fair market value. All fees that are collected are applied to operating expenses. The total income from rent and deposits is less than the cost of operating the program and maintaining the property. MHAH receives tax-deductable donations from the United Way, corporate sponsors, the Leavenworth Sisters of Charity, private foundations, and private individuals.

Although the county appraiser recommended that MHAH receive the tax exemption, BOTA denied the application. (The Board of Tax Appeals was supplanted by the State Court of Tax Appeals during the 2008 legislative session. L.2008, ch. 109, sec. 2; K.S.A. 2008 Supp. 74-2433.) MHAH filed a timely petition for reconsideration, which was also denied. MHAH then took a timely appeal to the Kansas Court of Appeals. The Court of Appeals affirmed the BOTA order in In re Tax Appeal of Mental Health Ass'n of the Heartland, 40 Kan.App.2d 531, 194 P.3d 580 (2008). This court granted MHAH's petition for review.

MHAH asks this court to find that it qualifies for exemption under either K.S.A.2008 Supp. 79-201 Second or Ninth, and that K.S.A.2008 Supp. 79-201b Fourth does not operate to bar residential facilities from tax exempt status if those facilities independently qualify under K.S.A.2008 Supp. 79-201 Second or Ninth. In order to resolve this issue, we must closely read the three statutory provisions in question and review prior decisions of the Court of Appeals and of this court.

Whether certain property is exempt from ad valorem taxation is a question of law if the facts are not in dispute, but it is a mixed question of law and fact if the facts are controverted. T-Bone Feeders, Inc. v. Martin, 236 Kan. 641, 645, 693 P.2d 1187 (1985).

Interpretation of a statute is a question of law over which this court has unlimited review. Double M Constr. v. Kansas Corporation Comm'n, 288 Kan. 268, 271, 202 P.3d 7 (2009). When courts are called upon to interpret statutes, they begin with the fundamental rule that they must give effect to the intent that the legislature expressed through the plain language of the statute, when that language is plain and unambiguous. See State v. Valladarez, 288 Kan. 671, 675-76, 206 P.3d 879 (2009). An appellate court's first task is to ascertain the legislature's intent through the statutory language it employs, giving ordinary words their ordinary meaning. State v. Gracey, 288 Kan. 252, 257, 200 P.3d 1275 (2009). Only if the statutory language is not plain and unambiguous are the courts called upon to resort to canons of statutory construction or consult legislative history. See Valladarez, 288 Kan. at 675-76, 206 P.3d 879.

Statutes imposing a tax must be interpreted strictly in favor of the taxpayer. However, tax exemption statutes are interpreted strictly in favor of imposing the tax and against allowing an exemption for one that does not clearly qualify. In re Tax Appeal of Western Resources, Inc., 281 Kan. 572, 575, 132 P.3d 950 (2006). Strict construction of an exemption provision does not, however, warrant unreasonable construction. In re Tax Application of Lietz Constr. Co., 273 Kan. 890, Syl. ¶ 7, 47 P.3d 1275 (2002).

Article 11, § 1(b) (2008 Supp.) of the Kansas Constitution provides:

"All property used exclusively for state, county, municipal, literary, educational, scientific, religious, benevolent and charitable purposes, farm machinery and equipment, merchants' and manufacturers' inventories, other than public utility inventories included in subclass (3) of class 2, livestock, and all household goods and personal effects not used for the production of income, shall be exempted from property taxation."

Although the legislature may broaden the tax exemption permitted by the Kansas Constitution, it may not limit or curtail the constitutional provisions. Trustees of The United Methodist Church v. Cogswell, 205 Kan. 847, 853, 473 P.2d 1 (1970).

In Lutheran Home, Inc. v. Board of County Commissioners, 211 Kan. 270, 275-79, 505 P.2d 1118 (1973), this court held that a not-for-profit corporation that charged nursing home residents monthly fees that were paid by the residents or by welfare was not acting as a constitutionally exempt "charity" as envisioned by Article 11, § 1(b), of the Kansas Constitution. The court held that "charity involves the doing of something generous for other human beings who are unable to provide for themselves. To have charity there must be a gift from one who has to one who has not. Unless there is a gift, there can be no charity." 211 Kan. at 277, 505 P.2d 1118. In order to constitute a charity, it must provide a service "free of charge, or, at least so nearly free of charge as to make the charges nominal or negligible," and the recipients of the charitable service must be "those who are unable to provide themselves with what the institution provides for them." 211 Kan. at 278, 505 P.2d 1118.

In 1986, the Kansas Legislature amended K.S.A. 79-201 (Ensley 1984) to create the modern version of 79-201 Second. L.1986, ch. 369, sec. 1. The legislature followed that amendment by enacting K.S.A. 79-201 Ninth in 1988. L.1988, ch. 373, sec. 1. These amendments were adopted largely in response to BOTA decisions limiting exempt property to exclusively charitable uses and in response to the decision of this court in Lutheran Home. See In re Tax Appeal of Univ. of Kan. School of Medicine, 266 Kan. 737, 754-57, 768, 973 P.2d 176 (1999).

K.S.A.2008 Supp. 79-201 addresses property used exclusively for certain cultural, religious, and charitable purposes and reads in relevant part:

"The following described property, to the extent herein specified, shall be and is hereby exempt from all property or ad valorem taxes levied under the laws of the state of Kansas:

. . . .

"Second. All real property, and all tangible personal property, actually and regularly used exclusively for literary, educational, scientific, religious, benevolent or charitable purposes, including property used exclusively for such purposes by more than one agency or organization for one or more of such exempt purposes. Except with regard to real property which is owned by a religious organization, is to be used exclusively for religious purposes and is not used for a nonexempt purpose prior to its exclusive use for religious purposes which property shall be deemed to be actually and regularly used exclusively for religious purposes for the purposes of this paragraph, this exemption shall not apply to such property, not actually used or occupied for the purposes set forth herein, nor to such property held or used as an investment even though the income or rentals received therefrom is used wholly for such literary, educational, scientific, religious, benevolent or charitable purposes.... This exemption shall not be deemed inapplicable to property which would otherwise be exempt pursuant to this paragraph because an agency or organization: (a) Is reimbursed for the provision of services accomplishing the purposes enumerated in this paragraph based upon the ability to pay by the recipient of such services; or (b) is reimbursed for the actual expense of using such property for purposes enumerated in this paragraph; or (c) uses such property for a nonexempt purpose which is minimal in scope and insubstantial in nature if such use is incidental to the exempt purposes of this paragraph; or (d) charges a reasonable fee for admission to cultural or educational activities or permits the use of its property for such activities by a related agency or organization, if any such activity is in furtherance of the purposes of this paragraph.

. . . .

"Ninth. All real property and tangible personal property actually and regularly used by a community service organization for the predominant purpose of providing humanitarian services, which is owned and operated by a corporation organized not for profit under the laws of the state of Kansas or by a corporation...

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