Sunday School Bd. of Southern Baptist Convention v. Mitchell, 64495

• Decision Date: 20 September 1983
• Docket Number: No. 64495,64495
• Citation: 658 S.W.2d 1
• Parties: The SUNDAY SCHOOL BOARD OF the SOUTHERN BAPTIST CONVENTION, d/b/a Baptist Book Store, Respondent, v. James P. MITCHELL, Director of Revenue of Jackson County, Missouri, Appellant.
• Court: Missouri Supreme Court

Page 1

658 S.W.2d 1

The SUNDAY SCHOOL BOARD OF the SOUTHERN BAPTIST CONVENTION d/b/a Baptist Book Store, Respondent, v. James P. MITCHELL, Director of Revenue of Jackson County Missouri, Appellant.

No. 64495.

Supreme Court of Missouri En Banc.

Sept. 20, 1983.

Rehearing Denied Oct. 18, 1983.

Michael F. Dandino, John B. Williams, Norma K. Stratemeier, Kansas City, for appellant.

Thomas F. Schlafly, St. Louis, for respondent.

WELLIVER, Judge.

The question in this case is whether respondent's Kansas City religious bookstore is operated "for purposes purely charitable" within the meaning of Mo. Const. art. X, § 6 and § 137.100(5), RSMo 1978, ¹ so that the bookstore's real and personal property is exempt from Jackson County ad valorem property taxes.

I

The facts are stipulated.

Respondent, the Sunday School Board of the Southern Baptist Convention, is a Tennessee not-for-profit corporation. It is governed by a board of trustees elected by the Southern Baptist Convention and operates under the rules and regulations prescribed by the Convention. Its business affairs must be conducted in accordance with the business and financial plan of the Convention. It is a tax exempt organization under I.R.C. § 501(c)(3) (1976), and contributions to it are deductible under I.R.C. § 170 (1976 & Supp. V 1981) as charitable contributions.

Respondent exists, according to its restated corporate charter, to

support the Southern Baptist Convention in its task of bringing men to God through Jesus Christ by making available Bibles, lesson courses and materials, books, audiovisuals, music and recordings, and church supplies and by fostering Christian education, Sunday Schools, and service programs which will help the churches to establish, conduct, enlarge, and improve their ministries of Bible teaching and Christian training.

Respondent is authorized by its charter to "carry on, perform, and do any other act or thing necessary" to fulfill these purposes.

In furtherance of these purposes respondent's Bookstore Division maintains and operates a network of facilities throughout the United States for the distribution of religious literature and supplies. Among these facilities is the Baptist Book Store at 1017 Grand Avenue in Kansas City. It stocks religious literature and supplies for sale to churches, Sunday schools, and members of the general public. Approximately two-thirds of its sales are to churches and Sunday schools, and approximately one-third are to individuals. Something less than half of the items the Baptist Book Store sells are also carried by commercial retailers. The Baptist Book Store charges prices comparable to those charged by commercial retailers, except that church libraries receive a twenty percent discount.

Through the fiscal year ended September 30, 1981, the profit and loss statements of the Baptist Book Store indicated that the store had sustained significant losses for four consecutive years. ² A breakdown of the figures, however, indicates that for the years 1980 and 1981, the years at issue here, the Baptist Book Store actually generated a small profit. In those years the margin contribution, the amount sales exceeded the cost of sales, was greater than the combined amounts deducted for local operating expenses and the store's proportioned share of the Bookstore Division's expenses. A loss appeared only after deduction of the Baptist Book Store's proportioned share of the general and administrative expenses of the Sunday School Board as a whole.

For the years 1980 and 1981 respondent paid an aggregate of $13,612.19 in Jackson County merchants and manufacturers inventory taxes, business personal property taxes, and real property taxes under protest pursuant to § 139.031. It brought this action to recover the amount paid under protest, contending that the Baptist Book Store was exempt from such taxation because it was operating "for purposes purely charitable" within the meaning of Mo. Const. art. X, § 6 and § 137.100(5). The trial court "[found] the issues in favor of the Plaintiff and against the Defendant" and entered judgment for an aggregate of $13,612.19 plus costs. From this judgment appellant, the Jackson County Director of Revenue, appeals. We reverse.

II

Article X, § 6 of the Missouri Constitution provides that "all property, real and personal, not held for private or corporate profit and used exclusively for religious worship ... [or] for purposes purely charitable ... may be exempted from taxation by general law." Pursuant to this constitutional authorization the legislature enacted § 137.100(5), which provides:

The following subjects are exempt from taxation for state, county or local purposes:

....

All 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, except that the exemption herein granted does not include real property not actually used or occupied for the purpose of the organization but held or used as investment even though the income or rentals received therefrom is used wholly for religious, educational or charitable purposes[.]

Respondent cannot, and does not, contend that the Baptist Book Store is used "for religious worship." Its only contention is that the store is used "for purposes purely charitable" within the meaning of these sections.

A

In considering respondent's claim for exemption we are guided by several well-established principles. Taxation of property is the rule, and exemption from taxation is the exception. Missouri Church of Scientology v. State Tax Commission, 560 S.W.2d 837, 844 (Mo. banc 1977), appeal dismissed, 439 U.S. 803, 99 S.Ct. 57, 58 L.Ed.2d 95 (1978); Midwest Bible & Missionary Institute v. Sestric, 364 Mo. 167, 174, 260 S.W.2d 25, 30 (1953). Statutes granting exemptions from taxation are to be construed strictly, but reasonably, against the party claiming the exemption. Iron County v. State Tax Commission, 437 S.W.2d 665, 668 (Mo.1968); Community Memorial Hospital v. City of Moberly, 422 S.W.2d 290, 294 (Mo.1967); Midwest Bible, 364 Mo. at 174, 260 S.W.2d at 29. Claims for exemption are not favored in the law, St. John's Mercy Hospital v. Leachman, 552 S.W.2d 723, 725 (Mo. banc 1977); Community Memorial Hospital, 422 S.W.2d at 294, and a property owner who claims exemption bears a substantial burden to prove that his property falls within the exempted class, Missouri Church of Scientology, 560 S.W.2d at 844; St. John's Mercy Hospital, 552 S.W.2d at 725; City of St. Louis v. State Tax Commission, 524 S.W.2d 839, 844 (Mo. banc 1976).

B

Our most recent case defining the scope of the charitable exemption is Franciscan Tertiary Province v. State Tax Commission, 566 S.W.2d 213 (Mo. banc 1978), which involved a claimed exemption on housing for the low income elderly. In Franciscan the Court, faced with two distinct, and inconsistent, lines of cases interpreting the scope of the charitable exemption, reaffirmed those cases beginning with Salvation Army v. Hoehn, 354 Mo. 107, 188 S.W.2d 826 (banc 1945), which defined a charity as

a gift, to be applied consistently with existing laws, for the benefit of an indefinite number of persons, either by bringing their hearts under the influence of education or religion, by relieving their bodies from disease, suffering, or constraint, by assisting them to establish themselves for life, or by erecting or maintaining public buildings or works or otherwise lessening the burdens of government.... A charity may restrict its admissions to a class of humanity, and still be public; it may be for the blind, the mute, those suffering under special diseases, for the aged, for infants, for women, for men, for different callings or trades by which humanity earns its bread, and as long as the classification is determined by some distinction which involuntarily affects or may affect any of the whole people, although only a small number may be directly benefited, it is public.

Id. at 114-15, 188 S.W.2d at 830. Charity is not limited "solely to the relief of the destitute" but instead includes "all humanitarian activities, though rendered at cost or less, which are intended to improve the physical, mental and moral condition of the recipients and make it less likely that they will become burdens on society and make it more likely that they will become useful citizens." Id. at 114, 188 S.W.2d at 830.

After arriving at this "uniform interpretation" of Mo. Const. art. X, § 6 and § 137.100(5), the Court in Franciscan proceeded to "establish criteria to be considered in all cases arising thereunder." Franciscan, 566 S.W.2d at 219. First, the property must be "owned and operated on a not-for-profit basis" so that there can be "no profit, presently or prospectively, to individuals or corporations." Id. at 224. The property need not always be operated at a deficit, but any profit must be "achieved incidentally to accomplishment of the dominantly charitable objective" and may not be "a primary goal of the project." Id. See Missouri Goodwill Industries v. Gruner, 357 Mo. 647, 652, 210 S.W.2d 38, 41 (1948).

Second, the property "must be dedicated unconditionally to the charitable activity." Franciscan, 566 S.W.2d at 224. This requirement stems from the statutory mandate that the property be "used exclusively" for charitable purposes, § 137.100(5), within the Salvation Army definition of charity, see Barnes Hospital v. Leggett, 589 S.W.2d 241, 244 (Mo. banc 1979). Third, "the dominant use of the property must be for the benefit of an indefinite number of people," and there must also be "direct or indirect benefit to society in addition to and as a result of the benefit conferred on the persons directly served by the humanitarian activity." Franciscan, 566 S.W.2d at 224. Cf. City of St. Louis, 524 S.W.2d at 846 ("the controlling factor is the extent to which such activity is...