Labrie et. al. v. Vermont Dep’t of Taxes, No. 302-7 -13 Wmcv (Wesley, J. May 9, 2014).

[The text of this Vermont trial court opinion is un official. It has been reformatted from the origina l. The accuracy of the text and the accompanying data included in the Vermont trial cou rt opinion database is not guaranteed.]



### Labrie et al vs. Vermont Department of Taxes

ENTRY REGARDING MOTION

Count 1, Appeal - Tax (302-7-13 Wmcv)

Title: Motion for Summary Judgment (Motion 2) Filer: Vermont Department of Taxes Attorney: Will S. Baker Filed Date: December 19, 2013

Response filed on 02/05/2014 by Attorney William M. McCarty for Plaintiff Robert A. Labrie Response filed on 02/06/2014 by Attorney William M. McCarty for Plaintiff Robert A. Labrie Signed Copy of Response by plff. Response filed on 02/14/2014 by Attorney Will S. Ba ker for Defendant Vermont Department of

Taxes

The motion is GRANTED. Opinion and Order

Granting Summary Judgment to the Vermont Department of Taxes

Robert and Dolores LaBrie appeal from a decision b y the Vermont Department of Taxes (The Department). The LaBries own 280.5 acres in To wnshend. They use the property to operate a business in which they breed, raise, and train Friesian horses. The business also hosts camps and demonstrations and provides riding lesson s, cottage rentals, and horse-drawn carriage rides. The Department has enrolled the lan d in the Agricultural and Managed Forest Land Use Value Program (Current Use Program). The D epartment refused to enroll the buildings in the Current Use Program because the LaBries rece ived more than half of their income from non-farming activities. The appeal centers on what activities qualify as farming.

The Department moved for summary judgment on Decem ber 19, 2013. The Department argued the LaBries are not entitled to have their b uildings enrolled in the Current Use Program because, for each of the years the LaBries applied, they had more non-farm income than farm income. In making this determination, the Departmen t did not include income related to lessons, training, camps, carriage rides, cottage r entals, and similar activities as farm income. The Department only included income from the sale o f horses as farm income. The Department

also considered income from investments as non-farm income. The LaBries opposed summary judgment on February 6, 2014. They argued all the h orse-related income is farm income. The LaBries further argue the Department’s interpretati on violates the policy behind the agricultural use exemptions. The Department responded to the opp osition on February 14, 2014. The 

## S TATE OF 

## V ERMONT

SUPERIOR COURT CIVIL DIVISION Windham Unit Docket No. 302-7-13 Wmcvparties do not dispute that if the Court treats the income from lessons, rentals, and camps as

farming income, then more than half of the LaBries’ income comes from farming.

The Court grants summary judgment “if the movant sh ows that there is no genuine dispute as to any material fact and the movant is e ntitled to judgment as a matter of law.” V.R.C.P. 56(a). The Court makes all reasonable infe rences and resolves all doubts in favor of the non-moving party. Lamay v. State , 2012 VT 49, ¶ 6, 191 Vt. 635.

Under 32 V.S.A. § 3752(14), farm buildings may be e nrolled in the Current Use Program if the applicant meets certain requirements. The bu ildings must be “actively used by a farmer as part of a farming operation, are owned by a farmer or leased to a farmer...” 32 V.S.A. § 3742(14). A farmer is a person “who earns at least one-half of the farmer's annual gross income from the business of farming as that term is define d in Regulation 1.175-3 issued under the Internal Revenue Code of 1986.” 32 V.S.A. § 3742(7) (A). A farmer is a person who manages a farm for profit. 26 C.F.R. § 1.175–3. A person who engages in farming “for recreation or pleasure rather than a profit is not engaged in the business of farming.” Id. “[F]arm is used in its ordinary, accepted sense and includes stock, dairy, poultry, fish, fruit, and truck farms, and also plantations, ranches, ranges, and orchards.” Id. A person claiming an exemption bears the burden of proof that the person is entitled to the exemption. 32 V.S.A. § 3755(e).

Vermont cases do not define the meaning of farming . Nevertheless, two cases provide guidance on how the Court should interpret tax exem ptions. Our Lady of Ephesus House of Prayer, Inc. v. Town of Jamaica considered whether a horse-barn was entitled to a tax exemption because it allowed clergy to use the prop erty. See 2005 VT 16, ¶¶ 1, 4, 178 Vt. 35. The Court rejected the taxpayer’s argument. Id. ¶ 1. The Court noted, “in construing tax exemptions, the burden is on the person claiming th e benefit of the exemption, and the exemption statute must be strictly construed agains t that person.” Id. ¶ 14 (internal citations omitted); see also Brownington Ctr. Church of Brownington, Vt ., Inc. v. Irasburg , 2013 VT 99, ¶ 9 (reiterating statutes offering tax exemptions must be strictly construed).

In Mollica v. Division of Property Valuation and Revie w , the Vermont Supreme Court considered whether a cottage used on a Christmas tr ee-farm qualified for an agricultural use exemption. See 2008 VT 60, ¶¶ 1–2, 184 Vt. 83. The taxpayers engag ed in tree farming most of the year, but used the cottage for other purposes i n the off-season. Id. ¶ 2. The Department disallowed the cottage as “a development” under 32 V.S.A. § 3752(5). Following a de novo trial, the Superior Court rejected the Department’s charac terization, and the Supreme Court affirmed. The Supreme Court found that the Departm ent’s construction was strained, and failed to conform to explicitly stated legislative policies. Id. ¶ 20 Although courts usually defer to decisions by administrative agencies that interp ret statutes within their expertise, the Current Use Program is remedial in nature and does not require deference. Id. ¶¶ 9–10. Courts should therefore interpret the statute to maintain agricultural land. Id. ¶ 13.

Cases from bankruptcy courts provide guidance on wh ether lessons and training qualifies as farming activities. See In re Poe , 62 Collier Bankr.Cas.2d 365 (Bankr. N.D.W.Va. 2009). To file for chapter 12 bankruptcy, which app lies to family farmers, a debtor must show half of the debtor’s income comes from a farming op eration , the same test employed for buildings claimed to be part of a farming operation under the Current Use program. See id. ; see also 11 U.S.C. § 101(18). In Poe , the debtor trained and boarded horses and raised cattle. 62 Collier Bankr.Cas.2d 365. Bankruptcy courts split o ver whether training and boarding horsesqualified as a farming activity and cited four case s applying different analyses. Id. The court

concluded training and boarding horses was not a fa rming activity because it did not contain the types of risks, such as death of animal, that r aising livestock typically involves. Id. Therefore, the Court denied the debtor’s filing. See id.; see also In re Jones , 66 Collier Bankr. Cas.2d 62 (Bankr. D.Or. 2011) (refusing to include horse boar ding fees as part of a debtor’s farming income).

In re McKillips also considered a similar issue. See 72 B.R. 565, 568–69 (Bankr. N.D.Ill. 1987). In McKillips , the debtors filed for a chapter twelve bankruptcy for their horse breeding, training, and showing operation. Id. at 567. Horse showing and training do not fall wit hin the traditional definition of farming or ranching. Id. at 567–68. Only breeding and selling horses fell within the definition of farming operation. See id. at 568–69. Profits from raising and training

horses did not fall within the definition of farmin g operation because they are fee based and do

not contain the same risks of weather and illness t hat farming entails. See id. The court rejected the debtor’s filing because less than half of the d ebtor’s income came from farming. Id. at 569.

This Court is persuaded by the reasoning in the abo ve-cited bankruptcy cases, applying an identical guideline for determining what activit ies qualify as farm income. In this case, the LaBries are not entitled to have their buildings en rolled in the Current Use Program because

more than half of their income came from non-farmin g activities. Specifically, offering lessons, camps, cottage rentals, and carriage ride are not f arming activities. Notwithstanding the remedial policies of the Current Use Program, it st ill requires taxpayers to prove they qualify for an exemption. See 32 V.S.A. § 3755(e); Ephesus House , 2005 VT 16, ¶ 14. 1 Under 26 C.F.R. § 1.175–3, farming activities includes raising crops and livestock. None of the LaBries’ supplemental activities are the listed types of far ming in 26 C.F.R. § 1.175–3. The supplemental activities are dissimilar in type from the listed t ypes of farming. The Department correctly interpreted this definition to mean selling horses is a farming activity but providing lessons, cottage rentals, and carriage rides is not.

The situation here is similar to the one described in McKillips

. See 72 B.R. at 568–69,

which also addressed the allocation of farm and non -farm income in the context of breeding and raising horses. See id. The bankruptcy court determined training horses, w hich is fee based, is not a farming operation because it does not cont ain the same risks as farming. See id. In this case, the LaBries’ demonstrations, lessons, camps, and carriage rides are also fee based and do not qualify as farming. The reasoning is also consi stent with Poe. 62 Collier Bankr.Cas.2d 365. Further, training horses does not fall under the tr aditional definition of farming. See McKillips

, 72 B.R. at 567–68. Indeed, the LaBries’ claims for farm-related activities are even further attenuated because they go beyond the fees charged for training horses, to include those associated with camp offerings, cottage rentals, an d carriage rides. See id. at 567–69. In the absence of explicit statutory recognition, the Cour t cannot conclude that these activities are part of farming “in its ordinary and accepted sense .” 26 C.F.R. § 1.175–3. Rather, camps, cottage rentals, and carriage rides are more typica l of resort activities than farming. 2

1 Mollica , does not compel a different conclusion. That cas e turned on the off-season use of the building, and did not involve the application of the income test at i ssue here.

2 The summary judgment record raises a significant q uestion as to whether the LaBries are entitled to e nrollment in the Current Use Program because they are operati ng a farm for pleasure. Under 26 C.F.R. § 1.175–3, a person who engages in farming for recreation or pleasure i s not a farmer. In their memorandum of law, the LaB ries wrote: “The LaBries, in their farm operation have suffered losses since 2002, and have no gross income as def ined by the I.R.C.” The LaBries also stated the farm became ope rational in 2002. That is, the LaBries have never s hown a profitIn sum, the Court grants summary judgment in favor of the Department because there

are no material disputed facts and the Department i s entitled to judgment as a matter of law.

See V.R.C.P. 56(a); Lamay , 2012 VT 49, ¶ 6. The Court rests its decision on its interpretation of 32 V.S.A. § 3742(7)(A) and 26 C.F.R. § 1.175–3 as e xcluding lessons, training, and cottage rentals as farming income. 3

Order

The Court GRANTS Appellee’s motion for summary judgment. The appeal is DENIED,

and the Commissioner’s determination is SUSTAINED.

So ordered.

Electronically signed on May 08, 2014 at 04:25 PM p ursuant to V.R.E.F. 7(d).

______________________________________ John P. Wesley Superior Court Judge

Notifications: William M. McCarty (ERN 3621), Attorney for Plainti ff Dolores Labrie William M. McCarty (ERN 3621), Attorney for Plainti ff Robert A. Labrie Will S. Baker (ERN 3383), Attorney for Defendant Ve rmont Department of Taxes

wesley

in their business since it began operating twelve y ears ago. The Internal Revenue Code creates a presu mption that a person engages in for-profit horse breeding if th e person can show profit in two out of seven years. 26 U.S.C. § 183(d). Where a person routinely fails to show a pr ofit from horse breeding, the Internal Revenue Serv ice may determine the person engages in a hobby rather than a for-profit activity. See Bronson v. Comm’r of Internal

Revenue , T.C.Memo. 2012-17, *6 (T.C. 2012). Based on their representation of never making a profit from their business, the Court might conclude the LaBries are not farmers because they raise horses for pleasure rather than for profit. However, the Court need not decide thi s issue because it would require further facts and the parties

have not briefed it.

3 Although not raised by the parties, the Department would also be entitled to summary judgment on proc edural grounds. Under V.R.C.P. 56(c)(1),(3), a party seekin g to dispute a fact must attach a statement of disp uted facts with citations to the record. Where a party fails t o attach a statement of disputed facts, the Court m ay accept the facts recited in the statement of undisputed facts. See V.R.C.P. 56(e); Gallipo v. Rutland , 2005 VT 83, ¶¶ 31–33, 178 Vt. 244. Here, the Department attached a statement o f undisputed facts that indicated more than half of the LaBries’ gross income came from non-farm sources. See Appellee’s Statement of Undisputed Material Facts, ¶ 20. The LaBries did not attach a statement of disputed material facts, as required by V.R.C.P. 56(c)(1), an d thus

admitted this fact. See V.R.C.P. 56(e); Gallipo , 2005 VT 83, ¶ 33. The LaBries attempt to dispute t he facts within their memorandum of law, without a separate stateme nt of disputed facts together with citations to the record, is ineffective to create disputed facts.