SLFI v. Payette County

• Court: Idaho Supreme Court
• Writing for the Court: WALTERS, Justice.
• Citation: SLFI v. Payette County, 69 P.3d 104, 138 Idaho 684 (Idaho 2003)
• Decision Date: 24 April 2003
• Docket Number: No. 28132.,28132.
• Parties: STUDENT LOAN FUND OF IDAHO, INC., Petitioner-Appellant-Cross Respondent, v. PAYETTE COUNTY, Respondent-Cross Appellant.

69 P.3d 104

138 Idaho 684

STUDENT LOAN FUND OF IDAHO, INC., Petitioner-Appellant-Cross Respondent, v. PAYETTE COUNTY, Respondent-Cross Appellant.

No. 28132.

Supreme Court of Idaho, Boise, January 2003 Term.

April 24, 2003.

Judson W. Tolman, Fruitland, argued for appellant.

Anne-Marie Kelso, Payette County Prosecutor, Payette, argued for respondent.

WALTERS, Justice.

Student Loan Fund of Idaho, Inc. ("SLFI") applied for a property tax exemption for tax year 1999 because of its educational purpose and its function as a charitable organization. The application was denied both by the Board of Equalization and by the Idaho State Board of Tax Appeals. SLFI petitioned for review by the district court. The district court found that SLFI was a charitable organization but that its property was not exclusively used for charitable purposes. The district court denied the tax exemption. SLFI appeals. We vacate the conclusion of the district court that SLFI was a charitable organization, and we affirm the judgment denying the tax exemption.

FACTS AND PROCEDURAL BACKGROUND

In 1978, Student Loan Fund of Idaho, Inc., was established as an Idaho nonprofit corporation "to promote education for Idaho students ... by any legal means including the promotion of loans, grants and other financial assistance to students." SLFI was designated by the state of Idaho to serve as the state's nonprofit guaranty agency and to obtain the benefits of the Higher Education Act. SLFI is exempt from federal and state income taxes because of its charitable and educational purposes. In 1979, SLFI created the Student Loan Fund of Idaho Marketing Association ("IMA"), a corporation. IMA is authorized to operate as a student loan secondary market, allowing Idaho lenders to sell student loan portfolios in order to provide funding to meet the needs of Idaho students. IMA purchases and services student loans that have not been defaulted and are subject to the SLFI guarantee. IMA is also exempt from federal and state income taxes because of its charitable and educational purposes.

From 1978 to June 1994, SLFI assisted in making financial aid and interest benefits available to all eligible post-secondary students in Idaho. During that period, SLFI guaranteed $400,000,000 in student loans by entering into contractual agreements with lending institutions that required guaranteeing student loans for a fee. In 1994, SLFI's role of assisting students to obtain educational loans ceased. Since then, SLFI's role largely has been to continue ongoing servicing requirements on outstanding loans from the earlier period. In 1999, SLFI had approximately $60,000,000 in outstanding loan guarantees and a default portfolio of $40,000,000. The guarantee obligations continue until the loans are repaid or SLFI pays a guaranty claim due to a student's failure to repay the loan. If SLFI becomes insolvent or is otherwise unable to meet the obligations of the defaulted loans, the defaulted loans would be assigned to the U.S. Department of Education and the obligation to collect or to write off the loans would fall upon the federal government. Upon dissolution, the remaining funds and assets of SLFI are to be used exclusively for charitable, scientific and educational purposes.

The subject property owned by SLFI consists of 60 acres located in Payette County, Idaho. Thirty acres of the land are farmed for no charge in exchange for maintaining SLFI's grounds. The remaining 30 acres consist of 25 acres of lawn area, a 26,408 square-foot office building, a small house and a garage. The office building houses both SLFI and IMA.

In June 1999, SLFI applied for a property tax exemption under I.C. § 63-602C based upon its charitable purposes, and under I.C. § 63-602E because of its educational purpose. SLFI was notified by letter that the Board of Equalization ("BOE") denied its application. The BOE found that SLFI was not a charity and denied the application for exemption for that reason. SLFI appealed the BOE's decision to the Board of Tax Appeals ("BTA"). Following a hearing, the BTA issued a decision affirming the denial of SLFI's application. SLFI requested reconsideration of the BTA's decision, to which the BTA issued an amended decision affirming the denial of SLFI's application. The BTA decided that SLFI did not meet the charitable organization requirements of I.C. § 63-602C. The BTA also determined that because SLFI's property was not exclusively used for educational purposes, it did not meet the requirements of I.C. § 63-602E.

SLFI then petitioned for review by the district court. The district court conducted a de novo review pursuant to I.C. § 63-3812(c) and determined that SLFI was a charitable organization after applying the factors announced in Canyon County v. Sunny Ridge Manor, 106 Idaho 98, 103, 675 P.2d 813, 818 (1984). However, the district court upheld the BOE's and BTA's denial of SLFI's application on the ground that SLFI's property was not being used exclusively by SLFI for the charitable purposes for which it was organized. SLFI appeals, arguing that the district court erred in finding that SLFI's property was not exclusively used for its charitable purpose. By cross-appeal, Payette County contends that the district court erred in finding that SLFI is a charitable organization.

STANDARD OF REVIEW

Idaho Code § 63-3812(c) provides that appeals from the board of tax appeals to the district court:

shall be heard and determined by the court without a jury in a trial de novo on the issues in the same manner as though it were an original proceeding in that court. The court may affirm, reverse or modify the order, direct the tax collector of the county or the state tax commission to refund any taxes found in such appeal to be erroneously or illegally assessed or collected or may direct the collection of additional taxes in proper cases.

On appeal, this Court will not disturb the district court's factual findings if supported by substantial and competent evidence. Ada County Assessor v. Roman Catholic Diocese of Boise, 123 Idaho 425, 427, 849 P.2d 98, 100 (1993). However, this Court is not bound by the legal conclusions of the district court, and will freely draw its own conclusions from the facts presented. Id. at 428, 849 P.2d at 101.

Interpretation of the requirements for charitable exemptions from property tax are questions of law over which this Court exercises free review. Housing Southwest, Inc. v. Washington Co., 128 Idaho 335, 337, 913 P.2d 68, 70 (1996).

Statutes granting exemptions, which exist as a matter of legislative grace, are strictly construed against the taxpayer and in favor of the state. The burden is on the claimant taxpayer to clearly establish a right of exemption and the terms of the exemption must be so specific and certain as to leave no room for doubt. An exemption cannot be sustained unless it is within the spirit as well as the letter of the law. The courts are bound by the statute and cannot create or extend by judicial construction an exemption not specifically authorized.

Evangelical Lutheran Good Samaritan Soc. (Good Samaritan Village) v. Latah Co., 119 Idaho 126, 129, 804 P.2d 299, 302 (1990). SLFI must satisfy its burden and clearly establish a right to the exemption provided in the statute before an exemption pursuant to the statute will be granted. Id.

DISCUSSION

SLFI asserts that there is substantial evidence in the record to support that it is a charitable organization and that the property was being used exclusively for charitable purposes. The County argues that SLFI is not a charitable organization and even if this Court finds that SLFI is charitable, the property is not exclusively used for charitable purposes and therefore should not be exempt from property taxes under I.C. § 63-602C. The County further contends that SLFI should not be allowed to obtain a partial tax assessment on the building because SLFI raised the question of partial assessment for the first time on appeal.

Idaho Code § 63-602C provides:

The following property is exempt from taxation: property belonging to any fraternal, benevolent, or charitable corporation or society ... used exclusively for the purposes for which such corporation or society is organized; provided, that if any building or property belonging to any such corporation or society is leased by such owner or if such corporation or society uses such property for business purposes from which a revenue is derived which, in the case of a charitable organization, is not directly related to the charitable purposes for which such charitable organization exists, then the same shall be assessed and taxed as any other property, and if any such property is leased in part or used in part by such corporation or society for such purposes the assessor shall determine the value of the entire building and the value of the part used or leased for commercial purposes. If the value of the part used for commercial purposes is determined to be three percent (3%) or less than the value of the entirety, the whole of said property shall remain exempt. If the value of the part used for commercial purposes is determined to be more than three percent (3%) of the value of the entirety, the assessor shall assess such proportionate part of such building including the value of the real estate as is so leased or used for such purposes, and shall assess all merchandise kept for sale, and the trade fixtures used in connection with the sale of such merchandise; provided however, that the lease or use of any property by any such corporation or society for athletic or recreational facilities, residence halls or dormitories, meeting rooms or halls, auditoriums or club rooms within the purposes for which such corporation or society is organized, shall not be deemed a business or commercial purpose, even though fees or charges be imposed and revenue derived therefrom.

Idaho Code § 63-602C has two initial...