Sarah Dix Hamlin School v. City and County of San Francisco

• Citation: 34 Cal.Rptr. 376,221 Cal.App.2d 336
• Parties: The SARAH DIX HAMLIN SCHOOL, a charitable corporation, Plaintiff and Respondent, v. The CITY AND COUNTY OF SAN FRANCISCO, a municipal corporation, Defendant and Appellant. Civ. 21085.
• Decision Date: 18 October 1963
• Court: California Court of Appeals

Page 376

34 Cal.Rptr. 376

221 Cal.App.2d 336

The SARAH DIX HAMLIN SCHOOL, a charitable corporation, Plaintiff and Respondent, v. The CITY AND COUNTY OF SAN FRANCISCO, a municipal corporation, Defendant and Appellant.

Civ. 21085.

District Court of Appeal, First District, Division 3, California.

Oct. 18, 1963.

Rehearing Denied Nov. 13, 1963.

Hearing Denied Dec. 11, 1963.

Thomas M. O'Connor, City Atty. of City and County of San Francisco, Agnes O'Brien Smith, Orville I. Wright, Deputy City Attys., San Francisco, for appellant.

Brobeck, Phleger & Harrison, by Gregory A. Harrison, San Francisco, for respondent.

SALSMAN, Justice.

This is an appeal from a judgment sustaining respondent's claim to the tax exemption allowed by Revenue and Taxation Code, section 214 on property used exclusively for school purposes of less than collegiate grade, and owned and operated by a nonprofit corporation.

The Sarah Dix Hamlin School, hereafter referred to as the respondent, is a nonprofit corporation. Its articles of incorporation state that its purpose is to own, conduct and operate a school for girls of less than collegiate grade; that it does not contemplate pecuniary gain or profit, and that no part of its earnings shall inure to its members. The corporation has no stockholders; its directors are its sole members. It is further provided in the articles that, in event of dissolution, the corporation's property shall be distributed to 'such corporation or fund for such religious, benevolent or charitable purposes as may be designated by the Board. * * *'

The respondent conducts the Sarah Dix Hamlin School in San Francisco. The school premises are located at 2120 Broadway and 2129 Vallejo Street. The school is of less than collegiate grade, and offers education to girls from the kindergarten level through senior high school. In 1959-1960 there were 202 students in attendance, and in 1961-1962 there were 254. The school is both a day school and a boarding school, but only about ten per cent of the students are boarders.

The trial court found that all of the school's property for which the exemption is claimed is used exclusively for charitable purposes; that its property is not used for the benefit of any person through distribution of profits or the payment of excessive compensation; that all of the requirements of Revenue and Taxation Code, section 214 have been met, and that respondent is entitled to the exemption claimed.

Appellant contends that the trial court is in error in finding that respondent has complied with all the requirements of Revenue and Taxation Code, section 214. Specifically, appellant argues that respondent's property is operated for profit; that a portion of the property is not used for the exempt activity; that the property is operated for the benefit of members, employees and other persons; that there is no proof the property is not used for fraternal or lodge purposes or social club purposes, and finally there is no showing of community benefit from respondent's operations. We have examined each of these contentions and have considered the entire record in the case. We have determined that the trial court was correct in its findings and judgment, and that the judgment must be affirmed.

All property in the state, unless exempt under the Constitution of the laws of the United States, is subject to taxation. (Calif.Const. Art. XIII, § 1.) In 1944 section 1c was added to the Constitution. ¹ In 1945 the Legislature exercised the power granted to it by the Constitution and enacted Revenue and Taxation Code, section 214. ²

Appellant's first contention is that respondent is not a corporation organized for charitable purposes within the meaning of Revenue and Taxation Code, section 214. ³ In support of this contention appellant relies upon decisions from other states considering claims for tax exemption under the law as it exists in the various jurisdictions in which those decisions were announced. Appellant's reliance upon those decisions is of no avail here, because the issue has been settled by decision of our own Supreme Court and decisions of our District Courts of Appeal in accord with the law as declared by the Supreme Court. Lundberg v. County of Alameda, 46 Cal.2d 644, 298 P.2d 1 is the controlling authority, and it settled the law contrary to appellant's contention. In Lundberg the Supreme Court determined that an educational purpose is a charitable purpose within the meaning of Article XIII, section 1c, and that nonprofit parochial schools were entitled to the tax exemption conferred by section 214. At page 651 of 46 Cal.2d, at page 5 of 298 P.2d the court said: 'It thus appears that the word charitable has been given a broad construction in tax exemption cases as well as others, and it would seem clear that nonprofit schools owned by nonprofit organizations and operated for the benefit of the public come within the term charitable as defined by our decisions. Moreover, both the Legislature and the people have construed the term charitable in section 1c of article XIII as authorizing exemption of such schools.' Thus the Lundberg case fully disposes of appellant's first contention, and it is idle to mention decisions in other jurisdictions which may suggest a different result.

In support of its contention that respondent is not a charitable corporation, appellant further argues there is no showing that the Sarah Dix Hamlin School is conducted so as to provide any public benefit and hence the corporation is not charitable. This assertion is founded in part on evidence that respondent's admission procedure is a selective one and that limited financial aid only is extended to some students. Appellant reasons that since respondent's students come largely from families that can pay its tuition charges there is no showing of public benefit. It has long been recognized, however, that charity is not limited to the giving of alms or confined to the relief of the poor. It may in some instances extend to the well-to-do, when some social objective is served or the general welfare is advanced, and where also, but for the activity, the government would provide the service. Pupils attending respondent's school are required by law to attend public school (Education Code, § 12101) unless granted some exemption pursuant to Education Code, sections 12151-12160. Section 12154 of the Education Code exempts pupils attending private full time day day schools from compulsory attendance at public schools. Thus a public benefit is clearly evident in respondent's operations, because to the extent that it offers education to its students, it relieves a burden of education which might otherwise be imposed upon the public generally. On the evidence before it the trial court could properly find, as it did, that there is a public benefit in respondent's operation of its school, and that respondent's property is devoted to charitable purposes as that term is used in the Constitution and statutes granting tax exemption.

Appellant next points to a supposed profit from respondent's operations, and claims this disqualifies respondent for tax exemption. It is true that in 1959 respondent's books show an operating surplus of $10,768.42, and in 1960 a surplus of $26,276.67. However, it does not follow that an operating surplus, such as is involved here, means profit as that term is used in section 214. Here no part of respondent's operating surplus may inure to the benefit of any private shareholder, for there are none, nor to any individual. It may not be said that respondent is organized or operated for profit merely because in a given year its income exceeds its expense. Neither the Constitution nor the statute prohibits the earning of an operating surplus in the prudent management of exempt property, where no part of such earnings may inure to the benefit of any private shareholder or individual, or where as here, all of the property, including the operating surplus, is devoted to the exempt purposes for which the property is used. (St. Francis Hosp. v. City & County of S. F., 137 Cal.App.2d 321, 290 P.2d 275.) (See also Westminster Memorial Park v. County of Orange, 54 Cal.2d 488, 6 Cal.Rptr. 775, 354 P.2d 247.)

Appellant next suggests that the use of respondent's property for housing its students and for providing them with board operates to destroy the exemption claimed. Such is not the law. The evidence shows that most of respondent's students are day...