McClain Museum, Inc. v. Madison County Assessor ( 2019 )

ATTORNEY FOR PETITIONER: ATTORNEYS FOR RESPONDENT:
JONATHON T. COOK CURTIS T. HILL, JR.
SANSBERRY DICKMANN BUILTA & COOK ATTORNEY GENERAL OF INDIANA
Anderson, IN REBECCA L. McCLAIN
WINSTON LIN
ALEKSANDRINA P. PRATT
DEPUTY ATTORNEYS GENERAL
Indianapolis, IN
IN THE FILED
Nov 07 2019, 4:07 pm
INDIANA TAX COURT CLERK
Indiana Supreme Court
Court of Appeals
and Tax Court
)
MCCLAIN MUSEUM, INC., )
)
Petitioner, )
)
v. ) Cause No. 18T-TA-00001
)
MADISON COUNTY ASSESSOR, )
)
Respondent. )
ON APPEAL FROM A FINAL DETERMINATION OF
THE INDIANA BOARD OF TAX REVIEW
FOR PUBLICATION
November 7, 2019
WENTWORTH, J.
McClain Museum, Inc. challenges the final determination of the Indiana Board of
Tax Review holding that its real property did not qualify for either the educational purposes
exemption or the charitable purposes exemption for the 2014 tax year. Upon review, the
Court affirms in part and reverses in part the Indiana Board’s final determination.
FACTS AND PROCEDURAL HISTORY
The McClain Museum, located in Anderson, Indiana, exhibits military equipment
that was used by the United States’ armed forces in various conflicts ranging from World
War I through Desert Storm. (See, e.g., Cert. Admin. R. at 98, 102, 151-64, 191-257,
1054-55, 1404-13.) Founded in 1989 by Joseph McClain, a local Vietnam War veteran,
the Museum was established as an Indiana not-for-profit corporation and granted an
exemption from federal income taxation pursuant to IRC § 501(c)(3). (See Cert. Admin.
R. at 99, 118-19, 1044, 1092.) The Museum’s purpose, as stated in its Bylaws, is:
(1) To acquire and conserve motorized and non-motorized vehicles
and equipment for historical preservation.
(2) To exhibit the collection of vehicles and equipment for purpose of
educating visiting public.
(3) To collect, restore and exhibit military armored equipment.
(4) To conduct research in the area of motorized and non-motorized
vehicles and equipment and collect information for future preservation.
(5) To acquire, rebuild, and rent vehicles and equipment for public
use and display.
(6) Establish a facility for display of vehicles and equipment.
(7) To acquire and conserve historical items of Madison County’s
industrial and manufacturing history for an in-house, outreach and
traveling exhibits.
(8) To use the historical collection to educate and preserve Madison
County’s natural and cultural history and technological
accomplishments.
(9) To use the collection for scholarly research.
(10) Solely in furtherance of the aforesaid purposes to transact any
and all lawful business for which a not-for-profit corporation may be
incorporated under the Indiana Business Corporation Law, provided
such business is not inconsistent with the corporation being organized
and operated exclusively for charitable, educational, vocational and
scientific purposes.
(Cert. Admin. R. at 102.) The Museum is recognized by the United States Army as a
historical preservation site for military equipment. (See Cert. Admin. R. at 135, 1066-74.)
The Museum’s property consists of two buildings and a parking lot situated on
approximately 18 acres of partially wooded land. (See, e.g., Cert. Admin. R. at 150-90,
2
699-700.) The larger of the two buildings, at approximately 88,600 square feet, is divided
into several discrete sections:
(1) an exhibition area and library where retired military tanks, vehicles,
equipment, artillery-related items, uniforms, photographs, manuals
and books are displayed for public viewing;1
(2) a restoration area where military vehicles are serviced, repaired
and maintained;
(3) a storage area where exhibit items and excess vehicle parts are
housed when not on display or in use;
(4) a reception/meeting hall known as the “Officer’s Club.”
(See, e.g., Cert. Admin. R. at 150, 191-340, 1124-28, 1198-99, 1315-19.) (See also
generally Cert. Admin. R. at 1194-1233 (testimony describing the approximately 200
photographs of the subject property).) The smaller building, at approximately 5,400
square feet, is used entirely for military vehicle storage. (Cert. Admin. R. at 150.) (See
also Oral Arg. Tr. at 3.)
During the year at issue, the Museum was open to the general public Wednesday
through Friday from 1 p.m. to 4 p.m. (See Cert. Admin. R. at 567, 662-63.) Nevertheless,
the Museum was open upon request and guided tours were available by appointment.
(See Cert. Admin. R. at 567, 662-63, 1093-94, 1375.) Guided tours were conducted for
various veterans groups, school groups, scouting groups, police groups, and groups
interested in military communications. (See, e.g., Cert. Admin. R. at 567, 1370-77.) With
1
McClain loaned several rebuilt tanks and retired military vehicles from his own personal
collection to the Museum when it first opened. (See Cert. Admin. R. at 1100-03.) In 2014,
however, all but one of the military vehicles exhibited at the Museum were on loan from either the
federal government or other individuals’ private collections. (See, e.g., Cert. Admin. R. at 143-
49, 1065-67, 1164-65.) Uniforms and other military-related mementos and paraphernalia were
typically on loan to the Museum from the private collections of local individuals. (See Cert. Admin.
R. at 1079.)
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volunteer participation, the Museum also performs military reenactments for the public
using some of its equipment and vehicles. (See Cert. Admin. R. at 1381-83.)
To make it economically accessible to all, the Museum did not charge admission
fees during the year at issue; it did, however, accept donations.2 (Cert. Admin. R. at 1057,
1078, 1080.) (But see Cert. Admin. R. at 1388-89 (indicating that while the Museum
sought a small admission fee for scheduled guided tours, it nonetheless waived the fee
for those who could not afford to pay).) To defray some of its operating costs,3 the
Museum rented out a portion of its storage area (comprising approximately 9% of the
larger building’s total square footage) to individuals to store their boats. (See, e.g., Cert.
Admin. R. at 150, 341-68, 1033, 1095-97, 1181-88, 1190-93, 1282-83.) Moreover, the
Museum rented out the Officer’s Club for social events like wedding receptions and
parties, as well as to Yellowbook Inc. to store its Yellow Pages books. (See, e.g., Cert.
Admin. R. at 150, 369-448, 1033, 1193-94, 1238-41, 1245-51, 1282-83, 1309-14, 1357-
58.) In addition, the Museum also permitted the Anderson and Madison County Historical
Societies to house, free-of-charge, some of their exhibits that they did not have room to
store themselves. (See Cert. Admin. R. at 150, 1086, 1189-90 (indicating that the
societies occupied approximately 1,100 square feet of the Museum’s storage space, or
approximately 1% of the Museum’s total square footage).)
Apart from its bookkeeper, the Museum employed and paid only one staff member,
2
The founder of the Museum often made substantial donations to cover the Museum’s operating
costs. (See Cert. Admin. R. at 1083-84, 1252-53, 1258-60.)
3
Once the federal government approved the Museum’s application to receive a vehicle on loan,
the Museum was required to cover all subsequent costs associated with transporting, restoring,
maintaining, and securing the vehicles. (See Cert. Admin. R. at 1068-74, 1077.)
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a facilities manager. (Cert. Admin. R. at 1361-62.) That person performed the restoration
work on the military equipment, conducted tours, and provided round-the-clock security
services. (Cert. Admin. R. at 1361-64, 1367, 1370.) (See also Cert. Admin. R. at 1070,
1076-77, 1362-63, 1387-88 (indicating that given the stringent security measures the
Museum had to take to protect the vehicles that were on loan from the government, the
facilities manager lived on the premises).) Nevertheless, numerous unpaid volunteers,
along with Joseph McClain and his daughter Melissa, assisted with the day-to-day
operation of the Museum. (See, e.g., Cert. Admin. R. at 1380-87.)
In May of 2014, the Museum applied for the educational purposes exemption
provided for in Indiana Code § 6-1.1-10-16. (See, e.g., Cert. Admin. R. at 37-41.) The
Madison County Property Tax Assessment Board of Appeals denied the exemption
application. (Cert. Admin. R. at 46-47.) The Museum subsequently appealed to the
Indiana Board, claiming entitlement to both the educational purposes exemption and the
charitable purposes exemption. (See Cert. Admin. R. at 4-5.)
The Indiana Board held a hearing on the Museum’s appeal on June 11, 2015. On
November 21, 2017, the Indiana Board issued its final determination in which it found that
the Museum’s real property did not qualify for either exemption.4 (Cert. Admin. R. at 923-
59.)
On January 5, 2018, the Museum initiated an original tax appeal. The Court heard
the parties’ oral arguments on April 11, 2019. Additional facts will be supplied when
4
In its final determination, the Indiana Board also stated that while the Museum also sought an
exemption for its personal property, it failed to specifically identify through either its evidence or
argument what personal property it claimed to be exempt. (See Cert. Admin. R. at 950 ¶ 54 n.3.)
Given that the certified administrative record does not contain information about personal property
on appeal, the Indiana Board’s final determination with respect to this issue stands.
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necessary.
STANDARD OF REVIEW
The party challenging an Indiana Board final determination bears the burden of
demonstrating its invalidity. See Johnson Cty. Prop. Tax Assessment Bd. of Appeals v.
KC Propco LLC, 28 N.E.3d 370, 374 (Ind. Tax Ct. 2015). Accordingly, the Museum must
demonstrate to the Court that the Indiana Board’s final determination is either arbitrary,
capricious, an abuse of discretion, or otherwise not in accordance with law; contrary to
constitutional right, power, privilege, or immunity; in excess of or short of statutory
jurisdiction, authority, or limitations; without observance of procedure required by law; or
unsupported by substantial or reliable evidence. See IND. CODE § 33-26-6-6(e)(1)-(5)
(2019).
LAW
In Indiana, all tangible property is subject to taxation. IND. CODE § 6-1.1-2-1 (2014).
Nevertheless, the Indiana Constitution provides that the Legislature may exempt certain
categories of property from taxation. See IND. CONST. art X, § 1. Pursuant to that grant
of authority, the Legislature enacted Indiana Code § 6-1.1-10-16, which exempts real and
personal property that is owned, occupied, and used for, among other things, an
“educational” or “charitable” purpose. See generally IND. CODE § 6-1.1-10-16(a), (c), (e)
(2014).
Determining whether an exemption applies is a fact-sensitive inquiry. Hamilton
Cty. Assessor v. SPD Realty, LLC, 9 N.E.3d 773, 777 (Ind. Tax Ct. 2014). The taxpayer
has the burden to prove entitlement to an exemption by providing evidence that meets
every element of the exemption sought. See Fraternal Order of Eagles # 3988, Inc. v.
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Morgan Cty. Prop. Tax Assessment Bd. of Appeals, 5 N.E.3d 1195, 1200 (Ind. Tax Ct.
2014). Any ambiguity will be strictly construed in favor of taxation and against exemption.
Hamilton Cty. Prop. Tax Assessment Bd. of Appeals v. Oaken Bucket Partners, LLC, 938
N.E.2d 654, 657 (Ind. 2010).
ANALYSIS
On appeal, the Museum argues that the Indiana Board’s determination to deny it
the educational purposes exemption or the charitable purposes exemption must be
reversed because it constitutes “an abuse of discretion and [is] otherwise not in
accordance with [the] law.” (See, e.g., Pet’r Br. at 15-16, 18, 20, 29.) The Madison
County Assessor, however, contends that the Indiana Board’s final determination must
be affirmed because the Museum “has failed to show that its contribution to the Madison
County community justifies the loss of tax revenue” sufficient to award either exemption.
(See, e.g., Resp’t Br. at 5.)
The Educational Purposes Exemption
The educational purposes exemption is designed “‘to encourage non-
governmental entities to provide educational services for ‘the public welfare.’” Dep’t of
Local Gov’t Fin. v. Roller Skating Rink Operators Ass’n, 853 N.E.2d 1262, 1265 (Ind.
2006) (citation omitted). In order to qualify for the exemption, an applicant must show
that through the use of its property it provides a benefit to the public sufficient to justify
the loss in tax revenue. See id. The Indiana Supreme Court has explained that an
applicant can meet that burden by showing that it provides the public with either the same
educational training that would otherwise be furnished in Indiana’s tax-supported schools
or that it provides educational courses that are related to those found in tax-supported
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public schools, but not necessarily provided by them. Id.
The Museum argues on appeal that the Indiana Board clearly erred in its denial of
the educational purposes exemption because military history “is both directly and
indirectly related to subjects taught at our tax supported schools[.]” (Pet’r Br. at 19.)
Indeed, the Museum continues, military history
is an integral part of the curriculum in Indiana’s local state funded
elementary and secondary schools as well as the State supported
institutions of higher learning[.] Wars, and specifically the U.S.
involvement in those wars, take center stage in subjects like Social
Studies, U.S. History, Government, and Western Civilization.
Moreover, the affects [sic.] of those wars are tangentially apart [sic.]
of other subjects such as Economics, American Literature, Philosophy
and Political Science[.] . . . There is no question that war, and the way
those specific wars were fought, is taught in various subjects offered
in the curriculum at Indiana colleges, universities and tax supported
public elementary and secondary schools, and . . . is at least
“related” to those courses.
(Pet’r Br. at 18-19.)
In finding that the Museum did not qualify for the educational purposes exemption,
the Indiana Board explained that
[t]he McClain Museum is not a school. It does not offer courses on
historic preservation or military history. [It] has made no showing of
“instruction and training equivalent to that provided by tax-supported
institutions of higher learning and public schools.” [It] offered no
evidence of any type of curriculum or teaching plan.
(Cert. Admin. R. at 954 ¶ 64 (internal citation omitted).) Upon review, the Court will not
disturb the Indiana Board’s finding. While there is no doubt that the public is educated
and its knowledge enhanced about military history through the Museum’s displays, the
Museum has nonetheless made no showing – as is required by the aforementioned case
law – that it conducts educational services, training, or coursework related to that topic.
(See generally Cert. Admin. R.) Moreover, the Museum has made no showing that the
8
state’s burden to provide military history education is relieved or would be increased if it
were not for the Museum. (See generally Cert. Admin. R.) Consequently, the Indiana
Board’s final determination that the Museum’s property did not qualify for the educational
purposes exemption is affirmed.
The Charitable Purposes Exemption
With respect to this exemption, the term “charitable purpose” is defined and
understood in its broadest constitutional sense. Starke Cty. Assessor v. Porter-Starke
Servs., Inc., 88 N.E.3d 814, 817 (Ind. Tax Ct. 2017). Generally speaking, a charitable
purpose will be found to exist when “1) there is evidence of relief of human want . . .
manifested by obviously charitable acts different from the everyday purposes and
activities of man in general; and 2) there is an expectation of a benefit that will inure to
the public by the accomplishment of such acts.” SPD Realty, 9 N.E.3d at 775 (internal
quotation marks omitted).
In denying the Museum a charitable purposes exemption, the Indiana Board stated
that
The McClain Museum is named after the owner of the original
collection, and it appears that he and his daughter run the place as
they see fit. . . . While the facilities are regularly open to the public, it
is predominately used by a select number of persons who utilize the
facility for storing and maintaining equipment. The record does not
indicate significant efforts to advertise to the public or increase the
number of visitors.
****
We conclude that more than anything the McClain Museum is focused
on Mr. McClain’s hobby, collecting items related to military history.
The totality of the evidence shows that whatever public benefits might
result are merely incidental to that main focus.
****
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In the context of property tax exemption, “human want” is not just
human desire, but a need based on lack of a vital necessity. “Charity”
is not explicitly defined by statute, but the Tax Court has defined it in
part as an attempt to advance mankind in general, or those in need of
advancement and benefit in particular. [While the Indiana Board finds
the Museum’s] efforts in regard to veterans are certainly charitable and
relieve human want . . . these activities are . . . incidental relative to
the overall use of the property.
(Cert. Admin. R. at 953-55 ¶¶ 60-61, 66 (internal citation omitted).) Now, on appeal, the
Museum argues that the Indiana Board’s stated rationale fails “to properly interpret and
ultimately apply” the terms “charity” and “human want.” (See Pet’r Br. at 8-11.) The Court
agrees.
As previously stated, the term “charity” is to be broadly construed and thus
encompasses more than simply providing relief to the needy. To that end, this Court has
defined charity as:
a gift for, or institution engaged in, public benevolent purposes. [It is
a]n attempt in good faith, spiritually, physically, intellectually, socially
and economically to advance and benefit mankind in general, or those
in need of advancement and benefit in particular, without regard to
their ability to supply that need from other sources and without hope
or expectation, if not with positive abnegation, of gain or profit by donor
or by instrumentality of charity.
Raintree Friends Hous., Inc. v. Indiana Dep’t of State Revenue, 667 N.E.2d 810, 813-14
(Ind. Tax Ct. 1996) (citation omitted). Moreover, the Court has also explained that
“‘charity is not confined solely to the relief of the needy and destitute, but comprehends
as well activities which are humanitarian in nature and rendered for the general
improvement and betterment of mankind[.]’” College Corner, L.P. v. Dep’t of Local Gov’t
Fin., 840 N.E.2d 905, 909 (Ind. Tax Ct. 2006) (citation omitted). And as the Indiana Court
of Appeals has recognized,
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[a] purpose is charitable if its accomplishment is of such social interest
to the community as to justify permitting the property to be devoted to
the purpose in perpetuity. There is no fixed standard to determine
what purposes are of such social interest to the community; the
interests of the community vary with time and place.
State Bd. of Tax Comm’rs v. Methodist Home for the Aged of the Indiana Conference of
the Methodist Church, Inc., 241 N.E.2d 84, 89 (Ind. Ct. App. 1968) (citation omitted).
With this in mind, it is clear that through the Museum’s ownership, occupation, and
use of its property, it conveys a gift for the benefit of the general public that is charitable
in nature. Indeed, the Museum provides a place where members of the general public
can learn about our country’s military history and heritage as well as pay homage to its
veterans and their families for the sacrifices they made in defending our freedoms. (See,
e.g., Cert. Admin. R. at 138-40, 142, 255, 528, 1390-92.) At the Museum, visitors can
view actual helicopters, tanks, and artillery equipment and understand how they were
operated. (See, e.g., Cert. Admin. R. at 155-64, 206-07, 213, 1405-13.) From other
exhibits and displays, visitors can learn how members of our military were trained,
uniformed and learn how important battles were fought. (See, e.g., Cert. Admin. R. at
191, 196-200, 208-12, 222-55.) Many of the Museum’s war mementos and paraphernalia
on display belong to local persons who served in our armed forces. (See, e.g., Cert.
Admin. R. at 1079, 1165.) The Museum provides the public with access to its library of
books and manuals for use in their own military research or restoration work. (See, e.g.,
Cert. Admin. R. at 1124-28.) All of these activities enhance the public’s knowledge and
understanding of a part of the American experience. In this way, the Museum’s use
“comprehends . . . activities which are humanitarian in nature and rendered for the general
11
improvement and betterment of mankind” and thus qualifies it for a charitable exemption.
See College Corner, 840 N.E.2d at 909 (citation omitted).
Property Use Supports Less Than a 100% Exemption
Because the Museum property is used for both exempt and non-exempt purposes,
Indiana Code § 6-1.1-10-36.3 instructs how the charitable purposes exemption is to be
applied. It provides in relevant part:
(a) For purposes of this section, property is predominantly used or
occupied for [a charitable purpose] if it is used or occupied for [a
charitable purpose] during more than fifty percent (50%) of the
time that it is used or occupied in the year that ends on the
assessment date of the property.
(b) The determination under subsection (c) of:
(1) the use or occupation of the property; and
(2) the application of an exemption;
applies separately to each part of the property identified under I.C. 6-
1.1-11-3(c)(5).
(c) If a section of this chapter states one (1) or more purposes for
which property must be used or occupied in order to qualify for an
exemption, then the exemption applies as follows:
(1) Property that is exclusively used or occupied for [a charitable
purpose] is totally exempt[;]
(2) Property that is predominantly used or occupied for [a
charitable purpose] by a church, religious society, or not-for-profit
school is totally exempt[;]
(3) Property that is predominantly used or occupied for [a
charitable purpose] by a person other than a church, religious society,
or not-for-profit school is exempt . . . on the part of the assessment . .
. that bears the same proportion to the total assessment of the
property as the amount of time that the property was used or occupied
for [the charitable purpose;]
(4) Property that is predominantly used or occupied for a purpose
other than one (1) of the stated purposes is not exempt from any part
of the property tax.
IND. CODE § 6-1.1-10-36.3(a)-(c) (2014).
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The Museum’s exhibition area, restoration area, and the majority of its storage
area are all exclusively used for its charitable purpose.5 Accordingly, those spaces are
entitled to a 100% exemption. See I.C. § 6-1.1-10-36.3(a)-(c)(1). Nonetheless, the
Museum used specific portions of its storage space and its Officer’s Club for the non-
charitable activities of boat storage, Yellowbook storage, and non-Museum related social
events. See supra at p. 4. To exempt those spaces, the Museum was required to present
evidence demonstrating that they were used for exempt purposes more than they were
used for non-exempt purposes. See, e.g., Hamilton Cty. Assessor v. Duke, 69 N.E.3d
567, 570 (Ind. Tax Ct. 2017) (citing both I.C. § 6-1.1-10-36(a) and State Bd. of Tax
Comm’rs v. New Castle Lodge #147, Loyal Order of Moose, Inc., 765 N.E.2d 1257, 1262-
63 (Ind. 2002)), review denied).)
The Museum’s evidence demonstrates that approximately 9% of its total square
footage was used to store boats seven months out of the year. (See, e.g., Cert. Admin.
R. at 150, 341-68, 1182-88, 1190-93.) As a result, that space was not predominately
used for charitable purposes during 2014 and therefore ineligible for an exemption. See
I.C. § 6-1.1-10-36.3(a)-(c). The Museum’s evidence also indicates that during the year
at issue, the Officer’s Club, which occupies 15% of the Museum’s total square footage,
was rented “somewhere between” 14 and 28 times for social events and to store yellow
5
In its final determination, the Indiana Board concluded that the Museum’s property is “much
larger than necessary to support the museum[.]” (Cert. Admin. R. at 951 ¶ 57.) This conclusion
is not, however, supported by the evidence in the certified administrative record. (See, e.g., Cert.
Admin. R. at 162-80, 206-07, 215-22 (all indicating how large the vehicles are), 1116 (indicating
that exhibits are periodically rotated and thus, when not on display, vehicles had to be stored),
1378-81 (indicating the amount of space necessary to move and/or disassemble large vehicles
like tanks), 1382-83 (indicating that reenactments using the large motorized vehicles were
conducted outside on the grounds).)
13
pages for approximately one month. (See, e.g., Cert. Admin. R. at 150, 372-73, 441-48,
1193-94, 1245-51, 1309-14, 1357-58.) That evidence does not demonstrate that the
Officer’s Club was predominately used for any charitable purposes. Finally, the
Museum’s evidence indicates that the Anderson and Madison County Historical Societies
used approximately 1% of the Museum’s total square footage, free-of-charge, for its own
storage. (See Cert. Admin. R. at 150, 1086, 1189-90.) Again, without anything more, the
Court cannot find that the space was predominately used for a charitable purpose.
CONCLUSION
For the foregoing reasons, the Indiana Board’s final determination that the
Museum’s property did not qualify for an educational purposes exemption is AFFIRMED.
The Indiana Board’s final determination that the Museum’s property did not qualify for a
charitable purposes exemption, however, is REVERSED. The evidence contained in the
administrative record supports the Court’s finding that the Museum’s property is eligible
for a 75% exemption.6 The matter is therefore REMANDED to the Indiana Board to
ensure that the Madison County Assessor complies with the Court’s instructions
contained in this opinion. See, e.g., Switzerland Cty. Assessor v. Belterra Resort Indiana,
LLC, 130 N.E.3d 672, 675-76 (Ind. Tax Ct. 2019).
6
The Museum has argued that because its property received a 100% exemption in 1996,
collateral estoppel mandates that it receive the same exemption now. (See Pet’r Br. at 31-34.)
The Court rejects this argument. See, e.g., Hamilton Cty. Assessor v. SPD Realty, LLC, 9 N.E.3d
773, 777 (Ind. Tax Ct. 2014) (explaining that determining whether an exemption applies is a fact-
sensitive inquiry); Fleet Supply, Inc. v. State Bd. of Tax Comm’rs, 747 N.E.2d 645, 650 (Ind. Tax
Ct. 2001) (indicating that each assessment year, and thus each exemption request, stands alone),
review denied.
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