ATTORNEYS FOR APPELLANT ATTORNEYS FOR APPELLEE
Steve Carter B. Keith Shake
Attorney General of Indiana Karen Ball Woods
Henderson Daily Withrow &
Janet L. Parsanko Devoe
Deputy Attorney General Indianapolis, Indiana
Steven G. Hedges
SUPREME COURT OF INDIANA
STATE BOARD OF TAX COMMISSIONERS, ) ) Appellant (Respondent Below ), ) ) v. ) No. 49S10-0011-TA-720 ) NEW CASTLE LODGE #147, LOYAL ) ORDER OF MOOSE, INC., ) ) Appellee (Petitioner Below ). )
April 12, 2002
The Tax Court reversed, holding that the Lodges predominant use was charitable.
We granted the Boards petition for review, in order to examine the standards
applicable to a non-profits claim that its property is predominantly used for charitable
purposes and thus exempt.
This Court reviews Tax Court decisions under the clearly erroneous standard provided in
Indiana Trial Rule 52(A). State Bd. of Tax Commrs v. Indianapolis Racquet
Club, Inc., 743 N.E.2d 247, 249 (Ind. 2001).
In its review, the Board relied in part on a Room by Room
Analysis of Exempt (Charitable) Activity. (Pet. Exh. 7.) This analysis showed 1,080
total hours of meeting/ballroom use during the year, of which 840 hours (seventy-eight
percent) were for charitable purposes. The game room, dining room, lounge and
kitchens were primarily used for social purposes and were not entitled to any
exemption. The garage was deemed entirely taxable, and the common areas were
deemed entirely exempt.
See footnote The parking lot and personal property were both treated
as partially exempt based on the aggregate exemption percentage calculated for the building.
The overall exemption percentage allowed by the Board, based on the foregoing analysis, was sixty-seven percent. In its findings of fact, the Board noted that Lodge members devote a substantial amount of time to charitable activities, and that the Lodge allowed its ballroom to be used without charge for civic activities such as a Muscular Dystrophy Association Telethon.See footnote ( Id.)
In its conclusions of law, the Board cited cases in which organizations that
donated three percent or less of their gross income to charity were denied
charitable property tax exemptions.
See footnote (
Id.) The Board went on to say:
The cases cited do not specifically indicate the percentage of gross income from the year in question that must be devoted to philanthropic endeavors before the organization may be considered to be charitable. However, the cases do establish that the annual donation/gross income percentage is of primary consideration when making the determination. . . . [The Lodge] donates 7.09% of its revenues to charity. This, along with the organizations other charitable activities qualifies the Lodge as charitable.
(Id.) The Boards final determination was dated September 25, 1992.
B. The Lodges 1992 Exemption Application. Even before the 1988 proceeding
came to a conclusion, it was time to re-apply, so in May 1992,
the Lodge again submitted the standard property tax exemption request form prescribed by
the Board. Again, the Henry County Board of Review denied the application,
and again the Lodge appealed.
Board Hearing Officer E. Wayne Hudson visited the Lodge on February 28, 1995.
He updated the Room by Room Analysis of Exempt (Charitable) Activities using
an identical approach to that used for 1988.
See footnote (Pet. Exh. 6.)
He also considered other written evidence the Lodge submitted: its constitution, by-laws,
and articles of incorporation; its 1991 federal Return of Organization Exempt From Tax;
and its 1992 monthly member newsletters. He recommended an exemption of approximately
sixty-three percent, based on the bottom line of the updated Room by Room
See Pet. Exh. 5, 6.)
The Board rejected this recommendation and denied the Lodge any exemption. It found as fact that the Lodge newsletter described only social activities and ma[de] no reference to charitable activities. (Pet. to App. Exh. 4.) It also found as fact that all 1,110 hours the meeting/ballroom was used were for member meetings and purely social functions. (Id.)
In its conclusions of law, the Board cited Saint Marys Medical Center v. State Board of Tax Commissioners, 534 N.E.2d 277 (Ind. Tax 1989), affd, 571 N.E.2d 1247 (Ind. 1991), for the proposition that lodge facilities do not qualify for exemption if used by others for any reason. (Pet. to App. Exh. 4.) It cited the same cases as in 1988 as support for the proposition that up to three percent charitable contributions do not justify tax exemption, and concluded that the Lodges four percent 1992 contribution rate did not qualify it for charitable exemption. (Id.)
The Lodge appealed to the Indiana Tax Court. See New Castle Lodge
#147, Loyal Order of Moose, Inc. v. State Bd. of Tax Commrs, 733
N.E.2d 36 (Ind. Tax 2000), review granted, 741 N.E.2d 1260 (2000). It
presented evidence by its tax return preparer that charitable contributions were in fact
substantially greater than the four percent reflected on the return. (Appellees App.
at 52-63.) The Tax Court held that the Lodge used its property
predominantly for charitable purposes and remanded with instructions to the State Board to
conduct further proceedings to determine the exact exemption allowed.
New Castle Lodge
#147, 733 N.E.2d at 40.
First, the Board found that the Lodges newsletter made no reference to charitable
activities. (Pet. to App. Exh. 4.) This is simply wrong.
The 1992 newsletters mention, among other things, a Moose Bar Buck Campaign with
a goal of raising $1,000 for Easter Seals, (Appellees App. at 116), a
donation of $1,000 to the local Disabled American Veterans, (Id. at 121), a
campaign to raise $10,000 to repair the city emergency warning system and add
a new siren in a section of the city inadequately covered by the
existing system, (Id. at 146), and delivery of food and supplies to victims
of Hurricane Andrew, (Id. at 152).
This error is of little significance because the content of the Lodges newsletter
relates to charitable use of the facility only indirectly, if at all.
Second and more important, the Board found:
The meeting/ballroom is used approximately 1,110 hours per year. The bulk of this time is used for meetings of the Lodge and meetings of the Women of the Moose. The balance of the time used is purely social functions i.e. Saturday night dances. All these activities are for members and members families only.See footnote
(Pet. to App. Exh. 4.) This finding contradicts the hearing officers analysis, which indicated
that seventy-six percent of the total 1992 meeting/ballroom hours were for charitable purposes.
(Pet. Exh. 6.)
Although the statute directs the Board to base its decision on the hearing
officers report plus any additional evidence taken by the board, and any records
that the board considers relevant, Ind. Code Ann. § 6-1.1-30-12 (Burns 1989), the
Board did not cite any additional evidence or records that would explain why
it rejected the hearing officers analysis.See footnote This finding is therefore more problematic
because it is the only Board finding dealing with facility usage, which is
necessarily the focus of the predominant use standard.
We next turn to the Boards conclusions of law. Finding 5. said, To the extent Lodge facilities are used by others, for whatever reason, the facilities do not qualify for exemption. (Pet. to App. Exh. 4.) This rule is not supported by the case the Board citesSee footnote or by any other law.See footnote See Alte Salems Kirche, Inc. v. State Bd. of Tax Commrs, 733 N.E.2d 40, 44 (Ind. Tax. 2000)(According to the State Board, The provision of facilities to other organizations or groups for meetings or gatherings at no cost does not constitute a charitable act. The State Board is mistaken.).
Board Conclusion 8. said:
[T]he cases do establish that the annual donation/gross income percentage is of primary consideration in making the [exemption] determination. . . . The Lodge donates 4% of its revenues to charity. This alone is not adequate to qualify for exemption as charitable. Therefore, the real and personal property owned by the Lodge is 100% subject to property taxation for the March 1, 1992 assessment year.
(Pet. to App. Exh. 4.) This misstates and misapplies the law.
Although charitable giving might serve as evidence to support claimed charitable use of
the facility, the statutory test since 1983 has been predominant use of the
facility, not distribution of income for charitable purposes.
B. The Boards Argument. The Board now argues that:
[T]he Moose Lodge failed [the predominant use] test because it failed to prove that its facility was used charitably for more than 50% of the time during the relevant tax year. Instead, the Moose Lodge concentrated on showing what percentage of its income it donated to charity. Because it failed to address the proper standard, the Moose Lodge failed to prove its entitlement to exemption. Moreover, nothing in the evidence can be construed to show that the Moose Lodges facility was used more than 50% of the time for charitable purposes during the relevant tax year.
(Appellants Br. at 6.)
This position is disingenuous. The Lodge did indeed focus on the wrong
target, but it did so in response to the Boards declarations that in
both 1988 and 1992 charitable contribution levels were of primary consideration. (Pet.
to App. Exh. 4.)
We conclude, as did the Tax Court, that the State Boards refusal of
any exemption was an abuse of discretion.
C. The Taxpayers Burden. This leaves us with the question whether, under the facts presented, a taxpayer that has made a misdirected evidentiary showing nonetheless deserves some exemption. The Lodge presented mostly anecdotal evidence, including newsletters that referred to a few charitable projects and a tax return that listed some charitable donations. (Pet. Exh. 4, 9.) It did not offer any sort of log of the time the facility was used in furtherance of these charitable efforts versus total time used.
Taxpayers may not avoid their burden of proof by mak[ing] a de minimis showing and then forc[ing] the State Board to support its decisions with detailed factual findings. Hoogenboom-Nofziger v. State Bd. of Tax Commrs, 715 N.E.2d 1018, 1025 (Ind. Tax. 1999). The Board is therefore correct in saying the Lodge failed to meet its burden under the predominant use standard.
D. The Boards Responsibility. Administrative decisions must, however, be based on
ascertainable standards in order to be fair and consistent rather than arbitrary and
capricious. See State Bd. of Registration for Profl Engrs v. Eberenz, 723
N.E.2d 422, 429 (Ind. 2000) (quoting State Bd. of Registration for Land Surveyors
v. Bender, 626 N.E.2d 491, 495-96 (Ind. Ct. App. 1993); see also Boaz
v. Bartholomew Consol. Sch. Corp., 654 N.E.2d 320, 323 (Ind. Tax Ct. 1995)
(Under Indianas ascertainable standards rule, all administrative decisions must be in accord with
previously stated, ascertainable standards.). Such standards give fair warning as to what
the agency will consider in making its decision. Podgor v. Ind. Univ.,
178 Ind. App. 245, 258, 381 N.E.2d 1274, 1283 (1978) (citations omitted).
The statutory focal point--predominant use of the facility--seems fairly straightforward, and the Board would be fully justified in placing the onus on taxpayers to produce facility usage reports in greater detail and with better supporting documentation than was done here. The Board may not, however, hide the ball by consistently citing charitable giving levels as the primary focus, then arguing for application of a different (albeit correct) statutory standard only on appeal.
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 Lodges 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 Lodges 1992 exemption application, with
evidence limited to the hearing officers recommendation.
Dickson, Sullivan, and Rucker, JJ., concur.
Boehm, J., not participating.