American Museum of Fly Fishing, Inc. v. Town of Manchester , 151 Vt. 103 ( 1989 )

Gibson, J.

Plaintiff appeals a declaratory judgment of the Bennington Superior Court determining that plaintiff is not exempt from property taxation under 32 V.S.A. § 3802(4), but that the Town could vote to exempt plaintiff from property taxes pursuant to 32 V.S.A. § 3840. We reverse.

I.

Neither party questions the trial court’s findings, which reveal the following relevant facts. Plaintiff is a nonprofit, Vermont corporation, exempt from federal and state income taxation. It was organized for the purpose of “[e]ngaging in, assisting and contributing to the support of exclusively charitable, scientific and educational activities” relating to the sport of fly fishing. In October of 1983, plaintiff purchased a building in the Village of Manchester to be used solely as a museum in support of plaintiff’s above-stated corporate purpose. The museum opened in late May of 1984. Since then, it has been open daily to the general public free of charge.

The Town and Village of Manchester assessed property taxes on the museum for the year 1984. Plaintiff appealed to the Town of Manchester Board of Civil Authority, asserting its alleged tax-exempt status. The Board denied this request. Plaintiff subsequently brought suit in the superior court, seeking a declaratory judgment that the museum was exempt from all property taxes under 32 V.S.A. § 3802(4).¹ The trial court held that plaintiff was not exempt under § 3802(4) since plaintiff had not assumed an essential governmental function. The court also found that 32 V.S.A. § 3832(7), denying automatic tax exemptions for property “used primarily for . . . recreational purposes,” did not apply to the museum. The court went on to conclude that the provisions of 32 V.S.A. § 3840² did apply since “plaintiff is associated for charitable purposes and the real estate that it owns is used solely for its charitable, nonprofit purposes . . . .”

Plaintiff appeals, raising three issues. We find plaintiff’s first argument, that the trial court erred in applying the test of assumption of an essential governmental function to the museum, dispositive of this appeal. We, therefore, do not reach plaintiff’s remaining claims. In light of this Court’s previous mixed interpretations of § 3802(4), we shall review briefly the historical development of the “essential governmental function” test and set forth what we consider to be the proper “public use” test for application on remand.

II.

An important early case interpreting 32 V.S.A. § 3802(4), then designated as V.S. 1947, § 649, was Fort Orange Council, Inc. v. French, 119 Vt. 378, 125 A.2d 835 (1956). In that case, this Court held that a camp operated by the Boy Scouts of America, a New York corporation, was not entitled to a exemption because the corporation served only a limited group, the members of the Boy Scout organization. The Court stated that in order to claim an exemption under the statute, the property in question must not serve a “closed circle” of members, but must be open to the public at large. Id. at 384, 125 A.2d at 839.

In New York Institute for the Education of the Blind v. Town of Wolcott, 128 Vt. 280, 262 A.2d 451 (1970), this Court affirmed the grant of a tax exemption to a summer remedial school/camp for blind children. The Court held that § 3802(4), not § 3840, applied, and that in order to qualify for exemption under § 3802(4), “the property of the Institute must be used for public use and its use confer a benefit upon an indefinite class of persons who are a part of the public.” Id. at 285, 262 A.2d at 454. The Court found that the Institute met this test because the property was used to benefit an indefinite class of persons: blind children. The Court distinguished Fort Orange Council by noting that the class of persons in that case was “ ‘a closed circle to those outside the organization,’ ” id. at 286, 262 A.2d at 455 (quoting Fort Orange Council, 119 Vt. at 384, 125 A.2d at 839), and asserting that the class was determined by “choice or selection and implie[d] some kind of voluntary action or judgment.’’Id.

Shelburne Museum, Inc, v. Town of Shelburne, 129 Vt. 341, 278 A.2d 719 (1971), which followed shortly thereafter, involved the question of whether two homes on the premises of the museum qualified for an exemption under § 3802(4) .The Court established that in order to attain tax-exempt status under § 3802(4), “the property must confer a benefit upon that segment of the public which the institution was designed to serve.” Shelburne Museum, 129 Vt. at 344, 278 A.2d at 721. The Court held that one of the properties, the director’s home, was exempt, because it was used for various business and entertainment functions of the museum and thus furthered the “purposes and aims of the museum.” Id. The other home, occupied as a dwelling by a landscape artist, was not exempt, however, because the benefit derived from its use was only “collateral to the historical and educational purposes” of the museum. Id. at 345, 278 A.2d at 721.

The theoretical foundation of the essential-governmental-function test arose in English Language Center, Inc. v. Town of Wallingford, 132 Vt. 327, 318 A.2d 180 (1974), wherein the Court denied a public use exemption to a nonprofit school that taught English to students whose native tongue was other than the English language. The Court held that “[e]xemptions are granted for the performance of service essentially public in nature on the theory that such service benefits the public generally and, in so doing, assumes a share of the public burden.” Id. at 329-30, 318 A.2d at 182. The Court also stated that “[w] hate ver directly promotes individual interest, although it may also tend incidentally to the public benefit, is essentially a private, and not a public, activity.” Id. at 331, 318 A.2d at 183. The English Language Center did not fall within the purview of a public use because it served only a select segment of the public and not the public generally. As the Court correctly noted, public uses are essentially public in nature and benefit the public generally. It does not, however, follow that public uses must necessarily be those that assume a public burden. This is a fine point that was not necessary to the outcome of the case.

The Court applied a similar rationale in Vermont Wild Land Foundation v. Town of Pittsford, 137 Vt. 439, 407 A.2d 174 (1979). In that case, the Court denied an exemption for property that consisted of primeval forest, but the access to which was strictly limited to those involved in scientific research. The Court found that “[ajlthough the Foundation’s endeavors are admirable, the benefit to the public is too tangential to require the support of the community . . . .” Id. at 444, 407 A.2d at 177.

The current “essential governmental function” test was first enunciated in Brattleboro Child Development, Inc. v. Town of Brattleboro, 138 Vt. 402, 416 A.2d 152 (1980), in which a day care center argued that it qualified for tax-exempt status on the ground that, by caring for the children of working parents, it rendered a benefit to the public generally. The Court upheld the trial court’s determination that the services provided by the plaintiff were “essentially private” in nature, concluding that “ ‘the benefit to the public [was] too tangential to require the support of the community.’ ” Id. at 408, 416 A.2d at 156 (quoting Vermont Wild Land Found., 137 Vt. at 444, 407 A.2d at 177). In arriving at its ultimate holding, the Court balanced the historical basis of the exemption for the “support of schools and churches believed necessary for the encouragement of settlement in colonial . . . Vermont,” against “the increasing cost of town and city governments and the services which they provide.” Id. at 405, 416 A.2d at 154 (citing Broughton v. Town of Charlotte, 134 Vt. 270, 272-73, 356 A.2d 520, 522 (1976), and Experiment in Int’l Living v. Town of Brattleboro, 127 Vt. 41, 50, 238 A.2d 782, 788 (1968)). See generally Note, Exemption of Educational, Philanthropic and Religious Institutions from State Real Property Taxes, 64 Harv. L. Rev. 288 (1950). In the course of its opinion, the Court stated that in order to claim tax-exempt status under 32 V.S.A. § 3802(4), a plaintiff must “assume a burden of the municipality to provide a service which the legislature has determined to be an essential governmental function.” Brattleboro Child Dev., 138 Vt. at 406, 416 A.2d at 155.³ As will be discussed in the next section of this opinion, we believe such a criterion unjustifiably narrows the basis for which tax-exempt status as a public use under § 3802(4) may be claimed.

Finally, the “essential governmental function” test was most recently applied in Ski-Lan Gymnastics & Performing Arts Educational Foundation, Inc. v. City of Rutland, 143 Vt. 294, 465 A.2d 1363 (1983), wherein the Court denied an exemption to a school that taught children gymnastics and the performing arts. The Court held that plaintiff was not entitled to an exemption because it had “assumed no burden of the municipality which the legislature has determined to be an essential governmental function.” Id. at 297, 465 A.2d at 1365. As further justification for its decision, the Court declared that the plaintiff’s request for an exemption would be denied because “plaintiff’s services provide [d] an essentially private benefit to a limited class of persons . . . .” Id.

Considering the previous history of the law in this area of our jurisprudence, it is readily apparent how the trial court came to apply the “essential governmental function” test to the facts of the instant case. We shall now examine why we believe this test to be an incorrect statement of the law.

III.

In interpreting a statute, legislative intent should be gathered from “a consideration of the whole and every part of the statute, the subject matter, the effects and consequences, and the reason and spirit of the law.” Holbrook Grocery Co. v. Commissioner of Taxes, 115 Vt. 275, 278-79, 57 A.2d 118, 120 (1948). The definitive source of legislative intent, however, is the language of the statute itself, if that language plainly sets forth the intent of the Legislature. Hambley v. Town of St. Johnsbury, 130 Vt. 204, 206-07, 290 A.2d 18, 20 (1972); see also In re Middlebury College Sales & Use Tax, 137 Vt. 28, 31, 400 A.2d 965, 967 (1979) (in construing statute, plain ordinary meaning of language is presumed to be intended, and when meaning is plain, courts must enforce statute according to its terms). It is well established that “[a]n exemption will be strictly construed against the party claiming it, and any doubts as to its application will be interpreted against the exemption. Exemption statutes must be construed reasonably, and not in a manner that defeats the purposes of the statute.” In re Northeast Washington County Community Health Center, 148 Vt. 113, 115, 530 A.2d 558, 559 (1987) (citations omitted). This Court has also stated that “tax exemption statutes are strictly construed by confining their meaning to the express letter or necessary scope of their language.” Brattleboro Child Dev., 138 Vt. at 404, 416 A.2d at 153. Thus, the language of § 3802(4) may not be so broadly construed as to include uses not within the letter of the law, but neither may it be so strictly construed as to defeat the purpose of the statute by excluding public uses which do not assume “mandated governmental services.” See Ski-Lan Gymnastics, 143 Vt. at 297, 465 A.2d at 1365 (services held not “mandated” because city not required to teach such courses in its schools or offer such programs through its recreational facilities).

This Court has consistently held that in applying the general exemption contained in 32 V.S.A. § 3802(4) for the “[r]eal and personal estate . . . used for public, pious or charitable uses,” the crucial factor is the primary use to which property is put. Fletcher Farm, Inc. v. Town of Cavendish, 137 Vt. 582, 584, 409 A.2d 569, 570 (1979); Experiment in Int’l Living, 127 Vt. at 47, 238 A.2d at 786; Middlebury College v. Town of Hancock, 115 Vt. 157, 164, 55 A.2d 194, 198 (1947).⁴ As was stated in English Language Center, 132 Vt. at 329-30, 318 A.2d at 182, an exemption from taxation for public use is granted “for the performance of service essentially public in nature on the theory that such service benefits the public generally and, in so doing, assumes a share of the public burden.” An exemption only for assumption of “essential governmental functions” is nowhere stated in the statute, nor can it fairly be inferred from the language of the statute. See Broughton, 134 Vt. at 275, 356 A.2d at 523 (legislative purpose of § 3802(4) “was to provide for the furtherance of the general welfare by promoting the direct employment of property for services which would otherwise have to be offered by the state or which should be encouraged by the state for humanitarian purposes.”) (emphasis added). The statute employs the term “public uses,” not “mandated municipal services,” or even “essential governmental function.” Given the somewhat muddled state of affairs in this area of our jurisprudence, we believe it is necessary to clarify the “public use” test in order to offer guidance to the trial court on remand and to avoid further confusion on this point in the future. We do so with some trepidation, bearing in mind the warning of Justice Powers that an attempt to give a sufficiently accurate and comprehensive definition of the term “public use” is a “perilous undertaking.” Rutland Ry., Light & Power Co. v. Clarendon Power Co., 86 Vt. 45, 50, 83 A. 332, 334 (1912). Nevertheless, there are certain common denominators present in our past decisions that can be seen to be essential to any determination of public use.

IV.

Before a property is entitled to tax-exempt status as a public use, it must meet certain criteria, as follows: (1) the property must be dedicated unconditionally to public use; (2) the primary use must directly benefit an indefinite class of persons who are part of the public, and must also confer a benefit on society as a result of the benefit conferred on the persons directly served; and (3) the property must be owned and operated on a not-for-profit basis. All of the above criteria are explicitly stated or are implicit in the prior decisions of this Court. See, e.g., Ski-Lan Gymnastics, 143 Vt. at 297-98, 465 A.2d at 1365 (use of property must confer benefit on indefinite class of persons who are part of public); Brattleboro Child Dev., 138 Vt. at 404-05, 416 A.2d at 154 (same; service must benefit public generally); Vermont Wild Land Found., 137 Vt. at 443-44, 407 A.2d at 176-77 (same; governing consideration is the direct and immediate, rather than the remote or incidental, benefit derived from use of the property); English Language Center, 132 Vt. at 329-30, 318 A.2d at 182-83 (indefinite class; service must benefit public generally); Shelburne Museum, 129 Vt. at 345-46, 278 A.2d at 722 (property must be primarily devoted to a public use); New York Inst. for the Educ. of the Blind, 128 Vt. at 285, 262 A.2d at 454 (primary, as distinguished from an incidental, use of property determines whether it is exempt from taxation; property must be devoted to public use and confer a benefit upon an indefinite class of persons).

All of the litigants seeking tax exemption in the above-cited cases owned and operated their properties on a not-for- profit basis. The requirement of a nonprofit operation does not mean that a property may never operate in the black. It does mean, however, that any excess of income over expenses must be derived incidentally from, and not as a deliberate goal of, the operation, and must be devoted to the public objectives of the project. See Middlebury College v. Town of Hancock, 115 Vt. at 164, 55 A.2d at 198-99 (income from lumber operations was incidental to primary use of property as a public park, and did not change its tax-exempt status).

Finally, while properties which actually provide essential governmental functions may be exempt as a public use, we no longer will require a property to assume such a burden in order to achieve tax-exempt status. To the extent that our earlier opinions employ an “essential governmental function” test instead of a “public use” test in determining whether a property is exempt under 32 V.S.A. § 3802(4), those opinions are overruled.⁵

V.

The trial court’s factual findings in the instant case, unfortunately, are insufficient to allow us to apply the above test in order to determine plaintiff’s tax-exempt status pursuant to § 3802(4). Therefore, we remand the matter for a new trial.

Reversed and remanded.

1 32 V.S.A. § 3802 reads in pertinent part: “The following property shall be exempt from taxation:. . . (4) Real and personal estate granted, sequestered or used for public, pious or charitable uses . . . .”

2 32 V.S.A. § 3840 provides in pertinent part:

When a society or body of persons associated for a charitable purpose, in whole or in part, . . . owns real estate used exclusively for the purposes of such society, body or organization, such real estate may be exempted from taxation, either in whole or in part, for a period not exceeding ten years, if the town so votes. Upon the expiration of such exemption, a town may vote additional periods of exemption not exceeding five years each.

3 The Court also stated that the test was not limited to property used in providing educational services. Brattleboro Child Dev., 138 Vt. at 407, 416 A.2d at 155.

4 The dissent objects that the Court will not be able to' distinguish between public, pious and charitable uses. We merely point out that the Court has had no previous difficulty in making such determinations, even before the articulation of the essential-governmental-function test. See, e.g., Vermont Wild Land Found v. Town of Pittsford, 137 Vt. 439, 407 A.2d 174 (1979) (charitable, but not public); New York Inst. for the Educ. of the Blind v. Town of Wolcott, 128 Vt. 280, 262 A.2d 451 (1970) (both public and charitable); Fort Orange Council, Inc. v. French, 119 Vt. 378, 125 A.2d 835 (1956) (charitable, but not public). For a discussion of the interrelationship of 32 V.S.A. §§ 3802(4) and 3840 and the test for differentiating between public and charitable uses, see New York Inst. for the Educ. of the Blind, 128 Vt. at 284-88, 262 A.2d at 454-56.

5 Our rejection of the more recent “essential governmental function” standard in favor of the statutorily delineated “public use” test is based in part upon concerns for judicial restraint in “interpreting” legislative actions. The area of tax exemption is a “uniquely legislative concern.” Governor Clinton Council, Inc. v. Koslowski, 137 Vt. 240, 251, 403 A.2d 689, 696 (1979) (Hill, J., dissenting). While we believe that our recent interpretations of 32 V.S.A. § 3802(4) unjustifiably have altered the express intention of the Legislature to allow tax-exempt status for “public uses,” our decision in the instant appeal “in no way precludes the legislature from also addressing the subject; it is still free to act. The legislature may ratify, limit or reject our holding.” Hay v. Medical Center Hosp., 145 Vt. 533, 544-45, 496 A.2d 939, 946 (1985). Thus, should it desire to do so, the Legislature still retains this prerogative.