Labrie v. Vermont Dep't of Taxes ( 2014 )

Labrie et. al. v. Vermont Dep’t of Taxes, No. 302-7-13 Wmcv (Wesley, J. May 9, 2014).
[The text of this Vermont trial court opinion is unofficial. It has been reformatted from the original. The accuracy of the text and the
accompanying data included in the Vermont trial court opinion database is not guaranteed.]
STATE OF VERMONT
SUPERIOR COURT CIVIL DIVISION
Windham Unit Docket No. 302-7-13 Wmcv
Labrie et al vs. Vermont Department of Taxes
ENTRY REGARDING MOTION
Count 1, Appeal - Tax (302-7-13 Wmcv)
Title: Motion for Summary Judgment (Motion 2)
Filer: Vermont Department of Taxes
Attorney: Will S. Baker
Filed Date: December 19, 2013
Response filed on 02/05/2014 by Attorney William M. McCarty for Plaintiff Robert A. Labrie
Response filed on 02/06/2014 by Attorney William M. McCarty for Plaintiff Robert A. Labrie
Signed Copy of Response by plff.
Response filed on 02/14/2014 by Attorney Will S. Baker for Defendant Vermont Department of
Taxes
The motion is GRANTED.
Opinion and Order
Granting Summary Judgment to the Vermont Department of Taxes
Robert and Dolores LaBrie appeal from a decision by the Vermont Department of Taxes
(The Department). The LaBries own 280.5 acres in Townshend. They use the property to
operate a business in which they breed, raise, and train Friesian horses. The business also hosts
camps and demonstrations and provides riding lessons, cottage rentals, and horse-drawn
carriage rides. The Department has enrolled the land in the Agricultural and Managed Forest
Land Use Value Program (Current Use Program). The Department refused to enroll the buildings
in the Current Use Program because the LaBries received more than half of their income from
non-farming activities. The appeal centers on what activities qualify as farming.
The Department moved for summary judgment on December 19, 2013. The Department
argued the LaBries are not entitled to have their buildings enrolled in the Current Use Program
because, for each of the years the LaBries applied, they had more non-farm income than farm
income. In making this determination, the Department did not include income related to
lessons, training, camps, carriage rides, cottage rentals, and similar activities as farm income.
The Department only included income from the sale of horses as farm income. The Department
also considered income from investments as non-farm income. The LaBries opposed summary
judgment on February 6, 2014. They argued all the horse-related income is farm income. The
LaBries further argue the Department’s interpretation violates the policy behind the agricultural
use exemptions. The Department responded to the opposition on February 14, 2014. The
parties do not dispute that if the Court treats the income from lessons, rentals, and camps as
farming income, then more than half of the LaBries’ income comes from farming.
The Court grants summary judgment “if the movant shows that there is no genuine
dispute as to any material fact and the movant is entitled to judgment as a matter of law.”
V.R.C.P. 56(a). The Court makes all reasonable inferences and resolves all doubts in favor of the
non-moving party. Lamay v. State, 2012 VT 49, ¶ 6, 191 Vt. 635.
Under 32 V.S.A. § 3752(14), farm buildings may be enrolled in the Current Use Program
if the applicant meets certain requirements. The buildings must be “actively used by a farmer as
part of a farming operation, are owned by a farmer or leased to a farmer…” 32 V.S.A. §
3742(14). A farmer is a person “who earns at least one-half of the farmer's annual gross income
from the business of farming as that term is defined in Regulation 1.175-3 issued under the
Internal Revenue Code of 1986.” 32 V.S.A. § 3742(7)(A). A farmer is a person who manages a
farm for profit. 26 C.F.R. § 1.175–3. A person who engages in farming “for recreation or
pleasure rather than a profit is not engaged in the business of farming.” Id. “[F]arm is used in its
ordinary, accepted sense and includes stock, dairy, poultry, fish, fruit, and truck farms, and also
plantations, ranches, ranges, and orchards.” Id. A person claiming an exemption bears the
burden of proof that the person is entitled to the exemption. 32 V.S.A. § 3755(e).
Vermont cases do not define the meaning of farming. Nevertheless, two cases provide
guidance on how the Court should interpret tax exemptions. Our Lady of Ephesus House of
Prayer, Inc. v. Town of Jamaica considered whether a horse-barn was entitled to a tax
exemption because it allowed clergy to use the property. See 2005 VT 16, ¶¶ 1, 4, 178 Vt. 35.
The Court rejected the taxpayer’s argument. Id. ¶ 1. The Court noted, “in construing tax
exemptions, the burden is on the person claiming the benefit of the exemption, and the
exemption statute must be strictly construed against that person.” Id. ¶ 14 (internal citations
omitted); see also Brownington Ctr. Church of Brownington, Vt., Inc. v. Irasburg, 2013 VT 99, ¶ 9
(reiterating statutes offering tax exemptions must be strictly construed).
In Mollica v. Division of Property Valuation and Review, the Vermont Supreme Court
considered whether a cottage used on a Christmas tree-farm qualified for an agricultural use
exemption. See 2008 VT 60, ¶¶ 1–2, 184 Vt. 83. The taxpayers engaged in tree farming most of
the year, but used the cottage for other purposes in the off-season. Id. ¶ 2. The Department
disallowed the cottage as “a development” under 32 V.S.A. § 3752(5). Following a de novo trial,
the Superior Court rejected the Department’s characterization, and the Supreme Court
affirmed. The Supreme Court found that the Department’s construction was strained, and
failed to conform to explicitly stated legislative policies. Id.¶ 20 Although courts usually defer
to decisions by administrative agencies that interpret statutes within their expertise, the
Current Use Program is remedial in nature and does not require deference. Id. ¶¶ 9–10. Courts
should therefore interpret the statute to maintain agricultural land. Id. ¶ 13.
Cases from bankruptcy courts provide guidance on whether lessons and training
qualifies as farming activities. See In re Poe, 62 Collier Bankr.Cas.2d 365 (Bankr. N.D.W.Va.
2009). To file for chapter 12 bankruptcy, which applies to family farmers, a debtor must show
half of the debtor’s income comes from a farming operation , the same test employed for
buildings claimed to be part of a farming operation under the Current Use program. See id.; see
also 11 U.S.C. § 101(18). In Poe, the debtor trained and boarded horses and raised cattle. 62
Collier Bankr.Cas.2d 365. Bankruptcy courts split over whether training and boarding horses
qualified as a farming activity and cited four cases applying different analyses. Id. The court
concluded training and boarding horses was not a farming activity because it did not contain
the types of risks, such as death of animal, that raising livestock typically involves. Id. Therefore,
the Court denied the debtor’s filing. See id.; see also In re Jones, 66 Collier Bankr. Cas.2d 62
(Bankr. D.Or. 2011) (refusing to include horse boarding fees as part of a debtor’s farming
income).
In re McKillips also considered a similar issue. See 72 B.R. 565, 568–69 (Bankr. N.D.Ill.
1987). In McKillips, the debtors filed for a chapter twelve bankruptcy for their horse breeding,
training, and showing operation. Id. at 567. Horse showing and training do not fall within the
traditional definition of farming or ranching. Id. at 567–68. Only breeding and selling horses fell
within the definition of farming operation. See id. at 568–69. Profits from raising and training
horses did not fall within the definition of farming operation because they are fee based and do
not contain the same risks of weather and illness that farming entails. See id. The court rejected
the debtor’s filing because less than half of the debtor’s income came from farming. Id. at 569.
This Court is persuaded by the reasoning in the above-cited bankruptcy cases, applying
an identical guideline for determining what activities qualify as farm income. In this case, the
LaBries are not entitled to have their buildings enrolled in the Current Use Program because
more than half of their income came from non-farming activities. Specifically, offering lessons,
camps, cottage rentals, and carriage ride are not farming activities. Notwithstanding the
remedial policies of the Current Use Program, it still requires taxpayers to prove they qualify for
an exemption. See 32 V.S.A. § 3755(e); Ephesus House, 2005 VT 16, ¶ 14.1 Under 26 C.F.R. §
1.175–3, farming activities includes raising crops and livestock. None of the LaBries’
supplemental activities are the listed types of farming in 26 C.F.R. § 1.175–3. The supplemental
activities are dissimilar in type from the listed types of farming. The Department correctly
interpreted this definition to mean selling horses is a farming activity but providing lessons,
cottage rentals, and carriage rides is not.
The situation here is similar to the one described in McKillips. See 72 B.R. at 568–69,
which also addressed the allocation of farm and non-farm income in the context of breeding
and raising horses. See id. The bankruptcy court determined training horses, which is fee based,
is not a farming operation because it does not contain the same risks as farming. See id. In this
case, the LaBries’ demonstrations, lessons, camps, and carriage rides are also fee based and do
not qualify as farming. The reasoning is also consistent with Poe. 62 Collier Bankr.Cas.2d 365.
Further, training horses does not fall under the traditional definition of farming. See McKillips,
72 B.R. at 567–68. Indeed, the LaBries’ claims for farm-related activities are even further
attenuated because they go beyond the fees charged for training horses, to include those
associated with camp offerings, cottage rentals, and carriage rides. See id. at 567–69. In the
absence of explicit statutory recognition, the Court cannot conclude that these activities are
part of farming “in its ordinary and accepted sense.” 26 C.F.R. § 1.175–3. Rather, camps,
cottage rentals, and carriage rides are more typical of resort activities than farming. 2
1
Mollica, does not compel a different conclusion. That case turned on the off-season use of the building, and did
not involve the application of the income test at issue here.
2
The summary judgment record raises a significant question as to whether the LaBries are entitled to enrollment
in the Current Use Program because they are operating a farm for pleasure. Under 26 C.F.R. § 1.175–3, a person
who engages in farming for recreation or pleasure is not a farmer. In their memorandum of law, the LaBries wrote:
“The LaBries, in their farm operation have suffered losses since 2002, and have no gross income as defined by the
I.R.C.” The LaBries also stated the farm became operational in 2002. That is, the LaBries have never shown a profit
In sum, the Court grants summary judgment in favor of the Department because there
are no material disputed facts and the Department is entitled to judgment as a matter of law.
See V.R.C.P. 56(a); Lamay, 2012 VT 49, ¶ 6. The Court rests its decision on its interpretation of
32 V.S.A. § 3742(7)(A) and 26 C.F.R. § 1.175–3 as excluding lessons, training, and cottage rentals
as farming income. 3
Order
The Court GRANTS Appellee’s motion for summary judgment. The appeal is DENIED,
and the Commissioner’s determination is SUSTAINED.
So ordered.
Electronically signed on May 08, 2014 at 04:25 PM pursuant to V.R.E.F. 7(d).
______________________________________
John P. Wesley
Superior Court Judge
Notifications:
William M. McCarty (ERN 3621), Attorney for Plaintiff Dolores Labrie
William M. McCarty (ERN 3621), Attorney for Plaintiff Robert A. Labrie
Will S. Baker (ERN 3383), Attorney for Defendant Vermont Department of Taxes
wesley
in their business since it began operating twelve years ago. The Internal Revenue Code creates a presumption that
a person engages in for-profit horse breeding if the person can show profit in two out of seven years. 26 U.S.C. §
183(d). Where a person routinely fails to show a profit from horse breeding, the Internal Revenue Service may
determine the person engages in a hobby rather than a for-profit activity. See Bronson v. Comm’r of Internal
Revenue, T.C.Memo. 2012-17, *6 (T.C. 2012). Based on their representation of never making a profit from their
business, the Court might conclude the LaBries are not farmers because they raise horses for pleasure rather than
for profit. However, the Court need not decide this issue because it would require further facts and the parties
have not briefed it.
3
Although not raised by the parties, the Department would also be entitled to summary judgment on procedural
grounds. Under V.R.C.P. 56(c)(1),(3), a party seeking to dispute a fact must attach a statement of disputed facts
with citations to the record. Where a party fails to attach a statement of disputed facts, the Court may accept the
facts recited in the statement of undisputed facts. See V.R.C.P. 56(e); Gallipo v. Rutland, 2005 VT 83, ¶¶ 31–33, 178
Vt. 244. Here, the Department attached a statement of undisputed facts that indicated more than half of the
LaBries’ gross income came from non-farm sources. See Appellee’s Statement of Undisputed Material Facts, ¶ 20.
The LaBries did not attach a statement of disputed material facts, as required by V.R.C.P. 56(c)(1), and thus
admitted this fact. See V.R.C.P. 56(e); Gallipo, 2005 VT 83, ¶ 33. The LaBries attempt to dispute the facts within
their memorandum of law, without a separate statement of disputed facts together with citations to the record, is
ineffective to create disputed facts.