Yorgason v. County Bd. of Equalization of Salt Lake County ex rel. Episcopal Management Corp.

• Decision Date: 03 February 1986
• Docket Number: No. 18986,18986
• Citation: 714 P.2d 653
• Parties: R. Milton YORGASON, Salt Lake County Assessor, Plaintiff and Appellant, v. COUNTY BOARD OF EQUALIZATION OF SALT LAKE COUNTY, ex rel., EPISCOPAL MANAGEMENT CORPORATION, Defendant and Respondent.
• Court: Utah Supreme Court

Page 653

714 P.2d 653

R. Milton YORGASON, Salt Lake County Assessor, Plaintiff and Appellant, v. COUNTY BOARD OF EQUALIZATION OF SALT LAKE COUNTY, ex rel., EPISCOPAL MANAGEMENT CORPORATION, Defendant and Respondent.

No. 18986.

Supreme Court of Utah.

Feb. 3, 1986.

Theodore L. Cannon, Bill Thomas Peters, Salt Lake City, for plaintiff and appellant.

Kevin N. Anderson, Albert J. Colton, Salt Lake City, for defendant and respondent.

HALL, Chief Justice:

The Salt Lake County Board of Equalization, the State Tax Commission and the district court all found that an apartment building for needy elderly and handicapped families and individuals, known as St. Mark's Tower, was exempt from real property tax because it was used exclusively for charitable purposes. The plaintiff, Salt Lake County Assessor, appeals that determination and asks that St. Mark's Tower be placed upon the tax rolls of Salt Lake County and taxed for the tax years 1980 and following. We affirm.

Episcopal Management Corporation is a Utah nonprofit corporation organized in April 1978. The articles of incorporation state that the corporation was organized "exclusively for charitable purposes." The articles further state that "[t]he specific charitable purpose of this corporation is the promotion of the welfare of needy elderly and handicapped families through the provision of housing for low- and moderate-income individuals who do not possess the means to furnish themselves with decent, safe, and sanitary housing."

The property at issue here is an apartment building known as St. Mark's Tower in Salt Lake City. The Tower consists of 98 rentable units together with common areas used for social and recreational activities, a resident manager's apartment and several offices used by the Tower's administration. There are no commercial businesses of any type in the building. Social programs are organized and furnished for the tenants without charge, and free counseling is offered. Volunteers take tenants grocery shopping and provide and staff blood pressure clinics, among other things. The philosophy of the Tower is to provide a total continuum of care to its tenants.

In order to build the Tower, volunteers spent approximately 1,250 person hours negotiating with the Department of Housing and Urban Development (HUD) for financing and in negotiations for the building site; in consultation during construction; and in the selection of the managing agent for the Tower. Additionally, the Episcopal Diocese of Utah spent about $1,500 for travel expenses to further the negotiations.

As a result of these volunteer efforts, HUD loaned the corporation $3,638,000 for construction of the Tower under the terms of the National Housing Act of 1959, § 202, 12 U.S.C. § 1701q (1980). The loan was secured by a mortgage payable by the corporation over 40 years. HUD sets the operating requirements of the Tower. ¹

The Tower began accepting tenants on December 27, 1979. ² In order to be eligible to reside in the Tower, a tenant must be over 62 years of age or handicapped. Handicapped individuals cannot make up more than 10% of the tenants. As of January 1981, no tenant could have income in excess of $12,000 per year if single or $13,700 per year if married. ³ At the time this action commenced, the average annual income of tenants at the Tower was $4,622.

Rent for each unit is established by HUD on the basis of fair market value for equivalent facilities in the community. In January 1981, the established rent was $433 per month per unit. This rent included all utilities except telephone. The percentage of the monthly rental paid by the tenant is based on his or her ability to pay. The tenant pays 25% of his or her gross annual income toward the rent. In 1981, the average rent paid by tenants was $96, with the highest being $199 per month. Thus, no tenant completely pays his or her own way. The difference between the rent the tenant pays and the established fair market rent is paid by HUD to Episcopal Management Corporation in the form of section 8 subsidy payments. ⁴ Both operating expenses and mortgage payments are paid exclusively from the monthly rental proceeds with any excess applied to reduce the mortgage. ⁵ There are no earnings over and above expenses.

HUD regulations require that nonprofit corporations financed under section 1701q of the National Housing Act enter into management contracts. Therefore, St. Mark's Tower is managed by Danville Development Corporation, which receives as its fee 7% of the gross rents collected. The Tower also has a resident director who has a B.A. in psychology with a certification in gerontology. Policy decisions for the Tower are made by a board of directors consisting of from five to nine members, one of whom must be the Bishop of the Episcopal Diocese of Utah. The board meets once a month, and all members are volunteers serving without compensation.

Upon dissolution of the corporation, the assets of the corporation must be disposed of to benefit an exempt organization under section 501(c)(3) of the Internal Revenue Code of 1954 (organizations operated exclusively for charitable, educational, religious or scientific purposes).

In 1980, the Salt Lake County Assessor assessed and taxed St. Mark's Tower. ⁶ The tax assessment on the Tower was approximately $40,000 per year. Episcopal Management Corporation sought review of that assessment before the Salt Lake County Board of Equalization, which found the Tower to be exempt from real property tax because it was used exclusively for charitable purposes within the meaning of article 13, section 2 of the Utah Constitution. The State Tax Commission and the Third District Court affirmed the ruling of the Board of Equalization. The Salt Lake County Assesor appeals, contending that the property's use as housing for needy elderly and handicapped individuals is not exclusively a charitable one as defined by article 13, section 2, of the Utah Constitution.

Article 13, section 2 at the time of these proceedings ⁷ stated in pertinent part: "The property of the state, counties, cities, towns, school districts, municipal corporations and public libraries, lots with buildings thereon used exclusively for either religious worship or charitable purposes, ... shall be exempt from taxation."

Plaintiff contends that the use of the Tower to provide housing for needy elderly and handicapped families and individuals is not a truly charitable one and that the finding of a charitable use by both the tax commission and the district court impermissibly expands the language of article 13, section 2.

This Court has adopted the general rule that the language of the clause exempting property "used exclusively ... for charitable purposes" from taxation should be strictly construed. ⁸ This does not mean however that purposes exclusively charitable are limited to the mere relief of the destitute or the giving of alms. ⁹ In fact, what qualifies as a purpose exclusively charitable is "subject to judgment in the light of changing community mores." ¹⁰ With this in mind, a number of states have recognized that provision of low-cost housing to low-income handicapped and elderly people in a proper environment constitutes charity. ¹¹

In Utah, it is the use to which the real property is put, not the nature of the owning organization, which is determinative of whether or not the property is exempt as being used exclusively for charitable purposes. ¹² The test of charitable purpose is public benefit or contribution to the common good or the public welfare. ¹³ It is also necessary that there be an element of gift to the community. ¹⁴

In Utah County v. Intermountain Health Care, Inc., ¹⁵ the Court articulated six factors which consolidate some of the traditional factors considered by this Court and provide useful guidelines in determining whether a particular institution is using its property exclusively for charitable purposes. These are:

(1) whether the stated purpose of the entity is to provide a significant service to others without immediate expectation of material reward; (2) whether the entity is supported, and to what extent, by donations and gifts; (3) whether the recipients of the "charity" are required to pay for the assistance received, in whole or in part; (4) whether the income received from all sources (gifts, donations, and payment from recipients) produces a "profit" to the entity in the sense that the income exceeds operating and long-term maintenance expenses; (5) whether the beneficiaries of the "charity" are restricted or unrestricted and, if restricted, whether the restriction bears a reasonable relationship to the entity's charitable objectives; and (6) whether dividends or some other form of financial benefit, or assets upon dissolution, are available to private interests, and whether the entity is organized and operated so that any commercial activities are subordinate or incidental to charitable ones. ¹⁶

As can be seen from the foregoing facts and the following discussion, the Tower qualifies as a charitable use under all six of these guidelines and under the Court's traditional analyses.

Both this state and the Congress of the United States have recognized that the community benefits from efforts made to provide adequate housing for the low-income elderly and handicapped members of our society. The Utah State Legislature has stated:

It is declared to be the policy of the state of Utah to promote the general welfare of its citizens that it is necessary to remedy the unsafe and unsanitary housing conditions and the acute shortage of decent, safe, and sanitary dwellings for families of low income, in urban and rural areas. These conditions cause an increase and spread of disease and crime, and constitute a menace to the health, safety, morals and welfare of the state. It is the policy of the state of Utah to make adequate provision of housing for persons of low income, for elderly persons of...