Supervisor of Assessments of Baltimore City v. Har Sinai West Corp.

Decision Date01 September 1992
Docket NumberNo. 1143,1143
Citation622 A.2d 786,95 Md.App. 631
CourtCourt of Special Appeals of Maryland

David M. Lyon, Asst. Atty. Gen. (J. Joseph Curran, Jr., Atty. Gen., on the brief), Baltimore, for appellant.

Virginia W. Barnhart (Douglas B. Riley and Miles & Stockbridge, on the brief), Towson, for appellee.

Argued before CATHELL, DAVIS and MOTZ, JJ.

MOTZ, Judge.

This case presents questions of whether a building, constructed with HUD financing, owned by a non-profit corporation, and used exclusively for low income housing is entitled to an exemption from Maryland real property taxes and, if not, how that property should be valued for tax purposes.


Har Sinai West Corporation requested an exemption from property taxes on a low income highrise apartment building for the elderly and handicapped that it owns and operates in Baltimore City. Har Sinai, a non-profit corporation, constructed the subject apartment building with a 100% loan from the United States Department of Housing and Urban Development (HUD) under the National Housing Act of 1959. The initial mortgage loan for $4,411,100 at 9.25% interest for 40 years was obtained from HUD on August 24, 1981. In addition to its HUD financing, the apartment building is operated through tenant rent payments and federal rent subsidies. Because of the extensive involvement by the federal government, both through financing and rent subsidies, the apartment building is subject to several restrictions. For example, HUD establishes eligibility requirements for tenants and controls rent. HUD also imposes other operational and maintenance restrictions on the apartment building, such as requiring Har Sinai to fund a reserve replacement fund in order to finance repairs to the building. Furthermore, although the HUD mortgage may be assumed, its transfer to another mortgagee is subject to HUD approval.

The Supervisor of Assessments of Baltimore City (Supervisor) denied Har Sinai's request for a real property tax exemption and valued the property at $4,361,250. Har Sinai appealed both the denial of the exemption and the valuation to the Property Tax Assessment Appeals Board for Baltimore City where the denial was affirmed, and the value was reduced to $3,987,400. Har Sinai then appealed both issues to the Maryland Tax Court. The Tax Court affirmed both the denial of the exemption and the value assigned by the Property Tax Assessment Appeals Board, i.e., $3,987,400.

Har Sinai appealed the order of the Tax Court to the Circuit Court for Baltimore City. The circuit court affirmed the denial of the exemption but remanded the determination of the property value to the Tax Court. The Supervisor appeals the valuation question to this Court; Har Sinai cross-appeals the circuit court's order affirming the denial of the exemption. At issue in this appeal then is whether the Tax Court erred in denying Har Sinai's request for exemption and, if not, whether the Tax Court erred in its valuation of the subject property. 1


We first consider whether the denial of Har Sinai's request for an exemption from property taxation was proper. Har Sinai contends that "the subject property is exempt from property taxation under the clear import of section 7-202" of the Tax-Property Article of the Maryland Annotated Code. See Md.Code Ann.Tax Prop. § 7-202 (1986). 2 The Supervisor asserts (1) that another section of the Tax-Property Article, § 7-502, pursuant to which Har Sinai is clearly not entitled to any exemption, is controlling here and (2) that even if § 7-202 were applicable, Har Sinai does not qualify for an exemption under it.

The statute relied upon by the Supervisor, § 7-502, was initially enacted in 1966 to authorize "political subdivision[s] of the State to enter into agreements ... with non-profit institutions ... for payments in lieu of taxes on real property owned by such institutions ... where the real property is used to provide rental housing facilities exclusively to elderly or handicapped families on a nonprofit basis." 1966 Md.Laws, Chap. 201 pmbl. Thus, § 7-502 is specifically designated to address the tax status of property like the building at issue here, i.e., multifamily residential apartment buildings for the elderly and handicapped, that are constructed with federal loans and operated on a nonprofit basis.

Section 7-502 provides in pertinent part:

(a)(2) Real property that meets the requirements of subsection (b) of this section is not subject to property tax if:

(i) the owner of the real property is:

1. a person who meets the ownership requirements of § 7-202 of this title; or

2. a nonprofit corporation that is exempt from income tax under § 10-104 of the Tax-General Article; and

(ii) the owner of the real property is engaged solely in constructing, operating, or managing multifamily rental housing and other related essential service facilities that:

1. are newly constructed on and after September 24, 1959;

2. are financed for at least 95% of the cost from loan funds provided under the National Housing Act of 1959 for senior citizen housing programs; and

3. are operated on a nonprofit basis with the revenues from the operation of the housing and facilities controlled by the loan program in order not to produce any net income.

(b) Procedure for exemption. The real property described in subsection (a) of this section may be exempt from property tax only if:

(1) the governing body of the subdivision where the real property is located approves an agreement between the subdivision and the owner; and

(2) under the agreement the owner pays the subdivision a negotiated amount in lieu of property tax.

Har Sinai, the owner of the property, meets most of the requirements for preferred tax status set forth in § 7-502. It is a nonprofit housing corporation and, thus, exempt under § 10-104. It is able to meet the ownership requirements of § 7-202 so it clearly meets the requirements of § 7-502(a)(2)(i). Its sole purpose is the ownership and operation of the subject property, which was built in the early 1980's with 100% financing provided under the National Housing Act of 1959, so it meets the requirements of § 7-502(a)(2)(ii)(1) and (2). Moreover, the subject property is operated under a Regulatory Agreement and a Housing Assistance Payment Contract, which regulate the project in order to make it nonprofit, so it meets the requirements of § 7-502(a)(2)(ii)(3). There is, however, one more requirement that must be met in order to obtain a favored tax status under this statute. Section 7-502(b) provides that property meeting the criteria set forth in subsection (a) may be exempt "only if" a Payment in Lieu of Taxes Agreement (PILOT) is received from the local subdivision. It is undisputed that Har Sinai has never requested or received a PILOT and, therefore, cannot be exempt under § 7-502. The Supervisor argues that the General Assembly granted local jurisdictions the discretion to enter (or not enter) into a PILOT and that this discretion would be undercut if a denial of a request for a PILOT or a failure to request a PILOT would allow a taxpayer to resort to another statute for a total exemption. There is much force to the Supervisor's argument. We need not reach it here, however, because even if Har Sinai can employ § 7-202, it is still not entitled to an exemption.

Section 7-202 provides in pertinent part (b) Requirements for exemption.--(1) Except as provided in subsection (c) of this section, property is not subject to property tax if the property:

(i) is necessary for and actually used exclusively for a charitable or educational purpose to promote the general welfare of the people of the State, ... and

(ii) is owned by:

* * * * * *

4. a nonprofit housing corporation.

There is no dispute that the property meets the ownership requirements of § 7-202(b)(1)(ii)(4), that is, the property is owned by Har Sinai, a nonprofit housing corporation. As Har Sinai asserts, "the only question which remains about the applicability of Section 7-202 is whether Har Sinai's laudable purpose is a 'charitable' one which promotes the general welfare of the people of Maryland." The Court of Appeals, in interpreting Md.Ann.Code art. 81, § 9(e), 3 the predecessor to Tax Prop. § 7-202, has instructed that a determination of an organization's charitable status focuses on four factors.

[It] must include a careful examination of the stated purposes of the organization, the actual work performed, the extent to which the work performed benefits the community and the public welfare in general, and the support provided by donations.

Super. of Assessments v. Group Health Assoc., Inc., 308 Md. 151, 157, 517 A.2d 1076 (1986). Har Sinai concedes that this four factor test is applicable here.

Whether this test has been met is a question of fact, or an application of law to the facts, and therefore the substantial evidence test applies. See Super. of Assessments v. Asbury Methodist Home, Inc., 313 Md. 614, 627, 547 A.2d 190 (1988); Group Health, 308 Md. at 159, 517 A.2d 1076. Our standard of review, then, is one of deference--we must determine "whether a reasoning mind, having a proper understanding of the relevant law, could have reached the conclusion reached by the Tax Court." See Asbury Methodist Home, 313 Md. at 627-28, 547 A.2d 190. Any exemption from taxation is to "be strictly construed in favor of the State," Super. of Assessments of Baltimore Cty. v. Bosley Methodist Church Graveyard, 293 Md. 208, 212, 443 A.2d 91 (1982), and this rule is "not relaxed in favor of charitable or benevolent institutions." Lodge No. 817, Trustees Benev. & Protective Order of Elks v. Super. of Assessments of Wicomico Cty., 292 Md. 533, 538, 439 A.2d 591 (1982).

With these principles in mind, we turn to the Tax Court's decision in this case. As in Group Health and Asbury Methodist, the facts here are...

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