Skyline Preservation Foundation v. County of Polk, C0-00-360.

• Decision Date: 08 February 2001
• Docket Number: No. C0-00-360.,C0-00-360.
• Citation: 621 N.W.2d 727
• Parties: SKYLINE PRESERVATION FOUNDATION, Relator, v. COUNTY OF POLK, Respondent.
• Court: Minnesota Supreme Court

621 N.W.2d 727

SKYLINE PRESERVATION FOUNDATION, Relator, v. COUNTY OF POLK, Respondent.

No. C0-00-360.

Supreme Court of Minnesota.

February 8, 2001.

Eric J. Peck, Jeffrey J. McNaught, Thomas F. Pursell, Lindquist & Vennum, P.L.L.P., Minneapolis, for relator.

Wayne H. Swanson, Polk County Atty., Larry D. Orvik, Asst. Polk County Atty., Crookston, for respondent.

Considered and decided by the court en banc without oral argument.

OPINION

LANCASTER, Justice.

Relator Skyline Preservation Foundation, Inc. (Skyline) appeals from a Minnesota Tax Court summary judgment holding that Skyline is not an institution of purely public charity, which would exempt it from taxation under Article X of the Minnesota Constitution¹ and Minn.Stat. § 272.02, subd. 1(6) (Supp.1997).² Under Minn.Stat. § 278.01 (2000), Skyline petitioned the tax court to review respondent Polk County's 1997 classification of Skyline's real property as nonexempt. The tax court applied the guidelines outlined by this court in North Star Research Institute v. County of Hennepin, 306 Minn. 1, 236 N.W.2d 754 (1975), and reasoned that an entity can only satisfy those factors based on actual operations and not based on future plans. Because Skyline was not at the time of the court's decision providing any services to the public, the tax court held that it failed to satisfy its burden of proving compliance with the North Star factors. Because we conclude that a fledgling organization is not precluded from qualifying as a purely public charity, we reverse.

The property at issue in this case is the former Cathedral of the Immaculate Conception (the cathedral) in Crookston, Minnesota, and the land on which it stands. The cathedral was constructed in 1912 by the Roman Catholic Church and served as the cathedral for the Diocese of Crookston until it was decommissioned in 1990. In 1990 the diocese conveyed the cathedral and its adjacent buildings to Care and Share, Inc. Care and Share operated a homeless shelter in the adjacent buildings, but the cathedral sat idle. In 1996, Care and Share divided its property into two parcels, separating off the cathedral, which in October of that year was deeded to Skyline.

Skyline was incorporated as a nonprofit corporation under Minn.Stat. ch. 317A (2000) in August of 1996 and is exempt from federal income taxes under section 501(c)(3) (Supp.2000) of the Internal Revenue Code. Skyline was organized for a two-phase purpose: first, to acquire the cathedral and preserve it as a landmark; and second, to develop the cathedral into a community center devoted to entertainment, recreation, and education.

The use and disposition of the property at issue is restricted by covenant and Skyline's Articles of Incorporation. The deed to the cathedral received by Skyline contains restrictive covenants that run with the property and prohibit its use for liquor sales, gambling, any medical institution, or "any purpose that conflicts with the property's prior use as * * * a Catholic Cathedral." Skyline's Articles of Incorporation require that in the event of dissolution, its remaining assets must be distributed to entities that are organized and operated exclusively for charitable, educational, religious, or scientific purposes and are exempt from federal taxes under section 501(c)(3). The Articles of Incorporation preclude Skyline's directors, officers, and members from realizing pecuniary gain through the corporation or its dissolution.

In October 1998 Skyline obtained a listing for the cathedral on the National Register of Historic Places based on the cathedral's role in state history. This designation implicates state law that further constrains alterations in and disposition of the property. Minn.Stat. § 138.665 (2000) (providing that state departments, agencies, and political subdivisions have a responsibility to protect listed properties and that state departments and agencies are required, before licensing an undertaking that will affect listed properties, to agree with the state historical society on means of mitigating adverse effects to the property).

The exterior of the cathedral is generally in good condition and consulting architects consider the building to be structurally sound, but the interior is in disrepair and there is no active heating or plumbing system. Costs for necessary repairs and a heating system are estimated to be $175,000. In its August 1996 application to the Internal Revenue Service for federal tax exempt status, Skyline reported $2,600 cash on hand with which to carry out its proposed charitable activities. All revenue received had been obtained exclusively through donations, gifts, and membership fees.

In late 1996 Skyline requested and received exemption application forms from the Polk County Assessor's office.³ Skyline submitted its application in the early months of 1997. In May 1997 the county assessor sent a letter to Skyline advising that under an oral recommendation from the state Department of Revenue,⁴ Skyline was considered a nonprofit community service organization and its property was nonexempt.⁵ At the next meeting of the Polk County Board of Equalization, Skyline requested reconsideration of that decision. The Board did not change the classification of Skyline's property.⁶

Skyline petitioned the tax court to review the classification of its property in March 1998. The parties stipulated to the facts and submitted cross-motions for summary judgment. The tax court found that Skyline satisfied only two of the six North Star factors and thus was not an institution of purely public charity. The tax court's conclusion that four of the factors were not satisfied was based on the fact that Skyline lacked evidence of actual current operations that would fulfill those criteria. The tax court reasoned that "a careful reading indicates that the exemption applies to organizations performing current, and not contemplated, charitable activities." Skyline Pres. Found. v. County of Polk, No. C8-98-423, 2000 WL 2596, at *4 (Minn. T.C. Dec. 29, 1999). Skyline now appeals from the tax court's determination.

This court's review of tax court decisions is limited to determining whether the tax court lacked jurisdiction, whether the tax court's decision was not justified by the evidence or was not in conformity with the law, or whether the tax court committed any other error of law. Minn.Stat. § 271.10, subd. 1 (2000); Cmty. Mem'l Home at Osakis, Minn., Inc. v. County of Douglas, 573 N.W.2d 83, 86 (Minn.1997). We review summary judgments to determine whether there are any genuine issues of material fact and whether the lower court erred in its application of law. A & H Vending Co. v. Comm'r of Revenue, 608 N.W.2d 544, 546 (Minn.2000). Neither party argues that any issues of fact are in dispute, so we review only for error in the tax court's application of law. This is a question of law subject to de novo review. Zip Sort, Inc. v. Comm'r of Revenue, 567 N.W.2d 34, 37 (Minn.1997).

Minnesota Statutes § 272.02, subd. 1(6), exempts from taxation "[i]nstitutions of purely public charity." Because all property is presumed taxable and exemption from property tax liability is an exception to this general rule, exemptions are to be strictly construed and parties seeking exemptions bear the burden of proof. See Am. Ass'n of Cereal Chemists v. County of Dakota, 454 N.W.2d 912, 914 (Minn.1990)

.

In North Star, we listed six factors that guide us in deciding whether an organization is an institution of purely public charity:

1. whether the stated purpose of the undertaking is to be helpful to others without immediate expectation of material reward;

2. whether the entity involved is supported by donations and gifts in whole or in part;

3. whether the recipients of the "charity" are required to pay for the assistance received in whole or in part;

4. whether the income received from gifts and donations and charges to users produces a profit to the charitable institution;

5. whether the beneficiaries of the "charity" are restricted or unrestricted and, if restricted, whether the class of persons to whom the charity is made available is one having a reasonable relationship to the charitable objectives;

6. whether dividends, in form or substance, or assets upon dissolution are available to private interests.

306 Minn. at 6, 236 N.W.2d at 757.

The tax court found that Skyline's Articles of Incorporation and other evidence showed that Skyline satisfies the first and sixth factors. We agree and limit our analysis to factors two through five.

The tax court determined that Skyline failed to demonstrate compliance with factors two through five. The primary reason for this determination was that Skyline had no record of actual operation. As noted above, the tax court concluded that "the exemption applies to organizations performing current, and not contemplated, charitable activities." Skyline, 2000 WL 2596, at *4. Whether Skyline's planned services and its projected means of providing them would satisfy the North Star factors was, in the tax court's view, irrelevant.

We disagree with the tax court's conclusion that only an active, operating organization can qualify for tax exemption as a purely charitable institution. First, the tax court's analysis places too much weight on the use of present tense verbs in this court's articulation of the six factors in North Star. Rather than reflecting a determination that only evidence of actual current operations can satisfy those factors, an issue that was not before the court in North Star, the choice of verb tense was likely due to the fact that the organization seeking exempt status was an operating institution. See North Star, 306 Minn. at 3-4,

236 N.W.2d at 755-56.

Moreover, to construe North Star as the tax court did here would deprive the tax assessor of the discretion to exempt from taxation those fledging organizations that have not developed a track record of actual...