Children, Inc. v. City of Richmond

Present: All the Justices
CHILDREN, INCORPORATED
v. Record No. 950441 OPINION BY JUSTICE ELIZABETH B. LACY
January 12, 1996
CITY OF RICHMOND
FROM THE CIRCUIT COURT OF THE CITY OF RICHMOND
Randall G. Johnson, Judge
Children, Incorporated (Children) filed an application
pursuant to Code § 58.1-3984 for relief from tax assessments
levied by the City of Richmond for tax years 1989 through 1993.
Children, a charitable organization, challenged assessments
which taxed personal property it owned and used in its
charitable activities. Children asserted that it was entitled
to a tax exemption under the second clause of Article X,
Section 6(f), of the 1971 Constitution of Virginia, generally
referred to as the "grandfather clause." Based on stipulated
facts and argument of counsel, the trial court determined that
personal property owned by Children on July 1, 1971, the
effective date of the 1971 Constitution, was exempt from
taxation under the grandfather clause, but that personal
property obtained after that date was not exempt. Children
appealed, assigning error to that portion of the trial court's
judgment holding that personal property acquired after 1971 was
not exempt from taxation. Because we find that Children met
its burden to show that personal property it acquired after
July 1, 1971, was entitled to a tax exemption, we will reverse
the judgment of the trial court.
The grandfather clause in Article X, Section 6(f), of the
1971 Constitution of Virginia provides that
all property exempt from taxation on the effective
date of this section shall continue to be exempt
until otherwise provided by the General Assembly as
herein set forth.
Children claims that on the effective date of the 1971
Constitution it was entitled to a tax exemption under § 183(f)
of the 1902 Constitution of Virginia and former Code § 58-12(6)
for the personal property it owned and used for its charitable
purposes. 1 The grandfather clause preserved this exemption,
Children argues, for the personal property it acquired after
2
July 1, 1971, and presently uses in its charitable activities.
1
Section 183(f) of the 1902 Constitution provided a tax
exemption for
[b]uildings with the land they actually occupy, and
the furniture and furnishings therein belonging to
any benevolent or charitable association and used
exclusively for lodge purposes or meeting rooms by
such association, together with such additional
adjacent land as may be necessary for the convenient
use of the buildings for such purposes.
This subsection along with the other subsections of § 183 were
codified in former Code § 58-12. It now appears as paragraph
(A)(7) of Code § 58.1-3606.
2
Precisely which exemptions were preserved by the
grandfather clause has been the subject of considerable debate.
The primary dispute centered on whether the word "property" as
used in the clause meant the continuation of a tax exemption
for the classes of property contained in § 183 of the 1902
Constitution or whether it meant preservation of a tax
exemption for only a specific piece of property which was
treated as exempt under § 183 on July 1, 1971. Various
interpretations and applications of the clause and its
corresponding legislation have been advanced by commentators,
legislative reports, and opinions of Attorneys General. See
Note, Property Tax Exemptions for Charitable, Benevolent, and
Religious Organizations in Virginia, 71 Va. L. Rev. 601 (1985),
for an extensive description and discussion of the history of
- 2 -
The exemptions preserved by that clause, however, continued
only "until otherwise provided by the General Assembly." Va.
Const. art. X, § 6(f). As pointed out and relied on by the
parties here, the General Assembly has enacted and amended the
relevant tax exemption statutes over the years. Thus, we must
first determine whether the grandfather clause has been
superseded by legislation and, if so, how such legislation
affects the tax exemption sought by Children in this case.
The General Assembly amended Code § 58.1-3606 and its
predecessors in 1972, 1973, 1974, 1984, and 1985. Acts 1972,
ch. 667 at 887; Acts 1973, ch. 438 at 641; Acts 1974, ch. 469
at 907; Acts 1984, ch. 675 at 1406; Acts 1985, ch. 495 at 801.
These amendments basically continued the codification of the
list of property classes exempt from taxation under § 183 of
the 1902 Constitution of Virginia.
The legislative changes relevant to our inquiry affected
that portion of the statute preceding the list of exempt
property classes. From 1972 through 1984, Code § 58.1-3606
began as follows:
The following classes of real and personal property,
which were exempt from taxation on July 1, 1971,
shall continue to be exempt from taxation under the
rules of statutory construction applicable to exempt
property prior to such date: . . . .
This language perpetuated exemptions available under the 1902
the grandfather clause and relevant legislative reports, cases,
and legislation.
- 3 -
Constitution and continued by the grandfather clause. As
indicated previously, the specific contours of the exemption
were subject to debate; nevertheless, there was agreement that
the exemptions were available only to organizations that
existed on July 1, 1971. Westminster-Canterbury v. City of
Virginia Beach, 238 Va. 493, 501, 385 S.E.2d 561, 565 (1989);
1983-84 Op. Att'y Gen. 362-63; 1977-78 Op. Att'y Gen. 416.
In 1985, the General Assembly amended that portion of the
section preceding the list of exempt property classes to read
as follows:
A. Pursuant to the authority granted in Article X,
Section 6(a)(6) of the Constitution of Virginia to
exempt property from taxation by classification, the
following classes of real and personal property shall
be exempt from taxation: . . . .
Code § 58.1-3606(A). This amendment was significant because it
stated a specific legislative intent to exercise the authority
under Article X, Section 6(a)(6) to create new property
exemptions by classification. 3 The exemptions under this
section were no longer limited to any specific date. Property
qualifying under one of the listed classes "shall be exempt
from taxation" regardless of when the organization seeking the
exemption was created or the property acquired. See
3
Article X, Section 6(a)(6) authorizes the General
Assembly to exempt by classification "[p]roperty used by its
owner for religious, charitable, patriotic, historical,
benevolent, cultural, or public park and playground purposes."
The exemption must be passed by three-fourths vote of the
members of each house.
- 4 -
Westminster-Canterbury, 238 Va. at 498-502, 385 S.E.2d at 563-
66 (applying Code § 58.1-3606(A)(5) to post-1971 organization).
Thus, the 1985 amendment expanded or created new property tax
exemptions.
The amendment creating the new exemptions did not alter
the list of exempt classes of property; however, it did alter
the standard for construing those exempted classes. Under both
the 1902 Constitution and the grandfather clause, the
exemptions were liberally construed. The 1971 Constitution,
however, required that tax exemptions enacted under Article X,
Section 6(a)(6) be strictly construed. Va. Const. art. X,
§ 6(f). A major effect of the 1985 amendments to Code § 58.1-
3606, therefore, was the imposition of a rule of strict
construction upon the tax exemption classifications. See
Westminster-Canterbury, 238 Va. at 501, 385 S.E.2d at 565.
This new canon of construction had the potential to
seriously disrupt the exemptions granted to and enjoyed by
numerous organizations under the 1902 Constitution and the
grandfather clause. For example, under a liberal construction,
an organization qualified as "charitable" if it was "organized
and conducted to perform some service of public good or
welfare." City of Richmond v. United Givers Fund, 205 Va. 432,
436, 137 S.E.2d 876, 879 (1964). Property was considered to be
used "exclusively" for the charity's purposes if charity was
the dominant use of the property. Id. at 438, 137 S.E.2d at
- 5 -
880. A strict construction of these terms could result in a
different conclusion. See, e.g., Westminster-Canterbury, 238
Va. at 501, 385 S.E.2d at 565 (applying strict construction of
"exclusively" as used in Code § 58.1-3606(A)(5)).
The General Assembly addressed this potential problem by
adding subsection B to Code § 58.1-3606. That subsection
provides:
B. Property, belonging in one of the classes listed
in subsection A of this section, which was exempt
from taxation on July 1, 1971, shall continue to be
exempt from taxation under the rules of statutory
construction applicable to exempt property prior to
such date.
Thus, the rule allowing liberal construction of exemptions was
preserved under certain circumstances. 4 Those circumstances
are plainly and unambiguously set out, avoiding the uncertainty
generated by the word "property" in the grandfather clause.
Property, as used in subsection B, belongs "to a class"; it
does not mean "a class of property." Thus, the word property
refers to a specific piece of real or personal property.
Subsection B limits the use of liberal rules of
construction to circumstances involving a specific piece of
property that (i) belongs to one of the classes described in
subsection A, and (ii) was exempt from taxation on July 1,
4
Applying a liberal construction in this instance does not
conflict with the constitutional requirement of strict
construction. Subsection B does not create any new exemptions
under the 1971 Constitution, but merely continues pre-1971
exemptions preserved by the grandfather clause.
- 6 -
1971. Requiring a piece of property to be exempt on a specific
date presumes that the property existed on that date. And,
because tax exemptions do not run with property, see Code
§ 58.1-3601, an organization must have owned the piece of
property on July 1, 1971, to qualify for a tax exemption under
the liberal construction allowed by subsection B.
In summary, the 1985 amendments to Code § 58.1-3606 under
the authority of Article X, Section 6(f) created exemptions by
classification for classes of property owned and used by
certain benevolent, charitable, and other organizations. The
exemptions must be strictly construed, unless subsection B is
applicable to the claimed exemption. In that case, liberal
rules of construction may be applied.
Subsection B is the legislative disposition anticipated in
the grandfather clause, which "otherwise provided" for the
exemptions initially addressed and preserved by the grandfather
clause. Thus, while the exemption Children seeks in this case
has its historical roots in the grandfather clause and § 183(f)
of the 1902 Constitution, it is governed by the current
provisions of Code § 58.1-3606.
Applying these principles to the present case, we conclude
that, because the specific personal property at issue here did
not exist and therefore could not have been exempt from
taxation on July 1, 1971, the tax exemption sought by Children
is not entitled to liberal rules of statutory construction
- 7 -
under subsection B. Nevertheless, Children may be entitled to
an exemption for that property if the property belongs to one
of the classes in subsection A, applying a strict construction.
As mentioned earlier, Children's exemption is based on the
class of property currently contained in paragraph 7 of Code
§ 58.1-3606(A). That paragraph provides a tax exemption for
the following:
Buildings with the land they actually occupy, and the
furniture and furnishings therein belonging to any
benevolent or charitable organization and used by it
exclusively for lodge purposes or meeting rooms
. . . .
The parties in this case have stipulated that Children is a
charitable organization and that its personal property "has
continuously been used since it was acquired as a part of
[Children's] charitable operation, . . . [that] the tangible
personalty is used in the various facets of the charitable
operation . . . . [and that it] is used for meetings and
conferences" of the organization with staff, donors, and
prospective donors. There is no evidence that the personal
property was used for any purpose other than Children's
charitable purposes. Therefore, we conclude that Children met
its burden of establishing that it was entitled to a tax
exemption for personal property acquired after July 1, 1971,
which it used exclusively for its charitable purposes pursuant
to Code § 58.1-3606(A)(7).
Accordingly, we will reverse that part of the judgment of
- 8 -
the trial court holding that personal property acquired after
July 1, 1971, was not exempt from property tax by the City of
Richmond.
Affirmed in part,
reversed in part,
and final judgment.
- 9 -