STATE OF WEST VIRGINIA

Transcription

1 Earl Ray Governor-r STATE OF WEST VIRGINIA Department of Revenue State Tax Department February 28, 2014 Mark W. Matkovich State lax Commissioner CERTIFIED MAIL RETURN RECEIPT REQUESTED The Honorable Paul Burns Assessor of Tucker County Tucker County Courthouse 215 First St., Suite 1 Parsons, WV RE: Property Tax Ruling Legal Log No ds Dear Mr. Burns: Pursuant to the provisions of West Virginia Code a, you requested instructions from this Office concerning whether certain property owned by The Canaan Valley Institute, Inc., and located in Tucker County is subject to ad valorem property taxation. Enclosed is our ruling. You are advised that under West Virginia Code a, this ruling is binding unless either you or the taxpayer, or both, apply to the Circuit Court of Tucker County for review of the ruling within thirty (30) days after receiving the ruling. See W. Va. Code a and Very truly yours, Pc: Janet D. Preston, Attorney-at-Law Cooper & Preston PLLC 333 Second Street Parsons, WV Mark W. Matkovich State Tax Commissioner Tax Commissioners ()ffic lee Street Last. P.O.Box II 771. (harleston. WV leiei)ltoflc II-07 I il'.

2 Earl Governor STATE OF WEST VIRGINIA Department of Revenue State Tax Department Mark W. Matkovich State Tax Commissioner PROPERTY TAX RULING ISSUED PURSUANT TO WEST VIRGINIA CODE a February 28, 2014 TAXPAYER: THE CANAAN VALLEY INSTITUTE, INC. ASSESSOR: PAUL BURNS TUCKER COUNTY SUBJECT: PROPERTY LEASED BY AN EXEMPT ORGANIZATION FOR USE AS A FOR-PROFIT BUSINESS IS SUBJECT TO AD VALOREM PROPERTY TAXATION LEGAL LOG 14-ds West Virginia Code a outlines procedures to be followed where the taxpayer and the county assessor disagree on the proper classification or taxability of property for ad valorem tax purposes. Under provisions of this section, the county assessor may, and if the taxpayer requests, the county assessor shall certify the question to the State Tax Commissioner for a ruling. The State Tax Commissioner has until February 28th the assessment year to render a decision. This decision may be appealed to the Circuit Court of Tucker County by either the taxpayer or the assessor within thirty (30) days after its receipt. STATEMENT OF FACTS On February 21, 2014, this Office received from the Assessor of Tucker County (Assessor) a request for a ruling on the treatment of certain real property owned by The Canaan Valley Institute, Inc., (Taxpayer) and located in Tucker County for ad valorem taxation purposes. The Canaan Valley Institute, Inc. is a tax-exempt organization under IRC 501 (c)(3), organized for educational and scientific purposes to promote conservation in the Mid- Atlantic Highlands region. See, Taxpayer Exhibits "I" and "K". The Canaan Valley Institute, Inc., has been the subject of two previous rulings by the State Tax Commissioner, in 2007 (PTR 07-13) and 2009 (PTR 09-41); in each of these rulings, the Commissioner determined that the property of the Canaan Valley Institute, Inc., was being used primarily for charitable purposes, and was therefore exempt from ad valorem property taxation for the tax years in question. The property of the Canaan Valley Institute currently consists of a acre tract of land, on which there are two buildings: the "Support building," a 3,640 square foot building comprised of office spaces, a garage, and storage areas; and the "Research and Education" building, a 29,487 square foot structure encompassing 48 office spaces, lax Commissioners 0111 cc, IOU I Ice Street East, P.O. Box 11771, Charleston. WV Telephone ! 'ax

3 four conference rooms, computer, research and teaching laboratories, a kitchen, restrooms, etc. In a letter to the Assessor dated February 4, 2014, the Taxpayer asserts that the property of the Canaan Valley Institute is being used for purposes consistent with the exempt purposes for which it was chartered. In support of this assertion, the Taxpayer provided several exhibits. Taxpayer's Exhibit "F" lists the specific uses of the facility by particular organizations, including the dates, the facilities used, and the number of persons in attendance. These include, for example: - ten separate three-day National Youth Science Foundation events between January 2012 and March 2013, with 100 persons in attendance, which used all of the Institute's spaces and facilities; - the West Virginia Floodplain Managers annual Conferences for 2012 and 2013, using the conference and computer facilities, attended by 55 and 78 persons, respectively; - numerous school "field trips" and building tours, hosting hundreds of students throughout the period; - the West Virginia Academy of Sciences 2013 Annual Conference, attended by 125 persons, using the teaching, conference and computer facilities; and - various other educational camps, workshops, meetings and training activities by various educaticnal and community support groups. There appears to be no disagreement between the parties that these constitute charitable uses of the property. However, in a letter to the Taxpayer dated October 10, 2013, the Assessor stated that the property would be subject to ad valorem property taxation for tax year 2014, for the following reason: It has come to our attention that the bulk of the lands that had been owned and used by your organization have been sold to the State of West Virginia, Department of Commerce, Division of Natural Resources, for the use and benefit of the Wildlife Resources Section. Previous taxability rulings in your favor were based on the primary use of the land for studying streams and educational purposes. As of the sales of these lands to the State of West Virginia, the use of the remaining land for stream studies does not seem likely or substantial as the remaining land no longer has any substantial streams left on it - if any at all. Additionally, it has also come to our attention that there have been rental/lease agreements with the State Department of Transportation for use of part of the remaining land that your organization owns as well as substantial areas of the main building as well. The information we have obtained on this lease alone is for 30 months at $3,000 per 7

4 month for a total lease amount of $90,000. Our information also indicates that there are similar leases with similar duratiors and amounts by at least 2 contractors and/or subcontractors for the State that are working on Corridor H for use of the main building and/or other buildings on the property. These leases are relatively long term and are for substantial amounts of money - indicating that the primary use of the land is actually for commercial purposes at this point. So in summary, the parcel in question, based on reduced use for studies and educational activities and with a new substantial commercial use, is no longer eligible for tax exemption. In its letter to the Assessor of February 4, 2014, the Taxpayer concedes that the Canaan Valley Institute leases 15 office soaces in the Research and Education building to Trumbull Corporation and J. F. Allen Company, both for-profit construction businesses, for use by West Virginia Division of Highways employees working on the Corridor H highway construction project. Additionally, according to information provided by the Taxpayer, it leases the "maintenance building", plus one acre of undeveloped land to the J.F Allen Company for use as a construction headquarters. The Taxpayer asserts that these combined uses comprise only 28% of the total square footage of available space, and concludes that the primary use of the property is for charitable purposes. In his letter to the Tax Commissioner, the Assessor asserts that a more appropriate method for determining whether the commercial uses of the Canaan Valley Institute's property constitute the primary use of the property is to calculate the square foot usage over time. According to the Assessor's calculation, the total usage for charitable purposes (based on Taxpayer's Exhibit "F") was 1,519,477 square foot/hours, whereas the total usage by con:ractors, i.e., for commercial purposes, was 17,329,040 sqft/hrs. By this calculation, the Assessor concludes that, during the relevant time period, the property of the Canaan Valley Institute was used for commercial purposes 92% of the time, and for charitable purposes only 8% of the time. ISSUE Whether is property owned by a tax-exempt charitable organization and partly used for nonexempt purposes is subject to ad valorem taxation. FS]T.Iu1*1 [.Ili] West Virginia Constitution Article X, Section 1 in part provides the following: 1. Subject to the exceptions in ths section contained, taxation shall be equal and uniform throughout the State, and all property, both real and personal, shall be taxed in proportion to its value to be ascertained as directed by law....but property used for educational, literary, scientific, religious or charitable purposes...may by law be exempted from taxation... n

5 The foregoing does not of itself exempt any property from taxation; it merely authorizes the legislature to provide exemption in certain situations. In re Hillcrest Memorial Gardens, 146 W. Va. 337, 119 S.E.2c 753 (1961). Additionally, according to the Constitution, it is the use of the property, not the status of the property owner, which determines exemption. Therefore, the Taxpayer's tax-exempt status under Internal Revenue Code Section 501 (c)(3) is not, in and of itself, determinative of the issue. Taxation of all property, both real and personal, is the general rule fixed by constitutional mandate, while exemption from taxation constitutes the exception. id. The constitutional and statutory provisions exempting property from taxation are strictly construed. id. If any doubt arises as to exemption, that doubt must be decided against the person who claims the exemption. State v. McDowell Lodge No. 112 A.F.&A.M., 96 W. Va. 611, 123 S.E. 561 (1924); Central Realty Co. v. Martin, 126 W. Va. 915, 30 S.E.2d 720 (1944). This is because all exemptions evade the operation of the general principle that taxation laws should be equal and uniform, so as to place the public burdens, as nearly as may be, upon all property and citizens alike. In re Hillcrest Memorial Gardens, 146W. Va. 337, 119 S.E.2d 753 (1961); State v. Kittle, 87W. Va. 526, 105 S.F. 775 (1921). West Virginia Code sets forth the exemptions from property taxes. The taxpayer asserts exemption under W. Va. Code (a) (12): (12) Property used for charitable purposes and not held or leased out for profi:; The West Virginia Code of State Rules elaborates on this exemption: Property Used For Charitable Purposes, And Not Held Or Leased Out For Profit Charities must be operated on a not-for-profit basis, must directly benefit society, must be for the benefit of an indefinite number of people, and must be exempt from federal income taxes under 26 U.S.C. 5C1(c)(3) or 501(c)(4). Moreover, in order for the property to be exempt, the primary aid immediate use of the property must be for one or more exempt purpcses. There is no question that the Canaan Valley Institute meets the first three criteria set forth in 110 CSR At issue here is whether the primary and immediate use of the property is for one or more exempt purposes. The Taxpayer presents three arguments to support its contention that the property is primarily and immediately used for charitable purposes, and should therefore be exempt from ad valorem property taxation: 1. That "The Corridor H project work should be viewed as charitable work as it results in the erection of a public road or public work, lessens the burdens of government, results in a benefit to mankind, and is for public convenience"; 4

6 2. Because the rents paid to the Canaan Valley Institute are used directly to pay the overhead expenses of the Institute, the property is not 'held or leased out for a profit." 3. Because the two commercial lessees use a total of just 28% of the total square footage of buildings owned by the Taxpayer, that use should be considered secondary or remote, not primary and immediate; The legislative rule defines 'charity" and 'charitable" as: 2.9. The term "charitable" means of, or for, charity The term "charity' means a gift to be applied consistently with the existing laws, for the benefit of an indefinite number of persons, either by bringing their hearts under the influence of education or religion, by relieving their bodies from disease, suffering or constraint, by assisting them to establish themselves for life, or by erecting or maintaining public buildings or works, or otherwise lessening the burdens of government. It is immaterial whether the purpose is called charitable in the gift itself if it is so described as to show that it is charitable. Any gift not inconsistent with existing laws which is promotive of science or tends to the education, enlightenment, benefit or amelioration of the condition of mankind or the diffusion of useful knowledge, or is for the public convenience is a charity. A "gift" is defined in its legal sense as. A voluntary transfer of property to another made gratuitously and without consideration. Black's Law Dictionary, 6 ec. (1990). The Canaan Valley Institute is not itself erecting or maintaining public buildings or public works. The Corridor H project cannot be viewed as charitable work under the definition above, because it fails to meet the first criterion in the definition; i.e., it is not a gift. Neither Trumbull Corporation not J.F. Allen, who are performing the actual work, is giving gratuitously of its time, energy, or expertise without the consideration or the expectation of compensation. Therefore, we find no merit in the first argument. See also, Greene Line Terminal Co. v. Martin, 122 W. Va. 483; 10 S.E.2d 901 (1940), wherein the Court held that a for-profit business was not entitled to a tax exemption, even though its for-profit business served the public convenience. The West Virginia Supreme Court of Appeals has long held that the leasing of property owned by a tax-exempt charitable organization to a for-profit business does not constitute a charitable use of the property, even if the proceeds are applied to the charitable endeavors of the organization. See, State v. McDowell Lodge, 96 W. Va. 611, 123 S.F. 561 (1924); Central Realty Co. v. Martin, 126 W. Va. 915, 30 S.E.2d 720 (1944). There are two exceptions to this general rule. By legislative rule, property belonging to or held in trust for any public or private nonprofit foundation or corporation which receives contributions exclusively for a college or university which is located in West Virginia may be exempt from ad valorem property taxes, but only if the property or the 5

7 dividends, interest, rents or royalties which are derived from the use of such property is used or devoted to the educational purposes of the college or university. 110 CSR Additionally, the Supreme Court has held that property belonging to a tax-exempt organization that is leased to another tax-exempt organization may be exempt from ad valorem property taxation if the proceeds are used for the overhead expenses of the property owner. See, Appalachian Emergency Medical Services, Inc., v. State Tax Commissioner, 218W. Va. 550, 625 S.E.2d 312 (2005). We find neither exception applicable to the instant case: the Canaan Valley Institute, Inc., despite its educational mission, is not a college or university; therefore, the exception set forth in 110 CSR is not applicable. Likewise, the Trumbull Corporation and J. F. Allen Company, the lessees of CVI'S property, are both for-profit businesses; therefore, the Appalachian Emergency Medical Services rule cannot apply. Thus, the issue ultimately hinges on which method is used to determine whether the use of the Canaan Valley Institute's property by its commercial lessees is primary and immediate. By the Taxpayer's reckoning, only 28% of the total square footage of building space is used by the commercial lessees; therefore, it concludes that the nonexempt use of the property is secondary and remote. The Assessor, on the other hand, calculates that, based on the use of the property over time, 92% of its use is for nonexempt purposes, and only 8% for exempt purposes. We find the Assessor's argument more compelling, as it more accurately reflects the actual uses of the property, and conclude that the primary and immediate use of the Canaan Valley Institute's property is for purposes other than the charitable purposes of the organization. This determination - that the primary and immediate use of the property is for commercial purposes - raises another question; that is, whether property that is partly used for exempt purposes and partly for nonexempt purposes may be partially exempted from property taxes by a split listing of the property. West Virginia Code provides that the Assessor "shall nclude separate entries [in the land book] of... all real property of whatever portion thereof in square feet that is owned, used and occupied by the owner exclusively for residential purposes[.]" This Code section has been construed to allow the Assessor to issue a separate assessment for that portion of Class II residential property that is committed to a nonresidential use. This is generally referred to as a "split-listing." The Legislative Rule states that, Split-listing of property, as authorized by W. Va. Code and , is only applicable in those instances where property is partially used by the owner thereof exclusively for residential purposes and partially used for exempt purposes. 110 C.S.R In the instant case, the property meets the second condition, but fails to meet the first; the property is partially used for exempt purposes, but the remaining part is not "used by 6

8 the owner thereof exclusively for residential purposes." Therefore, a split-listing is not available for the property. Because the Taxpayer has not shown that this property qualifies for the exemption set forth in W. Va. Code (a) (12), the property is subject to ad valorem taxation as determined by the Assessor. RULING BY THE TAX COMMISSIONER Based upon the facts and information provided and a review of the applicable law and rules, I hereby rule that the property located in Tucker County and owned by The Canaan Valley Institute, Inc., is not eligible for exemption from ad valorem property taxation. Given under my hand this 28th ay of February, 2014: Mark W. Matkovich, State Tax Commissioner 7