Volunteer Center of So. Az. v. Staples, Ford, Pima Co.

FILED BY CLERK
IN THE COURT OF APPEALS NOV 29 2006
STATE OF ARIZONA COURT OF APPEALS
DIVISION TWO DIVISION TWO
VOLUNTEER CENTER OF )
SOUTHERN ARIZONA, an Arizona non- )
profit corporation, )
)
Plaintiff/Appellant, ) 2 CA-CV 2006-0084
) DEPARTMENT B
v. )
) OPINION
WILLIAM STAPLES, Pima County )
Assessor; BETH FORD, Pima County )
Treasurer; PIMA COUNTY; and )
ARIZONA DEPARTMENT OF )
REVENUE, )
)
Defendants/Appellees. )
)
APPEAL FROM THE SUPERIOR COURT OF PIMA COUNTY
Cause No. C20055184
Honorable Michael Alfred, Judge
REVERSED AND REMANDED
Lewis and Roca, LLP
By D. Douglas Metcalf Tucson
Attorneys for Plaintiff/Appellant
Barbara LaWall, Pima County Attorney
By Terri A. Roberts Tucson
Attorneys for Defendants/Appellees
E C K E R S T R O M, Presiding Judge.
¶1 Plaintiff/appellant Volunteer Center of Southern Arizona sought a judgment
declaring its entire office building exempt from real property taxes and asking the trial court
to order defendants/appellees, William Staples, the Pima County Assessor; Beth Ford, the
Pima County Treasurer; Pima County; and the Arizona Department of Revenue (collectively,
the Assessor), to refund the taxes the Center had paid for the portion of the property it leases
to another nonprofit corporation. After the trial court denied the Center’s motion for
summary judgment, it found no issues remained and entered judgment against the Center.
For the following reasons, we reverse.
¶2 The underlying facts are not in dispute. The Center and JobPath, Inc. are
nonprofit corporations exempt from federal income tax under 26 U.S.C. § 501(c)(3). The
Center owns a 9,379-square-foot office building and uses approximately two-thirds of the
space for its charitable activities. It leases the remaining one-third to JobPath, which also
uses the space for charitable activities. The Assessor exempted from property taxes the
portion of the property the Center uses but denied an exemption for the space JobPath
leases.
¶3 The Center paid the taxes assessed against it for the 2004 tax year but filed an
action pursuant to A.R.S. § 42-11005, arguing it is entitled to a refund because the taxes
were illegally collected. In its answer, the Assessor asserted the Center did not qualify for
an exemption under the relevant statutory provisions because it leased the space for profit.
The Center moved for summary judgment and the trial court denied its motion, reasoning
2
that leasing premises “is not charitable in nature and does not qualify the property in
question for exemption.” Because the denial of summary judgment left no issue to resolve,
the Assessor requested judgment in its favor, which the court granted. This appeal followed.
¶4 Because the material facts are undisputed, we review de novo whether the trial
court correctly applied the law to the facts before it. See Pinal Vista Props., L.L.C. v.
Turnbull, 208 Ariz. 188, ¶ 6, 91 P.3d 1031, 1032-33 (App. 2004). The Center applied for
exemption under two statutes: A.R.S. §§ 42-11107 and 42-11121. Section 42-11107
creates an exemption for the property of “charitable institutions for the relief of the indigent
or afflicted” as long as the “property [is] not used or held for profit.” The second statute,
§ 42-11121, imposes the same requirement that the property not be “used or held for profit.”
Under the latter provision, the property must also be “owned by a community service
organization the mission of which is to serve a population that includes persons who are
indigent or afflicted . . . and that qualifies as a charitable organization and is recognized
under § 501(c)(3) of the internal revenue code.”
¶5 The Assessor concedes the Center met the latter requirement but maintains
that, by leasing part of its property to JobPath, the Center “used or held” the property for
profit. See §§ 42-11107, 42-11121. The Center counters that, as illustrated by A.R.S. §§
42-11154 and 42-11155, Arizona’s property tax exemption scheme clearly provides a tax
3
exemption for property owned by one nonprofit organization and used by another.1
Applying this principle, the Center contends that the mere receipt of revenue from JobPath
under the lease did not convert its property into one “used or held for profit”—just as raising
revenue in any other context does not divest a nonprofit organization of its tax-exempt
status.
¶6 In interpreting how a statutory scheme applies, our primary objective is to give
effect to the intent of the legislature; the best evidence of its intent is the language of the
statute itself. Vega v. Sullivan, 199 Ariz. 504, ¶¶ 8-9, 19 P.3d 645, 648 (App. 2001).
“[T]ax statutes relating to the same subject should be read together and construed as a
1
Section 42-11154 provides:
1. Nonprofit organization status may be established by
a letter of determination issued in the organization’s name by
the United States internal revenue service or the department of
revenue recognizing the organization’s tax exempt status under
§ 501(c)(3) of the internal revenue code or under § 43-1201.
2. The requirement that property is not used or held
for profit may be met by a letter of determination described in
paragraph 1 of this section and issued in the name of the
organization holding title to the property and for each
organization using the property.
Section 42-11155 provides:
The exemptions provided by article 3 of this chapter
relating to charitable institutions do not apply to property
owned by charitable institutions but primarily held or used by
others whose use is not exempt from taxation by article 3 of this
chapter or by the Constitution of Arizona.
4
whole,” Arizona Department of Revenue v. Maricopa County, 120 Ariz. 533, 535, 587
P.2d 252, 254 (1978), a process which includes reading the statute in accordance with any
statutory definitions of the terms used. See US West Commc’ns, Inc. v. City of Tucson, 198
Ariz. 515, ¶ 12, 11 P.3d 1054, 1059 (App. 2000). “If a statute’s meaning is manifestly
unambiguous when all its language is considered as a whole, that meaning is conclusive.”
Id.
¶7 Applying those principles, we agree with the Center that the relevant statutory
provisions, when read together, allow a nonprofit organization to lease its property to
another nonprofit organization without forfeiting its tax-exempt status. In § 42-11154, the
legislature provided a specific method by which nonprofit organizations can demonstrate
that property is “not used or held for profit.” It states: “Nonprofit organization status may
be established by a letter of determination issued in the organization’s name by the United
States internal revenue service or the department of revenue recognizing the organization’s
tax exempt status under § 501(c)(3) of the internal revenue code or under § 43-1201.” § 42-
11154(1). And the “requirement that property is not used or held for profit may be met by
a letter of determination described [in § 42-11154(1)] and issued in the name of the
organization holding title to the property and for each organization using the property.” §
42-11154(2). In short, the legislature unambiguously instructs us to determine whether
property is “used or held for profit” by referring to the official federal tax status of the
organization owning and using the property—not the nature of the specific financial
5
transactions conducted on the property. That approach is consistent with traditional notions
of how nonprofit organizations are entitled to function. See S. Methodist Hosp. &
Sanatorium v. Wilson, 51 Ariz. 424, 431-32, 77 P.2d 458, 462 (1938) (“[W]e think the
institution is properly characterized as a charitable one, notwithstanding the fact that it
charges for most . . . of [its] services . . . so long as its receipts are devoted to the necessary
maintenance of the institution and . . . the purpose for which it was organized.”), overruled
in part on other grounds by Ray v. Tucson Med. Ctr., 72 Ariz. 22, 230 P.2d 220 (1951);
accord Restatement (Third) of Trusts § 28 cmt. a(1) (2003).
¶8 The Assessor contends that, if an organization can satisfy the requirement that
its property is “not used or held for profit” simply by virtue of its § 501(c)(3) status, the
specified criteria in § 42-11121 for exempting such an organization’s property would have
no meaning. See Welch-Doden v. Roberts, 202 Ariz. 201, ¶ 22, 42 P.3d 1166, 1171 (App.
2002) (we must interpret statutes to give each phrase meaning). But § 42-11154 provides
an alternative method by which a nonprofit organization can establish that its property is not
being “used or held for profit”: a letter of determination from the Arizona Department of
Revenue recognizing its tax-exempt status under A.R.S. § 43-1201. Section 43-1201 lists
sixteen types of organizations that are exempt from state income tax other than those that
are exempt from federal income tax under 26 U.S.C. § 501(c)(3). Therefore, because
§ 501(c)(3) recognition is not the only acceptable way an organization can meet the
requirement that its property not be “used or held for profit,” our interpretation of the
6
legislature’s intent in § 42-11154 does not render either requirement of § 42-11121
superfluous.
¶9 The Assessor argues that the legislature’s use of the word “may” in § 42-
11154(2) as part of the phrase, “[t]he requirement that property is not used or held for profit
may be met,” provides him the discretion to look beyond an organization’s § 501(c)(3) status
in determining whether the property is “used or held for profit.” But the implied subject of
that phrase is the taxpaying organization—which alone has the duty to meet any statutory
requirements. We therefore conclude the taxpaying organization is the beneficiary of any
discretion bestowed by the statute.
¶10 The Assessor also maintains that several Arizona cases support his refusal to
exempt all the Center’s property from taxation. See Conrad v. County of Maricopa, 40
Ariz. 390, 12 P.2d 613 (1932); Tucson Junior League v. Emerine, 122 Ariz. 324, 594 P.2d
1020 (App. 1979); Kunes v. Mesa Stake of Church of Jesus Christ of Latter-Day Saints,
17 Ariz. App. 451, 498 P.2d 525 (1972). In those cases, our courts examined the
organization’s actual physical use of the property; if the use was noncharitable, the entities
were not entitled to a tax exemption—even if the proceeds were ultimately directed to
charitable purposes. See Conrad, 40 Ariz. at 394-95, 12 P.2d at 615; Tucson Junior
League, 122 Ariz. at 325, 594 P.2d at 1021; Kunes, 17 Ariz. App. at 453, 498 P.2d at 527.
But those cases predate the legislature’s enactment of the language now found in § 42-
11154, which first provided a statutory method for establishing that an organization’s
7
property is not being “used or held for profit.” See former A.R.S. § 42-271(D), 1991 Ariz.
Sess. Laws, ch. 169, § 1; see also Hause v. City of Tucson, 199 Ariz. 499, ¶ 10, 19 P.3d
640, 643 (App. 2001) (we will presume legislature intended to supersede court’s
interpretation of statute if language or effect of statute clearly requires that conclusion).
¶11 Moreover, to the extent the reasoning of those cases survives that statutory
revision, it would not change the result here. Although the Assessor concedes that JobPath
used the property leased to it by the Center for charitable purposes,2 it maintains the Center
used its property for profit by leasing it to JobPath at the market rate.3 And it maintains that
we must evaluate the owner’s use of the property, not the tenant’s, in determining the
property’s tax status. But, in Conrad, our supreme court held that a Masonic temple owned
by a charitable institution was not tax-exempt because none of the rooms the organization
rented was “used in any manner for the relief of the indigent or afflicted.” 40 Ariz. at 394,
12 P.2d at 615. Similarly, in Kunes, the court examined the actual activity on the land, in
that case farming. 17 Ariz. App. at 453, 498 P.2d at 527. Thus, those cases focused on the
actual physical use to which the property was put—rather than merely the owners’ acts—in
2
The Center emphasizes, and the Assessor does not dispute, that JobPath would meet
the requirements of A.R.S. § 42-11121 for holding property exempt from taxation.
We are skeptical that the Center’s leasing the property at a market rate would itself
3
demonstrate that the property is being used for profit—even if we were to conclude that the
Center’s mere act of leasing the property was relevant to its tax status. See S. Methodist
Hosp. & Sanatorium v. Wilson, 51 Ariz. 424, 431-32, 77 P.2d 458, 462 (1938) (charitable
organizations entitled to charge for services without loss of charitable status), overruled on
other grounds by Ray v. Tucson Med. Ctr., 72 Ariz. 22, 230 P.2d 220 (1951).
8
evaluating the tax status of the property. Further, §§ 42-11154 and 42-11155 specifically
require us to consider the status of both owners and users of property in evaluating whether
the property is being “used or held for profit.” Those statutes are inconsistent with the
Assessor’s implicit contention that we must ignore JobPath’s charitable use of the property
in determining the tax status of the portion JobPath leases.
¶12 We conclude that, in promulgating § 42-11154, the legislature intended to
provide a simple, bright-line rule, anchored in the ultimate function of the organizations
owning or using property, for determining whether the property is being “used or held for
profit.” Specifically, that section provides that, if one § 501(c)(3) organization leases
property to another § 501(c)(3) organization, the property is “not used or held for profit”
and is entitled to a property tax exemption. We therefore conclude the Center was entitled
to a tax exemption on its entire property, and the trial court erred by entering judgment in
favor of the Assessor.
¶13 As the prevailing party in an action against the county challenging the
collection of taxes, the Center requests its attorney fees incurred below and on appeal
pursuant to A.R.S. § 12-348(B)(1). We grant the Center’s request upon its compliance with
Rule 21, Ariz. R. Civ. App. P., 17B A.R.S. See Cornman Tweedy 560, LLC v. City of Casa
Grande, 213 Ariz. 1, ¶ 32, 137 P.3d 309, 316 (App. 2006).
¶14 The judgment is reversed, and the case is remanded for proceedings consistent
with this decision.
9
____________________________________
PETER J. ECKERSTROM, Presiding Judge
CONCURRING:
____________________________________
J. WILLIAM BRAMMER, JR., Judge
____________________________________
PHILIP G. ESPINOSA, Judge
10