Youth Programs v. Tenn. State Bd. of Equ.

• Decision Date: 14 December 2004
• Docket Number: No. W2003-02817-COA-R3-CV.,W2003-02817-COA-R3-CV.
• Citation: 170 S.W.3d 92
• Parties: YOUTH PROGRAMS, INC. v. TENNESSEE STATE BOARD OF EQUALIZATION, et al.
• Court: Tennessee Supreme Court

Page 92

170 S.W.3d 92

YOUTH PROGRAMS, INC. v. TENNESSEE STATE BOARD OF EQUALIZATION, et al.

No. W2003-02817-COA-R3-CV.

Court of Appeals of Tennessee, at Jackson.

September 22, 2004 Session.

December 14, 2004.

Application for Permission to Appeal Denied by Supreme Court May 23, 2005.

Paul G. Summers, Attorney General and Reporter, Mary Ellen Knack, Assistant Attorney General, for the appellant, Tennessee State Board of Equalization.

Brian L. Kuhn, Shelby County Attorney and Thomas E. Williams, Assistant County Attorney, for the appellant, Shelby County Assessor of Property.

R. Grattan Brown, Jr. and Katherine P. Griffin, Memphis, Tennessee, for the appellee, Youth Programs, Inc.

OPINION

DAVID R. FARMER, J., delivered the opinion of the court, in which W. FRANK CRAWFORD, P.J., W.S., and HOLLY J. KIRBY, J., joined.

The chancery court reversed the Assessment Appeals Commission and held that Youth Programs, a charitable organization, is entitled to a property tax exemption on real property in Shelby County used in conjunction with the FedEx/St. Jude Classic golf tournament. The trial court determined the disputed property is used exclusively for a charitable purpose and that an unusable area is used constructively and is likewise exempt. The Shelby County Assessor of Property and the State appeal. We affirm.

This dispute requires us to determine whether real property located in the Southwind Planned Development ("Southwind") in Shelby County ("the property") and owned by Youth Programs, Inc. ("Youth Programs") is exempt from property taxation under Tennessee Code Annotated § 67-5-212(a)(1)(A). The parties do not dispute the facts underlying this lawsuit, and stipulated to them at trial.

Youth Programs was organized in 1960 and is a non-profit, 501(c)(3) organization.¹ Its purpose is to raise funds for other 501(c)(3) charitable organizations, and St. Jude Children's Research Hospital, located in Memphis, ("St. Jude") has been its sole beneficiary since 1970. Youth Programs conducts one event a year: the FedEx/St. Jude Classic golf tournament ("the tournament"). The tournament is a PGA professional tournament and is conducted pursuant to the terms of a PGA Tour Sponsor Agreement executed in 1999. The PGA Tour receives entry fees for players who participate in the tournament. Additionally, Youth Programs and Federal Express Corporation ("FedEx") entered into a Sponsorship Agreement in 1998, pursuant to which FedEx is the title sponsor of the tournament. Under the Sponsorship Agreement, FedEx provides security services, express shipping services, and communication at no charge. FedEx also makes monetary contributions to Youth Programs to partially fund the tournament's three-million dollar prize purse. Youth Programs generates the sums necessary to fund the remainder of the purse and to pay other costs. As of December 2001, when this matter was heard before the Assessment Appeals Commission, Youth Programs was conducting the tournament with five full-time and six part-time staff members and approximately 1,400 community volunteers. Youth Programs donates the proceeds from the tournament to St. Jude. The tournament had generated over $12,500,000 for St. Jude through the date of the 2001 hearing.

Youth Programs uses the property which is the subject of this action for one month a year, exclusively for the tournament. For the remainder of the year, the property is closed to the public and unused. This property includes two parcels of land: Parcel 9/Lot C and Lot 25. Parcel 9/Lot C is a 24 acre lot. Youth Programs uses 17 acres of this parcel as a staging area for three weeks prior to the tournament and as a parking area for approximately 1,700 vehicles for one week during the tournament. The remainder of Parcel 9/Lot C is wooded and unusable. Youth Programs uses Lot 25 as a walkway from Parcel 9/Lot C to the tournament grounds. For the tournament itself, Youth Programs uses the golf facility at Southwind free of charge under an agreement entered into between Youth Programs and the Tournament Players Club at Southwind. Much of the revenue raised from the tournament is generated by the sale of corporate ticket packages, which include passes for parking on the property. Phil Cannon, the Director of the tournament, characterized the parking passes as an "integral part of every sale we (Youth Programs) make(s)."

In September 1999, Youth Programs applied to the State Board of Equalization for a charitable exemption from ad valorem property taxation on the property. The Shelby County Assessor of Property ("the County") and the Tennessee Board of Equalization ("the Board") denied Youth Programs' applications for property tax exemptions relative to the property. The Board reasoned that, despite its not-for-profit status, Youth Programs fundamentally is engaged in the business of producing a sporting event. The Board determined, therefore, that Youth Programs was not entitled to property tax exemption under Tennessee Code Annotated § 67-5-212(a)(3)² because it uses the property for commercial rather than charitable purposes. The Assessment Appeals Commission affirmed the Board's determination.

Youth Programs appealed the determination of the Assessment Appeals Commission to the Shelby County Chancery Court, which reversed. The chancellor determined that, as a charitable organization whose sole purpose is to raise funds for other charitable organizations, Youth Programs uses its property exclusively in accordance with its charitable purpose as required by Tennessee Code Annotated § 67-5-212(a)(1)(A). The chancellor further held Youth Programs is not fundamentally engaged in a business enterprise, and that the use of its property was a reasonable use. Accordingly, the chancellor held Youth Programs is exempt from ad valorem property taxation. The State and the County (collectively, "the State") filed timely appeals to this Court. We affirm.

Issues Presented

Appellants present the following issues for our review:

1. Whether the chancery court erred in holding that Youth Programs was entitled to an exemption from ad valorem property taxation for property used as a parking and staging area for the FedEx/St. Jude Classic.

2. Whether the chancery court erred in holding that Youth Programs was entitled to a property tax exemption for the entire 24-acre tract of land known as Parcel 9/Lot C when it was undisputed that only 17 acres of the property were actually used by Youth Programs.

The County presents the additional issue of whether the trail court applied the incorrect standard of review or incorrectly substituted its judgment for that of the State Board of Equalization.

Standard of Review

This appeal involves determinations of matters of law. We review the trial court's conclusions on matters of law de novo, with no presumption of correctness. Tenn. R.App. P. 13(d); Bowden v. Ward, 27 S.W.3d 913, 916 (Tenn.2000).

Analysis

We first address the issue raised by the County regarding the trial court's standard of review. The County asserts the trial court incorrectly applied a de novo standard of review. The Administrative Procedures Act governs appellate review of an administrative law judge's decision. Freedom Broad. of TN, Inc. v. Tennessee Dep't of Revenue, 83 S.W.3d 776, 780 (Tenn.Ct.App.2002)(citing Sanifill of Tenn., Inc. v. Tennessee Solid Waste Disposal Control Bd., 907 S.W.2d 807, 809 (Tenn.1995)). The Act provides, in pertinent part:

The court may affirm the decision of the agency or remand the case for further proceedings. The court may reverse or modify the decision if the rights of the petitioner have been prejudiced because the administrative findings, inferences, conclusions or decisions are:

(1) In violation of constitutional or statutory provisions;

(2) In excess of the statutory authority of the agency;

(3) Made upon unlawful procedure;

(4) Arbitrary or capricious or characterized by abuse of discretion or clearly unwarranted exercise of discretion; or

(5) Unsupported by evidence which is both substantial and material in the light of the entire record.

Tenn.Code Ann. § 4-5-322(h)(1998). Review of an agency's findings of fact is limited to the record of the case. Tenn.Code Ann. § 4-5-322(g)(1998); Freedom Broad., 83 S.W.3d at 781 (citing Sanifill, 907 S.W.2d at 810). The application of the law to the facts, however, is a question of law that may be addressed by the courts. Id. The question of whether the purpose for which property is used qualifies the property as exempt from taxation under the statutes is a question of law for the courts. Book Agents of the Methodist Episcopal Church, S. v. State Bd. of Equalization, 513 S.W.2d 514, 521 (Tenn.1974)(citing Oak Ridge Hosp. v. City of Oak Ridge, 57 Tenn.App. 487, 420 S.W.2d 583 (1967)).

In the present case, the parties have stipulated to the facts. The manner in which Youth Programs uses its property is not disputed. The only question before the trial court was whether this purpose qualifies the property for tax exempt status under section 67-5-212. Therefore, the trial court applied the correct standard of review.

We turn next to whether the chancery court erred in determining Youth Programs is entitled to an ad valorem property tax exemption on property used exclusively for the tournament to raise funds for St. Jude. Article 2, Section 28 of the Constitution of Tennessee subjects all property to taxation but grants authority to the legislature to exempt certain properties, including properties "held and used for purposes purely religious, charitable, scientific, literary, or educational." The legislature has exercised this authority through the Tennessee Code, which, as currently codified at 67-5-212, provides:

(a)(1)(A) There shall be exempt from property taxation the real and personal property, or any part thereof, owned by any religious, charitable, scientific or nonprofit educational institution which is occupied and used by such...