Evergreen Aviation & Space Museum v. Yamhill County Assessor ( 2012 )

IN THE OREGON TAX COURT
MAGISTRATE DIVISION
Property Tax
EVERGREEN AVIATION AND SPACE )
MUSEUM and THE CAPTAIN MICHAEL )
KING SMITH EDUCATIONAL )
INSTITUTE, )
)
Plaintiffs, ) TC-MD 120587D
)
v. )
)
YAMHILL COUNTY ASSESSOR, )
)
Defendant. ) DECISION
Plaintiffs appeal Defendant‟s denial of its 2011-12 tax year “application for Real and
Personal Property Tax Exemption under ORS 307.130 (Literary, benevolent, charitable,
scientific institutions, volunteer fire department)” for personal property identified as Account
545602. A trial for the above-entitled matter and four other related cases (TC-MD 111230D,
111231D, 111240D and 111241D) was held on June 18, 2012. Kevin L. Mannix, Attorney at
Law, appeared on behalf of Plaintiffs. Delford M. Smith (Smith), Plaintiffs‟ founder, Blythe
Berselli (Berselli), President of Evergreen Aviation and Space Museum and board member,
Larry Wood (Wood), Evergreen Aviation and Space Museum Executive Director, Philip D.
Jaeger (Jaeger), Evergreen Aviation and Space Museum Director of Operations, Mary Alice
Russell (Russell), McMinnville School District Superintendant, and Janeanne Upp (Upp), High
Desert Museum President, Bend, Oregon, testified on behalf of Plaintiffs. Brian A. Linke
(Linke), Yamhill County Registered Appraiser III, appeared and testified on behalf of Defendant.
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DECISION TC-MD 120587D 1
Plaintiffs‟ Exhibits 1 through 33 and Defendant‟s Exhibits A through I were admitted
without objection.1
I. STATEMENT OF FACTS
Smith testified that he founded the Evergreen Aviation & Space Museum, stating
Plaintiffs‟ mission is: (1) To inspire and educate; (2) To promote and preserve aviation and space
history; and (3) To honor the patriotic service of our veterans. Smith testified that the continuing
goal of Plaintiffs is to “expand their educational program.” He described and Russell concurred
that a strong business partnership exists between Plaintiffs and the McMinnville School District
(District).
A. Programs
Russell, who has 32 years of teaching and administrative experience, testified about the
numerous programs jointly sponsored by Plaintiffs and the District, including STEM (Science,
Technology, Engineering and Math) and ESA (Engineering Space Academy) and their
relationship with Chemekata College that gives college credit to high school students who
satisfactorily complete the ESA course requirements. Russell testified that “Evergreen Truck
Stop” is a program that teaches students “how to fix a vehicle;” “Saturday Academy” operates in
conjunction with Chemekata College; “Science of Skateboarding” offered 500 fifth graders the
opportunity to “measure time and distance” while skateboarding in the museum; and the
“robotics team” is a “spin off” from the ESA program for 30 students. Russell testified that “the
museum complex offers educational programs that are a direct supplement” to the District‟s
educational offerings.
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1
Defendant‟s exhibits A through I, submitted for TC-MD No 111241D, were admitted for the above
entitled matter.
DECISION TC-MD 120587D 2
Russell and Wood testified that Plaintiffs‟ six classrooms located in the Aviation
Museum are used for the ESA program in addition to another three classrooms located in the
Space Museum. Linke testified that it is his understanding that the three Space Museum
classrooms were also available for rent or use as meeting or conference rooms. Wood, a retired
military officer (1997) and teacher (2006), testified that he would describe those classrooms as
“multi-purpose,” estimating that “less than 25 percent of their use is by outside groups,” and they
are “principally used as classrooms.”
Russell testified that the District hires certified teachers for the ESA program and Wood
testified that Plaintiffs employ “five certified teachers.” Wood testified that Plaintiffs employ a
“young man in a van, who travels around the state delivering educational material to
classrooms.”
Wood testified that Plaintiffs offer scholarships to bring “more children into the
buildings.” He testified that “discounts” are offered to school groups and fees are waived for
those who cannot pay to participate. Wood testified that Plaintiffs work with Boy Scouts and
Girl Scouts to offer programs that allow a scout to earn merit badges and one day a month is
“home school day” for those children who are home schooled, offering “more toys” than a home
school parent could offer. Wood testified that there is an aviation maintenance program and
camping is allowed on the grounds. He testified that “Discovery Ambassadors” are trained on
Saturdays and Sundays to “learn how the museum works and some individuals are involved in
restoring a Cessna 206” with the goal of “getting it to fly again.” Wood testified that
“restoration” work is performed by a group of volunteers who are supervised by a licensed
mechanic.
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DECISION TC-MD 120587D 3
B. Campus
Wood testified about the subject property‟s “campus” and how the subject property is
allocated to different uses. He testified that in the Aviation Museum and the Space Museum
there are “café/cafeterias” with “commercial grade kitchens” that serve lunch to students,
volunteers (no cost), and Plaintiffs‟ employees and the facilities are open to the public without
paying admission to the museums. (Def‟s Ex L-R4423-00601, TC-MD 111230D.) Wood
described various catered events held on the subject property and the use of the kitchen by
Chemekata College‟s culinary program. Jaeger testified that it is a “known fact” that if food is
available “it keeps visitors there and revenue is generated to support” the educational mission of
the subject property. Russell testified that the District “is dependent” upon the cafeterias to serve
a “healthy hot lunch” to the students.
Wood testified that the “Aviation and Museum Stores” sell items that match the theme of
the museum (e.g. Spruce Goose t-shirts) and other items that include “educational” models and
“little airplanes,” posters, science kits, puzzles, books, CDs, and DVDs. Linke testified that the
stores sell “the for profit corporation logo items.” (Def‟s Ex L-R4423-00600, TC-MD
111231D.) Wood testified that individuals can access the stores without paying an admission
fee. (Def‟s Exs J-R4423-00600, TC-MD 111231D; M-R4423-00601, TC-MD 111230D.)
Wood testified that the “IMAX Theatre” shows 45 to 50 minute educational films and
Jaeger testified that each of the movies that are shown has an educational message and “teacher‟s
guides” are available for many of the movies. (Ptfs‟ Ex 29.) Wood and Jaeger testified that the
“admission ticket booth” is also a concession stand, selling popcorn and soft drinks. (Def‟s Ex
O-R4423-00601, TC-MD 111230D.) Wood testified that having popcorn available results in a
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DECISION TC-MD 120587D 4
“more complete experience” for someone attending a movie. In response to questions about
ownership and lease arrangements, Berselli and Jaeger testified that Evergreen Vintage Aircraft
(the “for profit corporation”) purchased the IMAX equipment in 2007. They testified that there
is “no written lease agreement” between Plaintiffs and Evergreen Vintage Aircraft and “zero
rent” is paid by Plaintiffs for the use of the theatre and equipment. Jaeger testified that the
“museum covers annual operating expenses.” Linke testified that there is a document titled
Agreement for Sublease of IMAX 3D SR Projection System, dated December 29, 2010, stating
the “fees” that Plaintiffs will pay to Evergreen Vintage Aircraft for Plaintiffs to operate the
IMAX 3D SR Projection System. (Def‟s Ex H, TC-MD 111241D.) Linke testified that the
“theater is exempt” but the “lease does not allow the county to grant an exemption because the
rent is not set below market.” He testified that “IMAX should not get tax benefit due to tax
exempt status of the theater.” Plaintiffs allege that the “personal property” should be taxed if the
real property is taxed and noted that this is “the first year ever” that Defendant is “taxing”
personal property.
Wood testified that the “child‟s play area” in the Space Museum provides a place for
children “to relax and learn by playing.” He testified that there is “jungle gym” equipment that
simulates helicopter controls. (Def‟s Ex I-R4423-00600, TC-MD 111231D.) Jaeger described
that the equipment as an “aircraft ride, like a carousel, with arms that move up and down when a
child pulls back on the yoke.”
The parties agree that the subject property‟s area allocated to the wine bar that is operated
by Evergreen Vintage Aircraft, Inc. is taxable. The parties dispute the square footage allocated
to the wine bar. (Def‟s Ex N-R4423-00601, TC-MD 111230D.) Jaeger testified that the 5,000
square feet reserved for Evergreen Vintage Aircraft, Inc‟s uses as stated in the Lease Agreement,
DECISION TC-MD 120587D 5
dated January 1, 2000, was space allocated to the wine bar. (Def‟s Ex P-5, Sec 2.1, TC-MD
111230D.) Jaeger testified that Plaintiffs allocated no more than 1,120 square feet in the Space
Museum and 1,200 square feet in the Aviation Museum for the wine bar. (Ptfs‟ Ex 33.)
Jaeger testified that two weeks prior to trial he measured the subject property‟s space
allocated to different uses. (Ptfs‟ Ex 33.) On redirect, Jaeger testified that the area allocated to
the Museum café was 300 square feet larger as of the assessment date, January 1, 2011. Linke
testified that he measured the outside of the subject property in 2010, “measured the interiors of
the Space Museum when it was newly built” and relied on the subject property‟s blue prints.
(Def‟s Exs D, TC-MD 111230D; C, TC-MD 111231D.) Linke testified that he was “not aware
that some offices were used by the museum.”
Jaeger testified that the subject property is available for rent and the “venue makes the
events,” especially for weddings and receptions. He testified that there is “outreach to others to
use the facility.” Linke questioned whether “special events” further Plaintiffs‟ “educational and
charitable work.” (Def”s Ex M-R4423-00600, TC-MD 111231D.) He testified that Defendant
does not agree with Plaintiffs‟ “totality concept” that “just because it is associated with education
it should be exempt.” Linke testified that each “individual component‟s use” should be
considered when determining exemption from property taxation.
C. Displays
Wood testified that the subject property is a “living museum” with moveable displays
that change on a regular basis. He testified that there needs to be “open spaces” to change
displays, especially given the size of the aircraft that are moved from one location to another,
inside or outside the buildings. Jaeger testified that the subject property was “designed to grow.”
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DECISION TC-MD 120587D 6
D. High Desert Museum, Bend, Oregon
Upp, who for the last four and one-half years has been the president of the High Desert
Museum, testified that the High Desert Museum offers an education based program within its
110,000 square foot building and 135 acres. She testified that there are three “changing”
galleries. Upp testified that the “Silver Sage Trading Store” sells sketches and is “known for its
books.” She testified that the museum which is located six miles from Bend has a café that is
“for the benefit of the visitor,” offering a “place to rest and eat” and allows guests, who she
describes as “multi-generational” (e.g., grandparents, parents and children), to “extend their
stay.” Upp testified that all the money received from the store and café “support the museum”
and the museum is “100 percent property tax exempt.”
II. ANALYSIS
“Generally, all property located within Oregon is taxable.” Living Enrichment Center v.
Dept. of Rev., 19 OTR 324, 328 (2007) (citing ORS 307.030 (2003)). “It has long been the rule
in Oregon that property is subject to taxation unless specifically exempted.” Id. (quoting
Christian Life Fellowship, Inc. v. Dept. of Rev., 12 OTR 94, 96 (1991)). Exemption provisions
“should be strictly construed in favor of the state and against the taxpayer.” North Harbour
Corp. v. Dept. of Rev., 16 OTR 91, 94 (2002) (citing Mult. School of the Bible v. Mult. Co. (Mult.
School of the Bible), 218 Or 19, 27, 343 P.2d 893 (1959)). That rule of construction means
“strict but reasonable[,]” which “requires an exemption statute be construed reasonably, giving
due consideration to the ordinary meaning of the words of the statute and the legislative intent.”
Id. at 95 (citing Mult. School of the Bible, 218 Or at 27-28).
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DECISION TC-MD 120587D 7
Plaintiffs assert that the subject property with limited exceptions qualifies for exemption
from property taxation, because it meets the statutory requirements of ORS 307.130(2)2 which
provides, in pertinent part, that:
“Upon compliance with ORS 307.162, the following property owned or
being purchased by art museums, volunteer fire departments, or incorporated
literary, benevolent, charitable and scientific institutions shall be exempt from
taxation:
“(a) Except as provided in ORS 748.414, only such real or personal
property, or proportion thereof, as is actually and exclusively occupied or used in
the literary, benevolent, charitable or scientific work carried on by such
institutions.”
ORS 307.130(2).
A. Benevolent, Charitable or Scientific Institution
Plaintiffs allege that they are charitable and scientific organizations engaged in charitable
and scientific work. The Oregon Supreme Court described scientific organizations in the context
of ORS 307.130. The Supreme Court stated:
“Scientific societies are usually and ordinarily understood to embrace
organizations for the promotion of science or the pursuit of scientific studies for
the purpose of developing science, rather than as a student in a college or
university for his own edification.”
Kappa Gamma Rho v. Marion County, 130 Or 165, 176, 279 P 555 (1929).
Plaintiffs allege that they qualify as a scientific organization because “[a]eronautics is
defined in the Merriam-Webster dictionary as a science dealing with the operation of aircraft”
and Plaintiffs‟ “mission is to inspire and educate the public, and promote and preserve aviation
and space history,” as evidenced by “the activities which take place at” the subject property.
(Ptfs‟ Trial Mem at 2-3.) Defendant reviewed Plaintiffs‟ application on the basis that it was a
charitable organization and gave no consideration to whether it was a scientific organization.
2
All references to the Oregon Revised Statutes (ORS) are to the 2011 edition, all references to the Oregon
Administrative Rules (OAR) are to the current version unless otherwise stated.
DECISION TC-MD 120587D 8
The court finds that Plaintiffs‟ mission and its activities are consistent with the concept of
a scientific organization. Through its partnership with the McMinnville School District and
Chemekata College, Plaintiffs offer educational opportunities for scientific inquiries into the
operation of aircraft and create interactive learning opportunities to uncover the wonders of
space. Plaintiffs create numerous programs staffed by certified educators and licensed
professionals, offering scholarships and funding educational events for those who cannot pay the
fee. Plaintiffs‟ programs are designed to promote an interest in aeronautics, to preserve vintage
aircraft and to offer a historical perspective that encourages future development and exploration.
The court finds that Plaintiffs are a scientific institution within the meaning of ORS 307.130.
“Although a scientific organization must be in the nature of a public charity, it is
distinguishable from a charity organization.” Math Learning Center v. Dept. of Rev. (Math
Learning Center), 14 OTR 62, 65 (1996). The Oregon Supreme Court has held that, for
purposes of ORS 307.130, the words “ „benevolent‟ used in connection with the word
„charitable‟ ” are synonymous. Methodist Homes, Inc. v. Tax Com., 226 Or 298, 308-309, 360
P.2d 293 (1961) (citing Behnke-Walker v. Multnomah County, 173 Or 510, 519, 146 P.2d 614(1944)). There are, however, some significant differences between charitable and scientific
institutions. “Although a scientific organization must be in the nature of a public charity, it is
distinguishable from a charitable organization. A charitable organization must have charity as its
primary, if not its sole, object. A literary or scientific organization has a different primary
purpose.” Math Learning Center 14 OTR at 65 (1996) (citing Dove Lewis Mem. Emer. Vet.
Clinic v. Dept. of Rev., 301 Or 423, 427, 723 P.2d 320 (1986)). Notwithstanding the primary
purpose of literary or scientific organizations, those types of organizations “must be charitable in
nature.” Theatre West of Lincoln City, Ltd. v. Dept. of Rev., 12 OTR 479, 482 (1993) rev’d on
DECISION TC-MD 120587D 9
other grounds 319 Or 114, 873 P.2d 1083 (1994). This means that a literary or scientific
organization “cannot qualify for the exemption unless a significant portion of its activities have a
charitable objective.” Theatre West of Lincoln City, Ltd. v. Dept. of Rev., 319 Or 114, 117, 873
P2d 1083 (1994). “The underlying rationale for this is that tax exemption is given in return for
the performance of functions that benefit the public.” Math Learning Center, 14 OTR at 65.
B. Exclusive Use
The parties agree that Plaintiffs are organized under Oregon law as a public benefit
corporation. The issue before the court is whether the use made of the subject property qualifies
for exemption under the statute. Property or a portion of a property shall be exempt from
taxation if it is “actually and exclusively occupied or used in the * * * charitable or scientific
work carried on by such institutions.” ORS 307.130(2)(a).
“[T]he words „exclusively occupied or used,‟ * * * refer to the primary purpose
for which the institution was organized and includes any property of the
institution used exclusively for any facility which is incidental to and reasonably
necessary for the accomplishment and fulfillment of the generally recognized
functions of such a charitable institution.”
Mult. School of Bible, 218 Or at 36-37. “It is the actual occupancy of the property which
determines its right to exemption[.]” Id. at 40 (citing Hibernian Benevolent Society v. Kelly,
28 Or 173, 42 P 3 (1895)). However, this court has determined that Plaintiffs are scientific
organizations and, therefore, Plaintiffs do not have to establish charity as their primary purpose.
It is not necessary for Plaintiffs to meet the tests set forth in Methodist Homes, Inc. v. Tax Com.,
226 Or 298, 309-10, 360 P2d 293 (1961), because those tests are designed to determine whether
the organization operates with charity as its primary object. Both parties agree that Plaintiffs do
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DECISION TC-MD 120587D 10
“engage in some truly donative activities.” Math Learning Center 14 OTR at 67. Plaintiffs are
nonprofit entities that provide no benefit for the founder, officers or employees and rely on
volunteers and admission revenue to support their scientific activities. Plaintiffs‟ partnership
with the District supplements or relieves a government burden. The court concludes that
Plaintiffs‟ activities are charitable in nature.
With respect to the exclusive use of the property, ORS 307.130(2)(a) requires that the
property be “actually and exclusively occupied or used in the * * * charitable or scientific work
carried on by such institutions.” The parties agree that the majority of the subject property‟s
square footage is exclusively used for Plaintiffs‟ charitable and scientific work. The court
concludes that the Theater is exempt from property taxation. At issue is personal property,
IMAX projection equipment, located in the Theater.
C. Personal Property: IMAX Projection Equipment
Plaintiffs allege that “the IMAX projection equipment is operated under a valid sublease
agreement, the rent established in the sublease is below market rent, and the IMAX projection
equipment should be exempt from taxation.” (Ptfs‟ Trial Memo at 6.)
Tax exemption of property held under a lease or sublease by an exempt organization are
governed by statute:
“Real or personal property of a taxable owner held under lease, sublease
or lease-purchase agreement by an * * * organization * * * granted exemption or
the right to claim exemption for any of its property under ORS 307.090, 307.130,
307.136, 307.140, 307.145, or 307.147, is exempt from taxation if:
“(a) The property is used by the lessee * * * in the manner, if any,
required by law for the exemption of property owned, leased, subleased or being
purchased by it; and
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DECISION TC-MD 120587D 11
“(b) It is expressly agreed within the lease * * * that the rent payable by
the * * * organization * * * has been established to reflect the savings below
market rent resulting from the exemption from taxation.”
ORS 307.112(1).
To obtain the exemption under ORS 307.112, the lessee, “must file a claim for exemption
with the county assessor.” ORS 307.112(2). Plaintiffs filed a claim for Exemption with the
Defendant.3 The sublease between Plaintiffs and Evergreen Vintage Aircraft expressly stated
that the “market rent has been reduced by the anticipated tax savings.” (Def‟s Ex H at 1, TC-MD
111241D). Defendant requested “acceptable documentary proof that demonstrates that the
amount of rent charged is below market rent.” (Def‟s Ex D at 2, TC-MD 111241D).
“If the assessor is not satisfied that the rent stated in the lease * * * has
been established to reflect the savings below market rent resulting from the tax
exemption, before the exemption may be granted the lessor must provide
documentary proof, as specified by rule of the Department of Revenue, that the
rent has been established to reflect the savings below market rent resulting from
the tax exemption.”
ORS 307.112(3) (emphasis added). “The assessor must be satisfied that the amount of rent
charged is below market rent. „Market rent‟ is defined as the rental income a property would
most probably command in the open market and includes an element for property taxes.” OAR
150-307.112(5).
OAR 150-307.112(7) states that, “[s]ufficient documentary proof must be submitted at
the time of application.” Examples of “acceptable documentary proof,” are provided in OAR
150-307.112(8), which states:
“(8) Acceptable documentary proof to show the property tax savings is passed on
to the lessee may include, but is not limited to the following comparisons:
3
Plaintiffs filed a late personal property tax exemption application on February 29, 2010. (Def‟s Ex C,
TC-MD 111241D) However, Defendant agrees that Plaintiffs‟ application should be considered timely due to good
and sufficient cause that includes “extraordinary circumstances.” (Compl at 2.)
DECISION TC-MD 120587D 12
“(a) Current rental rate for any portion of that property occupied by nonexempt
tenants;
“(b) Historic rental rate data of that property;
“(c) Rental rate used in a real market value appraisal for that property;
“(d) Rent study of comparable or similar properties.”
OAR 150-307.112(8). While this list is not exclusive, “[t]he savings must be clearly evident.”
OAR 150-307.112(9). “Insufficient proof or failure to show the rent is below market rent as
described above is grounds for denial of the exemption.” Id. A statement that the “lessee is
responsible for the taxes” is not sufficient proof of a tax savings. ORS 150-307.112(10).
In the case before the court, Plaintiffs responded to Defendant‟s request for
documentation by phone on February 3, 2011, seeking clarification of what Plaintiffs were to
submit. (Def‟s Ex E at 1, TC-MD 111241D.) Defendant responded to Plaintiffs in writing on
February 4, 2011, informing Plaintiffs of the documentary proof required of OAR 150-307.112.
(Id. at 2.) Plaintiffs submitted no evidence of its response to Defendant‟s written request.
The court finds that Plaintiffs did not comply with the statutory requirements of the
property tax exemption statute, and that Defendant‟s denial of Plaintiff‟s application for tax
exemption for the IMAX projector was within their statutory authority. Plaintiffs filed an
application for tax exemption for the IMAX projector; however, when prompted by Defendant,
Plaintiffs failed to provide acceptable documentary proof of below market rent, as required by
ORS 307.112 and OAR 150-307.112. There is no evidence that Plaintiffs pay any rent for the
use of the IMAX projection equipment.
III. CONCLUSION
After careful consideration of the testimony and evidence, the court concludes that
Plaintiffs failed to carry its burden of proof and did not submit any evidence other than the
DECISION TC-MD 120587D 13
language of the lease in support of their allegation that “the rent established in the sublease is
below market rent.” (Ptfs‟ Trial Memo at 6.). Now, therefore,
IT IS THE DECISION OF THIS COURT that Plaintiffs‟ appeal is denied and the IMAX
projection equipment identified as Account 545602 is taxable personal property for tax year
2011-12.
Dated this day of August 2012.
JILL A. TANNER
PRESIDING MAGISTRATE
If you want to appeal this Decision, file a Complaint in the Regular Division of
the Oregon Tax Court, by mailing to: 1163 State Street, Salem, OR 97301-2563;
or by hand delivery to: Fourth Floor, 1241 State Street, Salem, OR.
Your Complaint must be submitted within 60 days after the date of the Decision
or this Decision becomes final and cannot be changed.
This document was signed by Presiding Magistrate Jill A. Tanner on August 27,
2012. The Court filed and entered this document on August 27, 2012.
DECISION TC-MD 120587D 14