In re NC Yadkin House, LLC

• Court: North Carolina Court of Appeals
• Writing for the Court: STEPHENS
• Decision Date: 18 December 2012
• Docket Number: NO. COA12-630,COA12-630
• Citation: In re NC Yadkin House, LLC, NO. COA12-630 (N.C. App. Dec 18, 2012)
• Parties: In the Matter of the Appeal of: NC Yadkin House, LLC, from the decision of the Rowan County Board of Equalization and Review revoking ad valorem property tax exemption status for certain property for tax years 2009 and 2010.

In the Matter of the Appeal of: NC Yadkin House, LLC, from the decision of the Rowan County Board of Equalization and Review revoking ad valorem property tax exemption status for certain property for tax years 2009 and 2010.

NO. COA12-630

NORTH CAROLINA COURT OF APPEALS

Filed: December 18, 2012

An unpublished opinion of the North Carolina Court of Appeals does not constitute controlling legal authority. Citation is disfavored, but may be permitted in accordance with the provisions of Rule 30(e)(3) of the North Carolina Rules of Appellate Procedure.

From The North Carolina

Property Tax Commission

No. 10 PTC 901

Appeal by Rowan County from Final Decision entered 20 March 2012 by the North Carolina Property Tax Commission sitting as the State Board of Equalization and Review. Heard in the Court of Appeals on 25 October 2012.

Everett Gaskins Hancock LLP, by E.D. Gaskins, Jr., for Appellee NC Yadkin House, LLC.

Parker Poe Adams & Bernstein LLP, by Charles C. Meeker and Jamie S. Schwedler, for Appellant Rowan County.

STEPHENS, Judge.

Facts and Procedural History

NC Yadkin House, LLC ("NC Yadkin") owns a sixty-seven unitapartment complex in Salisbury, North Carolina. NC Yadkin rents these units exclusively to low-income tenants, and all units are subject to Section 8 regulations of the United States Department of Housing and Urban Development ("HUD"). Section 8 requires, inter alia, that NC Yadkin rent units only to individuals with incomes at least 30% below the median income for Rowan County ("the County"). NC Yadkin is wholly owned by the American Housing Foundation of North Carolina, LLC ("AHF-NC"), and AHF-NC is a wholly owned subsidiary of the American Housing Foundation, Inc. ("AHF"). AHF's certificate of incorporation provides that the organization's

purposes are to foster in the community the enthusiasm, hope and joy that comes [sic] from being servants to each other, by helping each other meet their physical needs for good housing, good health, and rewarding work, their emotional and intellectual needs for a caring and sharing community, and their needs to love and communion with God. This brotherhood and fellowship . . . shall be demonstrated through the development of adequate housing and any further activities that would enhance the lives of those involved in the housing program, and in particular, this corporation shall foster low-income housing.

AHF's amended articles of incorporation also provide that "[t]he corporation is organized exclusively for charitable, religious, educational, and scientific purposes, including . . . thefostering of low-income housing[,]" and, further, that "[u]pon dissolution of the corporation, assets shall be distributed for one or more exempt purposes within the meaning of Section 501(c)(3) of the Internal Revenue Code . . . ."

AHF was organized as a Texas nonprofit corporation in 1989. In 1990, the Internal Revenue Service ("IRS") recognized AHF as a tax-exempt, 501(c)(3) charitable organization. Nineteen years later, NC Yadkin applied for and received exemption from ad valorem¹ property taxation as a nonprofit organization under N.C. Gen. Stat. § 105-278.6(a)(8) because it provides housing for individuals and families with low to moderate incomes. On 20 January 2010, however, the County changed its position and revoked NC Yadkin's ad valorem tax exemption, informing NC Yadkin that:

[T]he property does not meet the description of a "charitable purpose" as described in G.S. 105-278.6(b). The property owner is receiving lease payments at market rate for the units in the building on this parcel and therefore the use of this property does not meet the statute's description of a charitable purpose[,] which describes a charitable purpose as "one that has humane and philanthropic objectives; it is an activity that benefits humanity or asignificant rather than limited segment of the community without expectation of pecuniary profit or reward."

On 20 October 2010, the Rowan County Board of Equalization and Review upheld that revocation. One year and five months later, the North Carolina Property Tax Commission ("the Commission") reversed the County Board's decision and granted NC Yadkin's ad valorem tax exemption. The County appeals pursuant to N.C. Gen. Stat. § 105-345 (2011).

Standard of Review

When reviewing decisions made by the Commission, this Court decides "all relevant questions of law, interpret[s] constitutional and statutory provisions, and determine[s] the meaning and applicability of the terms of any Commission action." N.C. Gen. Stat. § 105-345.2(b) (2011). We are empowered to affirm, reverse, declare null and void, or remand a decision of the Commission. Id. Further, we may reverse or modify a decision of the Commission if (A) the appellant's substantial rights have been prejudiced, and (B) the Commission's findings, inferences, conclusions, or decisions are:

(1) In violation of constitutional provisions; or

(2) In excess of statutory authority or jurisdiction of the Commission; or

(3) Made upon unlawful proceedings; or

(4) Affected by other errors of law; or(5) Unsupported by competent, material, and substantial evidence in view of the entire record as submitted; or

(6) Arbitrary or capricious.

Id.

"This Court's determinations are based on a review of the whole record . . . . [We] review all questions of law de novo and apply the whole record test where the evidence is conflicting to determine if the Commission's decision has any rational basis." In re Totsland Preschool, Inc., 180 N.C. App. 160, 162-63, 636 S.E.2d 292, 294 (2006) (internal quotation marks, citations, and brackets omitted) [hereinafter Totsland]. Under the whole record test, we must determine "the substantiality of evidence supporting the agency's decision" and "take into account evidence contradictory to the evidence on which the agency decision relies. Substantial evidence is such relevant evidence as a reasonable mind might accept as adequate to support a conclusion. If the whole record supports the Commission's findings, the decision of the Commission must be upheld." In re Pavillon Int'l, 166 N.C. App. 194, 197, 601 S.E.2d 307, 308 (2004) (quoting In re Univ. for the Study of Human Goodness & Creative Grp. Work, 159 N.C. App. 85, 89, 582 S.E.2d 645, 649 (2003)).

"[S]tatutory provisions providing for exemptions from taxesare to be strictly construed, and all ambiguities are to be resolved in favor of taxation." Totsland, 180 N.C. App. at 164, 636 S.E.2d at 295. A taxpayer seeking the benefit of an exemption bears the burden of proving that she or he is entitled to that exemption. Id. NC Yadkin has that burden in this case.

Discussion

On appeal, the County argues that NC Yadkin is not exempt from ad valorem taxation under N.C. Gen. Stat. § 105-278.6(8) because it is not formed as a nonprofit organization, the Commission failed to make correct findings and conclusions, and NC Yadkin failed to show that it and AHF were not operated for profit.² We address these contentions in two parts.

I. Whether NC Yadkin May Qualify as aNonprofit Organization Through AHF

Section 105-278.6(a)(8) requires certain exempted real property to be owned by a "nonprofit organization." N.C. Gen.Stat. § 105-278.6(a)(8) (2011). Thus, NC Yadkin must qualify as a nonprofit organization before it can attempt to take advantage of ad valorem tax exemption under that section. We address this matter first.

The County argues that NC Yadkin cannot avoid ad valorem taxation under subsection (8) because it is organized as a limited liability company ("LLC"). The County contends that, as an LLC, NC Yadkin is necessarily a for-profit organization and notes that the word "nonprofit" cannot be found within NC Yadkin's operating agreements. The County also contends that NC Yadkin should not be allowed to employ Section 105-278.6(a)(8) simply because its parent organization, AHF, is a 501(c)(3) nonprofit organization, citing the section's failure to explicitly allow for this sort of parent-subsidiary relationship in its provisions. We are not persuaded.

Interpreting Section 105-278.1(b), which provides that "[r]eal and personal property belonging to the State, counties, and municipalities is exempt from taxation," this Court has determined that "ownership" of property may be imputed to a parent organization even though its subsidiary holds legal title. See In re Fayette Place LLC, 193 N.C. App. 744, 748, 668 S.E.2d 354, 357 (2008) [hereinafter Fayette Place]. In FayettePlace, an LLC was completely owned by the Housing Authority of the City of Durham. Id. at 745-46, 668 S.E.2d at 355-56. The LLC sought exemption from ad valorem taxation under subsection 105-278.1(b) on grounds that the property belonged to the State. Id. Reasoning that possession of legal title is not determinative as to the question of ownership, we focused our inquiry on the State's interest in the property instead. Id. at 747, 668 S.E.2d at 357. Because the LLC was a wholly controlled subsidiary corporation of the Housing Authority, we determined that the property "belonged to" the State and, thus, was exempted from ad valorem taxation. Id.; cf. In re Appalachian Student Housing Corp., 165 N.C. App. 379, 388, 598 S.E.2d 701, 706 (2004) ("We hold that the equitable title held by ASU as beneficiary of this trust is sufficient to show that the property belongs to the State of North Carolina."). That rationale is applicable here.

We are not persuaded by the County's attempts to distinguish subsection 278.1 merely because it uses the language of "belonging to" as opposed to the language of "owning," which is employed in subsection 278.6. Because the legislature uses the terms interchangeably in subsections 278.1(a)-(b), we find that both sets of words have the same effect in this context. In Fayette Place, we noted that "ownership" can be imputed to theState even though legal title resides with an LLC, again using the terms "ownership" and "belonging to" interchangeably. Therefore, we...