Dept. of Rev. v. New Friends of the Beaverton City Library ( 2019 )

512 November 26, 2019 No. 23
IN THE OREGON TAX COURT
REGULAR DIVISION
DEPARTMENT OF REVENUE,
Plaintiff,
and
WASHINGTON COUNTY ASSESSOR,
Intervenor-Plaintiff,
v.
THE NEW FRIENDS OF
THE BEAVERTON CITY LIBRARY,
Defendant.
(TC 5311)
Intervenor (the county) denied Defendant’s (taxpayer) property tax exemp-
tion for the subject property, which Defendant primarily used to operate a used
bookstore. Defendant appealed to the Magistrate Division, which decided in
Defendant’s favor. Plaintiff (the department) appealed to the Regular Division.
On Defendant’s motion for summary judgment, the court held that, although
Defendant is a charitable institution because its primary purpose is to donate
time and resources to the Beaverton City Library, the subject property is not enti-
tled to exemption under ORS 307.130(2)(a) because Defendant’s use of the prop-
erty is primarily operating a retail establishment at market prices. Longstanding
case law prohibits treating that operation as a charitable use despite Defendant’s
charitable purpose. The court further held that Defendant is not a “literary
institution.”
Oral argument on Defendant’s Motion for Summary
Judgment was held December 4, 2018, in the courtroom of
the Oregon Tax Court, Salem.
Darren Weirnick, Senior Assistant Attorney General,
Department of Justice, Salem, filed a response and argued
the cause for Plaintiff (the department).
Brad Anderson, Washington County Counsel, filed a
response and argued the cause for Plaintiff-Intervenor (the
county).
Ivan R. Gutierrez, Miller Nash Graham & Dunn
LLP, Portland, filed the motion and argued the cause for
Defendant (taxpayer).
Decision for Plaintiff and Intervenor rendered November 26,
2019.
Cite as 23 OTR 512 (2019) 513
ROBERT T. MANICKE, Judge.
I. INTRODUCTION
For the property tax year 2016-17, the Washington
County Assessor (the county) denied an application for
exemption filed by Defendant, The New Friends of the
Beaverton City Library (taxpayer) for a lot and buildings at
which taxpayer conducts operations, including sales of used
books. The county’s stated ground was that the property was
“primarily used for the generation of income/fundraising
for a charitable institution * * * [p]er OAR 150-307.130-(A)
(5)(a).”
Taxpayer timely appealed to the Magistrate
Division, which decided in taxpayer’s favor, concluding that
taxpayer’s operation of a bookstore was a use qualifying the
property for tax exemption1 under ORS 307.130(2).2 Plaintiff
Department of Revenue (the department) timely appealed
as the plaintiff by operation of law in this division of the
court, and the county joined as Plaintiff-Intervenor. See
ORS 305.501(1). Taxpayer moves for summary judgment on
the substantive claim that it is a charitable or literary insti-
tution, and that its use of the subject property entitles the
property to exemption under ORS 307.130(2). The depart-
ment and the county join in opposing taxpayer’s motion.3
II. FACTS
The following facts are not in dispute and, unless
otherwise indicated, applied at all relevant times. Taxpayer
is an Oregon nonprofit corporation and is exempt from
federal income tax under section 501(c)(3) of the Internal
Revenue Code. See ORS 65.001(29); IRC § 501(c)(3).
Taxpayer’s bylaws state that its mission is to (1) “Support
and strengthen” the Beaverton City Library; (2) “Cooperate
with the library in expanding the library services for the
1
The magistrate concluded that the county agreed that taxpayer was a char-
itable institution, a point that the Department of Revenue as plaintiff in this
de novo appeal disputes.
2
The court’s references to the Oregon Revised Statutes (ORS) are to the 2015
edition.
3
From this point, references to the department include the county unless
otherwise indicated.
514 Dept. of Rev. v. New Friends of the Beaverton City Library
community”; (3) “Create an appreciation of library ser-
vices”; and (4) “Promote the development of library pro-
grams.” The bylaws also state that taxpayer “will accom-
plish this mission by acquiring and selling books, as well
as audio visual materials in various formats and levels of
ability.” The Beaverton City Library (the Library) is part
of, and is operated by the City of Beaverton, a municipal
corporation.
The subject property is located at 12470 SW 5th
Street, Beaverton, OR 97005, essentially across the street
from the Library and a large public park. It includes a two-
story former residence with a total interior area of 1,812
square feet on an approximately 2,430 square foot lot with
exterior landscaping, access ways, and areas for parking.
A sign in the front yard, shaped like three large hardcover
books, reads: “Book Corner Used Books.” Taxpayer’s web-
site shows that an open space on the first floor is lined with
bookshelves to a height of approximately six feet and other-
wise holds a long table full of books in the middle of the
room, an office desk and chair, a fireplace, and two large
windows. A back room is used for sorting, pricing and tem-
porary storage of inventory, and upstairs space is used to
process online sales. Taxpayer leases the subject property
from the City of Beaverton at a rate that the parties agree
is below market for purposes of ORS 307.166(1).
Taxpayer operates under the name “The Book
Corner.” In 2015 and 2016 taxpayer offered for sale and sold
to the public at the subject property used books donated by
the public and used books the Library removed from circu-
lation, as well as CDs and DVDs. During 2015 and through
the end of July 2016, taxpayer also sold used books and
other materials to the public through Amazon at the sub-
ject property. During 2015 and through the end of October
2016, taxpayer employed two part-time employees at the
subject property to manage in-store and online sales. All
other activities at the subject property were undertaken by
volunteers, members of taxpayer’s board of directors, or the
public. For tax years 2015 through 2017, taxpayer gave a
total of $49,455 to the Library.
Cite as 23 OTR 512 (2019) 515
The court will discuss additional facts where
appropriate.
III. ISSUES
(1) Is taxpayer a charitable institution within the meaning
of ORS 307.130(2)?
(2) If taxpayer is a charitable institution, does taxpay-
er’s use of the subject property entitle the property to
exemption?
(3) Alternatively, is taxpayer a literary institution within
the meaning of ORS 307.130(2)?
(4) If taxpayer is a literary institution, does taxpayer’s use
of the subject property entitle the property to exemption?
IV. ANALYSIS
A. Summary Judgment Standard
The court grants a motion for summary judgment
only if “the pleadings * * * declarations, and admissions on
file show that there is no genuine issue as to any material
fact and that the moving party is entitled to prevail as a mat-
ter of law.” Tax Court Rule (TCR) 47 C. See Christensen II
v. Dept. of Rev., 23 OTR 155, 162-63 (2018) (citing Two Two
v. Fujitech America, Inc., 355 Or 319, 331, 325 P3d 707
(2014)). “No genuine issue as to a material fact exists if,
based upon the record before the court viewed in a man-
ner most favorable to the adverse party, no objectively rea-
sonable [factfinder] could [find] for the adverse party on
the matter that is the subject of the motion for summary
judgment.” TCR 47 C. The adverse party has the burden of
producing evidence on any issue raised in the motions as to
which the adverse party would have the burden of persua-
sion at trial. Id. As applied to this case, this standard means
that taxpayer as the party moving for summary judgment
must point to facts in the record that prove taxpayer’s right
to the exemption such that no reasonable factfinder could
find in favor of the department, even though the court
must view the record in a manner most favorable to the
department.
516 Dept. of Rev. v. New Friends of the Beaverton City Library
B. Legal Framework and Taxpayer’s Factual Assumption
for Purposes of Its Motion
Oregon law provides a property tax exemption for
properties owned by or leased to certain organizations.4
ORS 307.130(2) reads, in pertinent part:
“* * * [T]he following property owned or being purchased
by * * * incorporated literary, benevolent, charitable and sci-
entific institutions shall be exempt from taxation.
“(a) * * * [O]nly such real or personal property, or propor-
tion thereof, as is actually and exclusively occupied or used
in the literary, benevolent, charitable or scientific work car-
ried on by such institutions.”
(Emphasis added.) The court views the statute as imposing
two sets of requirements, which the court refers to here as
the “entity-level” requirements contained in the flush lan-
guage of subsection (2), and the “property use” requirements
contained in paragraph (2)(a). The entity-level require-
ments differ, depending on whether the organization seeks
exemption as a charitable,5 literary, or scientific institution.
Claims of exemption on the basis that the taxpayer is a
“charitable” institution using the property in its “charitable
work” are common and are governed by an extensive body
of Oregon Supreme Court decisions that this court, as a
lower court, is bound to follow. See Re v. PERS, 256 Or App
52, 54, 301 P3d 932, rev den, 353 Or 867 (2013) (“It is not
this court’s role to overrule, directly or indirectly, Supreme
Court case law.”); State v. Turner, 235 Or App 462, 466, 234
P3d 993 (2010) (declining state’s invitation to cease treating
venue as a material allegation that must be proved beyond
a reasonable doubt “because we remain bound by Supreme
Court precedent until such time as that court reconsid-
ers and disavows it”). Regarding the use requirement,
courts have long required the use to be “primarily,” rather
than literally “exclusively,” dedicated to the exempt work.
4
ORS 307.166 imposes additional requirements for properties leased from
one organization whose property is eligible for exemption to another. In this case,
neither the department nor the county challenges exemption on the basis of any
such additional requirement.
5
As used in ORS 307.130(2)(a), the word “benevolent” means charitable. See
Behnke-Walker v. Multnomah County, 173 Or 510, 519, 146 P2d 614 (1944).
Cite as 23 OTR 512 (2019) 517
E.g., Mult. School of Bible v. Mult. Co., 218 Or 19, 31, 343
P2d 893 (1959). Taxpayer first argues that it fulfills the
entity-level requirements as a charitable institution and
that it fulfills the use requirements by primarily using the
subject property to carry on its charitable work of support-
ing the Library and advancing literacy. Alternatively, tax-
payer contends that it is a “literary institution” primarily
using the subject property to further its literary objectives,
a claim governed by fewer Supreme Court decisions.6 In
contrast to the Magistrate Division proceedings, where the
county appears to have agreed that taxpayer satisfies the
entity-level requirements, the department now challenges
taxpayer’s status as a charitable or literary institution, and
in either event it contends that taxpayer does not satisfy the
property use requirements. Solely for purposes of its motion,
taxpayer asks the court to assume that it charged market
rate prices for its inventory.
C. Is taxpayer a charitable institution?
To satisfy the entity-level requirements for a char-
itable institution under ORS 307.130(2): “(1) the organiza-
tion must have charity as its primary, if not sole, object;
(2) the organization must be performing in a manner that
furthers its charitable object; and (3) the organization’s per-
formance must involve a gift or giving.” SW Oregon Pub.
Def. Services v. Dept. of Rev., 312 Or 82, 89, 817 P2d 1292(1991) (citing Dove Lewis Mem. Emer. Vet. Clinic v. Dept.
of Rev., 301 Or 423, 428, 723 P2d 320 (1986), and former
OAR 150-301.130-(A)7). Taxpayer contends that it satis-
fies all three requirements. The department acknowledges
that taxpayer has articulated a charitable purpose of sup-
porting the Library, and that taxpayer devotes some of
its efforts to performing in a manner that supports that
object, but the department contends that the retail sale of
books at market prices to raise money is, or has become,
taxpayer’s true primary purpose and is inherently not
charitable.
6
Taxpayer does not argue that it is a scientific institution within the mean-
ing of ORS 307.130(2).
7
This administrative rule has since been renumbered to OAR 150-307-0120.
518 Dept. of Rev. v. New Friends of the Beaverton City Library
As to the first requirement, taxpayer’s bylaws provide:
“The mission of New Friends of the Beaverton City Library is to:
“• Support and strengthen the library
“• Cooperate with the library in expanding library ser-
vices for the community
“• Create an appreciation of library services
“• Promote the development of library programs
“[Taxpayer] will accomplish this mission by acquiring and
selling books as well as audio and visual materials in vari-
ous formats and levels of ability.”
This mission statement articulates an “object” that is inher-
ently charitable—supporting the Library’s services and
programs and promoting the Library. Taxpayer unquestion-
ably does maintain this object. And as the discussion below
will show, the court concludes that supporting the Library
remains taxpayer’s “primary” object despite inferences that
the department draws from the uncontested factual record.
The court concludes that taxpayer satisfies the first entity-
level requirement.
The second requirement tests whether the organi-
zation acts in a manner that furthers its charitable object.
In many cases the issue is whether the organization has a
sufficiently high level of activity overall, or whether the orga-
nization acts in ways that benefit members or other insiders
instead of focusing on its charitable mission. See, e.g., Dove
Lewis, 301 Or at 429 (finding taxpayer veterinary clinic’s
referral process generated a private advantage to taxpay-
er’s founders). Here, too, the department essentially argues
that the activity of running the bookstore is, or recently has
become, taxpayer’s main reason for being and has eclipsed
the purpose of supporting the Library. As with the first
requirement, the court finds that the evidence is sufficient
to sustain taxpayer’s position on summary judgment; the
court will discuss the reasons for its conclusion below, in
the course of addressing the department’s primary argu-
ment based on an alleged lack of “gift or giving.” Moreover,
at least in this case, the court concludes that accepting the
department’s argument would convert the charitable activ-
ity requirement into a recapitulation of the “property use”
Cite as 23 OTR 512 (2019) 519
test, which has its own separate function that is defined by
different case law. The court is not aware of precedent that
would brand an organization as not a charitable institution
simply because it sells goods or services as the means to
pursue its charitable object. The court concludes that tax-
payer satisfies the second entity-level requirement.
Regarding the final entity-level requirement, in
cases involving organizations that charge for goods or ser-
vices, the Oregon Supreme Court has identified the follow-
ing factors as particularly probative of “gift or giving”:
“(1) Whether the receipts are applied to the upkeep,
maintenance and equipment of the institution or are other-
wise employed;
“(2) Whether patients or patrons receive the same treat-
ment irrespective of their ability to pay;
“(3) Whether the doors are open to rich and poor alike
and without discrimination as to race, color or creed;
“(4) Whether charges are made to all customers and,
if made, are lesser charges made to the poor or are any
charges made to the indigent.”
SW Oregon Pub. Def. Services v. Dept. of Rev., 312 Or 82, 92,
(1991) (quoting OAR 150-307-0120(4)(d)(C) (emphases omit-
ted)). None of the factors are required, nor is the list exhaus-
tive. Methodist Homes, Inc. v. Tax Com., 226 Or 298, 309-10,
360 P2d 293 (1961); see also Serenity Lane, Inc. v. Lane County
Assessor, 21 OTR 229, 236 (2013); Hazelden Foundation v.
Yamhill County Assessor, 21 OTR 245, 250 (2013).8
8
In Hazelden Foundation (which should be read together with Serenity
Lane), this court rejected the taxpayer’s “quantitative approach” as to whether
the organization was charitable, which relied on an incorrect reading of YMCA
v. Dept. of Rev., 308 Or 644, 784 P2d 1086 (1989) (YMCA II). In YMCA II, the
Supreme Court found insufficient “gift or giving” in the operations of two fitness
centers that offered “scholarship giving” amounting to “less than four percent”
of the organization’s total annual revenue. 21 OTR at 250-51 (citing YMCA II,
308 Or at 653-54). In Hazelden Foundation, this court rejected the taxpayer’s
argument “that the ‘gift or giving’ requirement is met simply because taxpayer’s
patient aid exceeds four percent of annual revenues and more than eight per-
cent of taxpayer’s patients receive such aid.” 21 OTR at 251 (emphasis added).
This court instead approved taxpayer’s “qualitative approach,” which relied on
the qualitative criteria adopted by the Supreme Court in SW Oregon, 312 Or at
82 (quoting OAR 150-307.130-A(4)(d)(C)), as “more in keeping with the cases of
this court and of the Supreme Court on the subject of exemption for charitable
institutions.” Hazelden Foundation, 21 OTR at 251.
520 Dept. of Rev. v. New Friends of the Beaverton City Library
The first of the four “gift or giving” factors func-
tions mainly to sift out institutions whose activities inure
to the benefit of those who organize or run it. See Hazelden
Foundation, 21 OTR at 252. The department alleges no
such private advantage here, and the court finds none. The
remaining three factors focus on the extent to which a tax-
payer ensures that the poor9 have access to the products or
services that the taxpayer sells. In this case, taxpayer iden-
tifies four activities that it contends prove the element of gift
or giving: its gifts of books to other organizations, its cash
and in-kind gifts to the Library, its use of volunteers and its
special sale pricing.
The court first turns to taxpayer’s cash gifts to the
Library. A review of taxpayer’s most recent federal income
tax returns10 in the record, for calendar years 2015 and 2016,
shows that taxpayer donated cash amounts to the Library
that the department acknowledges are “not insignificant”:
$15,125 in 2015 and $18,174 in 2016. In each year, these
cash donations comprised the majority of taxpayer’s net
income after all expenses,11 which consist of typical items
such as rent and total wages of about $33,000 for the two
part-time employees who managed the sales and the volun-
teers. Solely to put these amounts in perspective, the court
notes that taxpayer’s respective total receipts for each year
(before any reduction for cost of goods sold) were $86,170 and
$97,011, meaning that taxpayer gave the Library about 18
percent of its total receipts for each year.12 In consultation
9
The department raises, and the court sees, no issue regarding unfair
treatment of other disadvantaged groups.
10
Like most nonreligious exempt organizations of even modest size, taxpayer
was required to file, under penalty of perjury, annual “information” returns with
the Internal Revenue Service on Form 990 reporting detailed information about
its receipts, expenditures, and governance.
11
The court emphasizes that its discussion of quantitative evidence, whether
expressed as absolute dollar amounts, percentages of revenues, number of vol-
unteers, or volunteer hours, does not set a threshold or safe harbor for any other
case. See Hazelden, 21 OTR at 251 (emphasizing qualitative approach in lieu of
taxpayer’s proffered test).
12
The department contends that taxpayer more recently has been reducing
its donations to the Library while simultaneously growing its cash reserves,
apparently implying that the reserves exceed taxpayer’s reasonable needs, or that
the level of taxpayer’s giving to the Library has become inconsistent with taxpay-
er’s stated purpose. But the department offers as evidence only the treasurer’s
one-page “Annual Report” through September 30, 2017. The Annual Report does
Cite as 23 OTR 512 (2019) 521
with taxpayer, the Library used the donated funds to pay for
an annual “wish list” of items outside the Library’s normal
budget, such as furniture for new Library branches, books,
marketing efforts, and Library staff appreciation events.
The court finds that taxpayer’s cash gifts to the Library are
strong evidence of an element of “gift or giving.”
Taxpayer also received donations of books, sorted
them, and transferred to others those books it decided not to
sell at retail.13 The detailed evidence of this activity paints a
mixed picture that does, as the department argues, appear
to change over time. Taxpayer points out that, in 2015, tax-
payer transferred 1,287 boxes of books that it did not sell at
retail. Of these, about 53 percent went to the Salvation Army
and 19 percent to a Rotary chapter.14, 15 About 21 percent
went to a for-profit company (Better World Books), which
paid taxpayer for the books, and the remaining 7 percent
went to four organizations or schools, including Children’s
Book Bank, Cranes of Hope, Operation Paperback, and the
Vose School. On the other hand, the department points out
that, during the first six months of 2016, taxpayer increased
its share of transfers to for-profit entities from 21 percent to
43 percent, and late in that period (in May 2016), taxpayer
decided to cease all transfers to the Salvation Army, in favor
of a for-profit company, Discover Books, which not only paid
taxpayer for the books but picked them up from taxpayer’s
location without requiring taxpayer to first box them up.
As the Salvation Army had been by far taxpayer’s largest
charitable transferee, receiving 68 percent of taxpayer’s
not contradict the tax returns because its 12-month period does not align with
the calendar year that taxpayer used for income tax reporting purposes, and
the Annual Report uses undefined expense categories that do not appear to cor-
respond to the line items in the federal tax return. The Annual Report thus is
inadequate as evidence that taxpayer reduced its giving to the Library, nor does
the Annual Report provide enough context about taxpayer’s use of funds to create
a question of material fact about whether the required element of gift or giving
was lacking.
13
Over three-quarters of the books taxpayer accepted during 2016 were
donated by the general public; the remainder was from the Library.
14
Taxpayer seems to assume that the Salvation Army and the Rotary chap-
ter are charitable organizations, at least in a general sense, and the department
does not dispute that assumption.
15
The court notes that the exhibit contains an arithmetic error; the totals do
not reflect transfers made in December 2015.
522 Dept. of Rev. v. New Friends of the Beaverton City Library
transfers to charities and 39 percent of all transfers during
the first half of 2016, taxpayer’s decision implies a dramatic
shift, from giving away most of its nonretail inventory to
charities toward essentially selling most of it at wholesale
to for-profit distributors. The court hesitates to declare a
trend from such a limited data set, but the court concludes
that the evidence from the first half of 2016 seriously weak-
ens taxpayer’s claim that its donations of books to chari-
table causes constituted evidence of an element of “gift or
giving.”
Taxpayer also cites its use of its employees and vol-
unteers to provide in-kind services to the Library as evi-
dence of the element of “gift or giving.” Taxpayer appears to
refer to the service of removing older books from circulation
at the Library to make room for new ones. The court agrees
that this service is of some value to the Library, and the use
of staff and volunteers to perform this service is some evi-
dence of “gift or giving,” although not conclusive by itself. See
Salem Non-Profit Housing, Inc. v. Dept. of Rev., 9 OTR 265,
268 (1982) (“The fact that dedicated members of plaintiff’s
board of directors have unselfishly contributed hundreds of
unpaid hours to the creation and administration of a highly
commendable project does not make the operation charita-
ble per se.”); OAR 150-307-0120(4)(d)(D) (stating rule).16
The court finds nothing in taxpayer’s special sale
pricing that supports its position as to the element of “gift or
giving,” given the assumption that all pricing is at market.
In sum, the evidence of an element of “gift or giv-
ing” in this case consists overwhelmingly of taxpayer’s
donations of cash and time to the Library.17 In the depart-
16
However, returning momentarily to the second requirement in the entity-
level test, the court does find taxpayer’s ability to attract and retain volunteers,
as well as donations of books, to be substantial additional evidence that taxpayer
is performing in a manner that supports its charitable purpose. Taxpayer’s vol-
unteers logged 6,707 hours of volunteer time during 2015 and more than 3,500
hours during the first half of 2016. Taxpayer reported the number of volunteers
at nearly 50 in mid-2016. Taxpayer’s newsletter regularly solicited volunteers
and made clear that their service would benefit the Library. Taxpayer describes
its volunteer program as a “joint effort” with the Library, noting that taxpayer
and the Library use the same volunteer coordinator.
17
Taxpayer also at times refers to its activities to promote the Library
and other activities it regards as charitable. The court finds it noteworthy
Cite as 23 OTR 512 (2019) 523
ment’s view, these gifts are inadequate because taxpayer is
not giving the cash directly to poor customers in the form
of discounts or free books. The department’s argument is
consistent with its position, discussed below, that a retail
store selling at market prices cannot be exempt unless the
retail store engages in charitable giving through the act of
selling, for example by intentionally training or providing
long-term employment to persons who otherwise would have
barriers to employment.18 Although taxpayer’s donations to
the Library differ from the direct customer discounts for
the poor discussed in SW Oregon, YMCA II, and Hazelden/
Serenity Lane, the court concludes that taxpayer’s donations
to the Library suffice in this case because they fulfill the
underlying purpose of the “gift or giving” requirement by
providing the poor with access to books. The city-owned
Library already provides books (and many other materi-
als and services) to the community at no charge. Taxpayer,
located across the street from the Library, need not repli-
cate that activity in order to demonstrate an element of “gift
that taxpayer organized a public reading and book signing with Bill Hall, the
author of a book about former Oregon Governor Tom McCall at the Library on
October 25, 2015. Paula Gunning, McCallandia Author to Speak at “Friends”
Annual Meeting, The Book-Mark at 1-2 (Sept/Oct 2015) (newsletter). The event
was “free and open to the public * * * with complimentary refreshments.” Id. The
court sees the author event as an indicator that supporting the Library remained
taxpayer’s primary focus.
In addition, taxpayer presented evidence of numerous sales and promotions,
some of which seem linked by theme or timing to coincide with Library program-
ming. For example, taxpayer held a “Star Wars sale Dec 1-14” that appears to
have coincided with an “Open House/Tree Lighting” ceremony. See Jessica Miele,
Yoga Storytime: Stretching Kids’ Bodies and Imaginations, The Book-Mark at
2-3 (May/June 2016) (newsletter explaining Star Wars-themed yoga storytelling
event held at the Library). In summer 2015, taxpayer offered a 50-cent bookstore
coupon to participants in the Library’s summer reading program. Taxpayer pro-
vided lawn space for one of four stages for an event called “Ten Tiny Dances,” the
other stages having been set up in the same park across the street that houses
the Library. In 2015 and 2016, taxpayer offered discounted theater tickets to
productions at the Beaverton Civic Theater for customers who donated books
to taxpayer. The court finds that these activities generally do “double duty,” in
the sense that they seem designed to promote taxpayer’s sales as much as to
promote the Library. The court assigns little weight to these activities, whether
as an indicator of “gift or giving” or as an overall indicator of actions furthering
taxpayer’s charitable object.
18
The Oregon Supreme Court has explained that when determining whether
an element of “gift or giving” is present, the “appropriate perspective * * * is that
of the recipient of the charitable giving.” Dove Lewis, 312 Or at 91 (citing former
OAR 150-307.130(A)(3)(d)).
524 Dept. of Rev. v. New Friends of the Beaverton City Library
or giving”; it is sufficient that taxpayer devotes most of its
net profit, as well as the time of numerous volunteers, to
the Library so that the Library itself is better able to make
books available to everyone, including the poor.19 In a real
sense, taxpayer sells books as a continual fundraiser in
order to help the Library make books available for free. The
court concludes that taxpayer fully satisfies the entity-level
requirements and qualifies as a charitable institution.
D. Is the subject property actually and exclusively used to
accomplish taxpayer’s charitable purpose?
The property use test differs from the entity-level
test in that the property use test reflects the in rem nature
of property taxation. To administer the property tax, each
county assessor must determine whether to classify each
parcel of real property, and each item of personal property,
as either taxable or exempt in the course of the annual
assessment process. See Gray v. Dept. of Rev., 23 OTR 220,
223-24 (2018). Whereas the entity-level test asks whether
the property’s owner or lessee generally is acting for the
benefit of the public or those in need, as opposed to in self-
interest, the property use test asks how closely a particular
parcel or item of property is connected to the owner’s or les-
see’s charitable purpose. See Benevolent Society v. Kelly, 28
Or 173, 190, 193-97, 42 P 3 (1895) (interpreting prior law
requiring that property be “actually occupied” for literary,
benevolent, charitable, or scientific purposes); Mult. School of
Bible, 218 Or at 31, 36-37 (interpreting current law requiring
that property be “actually and exclusively occupied or used”
for such purposes; holding the property must be “reason-
ably necessary” to accomplishment of organization’s prime
purposes).20
19
Without minimizing the barriers that even small dollar amounts can cre-
ate for the indigent, the court also observes that books and DVDs are in a price
class very different from hospital services, addiction treatment, and health club
memberships.
20
In YMCA v. Dept. of Rev., 268 Or 633, 635 n 1, 522 P2d 464 (1974) (YMCA I),
the court referred to a use of property that “substantially contributes” to further-
ance of the overall goals of the charitable organization, apparently paraphrasing
the “reasonably necessary” test articulated in Mult. School of Bible. In Habitat
for Humanity v. Dept. of Rev., 360 Or 257, 264-66, 381 P3d 809 (2016), the court
again applied the “reasonably necessary” test.
Cite as 23 OTR 512 (2019) 525
As an important limitation within the property use
test, longstanding Oregon precedent declares that if the
primary use of the subject property is to make money to
fund charitable operations occurring on other properties,
the connection to the organization’s charitable purpose is
too attenuated to support exemption of the subject prop-
erty. The Oregon Supreme Court first considered—and
rejected—the so-called “destination of income” theory of
charitable exemption in 1895. Benevolent Society, 28 Or at
189. In that case, the taxpayer owned a three-story build-
ing in Portland, of which the ground floor was rented for
stores, the second story rented for offices (except one room
that the taxpayer occupied), and the third story rented for a
public hall. Id. The taxpayer was a benevolent society that
provided a disability benefit to certain Irish persons and
persons of Irish descent. The county argued both that the
taxpayer was not a charitable institution (because of the
limitations on persons who could participate) and that the
taxpayer did not use the property for charitable purposes.
The court concluded that taxpayer could theoretically be a
charitable institution under the Oregon statute even though
its benefits were not available on a “universal” basis.21
But, regardless of that possibility, the court held that the
property was not exempt from tax because it was “used for
other and different purposes” that were “in competition
with the property of other owners.” Id. at 193. The court
stated:
“It is the actual occupancy of the property which deter-
mines its right to exemption, and not the use made of its
proceeds. The plain and obvious meaning of the statute
is that only the real estate actually occupied and in use
by these different institutions for the purposes for which
they were organized shall be exempt from taxation. While
so occupied and used, it does not come in competition with
the property of other owners, and the purpose for which
it is used was supposed by the legislature to be a suf-
ficient benefit to the public to justify its exemption from
the burdens of taxation imposed upon other property.
21
Because the taxpayer did not meet the use requirement, the court never
reached a conclusion as to whether the taxpayer was in fact a charitable institu-
tion. Id. at 193.
526 Dept. of Rev. v. New Friends of the Beaverton City Library
But when such property is used for the purpose of accu-
mulating money, the law imposes upon it the same bur-
den of taxation as it imposes upon other property similarly
situated.”
Id. at 193-94 (emphases added); see also Willamette University
v. Knight, 35 Or 33, 46, 56 P 124 (1899) (real property leased
to nursery company held not exempt because it was used
for a purpose other than the university’s charitable pur-
pose and generated profit “in direct competition with busi-
ness of like nature and kind carried on elsewhere by other
persons”).
A court today faced with the facts of Benevolent
Society could readily deny exemption on the simple ground
that the charitable owner had rented out the property,
which destroys exemption unless the lessee applies for and
receives a determination of exemption in its own right. See
ORS 307.166 (requiring lessee to apply for exemption); Or
Laws 1973, ch 476 (first enacting predecessor, former ORS
307.164). But the Supreme Court has applied the reason-
ing of Benevolent Society even to property used for retail
purposes by the same entity that operates as an undis-
puted charity in other locations. Mult. School of Bible, 218
Or at 24-26, 37. In that case, the taxpayer operated a reli-
gious college on a campus in the eastern part of Portland,
but it also owned the subject property, a retail book and
religious “Christian Supply Center” several miles away,
downtown. Id. at 38. The taxpayer argued that “all prof-
its from the Christian Supply Center are immediately
channeled back into the treasury of the school, where it is
employed for the purposes for which the school was orga-
nized.” Id. at 39. The court saw no reason to question that
assertion but denied the exemption, citing Benevolent
Society:
“We hold plaintiff’s business, known as the Christian
Supply Center, is an enterprise for the purpose of business
and profit which comes in direct competition with busi-
nesses of like nature and kind carried on elsewhere by other
persons and does not comply with ORS 307.130, supra, so
as to entitle it to the tax relief sought, even though its net
gains flow to and are devoted by the Bible School to religion
or education.”
Cite as 23 OTR 512 (2019) 527
Id. at 42. The Supreme Court’s rejection of the destination-
of-income theory of exemption is thus firmly embedded in
today’s law.22
The Supreme Court’s most recent opinion involving
the charitable exemption does not change the analysis. In
Habitat for Humanity, 360 Or at 264, the court held that
a vacant lot that the taxpayer (“Habitat”) held for later
improvement and eventual sale satisfied the property use
requirement. The issue was whether the requisite “use” was
occurring even though Habitat was not actively construct-
ing housing on the lot on the assessment date. Because
Habitat’s charitable purpose necessarily involved holding
and improving real property, in contrast to taxpayers such
as the hospital and university involved in prior leading cas-
es,23 the court held that Habitat’s mere holding of the lot
satisfied the use requirement. Importantly for this case,
however, the court never had to consider its prior rejection
of the destination-of-income theory of exemption because
the parties had stipulated that Habitat acquired the lot “for
‘the sole purpose of later building a residential home on it
using volunteer labor and selling it to a low-income family
at a price below market.’ ” Id. at 259 (emphasis added). For
Habitat, use of the property consisted, ultimately, of trans-
ferring it to the poor at a below-market discount—the lot
was, in a general sense, part of Habitat’s inventory held for
sale. By contrast, taxpayer asks the court to assume that it
does not sell below market—to anyone, rich or poor. Selling
books to the poor at a discount below market value is not
part of taxpayer’s charitable mission; rather, taxpayer’s
mission is to send money from book sales to the Library,
22
Prior decisions of this court and the Oregon Supreme Court have all ana-
lyzed the “destination of income” issue under the “property use” requirement of
the two-part analysis. See Benevolent Society, 28 Or at 193-97; Willamette Univ.,
35 Or at 44-46; Corp. Presiding Bishop v. Dept. of Rev., 6 OTR 268, 269 (1975),
aff’d, 276 Or 775, 556 P2d 685 (1976) (religious organization was not entitled
to exemption with respect to its farm property from which profits were derived
despite contention that the rental income was used for the care of the poor and
needy); see also Kiwanis Club v. Dept. of Rev., 12 OTR 318, 320 (1992) (rejecting
destination of income as grounds to exempt a retail store stocked with donated
goods); YMCA II, 308 Or at 655 (rejecting use of income to support charitable
affiliate as basis to exempt fitness centers that generated the income).
23
See Eman. Luth. Char. Bd. v. Dept. of Rev., 263 Or 287, 502 P2d 251 (1972);
Willamette Univ. v. Tax Com., 245 Or 342, 344-45, 422 P2d 260 (1966).
528 Dept. of Rev. v. New Friends of the Beaverton City Library
which does make books available to rich and poor alike.
Praiseworthy though taxpayer’s use of its property is, it is
exactly analogous to the use that the court found ineligible
in Mult. School of Bible.24
Thus the same facts that support the court’s favor-
able determination of taxpayer’s status as a charitable insti-
tution work against a favorable determination under the
property use test. Taxpayer’s overall mission is to support
the Library. Its declared strategy for doing so is “by acquir-
ing and selling books” and other materials. Taxpayer’s pri-
mary use of the subject property implements exactly that
strategy. Taxpayer uses the property primarily to run an
impressive operation of employee-led volunteers who receive
donated books, sort them, and sell them at market prices.
However, Mult. School of Bible precludes exemption for this
use.
Taxpayer asserted at oral argument that Mult.
School of Bible is distinguishable because taxpayer sells
exclusively books that are donated, by either the Library or
the public, and because taxpayer relies heavily on numerous
volunteers in addition to its two part-time paid employees.
But neither the statute nor the case law supports an excep-
tion to Mult. School of Bible based on those facts. An orga-
nization’s ability to attract donations of goods and volunteer
labor is a factor that repeatedly has moved the legislature
to amend ORS 307.130 to extend exemption to retail oper-
ations that support charitable activity in other places, but
only in combination with other factors not present here. A
“retail store dealing exclusively in donated inventory” may
be exempt under ORS 307.130(2)(d), but that provision also
requires that the proceeds be used to support a “welfare
program,” defined as the “providing of food, shelter, cloth-
ing or health care * * * to needy persons without charge.” See
Kiwanis Club v. Dept. of Rev., 12 OTR 318, 320 (1992) (finding
24
Habitat for Humanity also is distinguishable because in taxpayer’s case
the property at issue is not taxpayer’s inventory being held for sale (which con-
sists of books that, as personal property, already would enjoy exemption under
ORS 307.400), but rather the facility at which taxpayer performs its activities.
The inventory exemption was not available for the taxpayer’s personal prop-
erty in Mult. School of Bible because the legislature did not enact the inventory
exemption until 1969. Or Laws 1969, ch 612, § 1 (HB 1214).
Cite as 23 OTR 512 (2019) 529
taxpayer’s activities were not limited to a “welfare program,”
with the consequence that taxpayer’s retail store was not
entitled to exemption under former ORS 307.130(1)(d)).
Providing books or literature is outside the scope of a “wel-
fare program.” A “retail store deal[ing] primarily and on a
regular basis in donated and consigned inventory” may be
exempt under ORS 307.130(2)(e), but only if “all individuals”
who operate the store are volunteers. Taxpayer is ineligible
because it has two paid employees. A “retail store deal[ing]
exclusively in donated inventory” may be exempt under ORS
307.130(2)(h), but only if its proceeds are used to support a
specific type of “not-for-profit housing program.”25 The court
in Mult. School of Bible articulated two reasons to deny
exemption: the moneymaking use of the retail store is dif-
ferent from the use for which exemption is allowed at the col-
lege’s other location, and the use of the property of the retail
store competes with other businesses. 218 Or at 36-37, 42. See
also Benevolent Society, 28 Or at 193-97; Willamette Univ., 35
Or at 44-46; Corp. Presiding Bishop v. Dept. of Rev., 6 OTR
268, 269 (1975), aff’d, 276 Or 775, 556 P2d 685 (1976). Both of
those reasons apply here as well. Taxpayer’s use of the subject
property does not make books available to the poor, for free
or at below-market prices, at the subject property; meanwhile,
taxpayer’s use of the subject property for on-site and online
sales competes with other retail booksellers. The generosity
of the donating public and numerous volunteers enables tax-
payer to raise substantial funds for the Library even while
keeping prices low, but the use of donated inventory and vol-
unteer time does not overcome the restriction on exemption
imposed by the Oregon courts’ rejection of the destination-of-
income theory under the property use requirement.
Taxpayer advances other uses it makes of the subject
property, but none of them rise to the level of the “primary”
use. Taxpayer does use the property to receive, identify, and
package or otherwise prepare some books for donation to
other charitable institutions. But even applying the avail-
able numbers from 2015 before taxpayer ceased donations to
its largest charitable donee (the Salvation Army), taxpayer’s
25
Other provisions exempt a “retail outlet” of a “rehabilitation facility,” as
defined (ORS 307.130(2)(c)), or a “retail store” of a “history museum or science
museum.” ORS 307.130(3).
530 Dept. of Rev. v. New Friends of the Beaverton City Library
donations to other charitable institutions amounted to 1,017
boxes and bags of books out of more than 4,000 boxes and
bags received.26, 27 This implies that taxpayer gave to charity
about 23 percent of the books it received; sold about 6 per-
cent at wholesale; and sold the remaining approximately 71
percent at retail. The court thus finds that processing books
for donation to other charitable institutions was not the pri-
mary use of taxpayer’s property. Similarly, taxpayer uses
the property to temporarily house books that the Library
needs to dispose of in order to make room for newer materi-
als. This use of the property may relieve a burden of govern-
ment, as the Library is a municipal institution. But books
from the Library amount to only 25 percent of taxpayer’s
inventory; the rest come from the general public. At that
level, disposing of older Library books cannot be the pri-
mary use of the property even if the court ignores the fact
that intake, sorting, and storage activities also make it pos-
sible for taxpayer to sell the overwhelming majority of these
books.
The court does not question the charitable motiva-
tion of taxpayer’s board, officers or other volunteers, but it is
clear to the court that Oregon precedent does not allow the
court to treat the subject property as “actually and exclu-
sively occupied or used” in taxpayer’s charitable work as
ORS 307.130(2)(a) requires.
E. Is taxpayer a literary institution?
Taxpayer makes the alternative argument that the
subject property is exempt from taxation because taxpayer
qualifies as a “literary institution” and actually and exclu-
sively uses the subject property for its literary work pur-
suant to ORS 307.130(2)(a). Taxpayer argues in its motion
that its “whole purpose and all of its activities are directed
to the ‘propagation and spread’ of literature. ” (Quoting OAR
26
Exhibit A to Bartos’s declaration contains an apparent typographical or
arithmetic error indicating that taxpayer donated only 1,204 boxes during 2015.
Of the correct total donated, 270 went to Better World Books, a for-profit entity
as previously noted. 1,287 (total) – 270 (Better World) = 1,017.
27
The average total of boxes and bags per month, based on the most com-
plete monthly summaries (for January through March and September through
December 2015) is 374, from which the court extrapolates an estimated number
of 4,483 for the calendar year 2015.
Cite as 23 OTR 512 (2019) 531
150-307-0130(1).) In addition to accepting books from the
Library, taxpayer identifies several activities at the subject
property that it asserts contribute to the spread of liter-
ature, such as book fairs, community book sales, reading
events, author talks and festivals. The department, while
acknowledging that taxpayer’s donations of money to the
Library and its donations of some portion of its inventory
may help “propagate and spread” the study of books, argues
that the court need not focus on the distinct meaning of
“literary institution” because a correct reading of the rel-
evant Oregon Supreme Court precedent requires even an
entity seeking exemption as a literary institution to have
charity as its primary object, which the department claims
taxpayer does not.28 The court does not decide whether the
department’s reading is accurate because the court already
has concluded that taxpayer has charity as its primary
object, in the foregoing analysis of the entity-level require-
ments for a charitable institution. The court therefore turns
to analysis of taxpayer’s argument, focusing on the term
“literary institution.”
Compared to the term “charitable institution,”
Oregon Supreme Court decisions provide relatively lit-
tle guidance on the meaning of “literary institution.”
Accordingly, the court approaches taxpayer’s alternative
claim as a question of statutory interpretation requiring
the court to examine the statute’s text, context and (to the
extent available and helpful) legislative history, as well
as general rules of construction to resolve any remaining
uncertainty. State v. Gaines, 346 Or 160, 171-72, 206 P3d
1042 (2009). In doing so, the court applies Oregon Supreme
Court decisions wherever applicable. As noted most recently
by the Oregon Supreme Court in Theatre West of Lincoln
City, Ltd. v. Dept. of Rev., 319 Or 144, 873 P2d 1083 (1994),
28
The department argues that this court’s opinions holding that a literary
or scientific institution need not have charity as its primary purpose misinter-
pret the Oregon Supreme Court’s holding in Theatre West of Lincoln City, Ltd.
v. Dept. of Rev., 319 Or 144, 117, 873 P2d 1083 (1994), and conflict with Behnke-
Walker, 173 Or at 520 (citing Math Learning Center v. Dept. of Rev., 14 OTR 62,
65-66 (1996), and Oregon Writer’s Colony v. Dept. of Rev., 14 OTR 69, 73 (1996)).
Because the court has already concluded above that taxpayer satisfies the higher
standard for a charitable institution under the three-part test in SW Oregon,
the court need not revisit the standards expressed in Math Learning Center and
Oregon Writer’s Colony.
532 Dept. of Rev. v. New Friends of the Beaverton City Library
the key statutory language exempting property of all “liter-
ary, benevolent, charitable and scientific institutions” has
remained unchanged since the territorial legislature origi-
nally enacted it in 1854. See Theatre West, 319 Or at 119.29
As to the text, the term “literary institution,” like the more
common term “charitable institution,” is recognized as a
standalone term but is not defined in statute. See id. at 118.
In discerning the plain meaning of multiword terms, the
Oregon Supreme Court recently has taken the systematic
approach of looking first for a definition of the phrase as a
whole. See, e.g., Comcast v. Dept. of Rev., 356 Or 282, 297-98,
337 P3d 768 (2014) (determining at the outset of its analysis
that phrase “data transmission services” has no familiar
or common meaning; rejecting as “futile” an approach that
would require the court to “cobble together definitions of the
individual words to make collective sense of the phrase as a
whole”); Tharp v. PSRB, 338 Or 413, 423, 110 P3d 103 (2005)
(analyzing meanings of “mental disease or defect” and “per-
sonality disorder” as complete phrases “although they con-
sist of common individual words”).
As with any term, Oregon courts often consult dic-
tionary definitions of multiword phrases, on the assumption
that, if the legislature did not give the term a specialized
definition, the dictionary definition in use at the time best
29
The phrase “literary, benevolent, charitable and scientific institutions”
first appeared in an act of the territorial legislature dated January 27, 1854, in a
provision materially identical to the relevant portion of today’s ORS 307.130(2):
“The following property shall be exempt from taxation:
“* * * * *
“(4) The personal property of all literary, benevolent, charitable and sci-
entific institutions incorporated within this territory, and such real estate
belonging to such institutions as shall be actually occupied for the purposes
for which they were incorporated.”
The Statutes of Oregon, Enacted and Continued in Force by the Legislative
Assembly at the Session Commencing 5th December, 1853, ch I, tit I, § 4 (Bush
1854); compiled in General Laws of Oregon, Civ Code, ch LIII, title I, § 4, p 894
(Deady 1845-1864) (“Section Four”), also codified at Codes and General Laws
of Oregon, ch XVII, title I, § 2732 (Hill 1887), available at https://heinonline.
org/HOL/P?h=hein.sstatutes/coglwor0002&i=226; The Codes and Statutes of
Oregon, title XXX, ch I, § 3039 (Bellinger & Cotton 1901), available at https://
heinonline.org/HOL/P?h=hein.sstatutes/codsor0002&i=250 (emphasis added).
See Behnke-Walker, 173 Or at 513 (“Ever since its enactment by the territorial
legislature in 1854 * * * [the statute] has remained unamended, except that the
word “territory” therein has been changed to “state.” (Citation omitted.)).
Cite as 23 OTR 512 (2019) 533
reflects the meaning that the legislature would naturally
have intended. Comcast, 356 Or at 296. The court has found
no dictionary definition of “literary institution” contempo-
raneous with 1854, although a contemporaneous dictionary
does use the phrase as follows:
“Institution—A system, plan or society established,
either by law or by the authority of individuals for promot-
ing any object, public or social. We call a college or an acad-
emy, a literary institution; a bible society, a benevolent or
charitable institution; a banking company and an insur-
ance company are commercial institutions.”
Noah Webster, 1 An American Dictionary of the English
Language 114 (1828) (emphasis added). The same dictionary
defines “collegian” as a “member of a college, particularly of
a literary institution so called; an inhabitant of a college.”
Id. at 41 (emphasis added).30 In contrast to a definition of
the phrase as a whole, the use of the phrase leaves open the
possibility that a “college or an academy” was only one type
of “literary institution.”
The court turns to the statutory context. To start
with, the court has searched for other contemporaneous uses
of the phrase “literary institution” in Oregon statutes, but
the court has found nothing useful there.31 The court notes
that the 1957 Legislative Assembly created a specific exemp-
tion for certain educational institutions or organizations:
“If not otherwise exempt by law, the schools, acade-
mies and student housing accommodations, owned by
incorporated eleemosynary institutions or by incorporated
30
“College” being defined, in pertinent part, as “the society of persons
engaged in the pursuits of literature, including the officers and students.” Id.
31
In 1849, the territorial legislature passed a law exempting “the prop-
erty of all literary institutions, together with public buildings, and other
property belonging to the Territory[.]” See An Act, to provide for assessing
and collecting County and Territorial Revenue (Sept 29, 1849). Two years
later, the legislature deleted the phrase “literary institution” from the act.
See An Act, amendatory to an act * * * passed September 29, 1849 (Feb 7,
1851). Nothing in either act defines “literary institution,” and the court has
found no cases interpreting the 1849 or 1851 acts. Aside from the limited
(and for this purpose uninformative) legislative record preserved in the jour-
nals of the territorial legislature, the court is unaware of any legislative his-
tory of the acts of 1854, 1851, or 1849 to assist in the interpretation of “literary
institution.”
534 Dept. of Rev. v. New Friends of the Beaverton City Library
religious organizations, used exclusively by such institu-
tions or organizations for or in immediate connection with
educational purposes, are exempt from taxation.”
ORS 307.145. The existence of ORS 307.145 implies that the
legislature in 1957 at least questioned whether the existing
phrase “literary, benevolent, charitable and scientific insti-
tutions” already exempted the property described in ORS
307.145. Any such perception of ambiguity in 1957 is, of
course, not relevant to the instant case, as it does not reveal
the intention of the territorial legislature more than 100
years earlier. DeFazio v. WPPSS, 296 Or 550, 561, 679 P2d
1316 (1984) (“The views legislators have of existing law may
shed light on a new enactment, but it is of no weight in inter-
preting a law enacted by their predecessors.”).32 In any event,
there is evidence that the 1957 Legislative Assembly had no
intention of changing the application of prior exemption pro-
visions: the text of ORS 307.145 expressly exempts property
“[i]f not otherwise exempt by law,” and one of the senators
is recorded as having remarked during a committee meet-
ing that the bill “was put in to clarify and not to disturb
the existing law.” Minutes, Senate Committee on Taxation,
32
In addition, a close reading of the text of ORS 307.145 suggests that the
legislature in 1957 was concerned largely with specific types of property, the sta-
tus of which may have been unclear under the general exemption for “literary
institution” property. First, the reference to “schools” may have been an effort
to clarify that exemption applied to property used for education below the col-
lege level. The reference to “student housing accommodations” seems to clarify,
or possibly extend, the scope of the exemption. By including property used by
“religious organizations” for educational purposes, ORS 307.145 eliminates doubt
as to whether those schools were eligible. And the phrase “for or in immediate
connection” with educational purposes suggests that exemption might apply to
a somewhat broader range of properties than even student dormitories. The leg-
islative history supports these inferences. The minutes of the Senate Taxation
Committee initially suggest that the purpose of the bill was to ensure exemption
for four educational institutions in Portland notwithstanding the fact that nuns
and priests who worked there also used portions of the premises as living quar-
ters. Minutes, Senate Committee on Taxation, Mar 28, 1957, 1-2; see also id.,Apr 18, 1957, 3. (It is unclear from the surviving committee minutes whether the
proponents were concerned about loss of exemption for all of the property at each
facility or only about loss of exemption for the living spaces.) Counsel for the State
Tax Commission, Ted de Looze, testified to the effect that “there was not a spe-
cific statute exempting property of educational institutions. They obtain because
they come within [ORS] 307.130 because they are literary, scientific, educational,
etc.” Minutes, Senate Committee on Taxation, Mar 29, 1957, 5. de Looze went on
to mention married student housing and dormitories as among issues that the
bill should address specifically. Id., Mar 29, 1957, 6.
Cite as 23 OTR 512 (2019) 535
Apr 18, 1957, 3 (statement of Sen Ohmart). In short, noth-
ing in ORS 307.145 suggests that the existing exemption
for property of “literary institutions,” now codified in ORS
307.130, applies to property of a bookstore.
The court next considers the relatively few Oregon
judicial opinions that have interpreted the phrase “literary
institution.” The first was a nontax case involving Corvallis
College, which some years previously had been designated
a federal land grant college but still was associated with
its founding body, the Methodist Episcopal Church. Liggett
v. Ladd, 23 Or 26, 31 P 81 (1892). The trustees decided to
deed a previously purchased “agricultural farm” to the
state after it became clear that the college could not raise
the funds from the church or the local community to main-
tain the federally mandated curriculum of “agricultural
studies, military tactics, * * * and the mechanic arts” while
also adhering to the requirement in the college’s articles of
incorporation to “maintain a strictly literary institution for
educational purposes.” Id. at 39-46. The point significant for
this case is that the Supreme Court seemed to agree that
the trustees reasonably were concerned that running an
agricultural college would violate the corporate mandate to
run a “strictly literary institution.” See id. at 44-45. This
court infers that, as of 1892, the phrase “literary institution”
encompassed a college or school, and that a “strictly” liter-
ary institution meant one devoted to courses of study other
than practical pursuits such as agriculture. Arguably, those
meanings relate back to 1868, when the founders drafted
the articles of incorporation.33
33
Later Oregon cases that incidentally mention the phrase give no indication
that the Supreme Court ever sought to broaden the definition of “literary insti-
tution” beyond its original meaning as a type of school. See Barmore v. Board
Medical Examiners, 21 Or 301, 307, 28 P 8 (1891) (quoting Ill. State Bd. of Dental
Examiners v. People, 123 Ill. 227, 242, 13 NE Rep 201 (1887) (citing an Illinois
regulation requiring preliminary examination if “no certificate from a high or
normal school, or other literary institution, is presented by the candidate”));
Philomath College v. Wyatt, 27 Or 390, 396, 31 P 206 (1892), aff’d, 27 Or 390, 37 P
1022 (1894) (stating that Philomath College was organized as a “literary institu-
tion”); University v. Multnomah Co., 31 Or 498, 499, 50 P 532 (1897) (deciding pro-
cedural issues; acknowledging that certain property of Portland University was
exempt as property of a “literary institution”); Security Sav. & Trust Co. v. Lane
County, 152 Or 108, 135, 53 P2d 33 (1935) (citing Williston Seminary v. County
Commissioners, 147 Mass 427, 430, 18 NE 210 (1888) (implying that a seminary
is a literary institution)).
536 Dept. of Rev. v. New Friends of the Beaverton City Library
In Willamette University v. Knight, decided in 1899,
the court’s holding was to deny exemption for a portion of
improved land that the university leased to others for profit,
as noted above. See 35 Or at 44-46. The court freely described
Willamette University as a “literary institution” but saw no
need to define the term. The next case, Kappa Gamma Rho v.
Marion County, 130 Or 165, 279 P 555 (1929), involved prop-
erty owned by an incorporated fraternity and operated as a
residence hall for members attending Willamette University.
The court concluded that the corporation was neither a char-
itable, literary, nor scientific institution. It was not charita-
ble because it was “organized and maintained for the con-
venience of its members.” 130 Or at 176. In rejecting the
taxpayer’s argument that it qualified for the exemption for
literary or scientific institutions, the court stated:
“The literary work is that of a student while attending col-
lege. The scientific phase of plaintiff’s activities is that of a
student while preparing himself for his life’s vocation. Such
pursuits are not generally classed as literary or scientific.
* * * Literary societies are organizations for the propaga-
tion and spread of good literature rather than for one’s own
individual education. Scientific societies are usually and
ordinarily understood to embrace organizations for the pro-
motion 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.”
Id.34 The court did not question the taxpayer’s assertion that
Willamette University itself was a “literary, benevolent,
charitable and scientific institution * * *.” Id. at 167.
34
The phrase “literary societies,” appearing in Kappa Gamma Rho, may have
had a meaning different from, and broader than, “literary institution.” In 1851
the territorial legislature passed a law providing for the regulation of “all asso-
ciations for literary or religious purposes, except common schools, colleges and
university.” An Act to regulate incorporated Literary and Religious Societies,”
compiled in Statutes of General Nature Passed by the Legislative Assembly of
the Territory of Oregon, 2nd Regular Session (Bush 1851). That 1851 act was
superseded in 1864 by “[a]n Act providing for the incorporation of churches and
religious, benevolent, literary and charitable societies” (the “1864 Act”) (emphasis
added). See General Laws of Oregon, Civ Code, ch IV, title IV, § 1, 632-33 (Deady
1845-1864) (codifying 1864 Act); Benevolent Society, 28 Or at 174 (explaining
that taxpayer’s organization was incorporated under the 1864 Act). In 1937 the
legislature eliminated the words “literary” and “societies” from the statute, Or
Laws 1937, ch 246, § 25-901, and in 1941 the legislature repealed the 1864 Act
in whole and replaced it with a law providing for the incorporation of nonprofit
corporations generally. Or Laws 1941, ch 462, § 1 (repealing 1864 Act; enacting
Cite as 23 OTR 512 (2019) 537
In Behnke-Walker v. Multnomah County, 173 Or 510,
146 P2d 614 (1944), the taxpayer was a business college that
taught “bookkeeping, shorthand, English, arithmetic, busi-
ness administration and kindred subjects.” 173 Or at 511
(internal quotation marks omitted). The taxpayer was orga-
nized as a regular business corporation and not under the
nonprofit corporation statute. Id. at 512. These facts alone
distinguish the instant case, but this court sets forth the
majority and concurring reasoning in order to better explain
this court’s decision. The majority in Behnke-Walker con-
cluded that the taxpayer’s property was not exempt, stating:
“Upon viewing [the original 1854 exemption statute,
including the provisions exempting government-owned
property,] in its entirety, it is apparent that the legislature
did not intend to exempt from taxation private property
used for private profit, and that the only property, public or
private, in fact exempted is such as ‘has been sequestered
or devoted to public uses’ * * *.”
an act “[r]elating to the organization and operation of nonprofit corporations”);
see Benhke-Walker, 173 Or at 515 (discussing the history of the 1864 Act and the
amendatory legislation leading up to its repeal in 1941).
In addition to the cases discussed elsewhere in this opinion, the court is aware of
two other cases that made express reference to the phrase “literary societies,” both
in the context of the 1864 Act: Philomath College v. Hartless, 6 Or 158, 165 (1876)
(stating that plaintiff, a college, would be legally incorporated as a “literary society”
under the 1864 Act), and Landgraver v. Emanuel Lutheran, 203 Or 489, 533-34, 280
P2d 301 (1955) (Brand, J., dissenting), overruled in part by Hungerford v. Portland
Sanitarium, 235 Or 412, 384 P2d 1009 (1963) (discussing the 1864 Act incorpo-
rating “literary and charitable societies” (citing the Supreme Court’s rejection of
the destination-of-income theory in Benevolent Society to justify stripping nonprofit
corporations of immunity for torts committed while the corporation is engaged in
noncharitable activities)). A third case, Burkitt, et al. v. School Dist. No. 1, et al., 195
Or 471, 246 P2d 566 (1952), quoted a California appellate court’s use of the phrase
“literary society” to describe a society that became part of a fraternity. 195 Or at
480 (quoting Bradford v. Board of Education, 18 Cal App 19, 23, 121 P 929 (1912)
(“The first Greek letter society in a secondary school was Alpha Phi, a literary soci-
ety, which became a part of a fraternity in 1876.”)). Although the court has found
no contemporaneous definition of “literary society,” the 1828 edition of Webster’s
dictionary defined the word “society” to include “[a]ny number of persons associated
for a particular purpose, whether incorporated by law, or only united by articles of
agreement; a fraternity * * * we have bible societies for various objects * * * societies
for mechanics, and learned societies; societies for encouraging arts, &c.” Webster’s
American Dictionary of the English Language (unpaginated 1828). The same dictio-
nary entry notes that “Literary society renders a place interesting and agreeable.”
Id. The court interprets the foregoing authorities as strongly suggesting the phrase
“literary society” was less well defined than the phrase “literary institution” and
may have encompassed a broader range of groups that, unlike literary institutions,
did not necessarily maintain an educational curriculum or confer degrees.
538 Dept. of Rev. v. New Friends of the Beaverton City Library
Id. at 520. After reviewing cases from other states on the
subject of exemption for property held by for-profit entities,
the majority concluded:
“We have not discussed or considered whether the plain-
tiff’s business college would fall within the definition of a
‘scientific’ or ‘literary’ institution, if owned and used as a
business college by a non-profit corporation, inasmuch as
it is our conclusion that the plaintiff’s property is used for
private gain and is therefore taxable.”
Id. at 526. The concurring opinion agreed with the result,
but on the separate ground that a business college inher-
ently does not qualify as a “literary institution” because of
the nature of the curriculum, a ground not discussed in the
majority opinion. Id. at 527 (Kelly, J., specially concurring).
The concurrence strongly disagreed with the holding that
incorporation under the nonprofit corporation act is a pre-
requisite to exemption. In doing so, the concurrence charac-
terized the majority opinion as follows:
“As I understand the majority in the case at bar, the
holding is that in order to be exempt from taxation the
institution not only must be scientific or literary but benev-
olent and charitable also. Not only that, it must be incorpo-
rated under the nonprofit corporation statute.”
Id. at 529 (Kelly, J., specially concurring).
The next and most recent Oregon Supreme Court
opinion to construe the phrase “literary institution” for prop-
erty tax purposes—and the only one to grant the exemption—
was Theatre West in 1994. There, the Supreme Court
allowed exemption for a nonprofit live theater production
company. The Supreme Court rejected this court’s narrow
interpretation of the term “literary,” which would have lim-
ited the exemption to organizations involved with “litera-
ture or written words” but not “movies, theatre, television or
opera.” 12 OTR at 483. The Supreme Court found evidence
of a broader meaning of the terms “literary” and “literature”
in current dictionary definitions and in sources contempo-
raneous with or predating the 1854 territorial legislature.
319 Or at 118-19. Those definitions led the Supreme Court
to conclude that scripts of plays are literature, and to hold
that “an organization that is devoted to the production of
Cite as 23 OTR 512 (2019) 539
plays that expose actors and audiences to those scripts is a
‘literary institution.’ ” Id. In so holding, the court added the
partial quotation from Kappa Gamma Rho that “ ‘[l]iterary
societies are organizations for the propagation and spread
of good literature * * *.’ ” Id. at 119 (quoting Kappa Gamma
Rho, 130 Or at 176).
None of the Oregon Supreme Court’s opinions
regarding the definition of “literary institution” has involved
a bookstore. Nor have those prior cases required the court
to articulate a general principle that squarely resolves this
case. This court interprets the Supreme Court’s broad ref-
erence to “organizations for the propagation and spread of
good literature” not as a comprehensive definition but as a
statement of one element in determining whether an orga-
nization qualifies as a literary institution, and as a con-
trast not only to the self-serving purpose of the fraternity
house in Kappa Gamma Rho, but also to this court’s narrow
interpretation in Theatre West that would have confined the
exemption to organizations dealing with print materials.
As recounted in the Supreme Court’s opinion, Theatre
West involved actors and production crews engaged in inter-
pretive performances that “expose[d]” actors to scripts and
enabled audiences to “fully explore” the scripts as works of
literature. 319 Or at 118-19. By contrast, taxpayer’s role is
more analogous to a nonprofit ticket service that sells tickets
to plays, donating large portions of the proceeds to a charita-
ble cause. Taxpayer succeeds in its primary purpose by gen-
erating a high volume of sales and by managing its expenses
prudently, not by engaging with its volunteers or its custom-
ers about the literary qualities of particular works. Taxpayer
is a step removed from the kind of activity that the Supreme
Court considered “literary” in Theatre West.
Since Theatre West, the Regular Division has con-
sidered one case in which the taxpayer claimed exemption
as a “literary institution.” Oregon Writer’s Colony v. Dept. of
Rev., 14 OTR 69 (1996). There, the court upheld exemption
for an organization operating a beach house used as a cen-
ter for writer workshops and as a space to which individ-
ual writers could retreat in order to work. The opinion in
that case made clear that the purpose of the organization
540 Dept. of Rev. v. New Friends of the Beaverton City Library
was to “educate” writers and to support them “in produc-
ing literature.” 14 OTR at 71, 73. The court found that the
organization used the property for those purposes. Id. at 76.
The opinion suggests that approximately one-fourth of the
use was for workshops typically led by published writers,
while the primary use was as a retreat location for indi-
vidual writers. Id. at 70-71. The teaching activities in the
workshops can be compared fairly to those of a college or
school. The support to writers seeking a place to create in
peace conceivably could be analogized to the efforts of a the-
ater company that “exposes” actors to scripts and causes
the actors to creatively interpret them for an audience. In
any event, the court declines the department’s invitation to
revisit Oregon Writer’s Colony, as the court is unable to see
any factual analogy between the activities there and the
retail book sales in the instant case; accordingly, Oregon
Writer’s Colony creates no “reasonable expectation” for tax-
payer. See Farmers Ins. Co. v. Mowry, 350 Or 686, 698, 261
P3d 1 (2011).
The court continues its search for relevant context.
Court opinions close in time to 1854 involving the laws of
other states indicate that a college or other type of school
was by far the most common meaning of the phrase “lit-
erary institution,” although courts disagreed about the
type or level of instruction that could qualify.35 In City of
Indianapolis v. McClean, 8 Ind 328, 332 (1856), the Indiana
Supreme Court interpreted the phrase “literary institution”
as part of a nearly identical string of institutions eligible
for property tax exemption: “any literary, benevolent, char-
itable, or scientific institution * * *.” Id. (quoting Revised
Statutes of the State of Indiana, Passed at the Thirty-Sixth
Session of the General Assembly, ch IV, § 5, at 106 (1852)).
In denying exemption for a girls’ boarding school, the court
stated:
“Is the school in question a literary institution? The word
literary having no fixed legal signification, is to be taken
in its ordinary and usual meaning. We speak of literary
persons as learned, erudite; of literary property, as the
35
Cf. Behnke-Walker, 173 Or at 527 (Kelly, J., specially concurring) (rejecting
possibility that a “business” college could qualify as a literary institution).
Cite as 23 OTR 512 (2019) 541
productions of ripe scholars, or, at least, of professional
writers; of literary institutions, as those where the positive
sciences are taught, or persons eminent for learning asso-
ciate, for purposes connected with their professions. This
we think the popular meaning of the word; and that it
would not be properly used as descriptive of a school for the
instruction of youth.”
Id. (emphasis added); see Chegaray v. Jenkins, 5 NY 376,
379 (1851) (referring to “a college, incorporated academy, or
other seminary of learning” in property tax exemption stat-
ute as “literary institutions”); Armstrong v. Athens County,
10 Ohio 235, 238-39 (Dec 1, 1840), aff’d sub nom, Armstrong
v. Treasurer of Athens County, 41 US 281, 16 Pet 281, 10 L
Ed 965 (1842) (referring to “school-houses, academies, or col-
leges”; any “academy or seminary of learning” and “schools,
academies, colleges” in property tax exemption statutes
collectively as “literary institutions”); cf. NH Laws, ch 447
(1839) (preserving voting rights at place of permanent domi-
cile “in all cases where individuals shall leave their home
or place where they reside to attend an academy, college or
other literary institution in any town or place in this state
for the purposes of obtaining an education * * *” (emphasis
added)). Numerous contemporaneous opinions refer to vari-
ous colleges and universities as “literary institutions.” E.g.,
Trustees of Dartmouth College v. Woodward, 17 US 518, 4 L
Ed 629, 4 Wheat 518 (1819) (Marshall, C. J., repeatedly refer-
ring to Dartmouth College as a literary institution); Board
of Trustees of Vincennes University v. Indiana, 55 US 268,
276, 14 How 268, 14 L Ed 416 (1852) (referring to Vincennes
University as literary institution); Washington University v.
Rouse, 75 US 439, 441, 19 L Ed 498, 8 Wall 439 (1869) (refer-
ring to Washington University as a literary institution);
Allen v. McKean, 1 F Cas 489, 503-04 (D Me 1833) (referring
to Bowdoin College as literary institution). There is evidence
that the term also encompassed libraries. E.g., On the Law of
Rating Literary Institutions, 17 Law Magazine: Or Quarterly
Review of Jurisprudence 180, 190-92 (1852) (summarizing
and commenting on English cases exempting literary insti-
tutions from property tax (“ratings”)); see also Commercial
Cities and Towns of the United States, 16 Hunt’s Merchants’
Magazine 596, 598 (1847) (“The Young Men’s Association [of
Buffalo, New York,] is a flourishing literary institution, with
542 Dept. of Rev. v. New Friends of the Beaverton City Library
a library of over 3,000 volumes of well-selected books, and
it sustains an able course of literary and scientific lectures
in the winter season, which are numerously attended.”).
But the court has found no evidence that the term “literary
institution” was used in reference to a bookstore of any kind.
The court concludes that the territorial legislature
in 1854 would not have found taxpayer within the ordinary
meaning of a “literary institution,” as the ordinary meaning
of the term at that time was limited to colleges and schools,
and perhaps libraries. Subsequent Oregon decisions have
not expanded the term to encompass taxpayer’s activities.
Because taxpayer does not fit within the term “literary
institution,” the court need not consider whether its use
of the property is consistent with the purpose of such an
institution.
V. CONCLUSION
The court denies taxpayer’s motion for summary
judgment because, although taxpayer is a charitable institu-
tion, taxpayer primarily uses the subject property as a retail
store for the sale of used books. That use does not further
taxpayer’s charitable purpose except under a “destination of
income” theory, which Oregon courts have squarely rejected.
In addition, the court concludes that taxpayer is not a “lit-
erary institution” within the meaning of ORS 307.130(2)(a).
Now, therefore,
IT IS ORDERED that Defendant’s Motion for
Summary Judgment is denied.