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Wednesday, December 15, 2004

Indiana Decisions - 30 Allen County charity groups� tax exemption cut

"30 charity groups’ tax exemption cut" is the headline to this story today in the Fort Wayne Journal Gazette. Some quotes:

Almost 30 Allen County service organizations must begin paying taxes on property worth $17 million in 2005 after their tax exemptions were stripped or reduced this year.

Judy Macon, president of the Allen County Property Tax Assessment Board of Appeals, said the board was forced to remove the exemptions because of a 2002 Indiana Supreme Court ruling. The court ruled that charitable organizations must prove their property is used more than half of the time in direct service of the group’s charitable purpose. If the groups failed to meet that standard, they lost their exemption.

Macon said this decision made use of a group’s facility, not its distribution of income, the basis for determining a property-tax exemption.

For example, many local service groups operate a bar at their headquarters for social activities. If the group primarily uses its building as a bar or for social activities – regardless of what bar revenues go to – the group is not eligible for a property-tax exemption. The ruling, however, does not affect a group’s status as a non-profit.

Macon said this was the first year groups had to file for an exemption under the new rules, which is why so many were eliminated.

“We had absolutely no choice,” Macon said. “A lot of those organizations are not-for-profit organizations, but they are not using the establishment for the benefit (of charity). It’s not our fault the way they choose to use their establishment.”

What is the 2002 Indiana Supreme Court decision referenced? Based on the information in the story, I believe it to be State Board of Tax Comm. v. New Castle Lodge #147, Loyal Order of Moose (4/12/02 IndSCt). Here are some quotes from the opinion, written by Chief Justice Shepard:
In 1992, the New Castle Moose Lodge submitted the same anecdotal type of information regarding its charitable efforts that earned it a sixty-seven percent property tax exemption in 1988. A State Board of Tax Commissioners hearing officer updated a 1988 analysis of hours of charitable use of the facility and recommended partial exemption, but the Board denied any exemption for stated reasons having little to do with the statutory “predominant use” test.

The Tax Court reversed, holding that the Lodge’s predominant use was charitable. We granted the Board’s petition for review, in order to examine the standards applicable to a non-profit’s claim that its property is predominantly used for charitable purposes and thus exempt. * * *

A Pragmatic Remedy. In State ex rel. State Board of Tax Commissioners v. Marion Superior Court, 271 Ind. 374, 379, 392 N.E.2d 1161, 1166 (1979), we said, “The sole relief a court may grant when an administrative decision is found to be unlawful is to vacate the decision and remand the matter to the agency for a further determination. This rule applies likewise to actions by the State Tax Board.” We cited, among other authorities, Indiana Code Ann. § 6-1.1-15-8, which in 1992 required remand to the Board “for reassessment and further proceedings in accordance with law” when a court reverses a Board decision. 271 Ind. at 379, 392 N.E.2d at 1166.

We recognize, however, the practical difficulty the Lodge would face in trying to prove charitable facility usage ten years after the fact in accordance with a different standard than the one the Board led the Lodge to originally document. Equity demands a remedy that does not put the taxpayer at such an agency-created disadvantage.

We note also that the record does contain some evidence of facility usage. Hearing Officer Hudson testified that he prepared a 1992 usage analysis similar to the 1988 analysis because nothing had changed in the Lodge’s operations. His figures bear this out, showing only a small decline in charitable usage percentage (from sixty-seven percent in 1988 to sixty-three percent in 1992). The Board has cited no evidence in this proceeding to justify its rejection of the hearing officer recommendation.

We therefore conclude that the available evidence satisfies the “predominant use” requirement of the statute and entitles the taxpayer to partial exemption. We remand to the Board for a final determination regarding the Lodge’s 1992 exemption application, with evidence limited to the hearing officer’s recommendation.

Conclusion. We affirm the remand ordered by the Tax Court, subject to the above directive.

Dickson, Sullivan, and Rucker, JJ., concur.
Boehm, J., not participating.

Posted by Marcia Oddi on December 15, 2004 06:36 PM
Posted to Indiana Decisions