Rollings v. Shipman
| Decision Date | 24 May 2011 |
| Docket Number | No. ED 95275.,ED 95275. |
| Citation | 269 Ed. Law Rep. 401,341 S.W.3d 777 |
| Parties | Dale L. ROLLINGS, Trustee of the Edward L. and Mary Lou Harris Charitable Remainder Annuity Trust, Respondent,v.Scott SHIPMAN, Assessor, St. Charles County, Missouri, Appellant. |
| Court | Missouri Court of Appeals |
OPINION TEXT STARTS HERE
Charissa L. Mayes, Assistant County Counselor, St. Charles, MO, for appellant.John T. Shaw, Jonesburg, MO, for respondent.PATRICIA L. COHEN, Judge.
St. Charles County Assessor, Scott Shipman (the Assessor) appeals from the judgment of the Circuit Court of St. Charles County reversing the decision of the State Tax Commission of Missouri (the Commission). Dale Rollings (the Trustee) contends that the Commission's decision to assess an ad valorem tax on real property located in Wentzville, Missouri (the Property) is arbitrary, capricious, and unreasonable because the Property qualifies for a tax exemption under Mo.Rev.Stat. § 137.100(5) (2000).1 We affirm the trial court's judgment.
Prior to October 2004, Wentzville R–IV School District (the District) leased the Property from Edward and Mary Lou Harris. The District housed its administrative offices in a commercial building located on the Property.
In October 2004, the District approached the Harrises about the possibility of purchasing the Property. The Harrises agreed, and the parties negotiated a purchase price of $1,200,000. The District, however, had difficulty completing the sale because it lacked sufficient funds to complete the purchase without obtaining financing through a bond issue. Additionally, under the Missouri Constitution, the District could not purchase the Property through an installment-sale contract on a long-term note.2
In light of the District's difficulty financing the purchase, the parties agreed to a transaction where the District would lease the Property for ten years and, at end of the lease period, the District would receive title to the Property. To facilitate the transaction, the District and the Harrises entered into a new lease (the Lease) with monthly payments of $13,322 for ten years, equivalent to the agreed-upon $1,200,000 purchase price at six percent interest.
As part of the transaction, the Harrises also created an irrevocable Charitable Remainder Annuity Trust (the Trust), with a sole asset, the Property.3 The Harrises assigned the Lease to the Trust. The Trust has a term of ten years ending in 2015. The Trust further provided that during its ten-year term, the Trustee shall pay the Harrises fixed annuity payments equal to ten percent of the market value of the trust assets. At the end of the ten-year term, the Trustee is required to distribute to the District all trust assets, including the Property and any funds received in excess of the Trust's annuity payment.
Following the creation of the Trust, the District began paying its $13,322 monthly lease payment directly to the Trust, which the Trustee used to pay the Trust's annuity payments to the Harrises. As of 2007, the District used the Property exclusively for school purposes.
On August 27, 2007, the Trustee applied to St. Charles County for a tax exemption on the Property under Section 137.100(5) for the 2007 tax year. The Board of Equalization denied the application, and the Trustee filed an appeal with the Commission. The Commission assigned a hearing officer to hear the case, and, after a full evidentiary hearing, the officer set aside the decision of the Board of Equalization and ordered the St. Charles county clerk to enter the Property on the list of exempt property for 2007 and 2008. In response, the Assessor filed an application for review before the full Commission. The Commission reversed the hearing officer's decision, determining that the Property did not qualify for an exemption under Section 137.100(5). The Commission ordered St. Charles County to “put [the Property] on the tax books ... for tax years 2007 and 2008.” The Trustee filed an appeal from the Commission's decision in the St. Charles County Circuit Court. The trial court reversed the Commission's decision, finding that the Property met the requirements under Section 137.100(5) for exemption and that the Commission's decision was unsupported by competent and substantial evidence upon the whole record and was arbitrary, capricious, and unreasonable. This appeal follows.
On appeal, we review the underlying decision of the administrative agency, in this case the Commission, and not the judgment of the trial court. Shipman v. DNS Elec. Materials, Inc., 267 S.W.3d 751, 757 (Mo.App. E.D.2008). We are limited to a determination of whether the Commission's decision is supported by competent and substantial evidence upon the whole record or whether it was arbitrary, capricious, unreasonable, unlawful, or in excess of the Commission's jurisdiction. Section 536.140.2; Rescue v. Christmas, 298 S.W.3d 566, 568 (Mo.App. W.D.2009). When the Commission's decision is based on its interpretation and application of the law, we review its conclusions of law de novo. Christmas, 298 S.W.3d at 568. Because the Commission reached its decision by construing Section 137.100(5), we review its determination de novo. See Shipman, 267 S.W.3d at 758.
The Trustee contends that the Commission's decision is arbitrary, capricious, and unreasonable because the Commission applied improper legal standards and the Property meets all the requirements for a tax exemption under Section 137.100(5). Specifically, the Trustee asserts that the Property is exempt because it meets the three-part test established by the Supreme Court in Franciscan Tertiary Province of Missouri, Inc. v. State Tax Commission, 566 S.W.2d 213 (Mo. banc.1978). In response, the Assessor argues that the Commission applied the proper legal standards and correctly determined that the Property did not qualify for an exemption.
In determining whether the Property is eligible for exemption, we are mindful that “each tax exemption case is peculiarly one which must be decided upon its own facts, turning upon the particular record presented.” St. John's Mercy Hospital v. Leachman, 552 S.W.2d 723, 725 (Mo. banc 1977). Additionally, taxation of property is the rule, and exemption from taxation is the exception. United Cerebral Palsy Ass'n of Greater Kansas City v. Ross, 789 S.W.2d 798, 799 (Mo. banc 1990). Accordingly, “statutes granting exemptions from taxation are strictly, but reasonably, construed against the party claiming the exemption.” Id. The burden is on the property owner to prove that his or her property is exempt from taxation. Id.
Section 137.100(5) exempts from taxation “[a]ll property, real and personal, actually and regularly used exclusively for religious worship, for schools and colleges, or for purposes purely charitable and not held for private or corporate profit, ...” Section 137.100(5). In Franciscan, the Court set forth a three-part test for determining whether property is exempt from taxation under Section 137.100(5). Ross, 789 S.W.2d at 800 (quoting Franciscan, 566 S.W.2d 213). For property to qualify for an exemption:
(1) it must be actually and regularly used exclusively for purposes purely charitable as “charity” is defined in Salvation Army v. Hoehn, 354 Mo. 107, 114, 115, 188 S.W.2d 826, 830 (1945); (2) it must be owned and operated on a not-for-profit basis; and (3) the dominant use of the property must be for the benefit of an indefinite number of people and must directly or indirectly benefit society generally.
Barnes Hosp. v. Leggett, 589 S.W.2d 241, 244 (Mo. banc 1979) (citing Franciscan, 566 S.W.2d 213).
The first element of the Franciscan test requires that the property is actually and regularly used exclusively for purely charitable purposes. Ross, 789 S.W.2d at 800 (citing Franciscan, 566 S.W.2d at 224). The Court in Salvation Army defined charity, in part, as a “gift, to be applied consistently with existing laws, for the benefit of an indefinite number of persons, ... by bringing their hearts under the influence of education ....” 188 S.W.2d at 830 In re Rahn's Estate, 316 Mo. 492, 291 S.W. 120, 128 (1926) (emphasis added). Additionally, Section 137.100(5) specifically exempts property used exclusively for “schools and colleges,” and the record shows that during the tax years in question, 2007 and 2008, the District used the Property exclusively for school purposes. Indeed, Matt Brown, Special Assessments Manager for the St. Charles County's Assessor's Office, admitted at the Commission hearing that the “use of a building by a school district [is] an exempt purpose....” The District's use of the Property satisfies Franciscan's first element.
Seemingly challenging whether the Property meets the first element in the Franciscan test, the Assessor argues that the Harrises retain an ownership interest in the Property and “[t]here is nothing inherently charitable about selling one's property to a school district....” In essence, the Assessor contends that to meet Franciscan's first element, the Harrises must either transfer the Property's title to the District or donate the Property to the District. The Assessor, however, points to no relevant case law in support of his arguments. Moreover, the Assessor's assertion that the Harrises own the Property is wrong. As further discussed below, the Harrises relinquished their ownership interest in the Property by conveying the Property to the Trust. Additionally, the Court in Franciscan emphasized that whether the “use” of property is charitable is not dependent on “[t]he general nature of the owning organization other than that it is not-for-profit....” 566 S.W.2d at 223. More to the point, the first element in Franciscan considers the manner of the “use” of the property only.
The second element of the Franciscan test requires that the property at issue is “owned and operated on a non-profit basis.” 566 S.W.2d at 224. In...
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