Central United Methodist Church v. City of Milwaukee ( 2020 )

COURT OF APPEALS
DECISION NOTICE
DATED AND FILED This opinion is subject to further editing. If
published, the official version will appear in
the bound volume of the Official Reports.
March 17, 2020
A party may file with the Supreme Court a
Sheila T. Reiff petition to review an adverse decision by the
Clerk of Court of Appeals Court of Appeals. See WIS. STAT. § 808.10
and RULE 809.62.
Appeal No. 2019AP778 Cir. Ct. No. 2018CV4807
STATE OF WISCONSIN IN COURT OF APPEALS
DISTRICT I
CENTRAL UNITED METHODIST CHURCH,
PLAINTIFF-APPELLANT,
V.
CITY OF MILWAUKEE,
DEFENDANT-RESPONDENT.
APPEAL from a judgment of the circuit court for Milwaukee County:
PAUL R. VAN GRUNSVEN, Judge. Reversed.
Before Brash, P.J., Dugan and Donald, JJ.
¶1 DONALD, J. Central United Methodist Church (Central United)
appeals a summary judgment denying its request for a tax refund from the City of
Milwaukee. The circuit court concluded that Central United had not shown that it
uses its property exclusively for benevolent purposes as required by the relevant
No. 2019AP778
exemption statute, WIS. STAT. § 70.11(4) (2017-18).1 Central United argues that
the circuit court erred in its conclusion. Based on the facts of the record, we agree
with Central United and reverse the circuit court.
BACKGROUND
¶2 Central United is a non-profit church located at 639 North 25th Street
in the City of Milwaukee. Central United holds worship services and provides
multiple religious, educational, social, and recreational activities and programs. The
church staff consists of one pastor, one part-time assistant, and one caretaker who
maintains the church building and parking lot and resides at the church. The church
is dependent on volunteers for extra services and is dependent on donations to
maintain its operations.
¶3 Central United’s campus consists of its church building and an
adjacent parking lot, holding forty-three stalls. The parking lot is available for free
to anyone attending the church for any of its various programs. The church campus
is in close proximity to The Rave/Eagles Club, a popular Milwaukee concert venue.
¶4 In 2012, neighborhood residents began charging concert-goers for use
of Central United’s parking lot, claiming to be owners of the property. In response,
members of the church chained off the parking lot to prevent those attending events
at The Rave/Eagles Club from using the parking lot. The effort was to no avail, as
neighborhood residents continued to charge entrance fees for use of Central
United’s parking lot and other disturbances began to occur. Central United then
organized unpaid volunteers from the congregation to monitor the parking lot and
1
All references to the Wisconsin Statutes are to the 2017-18 version unless otherwise
noted.
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to allow concert-goer parking in exchange for a donation to the church.
Approximately four times a month, volunteers held up signs reading “Parking
$10.00 donation.” Most users paid the $10.00, however volunteers also allowed
concert-goers to donate on a sliding scale or not donate at all.
¶5 In 2016, Central United collected $15,672 from parking donations. In
2017, Central United collected $22,856 from parking donations. Donations from
the parking lot were included in Central United’s 2017 and 2018 budgets. Central
United budgeted $12,000 in 2017 and $16,750 in 2018 for parking donations.
¶6 In September 2017, the City of Milwaukee notified Central United
that its assessor’s office changed the parking lot’s classification from “exempt” to
“local mercantile.” The City assessed the lot’s value at $146,000, resulting in a tax
bill of $4416.20. Central United submitted an unlawful tax claim against the City,
which the City disallowed. Central United then filed the complaint underlying this
appeal, seeking a declaration under WIS. STAT. § 74.35(2m) that the parking lot was
tax exempt under WIS. STAT. § 70.11(4), the statute allowing tax exemptions for
benevolent institutions, among others. See id. Central United also sought recovery
of taxes paid.
¶7 The parties filed for summary judgment. At a hearing on the motions,
the parties disagreed over whether Central United’s parking lot qualified as a tax
exempt property under the guidelines set forth by Waushara County v. Graf, 166
Wis. 2d 442, 480 N.W.2d 16 (1992). In that case, the Wisconsin Supreme Court
stated:
To qualify as a “church” or “religious association”
entitled to tax exempt status under [WIS. STAT. §] 70.11(4),
a taxpayer must pass five statutory tests: (1) the taxpayer
must be a bona fide church or religious association; (2) the
property must be owned and used exclusively for the
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purposes of the church or religious association; (3) the
property involved must be less than 10 acres; (4) the
property must be necessary for location and convenience of
buildings; and (5) the property must not be used for profit.
Id. at 457. The City argued that because the lot was being used for concert-goers,
Central United did not use the parking lot exclusively for purposes of the religious
association as required by case law and WIS. STAT. § 70.11(4). Central United
argued that the parking lot donation revenue was used for benevolent purposes, thus
entitling Central United to the tax exemption it sought under § 70.11(4). Even if the
lot was not used exclusively for benevolent purposes, Central United argued, any
use of its parking lot by concert-goers was simply an incidental use of the property.
¶8 Ultimately, the circuit court agreed with the City. In a written
decision, the circuit court stated:
[P]roviding parking to concertgoers, even for “donations,” is
not the type of benevolent or charitable use considered by
the statute. This use of the property does not accrue benefits
to mankind directly nor does it relieve the state from
expenses, as providing free flu shots to the poor would.
Rather, providing paid parking for Rave/Eagle’s Club
concertgoers constitutes non-exempt commercial activity.
….
Here, [Central United] offers parking for
Rave/Eagle’s Club events approximately 4 times per month,
or 48 times per year. In 2016, [Central United] recorded
annual parking revenue of $15,672.00. For 2017, the
parking income increased to $22,856.00. The parking
income was included in [Central United’s] budgets for 2017
and 2018. For 2017, [Central United] budgeted $12,000.00
in parking income, which was 9.4% of its total income.
However, with a total anticipated income of $127,925.00,
the actual parking income for 2017 ended up constituting
approximately 18% of [Central United’s] total income. For
2018, it budgeted $16,750.00, which was 12.3% of total
income.
Given precedent established in [case law], the [c]ourt
cannot reasonably conclude that income from non-exempt
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No. 2019AP778
activities totaling between 12 and 18% of total annual
income is merely inconsequential or de minimus.
Consequently, [Central United] has not satisfied the minor
exception to the “exclusive use” requirement of WIS. STAT.
§ 70.11(4). Therefore, as [Central United] has not met its
burden of establishing it exclusively uses its parking lot for
exempt purposes, as required by the statute, the lot is taxable
for the time period at issue.
This appeal follows.
DISCUSSION
¶9 On appeal Central United argues that “[c]ollecting donations in the
parking lot is a use exclusively for the purposes of Central United.” In the
alternative, Central United argues that collecting donations from concert-goers
using the parking lot is an incidental use of the property, rendering the tax exemption
still applicable.
¶10 We review summary judgments de novo, using the same methodology
as the circuit court. See Green Spring Farms v. Kersten, 136 Wis. 2d 304, 315-17,
401 N.W.2d 816 (1987). That methodology is well established and need not be
repeated here. See, e.g., Lambrecht v. Estate of Kaczmarczyk, 2001 WI 25, ¶¶20-
24, 241 Wis. 2d 804, 623 N.W.2d 751. When facts are stipulated, all that remains
is a question of law. Lewis v. Physicians Ins. Co. of Wis., 2001 WI 60, ¶9, 243
Wis. 2d 648, 627 N.W.2d 484. Moreover, asking this court to determine whether
certain property is exempt from property taxes necessarily requires us to construe
WIS. STAT. § 70.11. See Deutsches Land, Inc. v. City of Glendale, 225 Wis. 2d 70,
79, 591 N.W.2d 583 (1999). Statutory construction is a question of law which we
also review independently. See id. at 79-80.
¶11 Property is presumed taxable. Id. at 80. Exemptions from taxation
are matters of legislative grace and, as such, we apply a “strict but reasonable
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No. 2019AP778
construction” to exemption statutes. Id. (citation omitted). The party seeking
exemption bears the burden of proving it falls within one of the statutes, and any
doubt is resolved against the party seeking exemption. Id. at 80-81.
¶12 WISCONSIN STAT. § 70.11 lists several types of property exempt from
taxation. Central United specifically argues that it is entitled to an exemption under
§ 70.11(4). That section exempts, among other things, “[p]roperty owned and used
exclusively by ... benevolent associations[.]” To qualify for total exemption under
that subsection, an organization must show that it (1) is a benevolent association,
(2) owns and exclusively uses the property, and (3) uses the property exclusively
for exempt purposes. See Deutsches Land, 225 Wis. 2d at 81-82. For purposes of
the statute, an exempt purpose is synonymous with a benevolent purpose. Id. at 85.
The dispute in this case centers on whether Central United “exclusively uses” its
parking lot for “benevolent purposes,” or whether the use at issue qualifies as
“incidental,” rendering the exemption applicable even if the use is not exclusively
for benevolent purposes.
¶13 Relying primarily on Deutsches Land and Cardinal Publishing Co.
v. City of Madison (Cardinal Publishing II), 208 Wis. 517, 519, 243 N.W. 325(1932), the circuit court found that the amount of times per year that Central United
permitted concert-goers to use its parking lot, combined with the revenue brought
in by the donations, did not amount to an inconsequential use, thereby rendering the
property taxable. We disagree and conclude that use of Central United’s parking
lot by attendees of events at The Rave/Eagles Club is incidental and the subsequent
donations collected from the attendees are incidental as well. Accordingly, Central
United is entitled to a property tax exemption.
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¶14 The circuit court did not address the issue of incidental use, which
focuses primarily on whether the use at issue is incidental to the “main purpose for
which a building is primarily devoted[.]” See Gymnastic Ass’n of South Side of
Milwaukee v. City of Milwaukee, 129 Wis. 429, 437, 109 N.W. 109 (1906). Rather,
the circuit court focused on whether parking lot revenue, resulting from concert-
goer use, was inconsequential to the functioning of the church. Such an inquiry
focuses primarily on how substantial the use was. See id. Recognizing the
difference between incidental use and inconsequential use allows us to distinguish
the relied upon cases from the case at bar.
¶15 In Deutsches Land, our supreme court addressed the question of
whether property owned by benevolent associations devoted to the preservation of
German culture was entitled to exemption from property taxes under WIS. STAT.
§ 70.11(4) (1995-96). Deutsches Land, 225 Wis. 2d at 76. The City of Glendale
argued that Deutsches Land did not satisfy the “used exclusively” requirement of
§ 70.11(4) because Bavarian Waldhaus, Inc., a for-profit corporation created and
owned by the benevolent associations to isolate their for-profit activities, used some
of the property to host for-profit corporate picnics on approximately twenty
occasions annually. Deutsches Land, 225 Wis. 2d at 77, 82. Deutsches Land
provided evidence of this usage, but did not offer anything more than testimony of
benevolent association members to describe how the property was used during the
remaining 345 days of the year. Id. at 86-87. Our supreme court held that the
property was not exempt, stating, that there is “a legitimate distinction between use
that is ‘incidental to and promotive of the main purpose for which a building is
primarily devoted and the permanent leasing of parts of the building for uses having
no relation to the owner’s principal purpose.’” Id. at 83-84 (citation omitted). In
essence, the Deutsches Land court recognized the principle that “inconsequential
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or incidental uses of the property for gain” did not destroy an exemption calling for
“exclusive” use. See id. (citation omitted); see also Village of Lannon v. Wood-
Land Contractors, Inc., 2003 WI 150, ¶45, 267 Wis. 2d 158, 672 N.W.2d 275. It
also recognized that, in general, the relevant question is: “How consequential was
the questionable activity when compared to the total activity on the property?”
Deutsches Land, 225 Wis. 2d at 84. It concluded that this “fact-specific question
can only be answered on a case-by-case basis.” Id. In other words, our supreme
court held that the “exclusive use” requirement of § 70.11(4) does not mean that to
qualify for an exemption a property must be solely used for benevolent purposes.
Its decision to deny an exception to Deutsches Land was significantly based on the
fact that Deutsches Land failed to prove, what, if any, amount of the remaining 345
days of the year Deutsches Land used the property for benevolent purposes.
¶16 Unlike the fact scenario in Deutsches Land, Central United
introduced evidence demonstrating its benevolent use of the property all throughout
the year for various programs and activities. Moreover, Central United does not
own a for-profit corporation to isolate any for-profit activities, nor does Central
United lease out the parking lot to hold for-profit activities. Indeed, Central United
only began collecting donations for parking spaces after others, not affiliated with
the church, began profiting from the spaces. In response to the unauthorized use of
its parking lot, Central United organized unpaid volunteers to collect donations on
concert nights. Volunteers held up signs with a suggested donation amount,
however, concert-goers were not required to make donations to use the parking
spots. The circuit court found the frequency with which Central United held its lot
out for concert parking to be consequential to its determination; however, that
Central United collected donations in this manner four times a month is not relevant
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to a determination of whether this type of property use was incidental. Indeed, the
Deutches Land court even noted that:
In many situations a benevolent association will
demonstrate that its use of the property is so pervasive that
the association should be treated as if it is in continual use of
the property. That is to say, a school will likely not receive
only a 75% exemption because classes are not held in the
summer months.
Id., 225 Wis. 2d at 85. The use at issue stemmed solely from the fact that Central
United’s proximity to a concert venue was leading to the unauthorized use of its
parking lot. Central United simply took advantage of the grace of proximity—
approximately four times a month—and found a way to benefit from use that was
already occurring. Such use does not undermine Central United’s use of its property
for benevolent purposes all throughout the year. This use was incidental.
¶17 We also conclude that the circuit court’s reliance on Cardinal
Publishing is inapplicable to our incidental use determination. In Cardinal
Publishing II, our supreme court found that a university student newspaper deriving
twenty percent of its income one year and ten percent the following year from
nonexempt purposes was not negligible, and therefore was not tax exempt. Id., 208
Wis. at 519. In the predecessor case to Cardinal Publishing II, Cardinal
Publishing I, our supreme court held:
If there is no segregation of property and devotion of
a portion of it to purposes outside of the corporate objects,
but if the whole property in a physical sense is primarily
devoted to the purposes of the organization, then the fact that
there are occasional or incidental uses of the property for
gain, which is devoted to the purposes of the society
claiming the exemption, will not destroy the exemption.
Cardinal Publishing Co. v. City of Madison, 205 Wis. 344, 347-48, 237 N.W. 265(1931).
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¶18 Relying on the facts of the Cardinal Publishing cases, the circuit
court found that the revenue derived from Central United’s parking lot was not
inconsequential based on the percentage of income the parking lot brings into the
church. What the circuit court did not take into account, however, is the principle
articulated in Cardinal Publishing I, which supports our conclusion that the
revenue brought in from Central United’s use of the parking lot is incidental
revenue.
¶19 In fact, our supreme court has previously addressed a similar issue
when it held that a property was exempt under WIS. STAT. § 70.11(4) even though
the challenged use resulted in income that was not inconsequential. In Madison
Particular Council of St. Vincent De Paul Society v. Dane County, 246 Wis. 208,
209, 16 N.W.2d 811 (1944), the St. Vincent de Paul Society sought a property tax
exemption under § 70.11(4) for a building which it referred to as its “salvage
bureau.” St. Vincent De Paul Soc., 246 Wis. at 209-10. St. Vincent received
donations of clothing, furniture, and other miscellaneous items at the salvage
bureau, which were distributed to those in need. Id. at 210. However, there were
many items received for which there was no need; at the same time, there was a
great need for items that were not regularly donated, such as food, fuel, and money
for rent. Id. Therefore, St. Vincent engaged in selling donated items that were not
directly distributed, and used those proceeds to buy items that were needed by the
people it served. Id. The supreme court noted that the income St. Vincent received
from selling donated items in 1943 was $6379, while its income from cash donations
was $2326.2 Id. at 212. Thus, the court recognized that this income was “neither
2
Assuming the total of these amounts was St. Vincent’s entire income for 1943, the
portion attributed to the sale of donated items accounted for approximately 73% of its income that
year.
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No. 2019AP778
‘negligible’ nor ‘inconsequential.’” Id. Nevertheless, the supreme court held that
the use of the building to sell donated items was within the purpose of WIS. STAT.
§ 70.11(4). St. Vincent De Paul Soc., 246 Wis. at 214. The profits made by St.
Vincent were “payable to nobody,” but rather were “turned back into improving
facilities or extending the benevolence in which the institution[] [is] primarily
engaged”; thus, “the profit element [was] immaterial.” Id. (citation omitted). In
other words, this use of the building was incidental to St. Vincent’s benevolent
works, and therefore exempt under § 70.11(4).
¶19 Applying the rationale articulated in St. Vincent De Paul Society, we
conclude that the only distinguishing factor between donations brought in from
Central United’s parking lot and donations brought in from other sources, such as
individual donations, bake sales, or car washes, is that the parking lot donations
bring in a significant amount. Central United’s use of the parking lot donation
revenue is the same as its use of donations from the other sources. All donations
support the functioning of the church and its many activities, ranging from
community support groups, to food pantries and mission trips, to children’s
activities, to Bible school. Therefore, while the amount brought in by the parking
lot use may not necessarily be inconsequential, as the circuit court found, it certainly
is incidental.
¶20 For the foregoing reasons, we reverse the circuit court’s grant of
summary judgment to the City of Milwaukee and conclude that Central United’s
parking lot is tax exempt. Accordingly, Central United is entitled to recovery of
taxes paid.
By the Court.—Judgment reversed.
Not recommended for publication in the official reports.
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