Case Name: IN RE PROCEEDINGS TO ENFORCE PAYMENT OF REAL ESTATE TAXES FOR THE YEAR 1964. STATE v. NORTH STAR RESEARCH AND DEVELOPMENT INSTITUTE
Court: Minnesota Supreme Court
Jurisdiction: Minnesota
Decision Date: 1972-07-07
Citations: 294 Minn. 56
Docket Number: No. 42163
Parties: IN RE PROCEEDINGS TO ENFORCE PAYMENT OF REAL ESTATE TAXES FOR THE YEAR 1964. STATE v. NORTH STAR RESEARCH AND DEVELOPMENT INSTITUTE.
Judges: Mr. Justice Todd and Mr. Justice MacLaughlin, not having been members of this court at the time of the argument and submission, took no part in the consideration or decision of this case.
Reporter: Minnesota Reports
Volume: 294
Pages: 56–105

Head Matter:
IN RE PROCEEDINGS TO ENFORCE PAYMENT OF REAL ESTATE TAXES FOR THE YEAR 1964. STATE v. NORTH STAR RESEARCH AND DEVELOPMENT INSTITUTE.
200 N. W. 2d 410.
July 7, 1972
No. 42163.
Faegre & Benson, Hayner N. Larson, and Jack D. Gage, for appellant.
George M. Scott, County Attorney, and David E. Mikkelson, Assistant County Attorney, for respondent.

Opinion:
Kelly, Justice.
Appeal by defendant, North Star Research and Development Institute, a nonprofit corporation, from a judgment of the Hennepin County District Court holding that defendant is not exempt from ad valorem taxes on real estate occupied and leased by it from a public school district. We reverse.
Our decision is based upon our conclusion that North Star, organized in 1963 under the Minnesota Nonprofit Corporation Act, Minn. St. c. 317, is a nonprofit corporation within the meaning of Minn. St. 317.02, subd. 5. A "nonprofit corporation" is defined there as one (a) formed for a purpose not involving pecuniary gain to its shareholders or members, and (b) paying no dividends or other pecuniary remuneration, directly or indirectly, to its shareholders or members as such. North Star has no shareholders, and there is no way in which, under its articles or bylaws or under the laws of this state, North Star could pay any dividends or other pecuniary remuneration directly or indirectly to its "members"; there is no way in which it could be said that North Star was formed for pecuniary gain to them; nor is there any evidence that its "members" received any pecuniary gain.
As pointed out in plaintiff's brief, the parties stipulated to the basic facts in this case. The evidence adduced beyond the stipulated facts is for all practical purposes uncontradicted.
North Star's genesis is found in a joint study conducted by Upper Midwest Research and Development Council (Upper Midwest) and the University of Minnesota. Upper Midwest was a nonprofit corporation organized to promote the economy of the area comprising the Ninth Federal Reserve District. The joint study was funded by a $850,000 grant from the Ford Foundation and by matching contributions of $220,000 raised by Upper Midwest and the University. The purpose of the study was "to help finance and develop a continuing economic study of the upper Midwest region." Pursuant to that goal, the study fostered a proposal for the organization of a research institute. While there are approximately a dozen nonprofit research centers located around the country, none previously existed in the area comprising the Ninth Federal Reserve District. In June 1962, Upper Midwest resolved "jointly with the University of Minnesota [to] take steps to incorporate a research institute to be located in the Twin Cities metropolitan area."
The plans involving the research center came to the attention of certain officers of Minneapolis Area Development Corporation (MADC) in 1962. MADC, a profitmaking corporation, had been organized for the purpose of stimulating the economy by bringing new business into the area. In 1956, pursuant to that goal, it had acquired from various landholders an industrial site in Scott County along the Minnesota River. In 1962, the site, known as Valley Industrial Park, contained approximately 2,100 acres having a cost basis of $710,063.15. By 1962, the fair market value of the industrial site was estimated by experienced appraisers to be over $5,000,000. This valuation was, however, subject to a discount to $3,534,250 if the land were to be sold to a single developer — even then, a gain in value of nearly 500 percent before taxes.
The officers of MADC believed that the proposed research center served their objective of bringing new industry into the area. The president of MADC wrote a letter to MADC shareholders wherein he proposed that they donate the industrial site, their shares and debentures of MADC, and 75 percent of their tax savings to the research institute. The proposal, subsequently reduced to an agreement, provided that all shareholders except the Chicago & North Western Railway Company donate all of their stock and debentures. The railway, the largest MADC shareholder, received no tax benefit from the donation due to its lack of taxable income, but nonetheless it contributed 8,312 shares and sold its remaining 1,288 shares and its MADC debentures for approximately $300,000. This made the railroad North Star's largest contributor. The contributors also agreed to pledge at least $700,000 in cash to support the initiation of the research center. Additionally, certain financial institutions made low-interest loans to the institute. Finally, several companies which were not MADC shareholders contributed cash to the research center. MADC then dissolved.
It is important to distinguish between the contributors to and "members" of North Star. Minn. St. 317.02, subd. 5, prohibits members and shareholders from receiving pecuniary remuneration. The statute itself does not apply to contributors.
North Star Research and Development Institute, the object of the advantageous generosity described, was thus formed. Its articles of incorporation state that it exists "for scientific purposes in the public interest and for the public benefit." Named as incorporators were three men associated with the University, two involved with Upper Midwest, and one from the Hill Family Foundation. There were three other incorporators, all of whom were employed by private concerns: The Minneapolis Star and Tribune Company, Northwestern National Bank of Minneapolis, and First National Bank of St. Paul. The incorporators had no power over North Star of any kind.
The "members" of the corporation were originally such persons as from time to time were regents of the University of Minnesota. They were to hold membership in their individual capacity. Members in a nonprofit corporation organized under Minn. St. c. 317 are the "owners" of the corporation. Although North Star has no capital stock, the members serve the same function that shareholders in a profit corporation serve. See, Minn. St. 3Í7.22, 317.25. It is important, however, that the members of a nonprofit corporation derive no pecuniary gain from the corporation. § 317.02, subd. 5. North Star has amended its articles of incorporation to provide that the members be 12 individuals selected by the Board of Regents.
The board of directors of North Star consists of 48 to 99 in dividuals elected by the "members." Subsequent to February 1969, no more than two-thirds of the directors may be associated with private business. Thus, it is apparent that the "members" can presently insure that none of the directors be associated with business as these limitations were máximums and not a requirement. The members have elected doctors, lawyers, clergymen, educators and a prominent labor leader to the board in addition to industrial and business leaders. Neither the members nor the directors receive any compensation for their services.
If North Star is dissolved, the articles provide that all assets go to the University of Minnesota or to some other nonprofit organization described in § 501(c)(3) of the Internal Revenue Code of 1954, 26 USCA, § 501(c)(3) — that is, an organization "organized and operated exclusively for religious, charitable, scientific" or other similar purposes, "no part of the net earnings of which inures to the benefit of any private shareholder or individual." Both the Federal and State taxing authorities have ruled that North Star is itself such an organization and that any contributions to it are deductible as "charitable contributions" under the appropriate tax laws.
North Star has also been accorded income tax exemption by both the United States and the State of Minnesota. The Federal exemption arises under § 501 of the Internal Revenue Code, 26 USCA, § 501. The state exemption is under Minn. St. 290.05(9).
Voluntary dissolution of North Star must have the concurrence of three-fourths of both members and directors. It is obvious that the regents could, if they were of a mind to do so, name 12 members who could in turn elect directors all of whom might favor dissolution and the assignment of all assets to the University of Minnesota. Thus, all control over North Star has been severed from the contributors, who should be distinguished from the "members."
The basic idea behind the creation of North Star was in accord with the Ford Foundation's suggestion that the area needed a research facility. It was believed that many companies were too small to support a research center of their own. North Star was intended to enable such businesses to have access to a research center, thereby stimulating the economy. The development of new products and industrial techniques was expected to have a positive effect upon the level of business activity and employment. The presence of a research center would also induce business concerns to move into the area.
The University had an additional reason to support the creation of North Star. Certain university officials were concerned about the amount of applied research as distinguished from basic research which was conducted by university faculty and students. The development of North Star would fulfill the need of industry for applied research and, thereby, would relax the pressure upon the University in that area.
Since its inception in 1963, North Star has undertaken an impressive assortment of research projects for a variety of governmental, industrial, and other clients. Representative of its projects are studies for the cities of Fargo and Moorhead relating to opportunities for industrial development; development of a mathematical analysis technique used in surveys for the cities of Minneapolis and St. Paul concerning housing patterns; an investigation for the Minnesota State Department of Education relative to plans for implementing technical services made available by the Federal government; a study for the National Health Institute concerning the causes of uremia; development for the Department of Interior of a new film system for the desalination of sea water and brackish water; a project for the St. Paul School Board to assist in designing a new curriculum for the technical vocational school; and studies for the Minneapolis Planning Commission, as well as for numerous other governmental agencies. The scope of North Star's research included such commendable, disparate fields as the development of a new mem brane for an artificial kidney machine and formulation of a new police communications system utilizing computer technology. It also engaged in significant research, testing, and consultation services for private industry, including development of a machine that automatically records the dimensions of a client's product for purposes of quality control; facilitating establishment of a plan for production of corn sugar in western Minnesota; development of a process for conversion of waste materials from food industries into animal feed (sponsored jointly by a Federal agency and the Green Giant Company, Ealston Purina Company, General Mills, Inc., and Central Soya Company); analysis for F. H. Peavey & Company of an ultrasonic whistle for use in controlling rodents menacing its grain storage and processing facilities; a systems analysis of sales and billing procedures for the Dayton Company; analysis of sales for an industrial client with many sales outlets; and determining improved methods for the analysis of statistical data.
North Star has served the needs of government and large businesses more than was perhaps anticipated. In terms of dollar volume, large companies understandably accounted for a greater volume of work than small companies. However, most of North Star's 154 industrial clients for the years 1963 to 1968 appear to have been smaller businesses. Since two-thirds of North Star's receipts for services rendered were from government projects during the period, and since 59.9 percent of its approximately 200 contracts were with industrial concerns, it may be assumed that the larger projects involved the Federal government. North Star has not displayed any preference in the manner in which it has accepted clients or assessed payment for its services. All clients have been billed on the same cost-plus fee basis. Any patents which might be forthcoming from North Star's research become the property of the client who has paid for the research and any expenses incurred in securing a patent.
North Star's dollar volume of research projects and the operating gains and losses have been as follows:
Year Volume Gain or Loss
1963 P 29,290 $ (223,156)
1964 171,798 (273,883)
1965 424,481 (208,507)
1966 747,873 (121,730)
1967 927,072 ( 72,041)
1968 1,167,491 48,569
Totals
$3,468,005
$ (850,748)
Taking into account income and expenses at Valley Industrial Park, acquired by North Star as a liquidating dividend from MADC on February 11, 1965, the institute's total deficit at the end of 1968 was $943,300. Without the contributions that were made, the institute could not have succeeded.
North Star, throughout its short history, has maintained its facilities at 3100 38th Avenue South in Minneapolis. At one time the building was the John A. Johnson School, and it is still owned by Special School District No. 1 of Minneapolis. On April 9, 1963, North Star leased the property for a term of 2 years and 11 months. On February 21, 1966, a new lease was executed for a period of 2 years and 9 months. Both leases provided that, in the event the premises for any reason should become subject to ad valorem real estate taxes, North Star would pay them in addition to the rentals. Taxes in the amount of $5,856.78 have been levied against the property by Hennepin County.
North Star makes two separate arguments concerning why it should not have to pay the tax in question. First, both North Star and the state agree that the property is owned by the public for use as a public schoolhouse. "Public schoolhouses" are exempt from taxation. If the property is taxable, it must be under Minn. St. 272.01, subd. 2, which provides in part:
"When any real or personal property which for any reason is exempt from ad valorem taxes, and taxes in lieu thereof, is leased, loaned, or otherwise made available and used by a private individual, association or corporation in connection with a business conducted for profit there shall be imposed a tax, for the privilege of so using or possessing such real or personal property, in the same amount and to the same extent as though the lessee or user was the owner of such property." (Italics supplied.)
This statute is amplified by Minn. St. 273.19, subd. 1:
"Property held under a lease for a term of three or more years, and not taxable under section 272.01, subdivision 2, when the property is school or other state lands, shall be considered, for all purposes of taxation, as the property of the person so holding the same."
Thus, the first issue is whether North Star is a "business conducted for profit." Inquiry must also be made concerning whether North Star held the property "under a lease for a term of three or more years."
The second issue is whether North Star is a "purely public charity." North Star Research argues that, because it is an "institution of purely public charity," its property is "used exclusively for any public purpose" and is exempt from taxation by virtue of Minn. Const, art. 9, § 1, and Minn. St. 272.02, subd. 1 (6, 7).
While the primary issue at the trial was whether North Star was a public charity, the issue of an exemption under Minn. St. 272.01, subd. 2, was raised and ruled upon below. In its pleadings, North Star prayed that the court adjudge that the tract was exempt from real estate taxes. Thus, the trial court pointed out:
"The dominant issue here is the matter of the exemption from paying taxes by the defendant, so if under the evidence, the defendant's claim of exemption is clearly shown, I will hold it exempt although it may be exempt under a different category than pleaded or claimed ad hoc. (Holen vs. Mpls-St. Paul Metro Airports, 250 [Minn.] 130, 84 N. W. 2d 282.) (In re: Junior Achievement of Greater Mpls. vs. State, 271 Minn. 385, 135 N. W. 2d 881.)"
The trial covered areas common to both issues, such as the absence of private gain and the accessibility of the facilities to the general public. Both issues were discussed by the parties in briefs to the trial court. The trial court ruled that the property was "not exempt from ad valorem taxation." While the trial court's conclusions of law do not specifically refer to § 272.01, subd. 2, it is evident from his memorandum that he considered that issue. In this connection, the trial court devoted about three and a half pages under the following caption: "PUBLIC PROPERTY t.kaskt) to Private Individual or Corporation Conducted For Profit. Section 272.01 and Section 273.19, M.S.A." Under this caption, the court said:
"This, in my opinion, poses the most serious question of this ease. This problem has given me the most trouble — not from the standpoint of where the equity lies, but from the standpoint of interpreting the statutes as above described."
In this appeal North Star continues to pursue this question by seeking review of its claimed exemption under § 272.01, subd. 2.
If North Star Research is a "corporation in connection with a business conducted for profit," it must pay the assessed tax. Corporations properly and rightfully operated and incorporated under Minn. St. c. 317, relating to nonprofit corporations, are those corporations which are not "businesses conducted for profit." If North Star is entitled to incorporate under c. 317 and if it holds a lease of public lands for less than 3 years, it is exempt from paying the assessed tax.
Section 317.05 provides that nonprofit corporations may be formed for a broad number of purposes:
"A nonprofit corporation may be formed under this chapter for any lawful purpose, including, but not limited to, the following purposes: Agricultural, alleviation of emergencies, athletic, benevolent, charitable, civic, community welfare, education, eleemosynary, fraternal, general welfare, health, horticultural, labor, literary, patriotic, political, professional, recreational, religious, scientific, and social."
The writers of the chapter have declared that "[t]his section intends to be as all inclusive as possible." Committee Notes and Comments, 20A M. S. A. p. 324. Obviously, a nonprofit corporation need not be formed for purely charitable purposes.
The legislature has specifically provided that a nonprofit corporation may have purposes which directly benefit the business community:
"A corporation may be formed under this chapter [c. 317, entitled the Minnesota Nonprofit Corporation Act] to:
"(1) acquire and disseminate useful business information;
"(2) inculcate equitable principles of trade;
"(3) establish, maintain, and enforce uniformity in the commercial usages, business transactions, and trade relations in the municipality in which it is located." Minn. St. 317.64, subd. 1.
Thus, the fact that the business community utilized and benefited from North Star's research facilities will not, in itself, deprive North Star of its nonprofit status.
It is necessary to determine first of all whether North Star in reality has operated as a nonprofit corporation or whether it has in fact been a "business conducted for profit." The legislature no doubt intended by the phrase "business conducted for profit" to exclude nonprofit corporations formed under Minn. St. c. 317 and operating within the requirements of that law.
The legislature has clearly set forth the relevant criteria for nonprofit coporations. Minn. St. 317.02, subd. 5, provides:
" 'Nonprofit corporation' means a corporation (a) formed for a purpose not involving pecuniary gain to its shareholders or members and (b) paying no dividends or other pecuniary re- numeration, directly or indirectly, to its shareholders or members as such." (Italics supplied.)
The test is whether or not the "members" received any "dividends or other pecuniary remuneration." Thus, the making of a profit by the corporation is of no consequence, it being essential that shareholders or members receive no profit. A Wisconsin decision aptly describes the test:
"The fact that [taxpayer's] income exceeds its disbursements does not necessarily destroy its nonprofit character. Whether dividends or other pecuniary benefits are contemplated to be paid to its members is generally the test to be applied to determine whether a given corporation is organized for profit." Associated Hospital Service, Inc. v. City of Milwaukee, 13 Wis. 2d 447, 466, 109 N. W. 2d 271, 280 (1961).
If the evidence here disclosed that the "members" had received any "pecuniary gain" from the activities of North Star, then, in spite of its declared objectives, we would have to hold that in reality it was not a nonprofit corporation as envisioned by our statutes. There is no evidence nor even suggestion that the "members" who have been elected by the Board of Regents have acted as "fronts" for the contributors or have in any manner not acted in good faith.
Although North Star has carried on its activities within the limitations prescribed by our Nonprofit Corporation Act, the trial court would hold nonetheless that it was conducting a business for profit. In this connection that court in its memorandum stated:
"In the business world profit means the difference between material sold and the expense or overhead expense of selling the product, but generally the term means 'to reap an advantage, financial or otherwise.' There are many instances where the same stockholders own other companies that give supplemental services to the other corporation. They may operate at a loss, but for many reasons the owner is of the opinion that the loss is justified because of the benefit to the other business. It would be an easy matter to evade the purpose of this statute by having such an arrangement. It is my opinion, therefore, that the legislature had in mind and it was their intent, when they used the words 'operated at a profit', they meant the general term 'to reap an advantage financial or otherwise.' "
If this definition of "profit" is to be applied to the phrase "in connection with a business conducted for a profit," obviously the word "profit" is being taken out of context. Furthermore, almost any use by a lessee would result in some kind of advantage, i. e., social, physical, spiritual, etc. Such a nebulous definition would result in the conclusion that for all practical purposes the legislature intended no exemptions.
The possibility that it would be easy to evade the purposes of the statute by the arrangements suggested by the trial court has no application to this case for several reasons. Here, all control over the future of North Star was placed in the hands of the Board of Regents, an ever-changing body of men and women elected by the State Legislature. Under its articles, bylaws, and as it was actually operated, North Star offered its services to all, including the competitors of contributors, for the full fair and reasonable value of such services on the same basis as if such research had been conducted by any other organization.
Furthermore, the state has a procedure for controlling any violations of the statutes controlling nonprofit corporations. Thus, the attorney general may, if he finds that it is in the public interest, petition the district court requesting that the corporate affairs be liquidated and the corporate existence terminated if the corporation has violated a provision of a statute regulating such corporations. Minn. St. 317.62.
The trial court's statement that most of North Star's incorporators were its clients is misleading. Only two of the nine incorporators were employed by profitmaking companies which were North Star's clients: Minneapolis Star and Tribune and the First National Bank of St. Paul. In the case of the First National Bank of St. Paul, the actual client was the First Bank Stock Corporation. Eighty individuals, employed by 55 entities, served on North Star's original board of directors. As nearly as can be determined from the record, only about 14 profitmaking businesses of these 55 entities have ever contracted with North Star: First Bank Stock Corporation, General Mills, Inc., Bemis Brothers Bag Company, Minneapolis Star and Tribune, Minnesota Valley Natural Gas Company, Gould-National Batteries, Inc., The Dayton Company, Green Giant Company, Josten Manufacturing Company, The Pillsbury Company, F. H. Peavey and Company, St. Paul Fire and Marine Insurance Company, Minneapolis-Honeywell Regulator Company, and The Otter Tail Power Company.
While the first members of North Star were individuals serving on the Board of Regents of the University of Minnesota, the record fails to disclose the identity of subsequent members. As has been pointed out, it would be illegal for any member to receive any profit or pecuniary gain from North Star's operation, and the evidence fails to disclose any such profit or gain.
It is difficult to understand the basis for the following conclusion in the trial court's memorandum:
"Taking all of the evidence into consideration, including the background of the activities of the incorporators in the other corporations, most of whom were representatives if not officers of corporations that were served by North Star, I cannot escape the conclusion that primarily the North Star's purpose was to serve the corporations that the incorporators represented and that the facilities of the North Star were predominantly used for that purpose.
* $ * s|s *
" [T] he dominating service is given to corporations and individual parties for profit."
Contrary to the trial court's finding, it is undisputed that most of the employers of incorporators and directors have not done business with North Star. In fact, only 15 profitmaking businesses of the 65 original contributors to North Star have contracted with it, and these 15 represent only 7 percent of its customers. Furthermore, most of North Star's contracts have been with companies and organizations which have in no way been otherwise involved with North Star. The trial court seems to attach considerable importance to the relationship between incorporators and companies who later have used the services of North Star. Incorporators of nonprofit corporations lose all their significance once the corporation is created; they no longer have any control over the corporation or its affairs. All of the basic control passes to the members (in this case the members of the Board of Regents) who become, in effect, the owners, not as individuals but as fiduciaries entrusted with the duties and powers imposed upon them by the articles of incorporation, bylaws, and state laws.
The temporary and current control of the affairs of the corporation is passed on to the board of directors, which is elected by the members. There is no showing here that any of the directors who were employees of companies doing business with North Star used their influence for the benefit of those companies. It perhaps would be better practice to avoid even the appearance of any conflict of interest by not having on the board any directors who are employees of companies contracting with North Star for research. But those directors were in the minority and the companies involved paid for the services on the same basis as the general public, so the presence of these individuals on the board should have no bearing in this ease. Furthermore, the numerous directors subsequent to the first board have actually been chosen by the members on the basis of competency and qualifications, and they are not chosen by the contributors or sponsors. By way of analogy, if a contributor to a nonprofit hospital used its facilities, would the hospital not retain its status if the contributor paid for the services on the same basis as the general public? If a "member" or "shareholder" of a nonprofit hospital used its facilities and paid the same fees as the general public, should the hospital lose its status? Similarly, if a director of a nonprofit hospital used its facilities, should the hospital lose its nonprofit status if the director paid the same fees as the general public?
The facts in this case are readily distinguishable from State ex rel. Clapp v. Critchett, 37 Minn. 13, 32 N. W. 787 (1887). There, the purpose of the corporation was to endow the future wives of members, and this court concluded that the members enjoyed a pecuniary gain. The instant case also differs from eases where a corporation has been formed to provide benefits for the members exclusively.
The trial court's decision appears to have been based in part upon the mistaken belief that the shareholders of MADC, who contributed stock and cash to North Star Research, were deriving a pecuniary gain from their contacts with North Star. The fact that the corporations involved took a deduction for income tax purposes for a gift of stock which had increased in value cannot be equated with a pecuniary gain. Nor is there any pecuniary gain in having a right to obtain applied research for the same fee and on the same basis as one's competitors and the public. In this connection the trial court made the following findings:
"The Court finds that the clients engaging the services of North Star for all of the projects of research and development paid to North Star the full fair and reasonable value of such services on the same basis as if such research had been conducted by any other organization.
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"The Court finds that parties or members of North Star who entered into contracts with North Star for various projects of research and development paid the same rate as any others who would similarly contract with North Star and that the member parties received no special price consideration on their contracts."
In the light of these findings, it can hardly be said that the incorporators, members, or, for that matter, contributors derived any pecuniary benefits from North Star.
The record indicates that the contributors gave all control over North Star to the Board of Regents of the University of Minnesota. As members of North Star, the regents, who are elected by the state legislature, elect the board of directors. We presume that in doing so the regents would be acting in their individual capacity and not officially as the Board of Regents. The fact that several of the approximately 80 directors are employed by contributors is no indication that the contributors in any way control North Star's policies. The record is void of any such inference. Fifteen profitmaking businesses of the approximately 65 contributors have contracted with North Star: First Bank Stock Corporation, Minneapolis Star and Tribune, Minnesota Valley Natural Gas Company, The Pillsbury Company, Bemis Brothers Bag Company, General Mills, Gould-National Batteries, Inc., Green Giant Company, Minneapolis-Honeywell Regulator Company, International Business Machines Corporation, Josten Manufacturing Company, Otter Tail Power Company, St. Paid Fire and Marine Insurance Company, The Dayton Company, and Northern Natural -Gas Company. The contributors were not given any special consideration by North Star. Moreover, their contracts did not constitute an inordinate proportion of North Star's contracts. Only about 7 percent of North Star's clients were contributors. Of the approximately $3,500,000 which North Star received for services rendered, $420,000 was attributable to contracts with contributors. The contributors received only one benefit from North Star's existence — the right to purchase its services on an equal basis and at the same price as the general public, including their competitors, who were not required to contribute anything to obtain the same research.
Individuals who contribute to the establishment of a nonprofit hospital also receive a benefit. They are entitled to use the hospital's facilities along with the general public. Again, the fact that contributors to a hospital may use the hospital on the same fee basis should not deprive a hospital of its nonprofit status.
The lower court would also deny exemption to North Star on the theory that it was a corporation in " connection with a business conducted for profit" as that term is used in Minn. St. 272.01, subd. 2. The court said:
" It is not too far out of line to hold that the North Star was connected with many businesses that were conducted for profit. While it is true that the many large businesses were not named as incorporators, their agents and representatives were, and it was to the interest of their companies that this arrangement was made."
Incorporators as such have no powers or duties after the articles of incorporation are filed. Thus, any connections conjured up between North Star and its contributors were dissolved when North Star's articles were filed. If the lower court's nebulous construction of the word "connected" were accepted, it would for all practical purposes rule out almost every nonprofit corporation. Almost every nonprofit hospital receives contributions from banks, businesses, and professional people. No doubt the banks hope to get some business from the hospital and indirectly from its employees, and at times officers of banks and businesses may serve as trustees on hospital boards. Businesses may, and probably do, consider the advantages of being near well-equipped hospitals for the emergency services which they make available for employees — services that may, by timely treatment to employees injured on the job, reduce an employer's cost of doing business. Should the contribution of money to a hospital or the rendering of community services by competent businessmen sitting as unpaid directors on a hospital board be considered as being done "in connection with a business conducted for profit"? Businesses may reap an advantage because, particularly in small communities, a hospital not only provides advantages by contributing to the health of the community, but it also tends to promote the economic well-being of the area. It is doubtful that the legislature contemplated any of these "advantages," contributions, or connections as a connection with a business conducted for profit. Such connections should not turn a business not conducted for a profit into a business "in connection with a business conducted for profit."
No doubt the legislature had in mind that where a nonprofit corporation is controlled by a business conducted for profit which uses such a corporation as it might an affiliate or subsidiary, the nonprofit organization should not enjoy the advantage of a tax exemption. Here the basic controls are in the Board of Regents and a board of directors of some 80 individuals representative of the entire community, including educators, clergymen, and business, professional, and labor leaders. Employees of those using the facilities of North Star are a minority on the board of directors, and there is no evidence from which it could even be inferred that their positions were used to the advantage of their employers. Thus, there are no meaningful connections.
Our dissenting brother, Mr. Justice Murphy, is disturbed by our analogy in which we use a nonprofit hospital for illustrative purposes. A nonprofit hospital was used as an example because it is a well-known type. Any nonprofit corporation could have been used for the same illustrative purposes. There is no requirement under Minn. St. 272.01, subd. 2, or Minn. St. 273.19, subd. 1, that a lessee be organized for charitable or humanitarian pur poses, or that the burdens of government be lessened by the tenant's operations in order to have an exemption from real estate taxes.
In summary, North Star Research and Development Institute has satisfied its burden of proving that it is entitled to an exemption under Minn. St. 272.01, subd. 2. It is a nonprofit corporation because its members receive no pecuniary gain. Its contributors derive no benefits other than those available at the same cost, not only to the general public, but to competitors of the contributors as well. It is not connected with a business for profit. Thus, § 272.01, subd. 2, and § 273.19, subd. 1, exempt the school property rented by North Star from ad valorem real estate taxes.
The record reveals that North Star leased the assessed property for terms of 2 years, 11 months, and 2 years, 9 months. There was no option to renew in either lease. North Star was apparently cognizant of Minn. St. 273.19, subd. 1, quoted above.
The trial court uses the term "evade" to characterize the purpose for the length of the two leases and the income tax savings of the contributors. Such use of that terminology fails to distinguish between "evasion" and "avoidance." The evasion of taxes generally refers to a criminal offense. The legal avoidance of taxes by using statutory provisions available to all taxpayers is both legal and moral. We "avoid" but do not "evade" income taxes when we take whatever deductions to which we may be entitled.. North Star had the right to conduct its activities in a manner which resulted in the least tax liability. Its attorney had the duty so to advise his client.
North Star was in fact taking a risk by signing short leases. The school district could, under these circumstances, refuse to renew the lease at its termination and, in fact, as a public body would have been required to do so if offered more rent by any other possible tenant.
The trial court would interpret the plain and unambiguous clause in § 273.19, "[pjroperty held under a lease for a term of three or more years," to mean any property held for a period of three years or over under any lease. Under this interpretation the property in question could not have been assessd for taxes until the second lease was entered into because the second lease might not have been executed by the school board for any number of reasons and North Star would not have held the property for three years or over. It seems unlikely that the legislature intended such a result. In any event, we are not at liberty to construe statutory language that is precise and unambiguous. See, Graber v. Peter Lametti Const. Co. 293 Minn. 24, 197 N. W. 2d 443 (1972); Knopp v. Gutterman, 258 Minn. 33, 102 N. W. 2d 689 (1960).
Our decision on the first issue is dispositive of the case and there is no necessity for determining the "purely public charity" issue. Besides, it would be preferable to give the legislature an opportunity to limit or define the property of purely public charities that may have an exempt status, particularly in view of the fact that Minn. Const, art. 9, § 1, as amended November 3, 1970, specifically gives the legislature power to limit or define the property of a purely public charity to be exempted from tax. See, L. 1969, c. 925.
We unhesitatingly concede that the legislature, rather than this court, should determine the policy of this state with regard to the exemption, if any, from taxes that corporations such as North Star should be given. We urge the legislature in their judgment to limit or define these exemptions as it is empowered to do under our State Constitution. This court should not usurp the power so recently granted the legislature by the people to decide these questions when it is unnecessary to do so.
An additional reason for our not passing upon the "purely public charity" issue is that it involves the interpretation of a constitutional provision. This court does not decide important constitutional questions unless it is necessary to do so in order to dispose of the case. To express any views on the charity issue would be to indulge in an advisory opinion.
No useful purpose would be served by attempting to determine what our decision would be in the light of newspaper articles published after this case was submitted. Such items are outside the record and have no probative force. If there have been changes in the operations or control of North Star which have adversely affected its status as a taxpayer subsequent to the tax years in question, obviously, this decision will not be res judicata as to taxes in subsequent years.
In conclusion, during the tax years in question, North Star Research and Development Institute was a nonprofit corporation, operated as such, and is entitled to an exemption for those years under Minn. St. 272.01, subd. 2, and § 273.19, subd. 1, because it has held public lands under leases for terms of 3 years or less and did not enter such leases in connection with a business conducted for a profit.
Reversed.
There are three large research centers: Battelle Memorial Institute in Columbus, Ohio; Stanford Research Institute in Menlo Park, California; and Illinois Technology Research Institute, Chicago, Illinois. Smaller ones include Southwest Research Institute, San Antonio, Texas; Midwest Research Institute, Kansas City, Missouri; Southern Research Institute, Birmingham, Alabama; Research Triangle Institute, Durham, North Carolina; Franklin Institute, Philadelphia, Pennsylvania; Spindletop Research Inc., Lexington, Kentucky; and Gulf South Research Institute, Baton Rouge, Louisiana. The last two are substantially supported by their respective states.
The impetus for MADC was the refusal of a major corporation to move to the Twin Cities area because of the lack of a large site for a plant.
It was estimated that corporate shareholders of MADC in the maximum tax bracket would thereby receive a 257 percent return on their investment after the contribution of 75 percent of their tax savings. The tax benefits were the same as if the securities had been given to a church. While we do not know the tax brackets of all the contributors, it is a fair assumption that, if they had not contributed their securities but had sold them, they would have received an even larger return.
The railroad does, however, have a line which passes through .the industrial site.
The members of the Board of Regents are elected by the state legislature. Vacancies between legislative terms are filled by the governor, in which case the appointed regent serves until the next session of the legislature. University Charter, § 5, 6 (Terr. L. 1851, c. 3, § 5, 6).
The original board of directors consisted of the following persons affiliated with the indicated organizations: Neal R. Amundson, University of Minnesota; Dwayne O. Andreas, Farmers Union Grain Terminal Association; Julian B. Baird, First National Bank of St. Paul; Charles H. Bell, General Mills, Inc.; Judson Bemis, Bemis Brothers Bag Company; Dean Sherwood O. Berg, University of Minnesota; H. William Blake, Northwestern National Bank of St. Paul; John R. Borchert, University of Minnesota; Herbert P. Buetow, Minnesota Mining and Manufacturing Company; Wendell T. Burns, Upper Midwest Research and Development Council; Francis E. Butler; John A. Buttrick, University of Minnesota; Edgar M. Carlson, Gustavus Adolphus College (President); Frank G. Chesley, Central Research Laboratories, Inc.; Preston E. Cloud, Jr., University of Minnesota; J. E. Corette, Montana Power Company; H. H. Corey, George A. Hormel and Company; Granger Costikyan, First Bank Stock Corporation; John Cowles, Minneapolis Star and Tribune; Dean Bryce Crawford, Jr., University of Minnesota; Richard E. Crawford, Minnesota Valley Natural Gas Company; Thomas M. Crosby, Northwest Growth Fund, Inc.; Harold J. Cummings, Minnesota Mutual Life Insurance Company; Albert H. Daggett, Gould-National Batteries, Inc.; John Daniels, Archer-Daniels-Midland Company; Raymond W. Darland, University of Minnesota; Edward W. Davis (a retired University of Minnesota professor who developed the taconite process); Donald C. Dayton, The Dayton Company; Frederick L. Deming, Federal Reserve Bank of Minneapolis; Robert Faegre, Minnesota and Ontario Paper Company; L. E. Felton, Green Giant Company; Daniel C. Gainey, Josten Manufacturing Company and regent of the University of Minnesota; Frederick R. Gamble, Montana-Dakota Utilities Company; Paul S. Gerot, The Pillsbury Company; Paul V. Grambsch, University of Minnesota; Philip B. Harris, Northwestern National Bank of Minneapolis; A. A. Heckman, Hill Family Foundation; F. Peavey Heffelfinger, F. H. Peavey and Company; Robert E. Hess, Minnesota AFL-CIO Federation of Labor and regent of the University of Minnesota; Leonid Hurwicz, University of Minnesota; A. B. Jackson, St. Paul Fire and Marine Insurance Company; E. F. Johnson, E. F. Johnson Company; A. J. Jordan, Jr., Jordan Millwork Company; David G. Kelly, Valley Motor Company; Allen S. King, Northern States Power Company; David M. Lilly, Toro Manufacturing Company; Chester C. Lind, First National Bank of Aberdeen; Goodrich Lowry, Northwest Bancor poration; Walter O. Lundberg, Hormel Institute; Laurence R. Lunden, University of Minnesota; Robert S. Macfarlane, Northern Pacific Railway Company; Harold Macy, University of Minnesota; C. W. Mayo, Mayo Clinic; Adrian O. McLellan, Merchants National Bank; Arthur C. Melamed, Coast-to-Coast Stores Central Organization, Inc.; John A. Moorhead, Northwestern National Bank of Minneapolis; Gerald T. Mullin, Minneapolis Gas Company; Gordon Murray, First National Bank of Minneapolis; Leonard H. Murray, Soo Line Railroad Company; John M. Musser, Weyerhaeuser Company; Will M. Myers, University of Minnesota; Philip H. Nason, First National Bank of St. Paul; Alfred O. C. Nier, University of Minnesota; William C. Norris, Control Data Corporation; Donald Nyrop, Northwest Airlines, Incorporated; Jay Phillips, Ed Phillips and Sons Company; John S. Pillsbury, Jr., Northwestern National Life Insurance Company; B. H. Ridder, Jr., St. Paul Dispatch and Pioneer Press; Paul Schilling, Waldorf Paper Products Company; James P. Shannon, College of St. Thomas; W. G. Shepherd, University of Minnesota; Otto A. Silha, Minneapolis Star and Tribune and regent of the University of Minnesota; Athelstan Spilhaus, University of Minnesota; Francis C. Sullivan, Sullivan, McMillan, Hanft & Hastings; J. Cameron Thomson, Upper Midwest Research and Development Council; W. T. S. Thorp, University of Minnesota; Maurice B. Visscher, University of Minnesota; Cecil J. Watson, University of Minnesota; Stanley J. Wenberg, University of Minnesota; P. B. Wishart, Minneapolis-Honeywell Regulator Company; R. C. Woodworth, Cargill, Incorporated; Cyrus G. Wright, Otter Tail Power Company; Willis D. Wyard, First American National Bank.
While these rulings by Federal and State taxing authorities may not be decisive of the issues in this case, the fact that Federal and State laws and administrative rulings classify institutes such as North Star as charitable organizations should have some persuasive effect.
The importance and power of a member of a nonprofit corporation is illustrated by the language used by Mr. Chief Justice Dell in Minnesota Baptist Convention v. Pillsbury Academy, 246 Minn. 46, 61, 74 N. W. 2d 286, 296 (1955): "It is doubtful if any membership right is any more important than the right to vote for the election of the directors of a corporation who carry on and conduct the business of the corporation, elect or appoint its officers and agents, and in a large measure, determine the manner in which the corporation operates."
Applied research is the second stage in the development of new products. The first step, basic research, is a general inquiry into the laws of nature and natural phenomenon. Applied research is the use of basic research toward the development of a specific product or process.
The record reviews North Star's activities from 1963 to 1968.
The following chart indicates the breakdown of "sponsors" (clients) for the period from 1963 to 1968, the number of sponsors closely approximating the number of contracts handled each year by North Star. However, since some of the contracts involved more than one year, the total number of contracts was closer to 200. The designation of "other" includes state and local government projects.
Year Federal Industrial Other Total Percentage of Industrial Sponsors
1963 1 3 2 6 50
1964 2 22 10 34 64
1965 8 23 9 40 56
1966 13 33 12 58 56
1967 13 30 9 52 57
1968 12 43 12 67 64
49 154 54 257 59.9
There have been only about a half dozen patents applied for which will be assigned when and if patents are granted. North Star has applied for, and will be the owner of, one patent which was not required to be assigned.
This provision could have been inserted because the attorney for the school board had no personal knowledge of North Star's operation, or because the legislature might have changed the law after the lease was executed, or out of an abundance of caution. It should have no bearing on the outcome of this case.
Minn. St. 272.02, subd. 1(2).
See, Minn. St. 273.19, subd. 1, quoted above and discussed below.
As has already been indicated, North Star Research, in fact, did incorporate under Minn. St. c. 317.
Social organizations are examples of corporations which are nonprofit hut are not charitable.
See, Chamber of Commerce of Hot Springs v. Barton, 195 Ark. 274, 112 S. W. 2d 619 (1937) (chamber of commerce held nonprofit); Burley Tobacco Growers Co-op. Assn. v. Rogers, 88 Ind. App. 469, 150 N. E. 384 (1926) (marketing association held nonprofit); Snyder v. The Chamber of Commerce, 53 Ohio St. 1, 41 N. E. 33 (1895) (chamber of commerce held nonprofit).
Sheren v. Mendenhall, 23 Minn. 92 (1876); State ex rel. Russell v. Sweeney, 153 Ohio St. 66, 91 N. E. 2d 13 (1950).
See, also, In re Validity of Claim of Assembly Homes, Inc. v. Yellow Medicine County, 273 Minn. 197, 140 N. W. 2d 336 (1966); State ex rel. Johnson v. Lally, 59 Wash. 2d 849, 370 P. 2d 971 (1962); Voeltzke v. Kenosha Memorial Hospital, Inc. 45 Wis. 2d 271, 172 N. W. 2d 673 (1969).
Nineteen directors were affiliated with the University of Minnesota.
See, e. g., Clay Sewer Pipe Assn. Inc. v. Commr. of Int. Rev. 139 F. 2d 130 (3 Cir. 1943); In re Incorporation of Automatic Phonograph Owners Assn, of Pennsylvania, 45 Pa. D. & C. 551 (1942).
See, e. g., Minn. St. 290.53, subd. 4, 292.11, subd. 1, and 609.41.
Canon 7, A. B. A. Code of Professional Responsibility, provides that it is a lawyer's duty zealously to represent his client. "In our government of laws and not of men, each member of our society is entitled to have his conduct judged and regulated in accordance with the law; to seek any lawful objective through legally permissible means Ethical Consideration 7-1, A. B. A. Code of Professional Responsibility.
See, Minnesota Baptist Convention v. Pillsbury Academy, 246 Minn. 46, 62, 74 N. W. 2d 286, 296 (1955).