United Way of the Midlands v. Douglas County Bd. of Equalization

• Decision Date: 29 July 1983
• Docket Number: No. 81-766,81-766
• Citation: 215 Neb. 1,337 N.W.2d 103
• Parties: UNITED WAY OF THE MIDLANDS, Appellee, v. DOUGLAS COUNTY BOARD OF EQUALIZATION, Douglas County, Nebraska, Appellant.
• Court: Nebraska Supreme Court

Page 103

337 N.W.2d 103

215 Neb. 1

UNITED WAY OF THE MIDLANDS, Appellee, v. DOUGLAS COUNTY BOARD OF EQUALIZATION, Douglas County, Nebraska, Appellant.

No. 81-766.

Supreme Court of Nebraska.

July 29, 1983.

Syllabus by the Court

1. Taxation: Charities. Property is not used for financial gain or profit to either the owner or user if no part of the income from it is distributed to the owner's or user's members, directors, or officers, or to private individuals.

2. Taxation: Charities. Concurrent ownership and use of property in a single entity is not required in order for property to qualify for a charitable exemption from taxation.

3. Taxation: Charities. Lease of property to a charitable organization by a charitable organization for substantially less than its fair rental value is a use of the property for a charitable purpose.

4. Taxation: Charities. Vacant space in property owned by a charitable organization is exempt from taxation if it is intended for a charitable use, the dominant use of the property as a whole is for exempt purposes, and the conditions under which it is held preclude its use for commercial purposes.

Donald L. Knowles, Douglas County Atty., and Rockford G. Meyer, Deputy County Atty., Omaha, for appellant.

Norman H. Wright of Fraser, Stryker, Veach, Vaughn, Meusey, Olson, Boyer & Bloch, P.C., Omaha, for appellee.

KRIVOSHA, C.J., BOSLAUGH, McCOWN, WHITE, and HASTINGS, JJ., and MORAN, District Judge.

MORAN, District Judge.

The Douglas County Board of Equalization appeals the District Court's decree determining that real estate owned by United Way of the Midlands was exempt from taxation for the year 1979. We affirm.

At trial the facts were stipulated. The pertinent portions of the stipulation are: United Way is a nonprofit, charitable organization as defined by the laws of Nebraska and the United States. It owns real estate in Omaha known as the A.C. Nelson Center for Community Services. United Way acquired the property with donated funds subject to certain terms and conditions, including one condition that prohibits the building from being used for commercial purposes. The building contains approximately 27,704 square feet of space. In 1978 United Way leased 5,256 square feet of space in separate leases to Omaha Council of Campfire Girls and Greater Omaha Community Action. These organizations are recognized as nonprofit, charitable organizations under the laws of Nebraska and the United States. The lease rental was $3 a square foot which was about one-half the fair market rental value for similarly constructed and situated properties. The lease obligated United Way to provide air conditioning, heat, water, janitor and elevator service, and repainting for the leased space. Gross rental income in 1978 was $20,008. The cost of services United Way was obligated to furnish for the leased space was $11,600. United Way occupied and used 14,948 square feet of space for its charitable purposes. It had 6,258 square feet of vacant space which it held for lease to charitable or nonprofit agencies as required by a condition of the grant. The remaining 1,250 square feet was common area.

The board of equalization determined that the space United Way used for its charitable purposes was exempt from taxation and that the portions of the property attributable to the leased space and the vacant space were subject to real property taxation as recommended by the county assessor. The parties did not dispute the exemption of the common area. The District Court decreed that all the property was exempt from taxation.

Neb. Const. art. VIII, § 2, states in pertinent part: "The Legislature by general law may exempt ... property owned and used exclusively for educational, religious, charitable, or cemetery purposes, when such property is not owned or used for financial gain or profit to either the owner or user."

In Neb.Rev.Stat. § 77-202 (Reissue 1976) the Legislature by general law declared such property exempt from taxation, using the precise language found in the Constitution.

Statutes exempting property from taxation are to be strictly construed, and the burden of proving the right to exemption is upon the claimant. Lincoln Woman's Club v. City of Lincoln, 178 Neb. 357, 133 N.W.2d 455 (1965). This does not mean that there should not be a liberal construction of the language used in order to carry out the expressed intention of the fundamental lawmakers and the Legislature, but, rather, that the property which is claimed to be exempt must come clearly within the provisions granting such exemption. Y.M.C.A. of Omaha v. Douglas County, 60 Neb. 642, 83 N.W. 924 (1900).

The policy in providing for tax exemptions for charitable uses is based on the principles that tax exemptions benefit the public generally and the organization performs services which the state is relieved pro tanto from performing. 84 C.J.S. Taxation § 215 (1954). See, also, Y.M.C.A. of Omaha v. Douglas County, supra.

We first deal with the legitimacy of an exemption for the space leased to charitable organizations.

Appellant attempts to dispose of the issue by contending that since United Way received income from the property, it is "used for financial gain or profit to either the owner or the user" and therefore fails to meet the constitutional and statutory requirements for exemption from taxation. Brief of Appellant at 10.

It is true that in this case the difference between rentals received and cost of services furnished by United Way was $8,408. However, this does not alone disqualify the space from the exemption. See House of the Good Shepherd v. Board of Equalization, 113 Neb. 489, 203 N.W. 632 (1925).

Neb.Rev.Stat. §§ 21-1901 et seq. (Reissue 1977) make up the Nebraska Nonprofit Corporation Act. Section 21-1901(3) defines a not-for-profit corporation as a "corporation no part of the income of which is distributable to its members, directors or officers." As a Nebraska nonprofit corporation United Way is burdened by that restriction on the distribution of its income, and there is no evidence that it has violated the statute in that respect. In City of McAllen v. Ev. Luth. Good Sam. Soc., 530 S.W.2d 806 (Tex.1975), the court said that the proscription against an institution's realization of "gain or profit" refers to gain or profit by private individuals or the accrual of distributable profits.

In Doane College v. County of Saline, 173 Neb. 8, 112 N.W.2d 248 (1961), the college rented college-owned faculty housing to faculty members at fair market rental rates. The college credited income from rentals after expenses to the endowment fund. This court denied exemption from property tax, having determined that the faculty housing was not exclusively used for educational purposes. However, we said that the evidence established that the faculty housing units were not owned or used for financial gain or profit to either the owner or user.

From the foregoing we deduce the rule to be that property is not used for financial...