Lutherans Outdoors in South Dakota, Inc. v. South Dakota State Bd. of Equalization, s. 17045

• Decision Date: 02 October 1991
• Docket Number: 17067,Nos. 17045,s. 17045
• Parties: LUTHERANS OUTDOORS IN SOUTH DAKOTA, INC., Plaintiff and Appellee, v. SOUTH DAKOTA STATE BOARD OF EQUALIZATION, Defendant and Appellee, and Custer County, South Dakota, Intervenor and Appellant.
• Court: South Dakota Supreme Court

Page 140

475 N.W.2d 140

LUTHERANS OUTDOORS IN SOUTH DAKOTA, INC., Plaintiff and Appellee, v. SOUTH DAKOTA STATE BOARD OF EQUALIZATION, Defendant and Appellee, and Custer County, South Dakota, Intervenor and Appellant.

Nos. 17045, 17067.

Supreme Court of South Dakota.

Argued Nov. 26, 1990.

Decided Aug. 28, 1991.

Rehearing Denied Oct. 2, 1991.

Glen H. Johnson and Robert J. Griggs, Banks, Johnson, Johnson, Colbath & Huffman, Rapid City, for plaintiff and appellee, Lutherans Outdoors.

Roger Tellinghuisen, Atty. Gen., John Dewell and David D. Wiest, Asst. Attys. Gen., South Dakota Dept. of Revenue, Pierre, for defendant and appellee, State Bd. of Equalization.

Patrick M. Ginsbach and Jane M. Farrell, Farrell, Farrell & Ginsbach, Hot Springs, for intervenor and appellant.

SABERS, Justice.

County appeals decision of circuit court reversing in part County's property tax assessment against a religious society which cross-appeals.

Facts

Lutherans Outdoors (Lutheran) is a non-profit corporation associated with the South Dakota Synod of the Evangelical Lutheran Church of America (Church). Lutheran owns and operates two church camps of between 150 and 200 acres apiece in Custer County (County). One is named Outlaw Ranch (Outlaw) and the other is Atlantic Mountain Ranch (Atlantic Mountain).

Outlaw is a multi-purpose, year-round facility whose uses include family and youth camping, retreats, environmental education and an elderhostel program. Although Outlaw is used mainly by members of Church, it is sometimes rented by Lutheran to persons not affiliated with Church for secular purposes. In contrast, Atlantic Mountain is apparently used exclusively by members of Church for youth camping retreats during the summer months.

Prior to 1986, SDCL 10-4-9 exempted from property taxes "[a]ll property belonging to any charitable, benevolent, or religious society and used exclusively for charitable, benevolent, or religious purposes[.]" As it then existed, the statute defined the term "charitable society" to include associations like Lutheran which owned or operated a "camp ... as a part of the charitable or educational program of any church[.]" The improvements at Outlaw enjoyed a 100% property tax exemption from County on this basis until 1986. In addition, 80 acres of agricultural land at Outlaw were exempt from property taxes under SDCL 10-4-10. ¹ Atlantic Mountain had no exemptions.

In 1986, the legislature revised SDCL ch. 10-4. Among the revisions were amendments to SDCL 10-4-9 which eliminated any reference to "charitable societies" operating "camps" in conjunction with church bodies. ²

Subsequent to these statutory amendments, County changed Outlaw's property tax exemption in 1987 from 100% to 35% because 65% of Outlaw's budget came from its own earnings and only 35% was subsidized by tax exempt Church. County allowed Outlaw to keep its 80-acre exemption under SDCL 10-4-10. County made the same assessment against Outlaw in 1988. County rejected Lutheran's application for additional religious property tax exemptions for Atlantic Mountain improvements and agricultural land under SDCL 10-4-9 and 10-4-10.

Lutheran appealed County's 1988 ruling to the State Board of Equalization (Board). Board affirmed County's decision on September 8, 1988. Lutheran appealed Board's ruling to circuit court and the court partially reversed County and Board on January 15, 1990. The court agreed with County and Board that Outlaw's improvements are not 100% tax exempt under SDCL 10-4-9. The court also agreed with County and Board that Lutheran is entitled to only one 80-acre exemption under SDCL 10-4-10 despite two camps. However, the court found that the Outlaw improvements were 85.2% tax exempt, rather than 35% tax exempt, under the formula in SDCL 10-4-12 ³ for assessing mixed use facilities. The court also found that the Atlantic Mountain improvements were entitled to a 100% property tax exemption under SDCL 10-4-9.

On appeal, County contests the tax exempt percentage on Outlaw improvements and the complete tax exemption for Atlantic Mountain improvements. On cross-appeal, Lutheran argues that the Outlaw improvements are entitled to a 100% tax exemption, and that Outlaw and Atlantic Mountain should each be entitled to the 80-acre agricultural land exemption.

The Statutory Scheme

SDCL 10-4-9 provides a complete property tax exemption for improvements owned by a religious society which are either: (1) "a building or structure used exclusively for religious purposes"; (2) a parking lot for members; (3) a school; or (4) a residence for clergy. The deletion of any specific reference to church camps by the 1986 amendment to this statute does not mean that church camp improvements can never be entitled to a complete property tax exemption. It only means that such improvements are not automatically entitled to the exemption, and that their exempt status under SDCL 10-4-9 depends on whether they are "used exclusively for religious purposes."

It is settled law in South Dakota that whether property is used "exclusively" for religious purposes is to be construed reasonably, and improvements owned by a religious society whose "primary" or "dominant" purpose is for religious use qualifies for the tax exemption provided in SDCL 10-4-9. South Dakota Education Association v. Dromey, 85 S.D. 630, 188 N.W.2d 833, 834-835 (1971); South Dakota Medical Association v. Jones, 82 S.D. 374, 146 N.W.2d 725, 728 (1966). See also Froehlich, South Dakota Real Property Tax Exemptions: Time For a Legislative Review, 27 S.D.L.Rev. 1, 8 (1982).

Moreover, a primary or dominant religious purpose need not be defined "solely in terms of religious worship." City of Rapid City v. Kahler, 334 N.W.2d 510, 512 (S.D.1983). Some jurisdictions come close to making "religious use" and "worship service" equivalent terms. See, e.g., Diocese of Buffalo, N.Y. v. Buczkowski, 112 Misc.2d 336, 446 N.Y.S.2d 1015, 1019 (N.Y.Sup.Ct.), aff'd, 90 A.D.2d 994, 456 N.Y.S.2d 909 (1982). However, that is not the law in South Dakota. In 1986, when SDCL ch. 10-4 was being revised, our legislature considered a significantly more restrictive definition of religious purpose which would have legislatively overruled Dromey and Jones, but ultimately decided against the change. Compare Legis.Res.Council, 1 1986 House Bills 1017 (61st session) with SDCL Secs. 10-4-9 to -9.2; 10-4-11, -12. Therefore, the test for a complete property tax exemption under SDCL 10-4-9 is still "primary or dominant religious purpose." Whether improvements owned by a religious society are being used primarily or predominantly for a religious purpose is a question of fact for the trial court, and this court will not overturn its determination unless it is "clearly erroneous." Dromey, 188 N.W.2d at 834-835.

SDCL 10-4-10 is a companion statute to SDCL 10-4-9. It provides for the property tax exemption of up to 80 acres of unimproved agricultural land owned by a religious society upon which improvements exempt from taxes under SDCL 10-4-9 are situated.

Finally, SDCL 10-4-12 provides an alternative to SDCL 10-4-9 by permitting a partial tax exemption for improvements which are owned by a religious society but which do not qualify for the complete tax exemption under SDCL 10-4-9 because they are not used exclusively (i.e., primarily or predominantly) for religious purposes. Where an entire facility is sometimes used for non-exempt purposes, SDCL 10-4-12 provides the following formula: appraised value of property X percentage of time property is used for non-exempt purposes = taxable value.

1. Whether Outlaw Is Used Exclusively for Religious Purposes

Lutheran, which owns Outlaw, is a religious society within the meaning of SDCL 10-4-9. County does not contest this. The circuit court ruled that Outlaw is not entitled to the 100% tax exemption under SDCL 10-4-9 because it is not used "exclusively" for religious purposes. Rather, Outlaw was rented part of the time during the 1988 tax year to persons and organizations not affiliated with Church for non-religious activities. Therefore, the court determined that Outlaw was entitled to only a pro rata property tax exemption under the formula provided in SDCL 10-4-12. Since these findings are not clearly erroneous, they are affirmed.

2. Percentage of Religious Use at Outlaw

Having upheld the determination of County and Board that Outlaw was only partially tax exempt, the trial court's next question was the correct percentage under SDCL 10-4-12. The court found that Outlaw was used for a total of 261 days out of a possible 365 days during the 1988 tax year, leaving 104 idle days. Of the 261 use days, the Court found that 166 days were clearly religious use days, 54 days were clearly non-religious use days, and the remaining 41 use days were devoted to environmental education programs for the benefit of students in South Dakota schools. Because SDCL 10-4-9 provides an exemption for an "educational plant owned and operated by a religious society," the court placed the 41 environmental educational days in the tax exempt column. The court then divided the 54 non-religious use days by the 365 days in the tax year and arrived at a figure of 14.8% as the non-exempt portion of Outlaw's use. Thus, the court concluded that the Outlaw improvements were 85.2% tax exempt, and Lutheran was liable for property tax on 14.8% of assessed value.

County claims the taxable percentage of Outlaw's assessed value should be the same as the percentage of Outlaw's operating budget which was not subsidized by Church, i.e., 65% rather than 14.8%. However, SDCL 10-4-12 requires a taxable assessment based on the amount of space and time devoted to non-exempt uses, not on the amount of income to the facility from allegedly non-exempt sources. Therefore, we agree with the trial court in rejecting County's statutorily unfounded method for computing the taxable value of the Outlaw improvements.

County attacks ...