Indian Lake Property Owners Ass'n, Inc. v. Director of Revenue, No. 73153

• Decision Date: 23 July 1991
• Docket Number: No. 73153
• Citation: 813 S.W.2d 305
• Parties: INDIAN LAKE PROPERTY OWNERS ASSOCIATION, INC., Appellant, v. DIRECTOR OF REVENUE, Respondent.
• Court: Missouri Supreme Court

Page 305

813 S.W.2d 305

INDIAN LAKE PROPERTY OWNERS ASSOCIATION, INC., Appellant, v. DIRECTOR OF REVENUE, Respondent.

No. 73153.

Supreme Court of Missouri En Banc.

July 23, 1991.

James A. Broshot, Steelville, for appellant.

William L. Webster, Atty. Gen., Carole Lewis Iles, Asst. Atty. Gen., Jefferson City, for respondent.

HOLSTEIN, Judge.

Indian Lake Property Owners Association, Inc. (Association) seeks review of a final decision of the Administrative Hearing Commission (AHC). § 621.189. ¹ The AHC affirmed a determination by the Director of Revenue that the Association was not a "civic organization" and thus not entitled to exemption from sales and use taxes pursuant to § 144.030.2(20), RSMo Supp.1990. Because the case involves construction of a revenue law, this Court has jurisdiction. Mo. Const. art. V, § 3. The decision of the AHC is affirmed.

The Association was formed as a not-for-profit corporation in 1962. Its membership is limited to lot owners in the Indian Hills subdivision located in Crawford County. The subdivision is approximately five miles from Cuba, Missouri. Among its various functions, the Association enforces subdivision covenants regarding building and use restrictions. It also maintains roads, a lake, a dam and spillway, a boat dock and common ground, all located within the subdivision. It provides security patrols and controls access to the subdivision through a gate. The Association provides trash collection services to residences within the subdivision.

The Association derives its income from assessments to members. The authority for the assessments is found in restrictive covenants applicable to all property in the subdivision. Association members are issued identification cards and vehicle bumper stickers. Members are required to register guests. Only members and their registered guests are permitted access to the subdivision and its roads, lake, boat dock and common areas.

The Association has been granted exemption from federal income taxes.

The AHC concluded that the Association is not a civic organization within the meaning of the statute, but is a homeowners association. The AHC affirmed the decision of the Director of Revenue denying the Association's application for a sales and use tax exemption. This proceeding for judicial review followed.

The decision of the AHC must be upheld if authorized by law and supported by substantial evidence upon the whole record and the result is not clearly contrary to the reasonable expectations of the general assembly. § 621.193. Tax exemption statutes are construed strictly against the taxpayer and the burden is on the taxpayer to prove entitlement to the exemption. Spudich v. Director of Revenue, 745 S.W.2d 677, 682 (Mo. banc 1988).

The Association asserts two points of error on the part of the AHC. First, the Association claims the decision of the AHC is based on factual findings that are not supported by any evidence in the record. Second, the Association argues that the

homeowners association performs quasi-governmental functions for the common welfare and public good, and thus qualifies as a civic organization.

I.

The findings that the Association believes to be erroneous, yet critical to the AHC decision were the following:

9. The Association conducted no social, educational, cultural, recreational or religious activities for its members.

10. The Association did not provide any services to its members which any governmental entity would have been legally obligated to provide if the Association were not providing it.

11. In November, 1989, the Internal Revenue Service granted a federal tax exemption to the Association as a civic organization under I.R.C. § 501(c)(4). In its application, the Association did not apply for or obtain exemption under I.R.C. § 528 which provides an exemption specifically for "homeowners associations."

In the argument portion of its brief, the Association changes its claim somewhat, arguing that finding number 9 was irrelevant. The brief squarely admits "there was no evidence submitted showing the Association conducted social, educational, cultural, recreational or religious activities." In addition, Paul Hoth, the president of the Association, after testifying to the organization's various functions, was asked if it ever conducted "any kind of activities or anything like that." Hoth replied, "Not really." Finding number 9 is supported by the evidence.

Finding number 10, that the Association provided no service that any governmental entity was obliged to provide, is not shown to be erroneous. The Association concedes there is no statutory duty that requires any governmental agency to maintain private roads or dams. In addition, there is no statutory authority requiring any law enforcement agency to provide security guards or road patrols on private road networks. Nevertheless, the Association argues that its road patrols relieve the county sheriff from patrolling, that its dam is inspected and licensed by the state, and that its trash collection services relieve Crawford County of a statutory obligation to provide waste collection services. The only authority cited in support of the Association's argument is § 260.215. The brief claims that statute obligates the county to provide for the collection of solid waste. The section cited has no application to unincorporated areas in third and fourth class counties unless the governing body of the county elects to make the county subject to the statute. § 260.215.4. There was no evidence here to suggest that Crawford County, a third class county, had made such election. Even if the county has elected to subject itself to that statute, state regulations permit the county to comply by imposing responsibility for waste collection on individuals. 10 C.S.R. 80-6.010(3)(A)(3)(A)(III). The Association performs no functions that are the legal obligation of a governmental entity.

The 11th finding is questionable, but not for the reason suggested or with the effect argued by the Association. The argument again does not claim there was a lack of evidence to support the finding or point to evidence that contradicts the finding. Rather, the argument is made that the part of the AHC's finding that the Association did not apply for exemption under I.R.C. § 528 (26 U.S.C. § 528), a provision exempting homeowners associations from federal income taxes, was irrelevant. The Association contends that the only relevant finding is that the Association had been granted a federal income tax exemption as a "civic league or social organization" under 26 U.S.C. § 501(c)(4). From that platform, the Association argues that it is entitled to the status of civic organization. As is readily apparent, the argument transcends the bounds of the point relied on. For the moment, the discussion will be limited to the issue raised in the point presented.

The evidence regarding the federal tax exemption status of the Association is confusing. It applied for exemption as a

                civic league or social welfare organization pursuant to 26 U.S.C. § 501(c)(4).  Initially, an exemption letter was issued by the Internal Revenue Service granting the exemption as a social club under 26 U.S.C. § 501(c)(7).  However, a subsequent letter was sent purporting to grant exemption under 26 U.S.C. § 501(c)(4).  In the last paragraph of the second letter it is

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