Jamestown Homes Mishawaka v. St. Joseph

• Decision Date: 24 July 2009
• Docket Number: No. 49T10-0802-TA-17.,49T10-0802-TA-17.
• Citation: 909 N.E.2d 1138
• Parties: JAMESTOWN HOMES OF MISHAWAKA, INC., Petitioner, v. ST. JOSEPH COUNTY ASSESSOR, Respondent.
• Court: Indiana Tax Court

909 N.E.2d 1138

JAMESTOWN HOMES OF MISHAWAKA, INC., Petitioner, v. ST. JOSEPH COUNTY ASSESSOR, Respondent.

No. 49T10-0802-TA-17.

Tax Court of Indiana.

July 24, 2009.

James W. Beatty, Jessica L. Findley, Landman & Beatty, Indianapolis, IN, Attorneys for Petitioner.

Gregory F. Zoeller, Attorney General of Indiana, Jessica E. Reagan, Deputy Attorney General, Indianapolis, IN, Attorneys for Respondent.

FISHER, J.

Jamestown Homes of Mishawaka, Inc. (Jamestown) appeals the final determination of the Indiana Board of Tax Review (Indiana Board) which denied it a property tax exemption for the 2005 tax year (the year at issue). The question before the Court is whether the Indiana Board erred when it determined that Jamestown's apartment complex did not qualify for the charitable purposes exemption provided in Indiana Code § 6-1.1-10-16.

FACTS AND PROCEDURAL HISTORY

Jamestown, an Indiana not-for-profit corporation, was formed in 1965. Pursuant to its articles of incorporation, its stated purpose is "[t]o provide housing on a mutual ownership basis, in the manner and for the purpose provided in Section 221(d)(3) of Title II of the National Housing Act, as amended." (Cert. Admin. R. at 321.)

Under the Section 221(d)(3) program, the federal government insured and subsidized low-interest rate loans to private developers in order to promote the construction of affordable housing for low to moderate-income families.¹ Through its participation in this program, Jamestown was able to finance the construction of a 160-unit, multi-family apartment complex in Mishawaka, Indiana with a 40-year loan bearing an annual interest rate of only three percent.² In exchange for the government's mortgage insurance and interest subsidy, however, Jamestown agreed to be subject to several restrictions. First, it agreed to rent its apartments only to those individuals whose annual income was at or below 95% of the area median income (adjusted for family size) as established by the U.S. Department of Housing and Urban Development (HUD).³ Second, Jamestown agreed to charge "budget-based" rents; in other words, Jamestown's rents were fixed at rates that would allow it to cover the property's operating costs and debt service only.⁴ (See Cert. Admin. R. at 160 164-65, 388 (footnote added).) Despite these restrictions, Jamestown retained several "typical" landlord rights: it could evict tenants who failed to pay their rent, it charged fees for late rental payments or returned checks, and it charged security deposits. (See Cert. Admin. R. at 418 ¶ 5.)

On April 27, 2005, Jamestown filed two Applications For Property Tax Exemption (Forms 136), claiming that its land, improvements, and the personal property contained therein were entitled to the charitable purposes exemption provided by Indiana Code § 6-1.1-10-16.⁵,⁶ The PTABOA denied the applications. Jamestown subsequently appealed to the Indiana Board.

The Indiana Board conducted a hearing on Jamestown's appeal on July 27, 2006. During the hearing, Jamestown argued that its property was entitled to the exemption because the provision of "safe, decent and affordable housing for persons of lower income who could not otherwise afford such housing" is a charitable purpose. (See Cert. Admin. R. at 106, 835-36.) As a part of its presentation, Jamestown submitted, inter alia, evidence demonstrating that its rents were below market rents charged in the area for comparable units.⁷ (See Cert. Admin. R. at 169-96, 845-47 (footnote added).)

On January 7, 2008, the Indiana Board issued a final determination affirming the PTABOA's denial of the exemption. In its final determination, the Indiana Board found that while Jamestown rented its apartments to low and moderate-income tenants at below market rents, it was not because of any charitable purpose or intent of its own; rather, it did so as a condition of its agreement with the federal government. (Cert. Admin. R. at 218-19 ¶¶ 40-41.) Moreover, the Indiana Board found that through its mortgage insurance/interest subsidy, it was the federal government who was "shouldering" the financial burden of providing the low-cost housing. (See Cert. Admin. R. at 218-19 ¶¶ 40-42.) As a result, the Indiana Board held that Jamestown had not relieved the government of any burden sufficient to shift Jamestown's property tax liability to the taxpayers.⁸ (See Cert. Admin. R. at 218-19 ¶¶ 40, 42; 221 ¶ 46 (footnote added).)

On February 19, 2008, Jamestown initiated an original tax appeal. The Court heard the parties' oral arguments on August 21, 2008. Additional facts will be supplied as necessary.

ANALYSIS AND OPINION

Standard of Review

This Court will overturn an Indiana Board final determination only when it is:

(1) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law;

(2) contrary to constitutional right, power, privilege, or immunity;

(3) in excess of statutory jurisdiction, authority, or limitations, or short of statutory jurisdiction, authority, or limitations;

(4) without observance of procedure required by law; or

(5) unsupported by substantial or reliable evidence.

IND.CODE ANN. § 33-26-6-6(e)(1)-(5) (West 2009). When reviewing Indiana Board final determinations, the Court will defer to the Indiana Board's factual findings as long as they are supported by substantial evidence. Cedar Lake Conference Ass'n v. Lake County Prop. Tax Assessment Bd. of Appeals, 887 N.E.2d 205, 207 (Ind. Tax Ct.2008) (footnote and citation omitted), review denied. The Court, however, will review questions of law arising from the Indiana Board's factual findings de novo. Id. (citations omitted).

Discussion

In Indiana, "[a]ll or part of a building is exempt from property taxation if it is owned, occupied, and [predominantly] used [for] ... charitable purposes." IND. CODE ANN. § 6-1.1-10-16(a) (West 2009). See also IND.CODE ANN. § 6-1.1-10-36.3(a) (West 2009) (defining predominant use as more than 50% of the time). The exemption also generally extends to the land on which the exempt building is situated, as well as the personal property that is contained therein. See A.I.C. § 6-1.1-10-16(c), (e).

Exemptions are strictly construed against the taxpayer and in favor of the State. Indianapolis Osteopathic Hosp., Inc. v. Dep't of Local Gov't Fin., 818 N.E.2d 1009, 1014 (Ind. Tax Ct.2004), review denied. This is so because "[a]n exemption releases property from the obligation of bearing its fair share of the cost of government and serves to disturb the equality and distribution of the common burden of government upon all property." Id. Accordingly, a taxpayer always bears the burden of proving that its property is entitled to the exemption it seeks. State Bd. of Tax Comm'rs v. New Castle Lodge #147, Loyal Order of Moose, Inc., 765 N.E.2d 1257, 1259 (Ind.2002).

In order to show that property is used for a charitable purpose, a taxpayer must demonstrate two things. First, it must show that through its use, there is "evidence of relief of human want ... manifested by obviously charitable acts different from the everyday purposes and activities of man in general." Indianapolis Elks Bldg. Corp. v. State Bd. of Tax Comm'rs, 145 Ind.App. 522, 251 N.E.2d 673, 683 (1969). Second, the taxpayer must show that through the accomplishment of those charitable acts, a benefit inures to the public sufficient to justify the loss of tax revenue. Foursquare Tabernacle Church of God in Christ v. State Bd. of Tax Comm'rs, 550 N.E.2d 850, 854 (Ind. Tax Ct.1990) (internal citation omitted). Thus, as this Court has previously explained, when a private organization uses its property to perform charitable acts that relieve the government of its obligations, an exemption is proper: "when a private organization takes on a task that would otherwise fall to the government, this provides a benefit to the community as a whole because it allows the government to direct its funds and attention to other community needs." College Corner, L.P. v. Dep't of Local Gov't Fin., 840 N.E.2d 905, 910 (Ind. Tax Ct.2006).

On appeal, Jamestown argues that it has unequivocally met this burden. More specifically, it explains:

Both the United States National Housing Act of 1937 and the Housing and Urban Development Act of 1968 note the shortage of affordable housing to low-income individuals. Clearly, Jamestown's provision of affordable housing to moderate and low-income individuals helps to alleviate this shortage and relieves [their] want of having a safe and clean place to live. In addition, Jamestown's provision of low-income housing is a charitable act that is different from the everyday purposes and activities of man in general because it provides affordable housing ... with no expectation of financial gain and [it] agrees to comply with numerous regulations prescribed by HUD[.]

(Pet'r Br. at 18.) Finally, Jamestown maintains that it "is performing a service, providing housing to low-income individuals, that if it did not otherwise do [], the federal government, and state and local government, would have an obligation to [do].... Jamestown's undertaking of [this service] has helped [the] government meet its assumed obligation." (Pet'r Br. at 22.) As a result, Jamestown maintains that the Indiana Board erred when it determined that its property did not qualify for the charitable purposes exemption. The Court, however, disagrees.

The issue in this case—whether housing, owned by a not-for-profit corporation who receives governmental subsidies so that it may rent to moderate/low-income individuals at below market rates, is property used for a charitable purpose—is one of first impression in this state.⁹ As both Jamestown and the Indiana Board have pointed out, however, other jurisdictions across the country have weighed in on similar issues.¹⁰ While the holdings from other jurisdictions are not binding on this Court, it finds the holding in one case particularly instructive and persuasive...