South Iowa Methodist Homes, Inc. v. Board of Review of Cass County

• Decision Date: 29 July 1965
• Docket Number: No. 51737,51737
• Citation: 136 N.W.2d 488,257 Iowa 1302
• Parties: SOUTH IOWA METHODIST HOMES, INC., Successor to Wesley Acres. Corp., Appellant, v. BOARD OF REVIEW OF CASS COUNTY, Iowa, Appellee.
• Court: Iowa Supreme Court

Page 488

136 N.W.2d 488

257 Iowa 1302

SOUTH IOWA METHODIST HOMES, INC., Successor to Wesley Acres. Corp., Appellant, v. BOARD OF REVIEW OF CASS COUNTY, Iowa, Appellee.

No. 51737.

Supreme Court of Iowa.

July 29, 1965.

Dickinson, Parker, Mannheimer & Raife, Des Monies, and Jones, Cambridge, Carl & Howard, Atlantic, for appellant.

James Van Ginkel, Cass County Atty., Atlantic, for appellee.

Richard W. Berglund, Des Moines, for Iowa Hospital Assn, Inc., amicus curiae.

Alan Loth, Fort Dodge, for Iowa Conference of Methodist Churches, amicus curiae.

Blue & Blue, Eagle Grove, for Non-Profit Homes of Iowa, Inc., amicus curiae.

STUART, Justice.

The sole issue presented here is whether the land and a building under construction which will be exempt from taxation under Section 427.1(9), Code of Iowa, I.C.A., when completed and occupied, is subject to taxation during the construction period. It reaches us as an appeal by plaintiff from the judgment of the trial court refusing to grant tax exemption to a partially completed home for the elderly in Cass County.

The pertinent parts of Section 427.1 read as follows:

'427.1 Exemptions. The following classes of property shall not be taxed: * * *

'(9) All grounds and buildings used by * * * charitable, benevolent,* * * and religious institutions and societies solely for their appropriate objects * * *.'

The parties by stipulation have removed the question of 'appropriate objects' from the case and we, therefore, must start with the assumption that the property, when the building is completed and occupied, will come within the exemption. This also means that this decision will have broad application to all buildings constructed by institutions and societies granted the exemption under said section including, college classroom buildings, churches, and hospitals.

The case turns upon the meaning of the word 'used' in section 427.1(9). The trial court held and appellee argues since taxation is the rule and exemption is the exception, this section, as an exemption statute, must be strictly construed and the letter of the law, as well as its spirit, observed, and, as so viewed 'used' cannot be construed to include 'or to be used'. We do not believe the question can be so simply or easily disposed of.

Statutes are subject to construction only when they are ambiguous. Clarion Ready Mix Concrete Co. v. Iowa State Tax Commission, 252 Iowa 500, 507, 107 N.W.2d 553, 558 and citations. There is considerable merit in the agrument that there is no place for statutory costruction here. The statute refers to both 'grounds and buildings'. It would seem axiomatic that the construction of a building which will be used to carry out an 'appropriate object' is an appropriate object itself. It this is conceded, the land was, at the time of the assessment, being used for such appropriate object. It must also be conceded that if we restrict our attention to the building alone, it was not being 'used' on the assessment date because it was not ready for occupancy. However, no one has contended the land should be exempt and the building taxable, and as a partially completed building is subject to taxation as part of the real estate, Wagner v. Board of Review, 232 Iowa 58, 4 N.W.2d 405, it does not seem unreasonable to apply the use of the land to the building. Rather than hold the statute unambiguous, however, we prefer to meet the statutory construction argument headon.

Without a noted exception, our cases hold taxation is the rule and exemption the exception and exemption statutes are therefore to be strictly construed. Cornell College v. Board of Review, 248 Iowa 388, 390, 81 N.W.2d 25; Trustees of Iowa College v. Baillie, 236 Iowa 235, 238, 17 N.W.2d 143; Wagner v. Board of Review, 232 Iowa 58, 4 N.W.2d 405. Even cases which appear liberal in recognizing exemptions reiterate this rule of construction. Trinity Lutheran Church v. Browner, 255 Iowa 197, 200, 121 N.W.2d 131; National Bank of Burlington v. Huneke, 250 Iowa 1030, 1035, 98 N.W.2d 7; Trustees of Griswold College v. State of Iowa, 46 Iowa 275, 278, 26 Am.Rep. 138; Ellsworth College v. Emmet County, 156 Iowa 52, 135 N.W. 594, 42 L.R.A., N.S., 530.

On the other hand, we are faced with an express legislative mandate to construe the 'provisions and all proceedings' under the code 'liberally' 'with a view to promote its objects and assist the parties in obtaining justice.' Section 4.2, Code of Iowa, I.C.A. See, Center Township School District v. Oakland School District, 253 Iowa 391, 398, 112 N.W.2d 665 and Chiesa &amp Co. v. City of Des Moines, 158 Iowa 343, 346, 138 N.W. 922, 48 L.R.A.,N.S., 899.

These rules seem to be in conflict, but under the facts here, each can be applied in its appropriate place. There is nothing in section 427.1(9) which indicates a legislative intent that 'appropriate objects' should be broadly interpreted. The rule of strict construction should be used in determining what projects are within the 'appropriate objects' of the institution. We do not have that question before us. The stipulation concedes the project here was an appropriate object. Once it is admitted the project itself is within the statute, we must, under section 4.2, interpret the statute liberally to promote its object.

The exemption statutes are a legislative recognition of the benefits received by society as a whole from properties devoted to appropriate objects of exempt institutions and the consequent lessening of burden on the government. They are designed to encourage these institutions to use their funds and property for such projects, Carl Zollman, American Law of Charities 465, par. 693. It this is the legislative intent, we reach an illogical result if we hold the legislature intended property, ultimately exempt, to be subject to taxation during the construction period. Such activities are not encouraged by adding to the building costs. The subjection of this property to taxation during the construction period would tend to defeat the object of the exemption statutes.

Cases cited above involving property of institutions named in 427.1(9) support this construction. We have viewed them with considerably more favor than exemptions to rpivate persons. Only two cases denying exemption cited by appellee involve such institutions. Cornell College v. Board of Review, 248 Iowa 388, 81 N.W.2d 25; Trustees of Iowa College v. Baillie, 236 Iowa 235, 17 N.W.2d 143. In both, exemption was denied on the question of ownership of property where the institution was required to make annual payments to donor. They involved section 427.1(11).

In view of our cases, the taxing of properties under construction would result in some anomalous situations. For instance, funds held to construct an exempt building are not subject to taxation. National Bank of Burlington v. Huneke, 250 Iowa 1030, 98 N.W.2d 7. The completed building is exempt. But the use of exempt funds to build an exempt building would result in the imposition of a tax during the construction period.

A building purchased for an appropriate object after it has been assessed to another owner can still attain exempt status before July 1. Section 427.1(25) see Iowa Wesleyan College v. Knight, 207 Iowa 1238, 1240, 224 N.W. 502, (before subsection (25). A building completed on the same date for the same purpose would be taxable at the value on the assessment date. While these results may not reach the state of being absurd or ridiculous, they certainly are inconsistent, unjust and unfair.

One can better visualize the tax complications and inequities inherent in a ruling which would subject exempt buildings under construction to taxation by considering an actual situation in which a church purchased a residence on an adjoining lot, tore down the residence and constructed an educational unit. The old church building was then razed and worship wervices were held in the new unit. Now a new church building is being erected. All of which covered a period of several years. From a practical standpoint it would be almost impossible for the assessor to know when to tax or exempt the property involved.

Appellee cites the Annotation appearing in 34 A.L.R. 634, 672 which states: 'Land on which buildings to be used for charitable purposes are in the course of erection, or are in good faith contemplated, is generally held not exempt from taxation.' The annotation is supplemented in 62 A.L.R. 328, 335, and 108 A.L.R. 284, 294.

After an examination of the annotations and the cases cited therein, we conclude it is inaccurate to refer to the above statement as a 'general rule'. Cases from only four jurisdictions are cited. Pennsylvania, New Jersey and Massachusetts are referred to as favoring 'the general rule' while cases from New York and Massachusetts are contrary. The two Massachusetts cases are not in conflict. Massachusetts favored the exemption when the parties were proceeding diligently with plans for the erection of a hospital. New England Hospital v. Boston, 113 Mass. 518. Exemption was denied on a plot of ground pruchased for the construction of school buildings at some future time, but which at the time of assessment was used as a garden. Boston Soc. of Redemptorist Fathers v. City of Boston, 129 Mass. 178. The facts here are more consistent with the Massachusetts case in which exemption was allowed.

New Jersey and Pennsylvania statutes are not the same as the Iowa statute. New Jersey requires that the property be 'actually used' rather than 'used'. The New Jersey court did not think this was an immaterial distinction. In an earlier case of Presbyterian Board v. Fisher, 68 N.J.Law 143, 52 A. 228, the New Jersey Court, while denying exemption under the facts, indicated an interesting question would have been presented if preparations had been made for use for charitable purposes. At that time the statute said only 'used'. In Institute of Holy Angels v. Borough of Ft. Lee (1910), 80 N.J.L....