WUA v. COUNTY COM'N OF BROOKE COUNTY

• Decision Date: 18 June 1998
• Docket Number: No. 24203.,24203.
• Citation: 202 W.Va. 283,503 S.E.2d 851
• Parties: WELLSBURG UNITY APARTMENTS, INC., a nonprofit West Virginia Corporation, Appellant Below, Appellee, v. COUNTY COMMISSION OF BROOKE COUNTY, West Virginia, a public corporation, et al., Appellees Below, Appellees, Robin C. Capehart, Tax Commissioner of the State of West Virginia, successor to James H. Paige, III, Appellant.
• Court: West Virginia Supreme Court

503 S.E.2d 851

202 W.Va. 283

WELLSBURG UNITY APARTMENTS, INC., a nonprofit West Virginia Corporation, Appellant Below, Appellee, v. COUNTY COMMISSION OF BROOKE COUNTY, West Virginia, a public corporation, et al., Appellees Below, Appellees, Robin C. Capehart, Tax Commissioner of the State of West Virginia, successor to James H. Paige, III, Appellant.

No. 24203.

Supreme Court of Appeals of West Virginia.

Submitted January 13, 1998.

Decided June 18, 1998.

Samuel Spencer Stone, Edmund J. Rollo, Morgantown, for Appellant Below, Appellee.

Darrell V. McGraw, Jr., Attorney General, Stephen Stockton, Assistant Attorney General, Charleston, for Capehart. MAYNARD, Justice:

This is an appeal by the State Tax Commissioner from a final order of the Circuit Court of Brooke County, West Virginia, entered on November 16, 1996. The order granted Wellsburg Unity Apartments, Inc. (Unity Housing or WUA) relief from an ad valorem real property tax assessment.

The facts are derived from stipulations the parties submitted to the lower court. Unity Housing constructed and currently owns and operates an apartment complex in Wellsburg, West Virginia. Unity Housing is organized and operated exclusively for charitable purposes, and no profits from the apartments may inure to any private person. The United States Internal Revenue Service (IRS) recognizes Wellsburg Unity Apartments as being exempt from federal income taxation under Internal Revenue Code § 501(c)(3) (1986).¹ Donors receive charitable contribution deductions for federal income tax purposes and state income tax purposes.

By contracting with entities like Unity Housing, the federal government provides charity housing to elderly or low income individuals who need such assistance. For example, a person must be sixty-two years old or disabled to be eligible for tenancy in the apartment building in the case at bar. The agreement between the United States Department of Housing and Urban Development (HUD) and Unity Housing limits the contract rent that is chargeable for occupancy to specified monthly charges based on the cost of construction, maintenance, and operation of the apartments. Unity Housing operates solely on a break-even basis and there is no profit.

The apartment building consists of twenty-five one-bedroom apartments and nine efficiency apartments which are rented to tenants.² The total monthly contract rental income received by Unity Housing for the twenty-five one-bedroom apartments is $16,775. The total monthly contract rental income received for the nine efficiency apartments is $5,067. HUD pays, as a subsidy, approximately eighty percent of the total monthly contract rent; the tenants pay the remainder of the rent.³ If a tenant is required to pay a portion of the rent and fails to do so, the lease may be terminated according to HUD guidelines. However, when a tenant is in arrears, Unity Housing invokes a notification procedure. That tenant may then discuss lease termination and other available alternatives with Unity Housing. If a tenant fails to pay his or her unsubsidized portion of the rent, the tenant may be evicted.

In January 1984, the assessor of Brooke County informed Unity Housing that tax exempt status would be granted for the apartment building, "provided there is no action to the contrary by the State Tax Department." The property was granted tax-exempt status until November 1994, when the assessor informed Unity Housing the apartments would be taxable beginning with the July 1995 tax statement. Unity Housing subsequently applied to the Tax Commissioner for a taxability ruling pursuant to W.Va.Code § 11-3-24a.⁴ The Commissioner concluded in Property Tax Ruling 96-16 that the property "is not `property used for charitable purposes, and not held or leased out for profit' and, therefore, it is not exempt from ad valorem taxation." Unity Housing appealed the ruling to the circuit court. The circuit court concluded "the real property owned by the taxpayer is being used for charitable purposes and is not held or leased for profit and is therefore exempt from taxation." It is from this order the Tax Commissioner appeals.

On appeal, the issue we must decide is whether the property is subject to ad valorem property taxation. In order for real property to be exempt from ad valorem property taxation, a two-prong test must be met: (1) the corporation or other entity must be granted charitable status under 26 U.S.C. § 501(c)(3) or 501(c)(4) as is provided in 110 C.S.R. § 3-19.1, and (2) the property must be used exclusively for charitable purposes and must not be held or leased out for profit as is provided in W.Va.Code § 11-3-9 (1990).

A provision is made in the West Virginia Constitution for exemption of property used for benevolent, charitable, educational, and religious purposes.⁵ The West Virginia Constitution does not exempt property from taxation, but the Constitution empowers the legislature to create exemptions for certain types of property. "All property given a legislative exemption must be used primarily, directly and immediately for those enumerated purposes." State ex rel. Cook v. Rose, 171 W.Va. 392, 394, 299 S.E.2d 3, 5 (1982) (citations omitted), overruled on other grounds by Morgantown v. W.Va. University Medical Corp., 193 W.Va. 614, 457 S.E.2d 637 (1995)

. The exemption from taxation depends on the use of the property. The Legislature has codified an exemption for "property used for charitable purposes, and not held or leased out for profit[.]" W.Va.Code § 11-3-9 (1990).⁶

The rule regarding "use" is stated succinctly in Reynolds Memorial Hospital v. Marshall County Court, 78 W.Va. 685, 687, 90 S.E. 238, 239 (1916), as follows: "If the property is used for charitable purposes within the meaning of the Constitution, then it is exempt from taxation; if it is not so used it is not exempt." This rule is further clarified in Central Realty Co. v. Martin, 126 W.Va. 915, 923, 30 S.E.2d 720, 725 (1944), which states:

[W]here real estate is used solely by an organization for educational and charitable purposes and such use is immediate and primary the constitutional exemption from taxation applies, and the statute enacted in pursuance thereof inhibits any assessment for taxation; but real estate is not exempt where owned by a like organization and is leased for private purposes, notwithstanding the application of the income from rentals to charitable and benevolent purposes and upkeep of the premises.

It is indisputable that property used for charitable purposes which is not held or leased for profit is exempt from ad valorem real property taxation. In fact, the legislative regulations state in 110 C.S.R. § 3-4.1.12 (1989) that "[p]roperty used for charitable purposes, and not held or leased out for profit[ ]" is exempt from taxation. So, we must now determine whether Unity Housing's apartment complex is used for charitable non-profit purposes.

"Charity" is defined by the legislative regulations as:

[A] gift to be applied consistently with the 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. It is immaterial whether the purpose is called charitable in the gift itself if it is so described as to show that it is charitable. Any gift not inconsistent with existing laws which is promotive of science or tends to the education, enlightenment, benefit or amelioration of the condition of mankind or the diffusion of useful knowledge, or is for the public convenience is a charity.

110 C.S.R. § 3-2.10 (1989). The legislative regulations also explain that:

Charities must be operated on a not-for-profit basis, must directly benefit society, must be for the benefit of an indefinite number of people, and must be exempt from federal income taxes under 26 U.S.C. § 501(c)(3) or 501(c)(4). Moreover, in order for the property to be exempt, the primary and immediate use of the property must be for one or more exempt purposes.

110 C.S.R. § 3-19.1 (1989).

Wellsburg Unity Apartments, Inc. was organized as a non-profit corporation whose charter was issued by the State of West Virginia on June 15, 1983. The parties stipulated that the corporation was organized for and is used exclusively for charitable purposes. To be more specific, we will list the stipulations the parties agreed upon:

Wellsburg Unity Apartments, Inc. ("WUA") is organized as a non-profit corporation under West Virginia law.

WUA constructed, owns and operates Wellsburg Unity Apartments (the "Apartments") in Wellsburg, Brooke County, West Virginia.

WUA is organized and operated exclusively for charitable purposes. (Emphasis added).

No profits of WUA may inure to any private person.

The Internal Revenue Service designated WUA as a charitable organization under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended.

WUA is exempt from federal income taxes and donors may receive charitable contribution deductions for federal income tax purposes for donations to WUA.

By contracting with entities like WUA, the federal government provides charity housing to impoverished individuals.

Under the Agreement, WUA agrees to specifically adhere to all HUD policies, provisions, and guidelines.

If WUA defaulted on the Agreement, title to the Apartments reverts to HUD.

The Agreement limits the occupancy of the Apartments to elderly or handicapped individuals and families as defined in Section 202 of the Housing Act of 1959, as amended, and applicable HUD regulations.

The Agreement limits "contract rent" that is chargeable for occupancy to specified monthly charges based on the costs to construct, maintain and operate the Apartments.

The contract rent calculation does not allow for

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