In Re the Appeal of Grandfather Mountain Stewardship Foundation, Inc.

NO. COA13-1447
NORTH CAROLINA COURT OF APPEALS
Filed: 19 August 2014
IN THE MATTER OF THE APPEAL OF: Property Tax Commission sitting
as the State Board of
GRANDFATHER MOUNTAIN STEWARDSHIP Equalization and Review
FOUNDATION, INC., from the 11 PTC 068
Decision of the Avery County Board
of Equalization and Review
Concerning the Valuation of Real
Property for Tax Year 2011.
Appeal by Avery County from orders entered 21 February and
24 June 2013 by the North Carolina Property Tax Commission.
Heard in the Court of Appeals 22 April 2014.
Poyner Spruill LLP, by Chad W. Essick and Andrew H.
Erteschik, and Harrison & Poore, PA, by Michaelle Poore,
for appellant Avery County.
Tuggle Duggins, P.A., by Martha R. Sacrinty and Michael S.
Fox, for appellee Grandfather Mountain Stewardship
Foundation.
BRYANT, Judge.
Where the property was not wholly and exclusively used for
educational or scientific purposes pursuant to North Carolina
General Statutes, sections 105-275(12) and 105-278.7(a), we
reverse the order of the North Carolina Property Tax Commission
-2-
granting Grandfather Mountain Stewardship Foundation exemption
from property taxes.
Grandfather Mountain Stewardship Foundation, Inc. (GMSF),
filed an application for exemption from property taxes in Avery
County listing three parcels of real property (the subject
property). In its 24 December 2010 application, GMSF indicated
that the tax exemption was sought due to GMSF’s status as a
charitable or educational foundation pursuant to N.C. Gen. Stat.
' 105-278.7. The Avery County Tax Assessor’s Office denied
GMSF’s application due to the belief “that Grandfather Mountain
is not ‘Wholly and exclusively used by its owner for nonprofit
educational, scientific, literary purposes’ as defined by NCGS '
105-278.7(a)(1).” GMSF appealed to the Avery County 2011 Board
of Equalization and Review, stating “[t]he property qualifies as
tax exempt under N.C. Gen. Stat. ' 105-278.7 and N.C. Gen. Stat.
' 105-275(12) . . . .” The Equalization and Review Board also
denied the request for tax exempt status. GMSF filed a notice
of appeal and application for hearing with the North Carolina
Property Tax Commission (the Commission).
On 24 June 2013, following a 10 April 2013 hearing, the
Commission entered an order in which it concluded that GMSF was
a charitable association; that the revenue GMSF collected from
-3-
the operation of the real property funded the educational and
scientific uses of the property; any structures on the real
property that were not used directly for scientific or
educational purposes were incidental to the scientific and
educational uses of the property; and the subject property1 was
“wholly and exclusively used for scientific and educational
purposes.” The Commission concluded that “[e]ach of the tracts
[was] eligible as exempt under both [General Statutes, sections
105-275(12) and 105-278.7] . . . .” Avery County appeals to
this Court.
__________________________________
On appeal, Avery County raises the following issues: the
Commission erred by (I) exempting the property from taxation;
(II) holding that the property satisfied the ownership
requirements for an exemption; and (III) holding that the vacant
lot is exempt from taxation.
I
1
GMSF notified the Commission that it abandoned its appeal from
the denial of tax exempt status with regard to one of the three
parcels of real property listed on its original application for
tax exemption. Therefore, only the remaining two land parcels
comprised the subject property on review before the Commission.
On Parcel Two, GMSF operated the Grandfather Mountain tourist
attraction and Parcel Three served “as a buffer tract to
preserve the natural area and prevent encroaching development.”
-4-
Avery County argues that the Commission erred by exempting
the property from taxation because the property is a self-
described tourist attraction that is not “wholly and exclusively
used for educational or scientific purposes.” Specifically,
Avery County contends the Commission erred in concluding GMSF
was eligible for a tax exemption under both N.C. Gen. Stat. ''
105-275(12) and 105-278.7 because (A) the property was not
“wholly and exclusively” used for educational and scientific
purposes; (B) the conclusion should have been predicated on how
the property was used rather than how the income generated from
the property was spent; and (C) the income generated from the
property is more than incidental income. For the most part, we
agree.
“Statutes exempting property from taxation due to the
purposes for which such property is held and used must, of
course, be strictly construed against exemption and in favor of
taxation.” In re Forestry Found., 35 N.C. App. 414, 428—29, 242
S.E.2d 492, 501 (1978) (citations omitted), aff'd, 296 N.C. 330,
250 S.E.2d 236 (1979); see also In re Appeal of Totsland
Preschool, Inc., 180 N.C. App. 160, 164, 636 S.E.2d 292, 295
(2006) (“[A]ll ambiguities are to be resolved in favor of
taxation.” (citations omitted)). “[T]he taxpayer bears the
-5-
burden of proving that its property is entitled to an exemption
under the law.” In re Appeal of Eagle's Nest Found., 194 N.C.
App. 770, 773, 671 S.E.2d 366, 368 (2009) (citation omitted).
Appeal from an order or decision of the Property Tax
Commission shall lie to the Court of Appeals. See N.C. Gen.
Stat. § 105-345(d) (2013). “Questions of law receive de novo
review, while issues such as sufficiency of the evidence to
support the Commission's decision are reviewed under the whole-
record test.” In re Appeal of Greens of Pine Glen Ltd. P’ship,
356 N.C. 642, 647, 576 S.E.2d 316, 319 (2003) (citing N.C.G.S. §
105-345.2(b)). This Court “may affirm or reverse the decision
of the Commission, declare the same null and void, or remand the
case for further proceedings[.]” N.C.G.S. § 105-345.2(b)
(2013).
A.
Avery County contends the Commission erred by concluding
GMSF’s use of the property was “wholly and exclusively . . .
educational and scientific.” We agree.
GMSF acknowledges that it seeks tax exemption on the
grounds that it is a charitable association or institution and
the subject property is “exclusively held and used by its owners
for educational and scientific purposes as a protected natural
-6-
area . . . .” GMSF submitted its application for property tax
exemption in December 2010. In its application, GMSF stated
that it sought tax exempt status pursuant to General Statutes,
section 105-278.7. Following the Avery County Tax Assessor’s
denial of GMSF’s application due to the tax assessor’s belief
“that Grandfather Mountain is not ‘Wholly and exclusively used
by its owner for nonprofit educational, scientific, literary
purposes’ as defined by NCGS ' 105-278.7(a)(1),” GMSF filed an
application for hearing before the Board of Equalization and
Review. In its application for hearing, GMSF maintained that
the tax assessor’s appraisal should be adjusted because “[t]he
property qualifies as tax exempt under N.C. Gen. Stat. ' 105-
278.7 and N.C. Gen. Stat. ' 105-275(12) . . . .” However, as
noted herein, Avery County appeals the decision of the Property
Tax Commission which concluded, inter alia, that the subject
property was wholly and exclusively used for scientific and
educational purposes.
We review this dispositive issue on appeal de novo as there
does not appear to be a conflict in the evidence as to the use
of the property; rather, Avery County challenges whether the
legal conclusion is correct as a matter of law. See In re
Appeal of Totsland Preschool, Inc., 180 N.C. App. at 162—63, 636
-7-
S.E.2d at 295 (This Court reviews questions of law de novo, and
“considers the matter anew and freely substitutes its own
judgment for that of the Commission.”).
Pursuant to General Statutes, section 105-275, as effective
at the time GMSF filed its initial application for exemption in
2011, property meeting the following description may be excluded
from taxation:
Real property owned by a nonprofit
corporation or association exclusively held
and used by its owner for educational and
scientific purposes as a protected natural
area. (For purposes of this subdivision, the
term "protected natural area" means a nature
reserve or park in which all types of wild
nature, flora and fauna, and biotic
communities are preserved for observation
and study.)
N.C. Gen. Stat. ' 105-275(12) (2011)2.
2
N.C.G.S. ' 105-275(12) was amended by 2011 N.C. Sess. Laws 274(effective for taxes imposed for taxable years beginning after 1
July 2011). In pertinent part, the amended subdivision reads as
follows:
Real property that (i) is owned by a
nonprofit corporation or association
organized to receive and administer lands
for conservation purposes, (ii) is
exclusively held and used for one or more of
the purposes listed in this subdivision, and
(iii) produces no income or produces income
that is incidental to and not inconsistent
with the purpose or purposes for which the
land is held and used. . . . A
disqualifying event occurs when the property
-8-
Pursuant to North Carolina General Statutes, section 105-
278.7,
[b]uildings, the land they actually occupy,
and additional adjacent land necessary for
the convenient use of any such building
shall be exempted from taxation if wholly
owned by [a charitable association or
institution], and if:
(1) Wholly and exclusively used by its owner
for nonprofit educational [or] scientific, .
. . purposes as defined in subsection (f) .
. . .
Id. § 105-278.7(a) (2013).
In In re Forestry Found., 296 N.C. 330, 250 S.E.2d 236, the
petitioner sought a tax exemption for 49,455 acres of forest in
Onslow County. The petitioner was a nonprofit organization
(i) is no longer exclusively held and used
for one or more of the purposes listed in
this subdivision, [or] (ii) produces income
that is not incidental to and consistent
with the purpose or purposes for which the
land is held and used . . . . The purposes
allowed under this subdivision are any of
the following:
a. Used for an educational or scientific
purpose as a nature reserve or park in which
wild nature, flora and fauna, and biotic
communities are preserved for observation
and study. For purposes of this sub-
subdivision, the terms “educational purpose”
and “scientific purpose” are defined in G.S.
105-278.7(f).
N.C.G.S. § 105-275(12)(a) (2011) (Effective for taxes imposed
for taxable years beginning on or after July 1, 2011).
-9-
whose objective was “to promote the development and practice of
improved forestry methods and to promote the production and
preservation of growing timber for experimental, demonstration,
educational, park and protection purposes.” Id. at 331, 250
S.E.2d at 237—38. In 1934, the Attorney General of North
Carolina expressed his opinion that the forest property was
exempt from ad valorem taxes “because of the public nature of
the ([petitioner]) and the purpose for which these lands [were]
held.” Id. at 331—32, 250 S.E.2d at 238. In 1945, the
petitioner signed a ninety-nine year lease with the Halifax
Paper Company, Inc. Id. at 332, 250 S.E.2d at 238. Halifax
Paper Company’s successor in interest was Hoerner-Waldorf
Corporation, which held the lease at the time of the tax
exemption hearing. The lease, as amended in 1951, afforded the
Hoerner-Waldorf Corporation the right to construct roads,
maintain drainage ditches and fire lanes, and cut timber and
pulpwood. Id. “Students and study groups interested in the
operation of the Forest [were] allowed to tour or conduct
research in the Forest . . . subject to the contract provision
that ‘such study groups or students will do nothing whatsoever
to interfere with any program undertaken or in progress by Paper
Company in or on [the] Forest.’” Id. at 333, 250 S.E.2d at 238—
-10-
39. In 1975, the petitioner filed an application for tax
exemption with the Onslow County Tax Supervisors. The
application was denied. Arguing before our Supreme Court, the
petitioner contended that the forest property was exempt from ad
valorem taxes pursuant to four statutes, including N.C.G.S. '
105-275(12), exempting “[r]eal property owned by a nonprofit
corporation or association exclusively held and used by its
owner for educational and scientific purposes as a protected
natural area.” Id. at 335, 250 S.E.2d at 240 (emphasis
omitted). The Court noted that according to Webster’s Third New
International Dictionary, the word “exclusive” was synonymous
with the words “sole” and “single” and the Century Dictionary
defined the word as “appertaining to the subject alone; not
including, admitting, or pertaining to any other or others;
undivided; sole; as, an exclusive right or privilege; exclusive
jurisdiction.” Id. at 337, 250 S.E.2d at 241. The Court held
that because the petitioner’s lease agreement, as amended in
1951, gave Hoerner-Waldorf Corporation virtually complete
operational control of the forest property and Hoerner-Waldorf
Corporation’s use of the forest property was primarily
commercial, the property was not exclusively used for scientific
-11-
and educational purposes. Id. at 338—39, 250 S.E.2d 241—42.3
In the instant case, in concluding that the subject
property was wholly and exclusively used for scientific and
educational purposes, the Commission made several findings of
fact detailing the purposes for which the property was used.
GMSF engages in a number of educational activities such as
teaching visitors about the animals housed on the property, the
native flora and fauna, and leading guided hikes, hosting a
nature museum, and educating visitors about stewardship. The
Commission also found that GMSF provided both formal and
informal programs to educate visitors from a range of age groups
about the property. It found that GMSF engages in scientific
research on the property, such as taking weather measurements
and researching air quality, birds, rare plants, well cores,
bats, and salamanders. The Commission also found that the
property has been designated a United Nations Biosphere Reserve.
Avery County does not dispute that there are educational
3
Prior to petitioner’s appeal to our Supreme Court, this Court
reasoned that the actual use of property, rather than a goal or
objective for its use, determines whether it is to be excluded
from the tax base. “Use, rather than ownership or objective, is
the primary exempting characteristic of the Machinery Act, G.S.
105-271 through G.S. 105-395, which includes the statute[] under
consideration. H. Lewis, Annotated Machinery Act of 1971,
(Supp.1973, Comment, p. 55).” In re Forestry Found., 35 N.C.
App. at 426, 242 S.E.2d at 499-500.
-12-
and scientific activities that occur on the property but
contends there are substantial retail, commercial, recreational,
lodging, and office uses that also occur on the property.
Several of the Commission’s findings support Avery County’s
contention of substantial retail and commercial activity on the
property, including profit from retail sales in excess of one
million dollars. Avery County also contends that the vast
majority of retail sales on the property are classified by GMSF
as “non-mission.” We note with interest the Commission’s
finding that GMSF collects revenue from admission tickets, food
sales, souvenir sales, and special programs. The deposition
testimony of Emerson Penn Dameron, Jr., President of GMSF, is
illuminating as to the activities and uses on the subject
property.
President Dameron testified that prior to 1950, Grandfather
Mountain was not a travel attraction; individuals visited
Grandfather Mountain to hike and explore. Subsequently, the
owner of Grandfather Mountain “set about converting it into a
more formalized, accessible attraction . . . and began the
process of expanding access to the general public rather than
just to explorers and naturalists and scientists.”
“[E]ssentially all of the improvements that are on the property
-13-
subject to this appeal are located on one parcel.” Of the
improvements constructed, President Dameron noted a swinging
bridge, a small woodcarving shop, two guest cottages, a
visitor’s center, an animal habitats center, a museum, a fudge
shop, and an administrative offices building. In 2010, 244,215
guests visited Grandfather Mountain. Gift shops located in the
museum and the visitor’s center sold retail items, such as
hiking equipment, souvenirs, and snacks. Honey, jelly, fruit,
woodcarvings, and books on woodcarving were also sold on the
property. Within the nature museum, visitors could purchase
food and beverages from an on-site restaurant; nearby, treats
could be purchased from a free-standing fudge shop. President
Dameron also noted that in 2010, GMSF recognized $1,108,971.00
in profit from retail sales.
Though not always a source of revenue, the property is also
used for annual events such as the Grandfather Mountain Highland
Games (which celebrates Scottish heritage as its relates to
Western North Carolina), Singing on the Mountain, a Klondike
Derby for the boy scouts, a Girl Scout Roundup, a family camping
weekend, and corporate picnics. The facility is also made
available to local groups such as the Audubon Society, the
animal shelter, and Habitat for Humanity.
-14-
The land parcels comprising Grandfather Mountain are also
subject to a conservation easement with the Nature Conservatory,
and have been honored with conservation awards and designated a
United Nations Biosphere Reserve. The record supports that the
attraction of Grandfather Mountain offers educational and
scientific presentations about birds, reptiles, animals, and
native flora and fauna; and that revenue from the operations on
the property is used to further educational and scientific uses
on the property.
However, notwithstanding that such educational and
scientific endeavors might be the primary uses of GMSF’s subject
property, we cannot hold that the property is wholly and
exclusively used for educational and scientific endeavors as
defined by our Supreme Court in In re Forestry Found., 296 N.C.
330, 250 S.E.2d 236. The observations of the president of the
GMSF confirm this.
Q. . . . [O]n June 4, 2009, Grandfather
Mountain, Inc., conveyed a conservation
easement to the State of North Carolina
limiting property owner to using the
property for conservation and education
activities.
It is true that there are commercial
and retail activities that take place
on the site. Is that correct?
A. That’s correct.
-15-
Q. So it not entirely accurate to say that
it’s limited for conservation and
education activities. Is that correct?
A. . . . It does – as we’ve already noted,
it would permit us to continue
activities that were already taking
place on the mountain above and beyond
conservation and education.
There is support in the record that GMSF charges market-
rate admission fees and operates to some extent as a for-profit
tourist attraction. Located on the property are administrative
offices from which GMSF manages Grandfather Mountain’s retail
and commercial services. Based on the President’s comments and
the events described in the record, it is clear GMSF operated
under the proposition that a change to its Internal Revenue
Service 501(c)(3) nonprofit status along with the conveyance of
a conservation easement would also exempt the subject property
from Avery County property taxes. The record owner of the
property commonly known as Grandfather Mountain is Grandfather
Mountain, Inc. (GMI), a for-profit corporation. GMSF is a
501(c)(3) nonprofit corporation which is the sole shareholder of
GMI and holds the property subject to a triple net lease. The
Commission found that this lease places the burdens and
obligations of ownership of the subject property on GMSF,
including responsibility for paying all real property taxes.
-16-
Prior to leasing the property to GMSF in 2009, GMI engaged in
transactions and granted conservation easements to the Nature
Conservatory and the State of North Carolina for the purpose of
preserving the property for educational and scientific purposes.
It appears, based on the observation of GMSF’s President, that
GMSF was under the impression the conservation easement, by
limiting the use of the property for conservation and
educational activities, would also allow for the continuance of
commercial activities. While that assumption may be valid for
purposes of the easement and maintaining the 501(c)(3) status,
it is not sufficient to withstand the requirements of N.C.G.S.
'' 105-275(12) and 105-278.7(a). Despite GMSF’s status as a
501(c)(3) nonprofit corporation and the conveyance of a
conservation easement, the use of the property must still come
within the scope and meaning of “wholly and exclusively used for
educational and scientific purposes.” See In re Forestry
Found., 296 N.C. at 337—38, 250 S.E.2d at 241 (where the Court
considered and rejected petitioner’s argument that “the term
‘exclusively’ is not to be construed literally and that . . .
the word refers to the primary and inherent activity and does
not preclude incidental activities . . . .”). Here, the subject
property does not meet the statutory requirements necessary to
-17-
receive tax exempt status.
Accordingly, we must reverse the Commission’s conclusion
that the real property subject to GMSF’s stewardship is “used
wholly and exclusively for scientific and educational purposes.”
B and C
Avery County further contends the Commission erred in
basing its decision to grant GMSF’s request for tax exemption on
how the income from the property was spent, instead of how the
property was used.
GMSF applied for an exemption from property taxes pursuant
to General Statutes, sections 105-275(12) and 105-278.7(a). As
discussed in subpart A, both statutes require that the property
be used wholly and exclusively for educational and scientific
purposes. See N.C.G.S. '' 105-275(12), 105-278.7(a). As we
have determined that the subject property is not wholly and
exclusively used for educational and scientific purposes, we
need not further address this issue.
For the aforementioned reasons, we reverse the Commission’s
order granting GMSF an exemption from property taxes pursuant to
General Statutes, sections 105-275(12) and 105-278.7(a).
II
Next, Avery County argues that the Commission erred by
-18-
holding GMSF satisfied the ownership requirements imposed by
General Statutes, sections 105-275(12) and 105-287.7, to be
eligible for property tax exemption. We note that because the
relevant statutes require ownership to rest in a charitable
association or institution and be wholly and exclusively used
for scientific or educational purposes, and because of our
holding in Issue I, we need not reach this argument. However,
were we to address it, it is not clear that GMSF would satisfy
the statutory ownership requirements. See In re Appeal of
Eagle's Nest Found., 194 N.C. App. at 778, 671 S.E.2d at 371(considering the daily $150.00 “market rate” charged summer
campers and the $15,000.00 rate charged each student
participating in a semester-long high school course load in
comparison to the two percent of revenue used for financial aid
in concluding the nonprofit 501(c)(3) corporation running the
camp did not satisfy the meaning of “charitable association or
institution” as considered in N.C. Gen. Stat. ' 105-278.7); see
also Rockingham Cnty. v. Elon Coll., 219 N.C. 342, 346—47, 13
S.E.2d 618, 621 (1941) (Holding the buildings owned by Elon
college and rented for business purposes were taxable despite
the college’s use of all the profits for educational purposes.
“The fact that a commercial enterprise devotes its entire
-19-
profits to a charitable or other laudable purpose does not
change the character of its business nor the purpose for which
it is held. It is still a commercial enterprise, and is held as
such.”).
III
Lastly, Avery County argues that the Commission erred by
holding that the vacant lot (Parcel Three) is exempt from
taxation. Specifically, Avery County contends the Commission
failed to find the lot was “necessary for the convenient use of
any buildings” as required for exemption pursuant to General
Statutes, section 105-278.7. We briefly address the
Commission’s ruling as to this separate parcel.
General Statutes, section 105-278.7, allows property tax
exemption for “[b]uildings, the land they actually occupy, and
additional adjacent land necessary for the convenient use of any
such building . . . if: (1) Wholly and exclusively used by its
owner for nonprofit educational, scientific, literary, or
charitable purposes . . . .” N.C.G.S. § 105-278.7(a).
In an unchallenged finding of fact, the Commission stated
“[t]he Foundation operates the Grandfather Mountain tourist
attraction on Parcel Two and uses Parcel Three as a buffer track
-20-
to preserve the natural area and prevent encroaching
development.”
In In re Appeal of the Master’s Mission, this Court
reviewed the Graham County Board of Equalization’s denial of an
application to extend the tax exemption granted to 100 acres by
more than 1,200 acres as property used for educational purposes.
152 N.C. App. 640, 647, 568 S.E.2d 208, 213 (2002). The
original 100 acres had been granted tax-exempt status “in order
to provide a ‘buffer zone’ around the buildings and areas used
‘wholly and exclusively’ for educational purposes.” Id. at 648,
568 S.E.2d at 213. Though it affirmed the Board’s denial of an
application to extend the buffer, the Master’s Mission Court
noted “[a] ‘buffer zone’ is additional land around an exempt
building or portion of land that is reasonably necessary for the
convenient use of any such land or building. We have held that
buffering is an appropriate consideration in determining whether
an [] exemption applies to a particular parcel.” Id. at 648—
49, 568 S.E.2d at 213 (citations and quotations omitted).
Here, Parcel Three was found to be “a buffer track to
preserve the natural area and prevent encroaching development”
upon Parcel Two which accommodates Grandfather Mountain tourist
park, and as such, Parcel Three’s status as a tax-exempt
-21-
property is dependent upon the status of the main tract, Parcel
Two. See generally id. As we have determined that the real
property encompassing Grandfather Mountain tourist park is not
eligible for exemption pursuant to N.C.G.S. ' 105-278.7, due to
its dependent status, Parcel Three must also be ineligible for
such exemption. For these reasons, we hold the Commission erred
in concluding that the property was eligible for tax exemption
pursuant to N.C.G.S. ' 105-278.7, as it applies to Parcel Three,
the buffer tract.
For the foregoing reasons, we reverse the order of the
Commission.
Reversed.
Judges HUNTER, Robert C., and STEELMAN concur.