Case Name: South Iowa Methodist Homes, Inc., successor to Wesley Acres, Corp., appellant, v. Board of Review of Cass County, appellee
Court: Iowa Supreme Court
Jurisdiction: Iowa
Decision Date: 1965-07-29
Citations: 257 Iowa 1302
Docket Number: No. 51737
Parties: South Iowa Methodist Homes, Inc., successor to Wesley Acres, Corp., appellant, v. Board of Review of Cass County, appellee.
Judges: IIays, Lakson, Thornton and SNEll, JJ., concur.
Reporter: Iowa Reports
Volume: 257
Pages: 1302–1315

Head Matter:
South Iowa Methodist Homes, Inc., successor to Wesley Acres, Corp., appellant, v. Board of Review of Cass County, appellee.
No. 51737.
(Reported in 136 N.W.2d 488)
July 29, 1965.
Dickinson, Parker, Mannbeimer & Raife, of Des Moines, and Jones, Cambridge, Carl & Howard, of Atlantic, for appellant.
James Van Ginkel, Cass County Attorney, of Atlantic, for appellee.
Richard W. Berglund, of Des Moines, for Iowa Hospital Association, Inc., amicus curiae.
Alan Loth, of Fort Dodge, for Iowa Conference of Methodist Churches, amicus curiae.
Blue & Blue, of Eagle Grove, for Non-Profit Homes of Iowa, Inc., amicus curiae.

Opinion:
Stuart, J.
— The sole issue presented here is whether the land and a building under construction which will be exempt from taxation under section 427.1(9), Code of Iowa, when completed and occupied, is subject to taxation during the construction period. It reaches us as an appeal by plaintiff from the judgment of the trial court refusing to grant tax exemption to a partially completed home for the elderly in Cass County.
The pertinent parts of section 427.1 read as follows:
"427.1 Exemptions. The following classes of property shall not be taxed:
"(9) All grounds and buildings used by charitable, benevolent, and religious institutions and societies solely for their appropriate objects V"
The parties by stipulation have removed the question of "appropriate objects" from the ease and we, therefore, must start with the assumption that the property, when the building is completed and occupied, will come within the exemption. This also means that this decision will have broad application to all buildings constructed by institutions and societies granted the exemption under said section, including college classroom buildings, churches, and hospitals.
The case turns upon the meaning of the word "used" in section 427.1(9). The trial court held and appellee argues since taxation is the rule and exemption is the exception, this section, as an exemption statute, must be strictly construed and the letter of the law, as well as its spirit, observed, and, as so viewed, "used" cannot be construed to include "or to be used". We do not believe the question can be so simply or easily disposed of.
Statutes are subject to construction only when they are ambiguous. Clarion Ready Mixed Concrete Co. v. Iowa State Tax Commission, 252 Iowa 500, 507, 107 N.W.2d 553, 558, and citations. There is considerable merit in the argument that there is no place for statutory construction here. The statute refers to both "grounds and buildings". It would seem axiomatic that the construction of a building which will be used to carry out an "appropriate object" is an appropriate object itself. If this is conceded, the land was, at the time of the assessment, being used for such appropriate object. It must also be conceded that if we restrict our attention to the building* alone, it was not being "used" on the assessment date because it was not ready for occupancy. However, no one has contended the land should be exempt and the building taxable, and as a partially completed building is subject to taxation as part of the real estate, Wagner v. Board of Review, 232 Iowa 58, 4 N.W.2d 405, it does not seem unreasonable to apply the use of the land to the building. Rather than hold the statute unambiguous, however, we prefer to meet the statutory construction argument head on.
Without a noted exception, our cases hold taxation is the rule and exemption the exception and exemption statutes are therefore to be strictly construed. Cornell College v. Board of Review, 248 Iowa 388, 390, 81 N.W.2d 25; Trustees of Iowa College v. Baillie, 236 Iowa 235, 238, 17 N.W.2d 143; Wagner v. Board of Review, 232 Iowa 58, 4 N.W.2d 405. Even eases which appear liberal in recognizing exemptions reiterate this rule of construction. Trinity Lutheran Church v. Browner, 255 Iowa 197, 200, 121 N.W.2d 131; National Bank of Burlington v. Huneke, 250 Iowa 1030, 1035, 98 N.W.2d 7; Trustees of Griswold College v. State of Iowa, 46 Iowa 275, 278, 26 Am. Rep. 138; Ellsworth College v. Emmet County, 156 Iowa 52, 135 N.W. 594, 42 L. R. A., N. S., 530.
On the other hand, we are faced with an express legislative mandate to construe the "provisions and all proceedings" under the Code "liberally" and "with a view to promote its objects and assist the parties in obtaining justice." Section 4.2, Code of Iowa. See Center Township School District v. Oakland Independent School District, 253 Iowa 391, 398, 112 N.W.2d 665, and Chiesa & Co. v. City of Des Moines, 158 Iowa 343, 346, 138 N.W. 922, 48 L. R. A., N. S., 899.
These rules seem to be in conflict, but under the facts here each can be applied in its appropriate place. There is nothing in section 427.1(9) which indicates a legislative intent that "appropriate objects" should be broadly interpreted. The rule of strict construction should be used in determining what projects are within the "appropriate objects" of the institution. We do not have that question before us. The stipulation concedes the project here was an appropriate object. Once it is admitted the project itself is within the statute, we must, under section 4.2, interpret the statute liberally to promote its object.
The exemption statutes are a legislative recognition of the benefits received by society as a whole from properties devoted to appropriate objects of exempt institutions and the consequent lessening of burden on the government. They are designed to encourage these institutions to use their funds and property for such projects, Carl Zollmann, American Law of Charities 465, paragraph 693. If this is the legislative intent, we reach an illogical result if we hold the legislature intended property, ultimately exempt, to be subject to taxation during the construction period. Such activities are not encouraged by adding to the building costs. The subjection of this property to taxation during the construction period would tend to defeat the object of the exemption statutes.
Cases cited above involving property of institutions named in 427.1(9) support this construction. We have viewed them with considerable more favor than exemptions to private persons. Only two eases denying exemption cited by appellee involve such institutions. Cornell College v. Board of Review, 248 Iowa 388, 81 N.W.2d 25; Trustees of Iowa College v. Baillie, 236 Iowa 235, 17 N.W.2d 143. In both, exemption was denied on the question of ownership of property where the institution was required to make annual payments to donor. They involved section 427.1 (11).
In view of our cases, the taxing of properties under construction would result in some anomalous situations. For instance, funds held to construct an exempt building are not subject to taxation. National Bank of Burlington v. Huneke, 250 Iowa 1030, 98 N.W.2d 7. The completed building is exempt. But the use of exempt funds to build an exempt building would result in the imposition of a tax during the construction period.
A building purchased for an appropriate object after it has been assessed to another owner can still attain exempt status before July 1. Section 427.1(25). See Iowa Wesleyan College v. Knight, 207 Iowa 1238, 1240, 224 N.W. 502 (before subsection 25). A building completed on the same date for the same purpose would be taxable at the value on the assessment date. While these results may not reach the stage of being absurd or ridiculous, they certainly are inconsistent, unjust and unfair.
One can better visualize the tax complications and inequities inherent in a ruling which would subject exempt buildings under construction to taxation by considering an actual situation in which a church purchased a residence on an adjoining lot, tore down the residence and constructed an educational unit. The old church building was then razed and worship services were held in the new unit. Now a new church building is being erected. All of which covered a period of several years. From a practical standpoint it would be almost impossible for the assessor to know when to tax or exempt the property involved.
Appellee cites the annotation appearing in 34 A. L. R. 634, 672, which states: "Land on which buildings to be used for charitable purposes are in the course of erection, or are in good faith contemplated, is generally held not exempt from taxation." The annotation is supplemented in 62 A. L. R. 328, 335, and 108 A. L. R. 284, 294.
After an examination of the annotations and the cases cited therein, we conclude it is inaccurate to refer to the above statement as a "general rule". Cases from only four jurisdictions are cited. Pennsylvania, New Jersey and Massachusetts are referred to as favoring "the general rule" while cases from New York and Massachusetts are contrary. The two Massachusetts cases are not in conflict. Massachusetts favored the exemption when the parties were proceeding diligently with plans for the erection of a hospital. New England Hospital etc. v. Boston, 113 Mass. 518. Exemption was denied on a plot of ground purchased for the construction of school buildings at some future time, but which at the time of assessment was used as a garden. Boston Society v. Boston, 129 Mass. 178. The facts here are more consistent with the Massachusetts case in which exemption was allowed.
New Jersey and Pennsylvania statutes are not the same as the Iowa statute. New Jersey requires that the property be "actually used" rather than "used". The New Jersey court did not think this was an immaterial distinction. In an earlier case of Presbyterian Board v. Fisher, 68 N. J. Law 143, 52 A. 228, the New Jersey Court, while denying exemption under the facts, indicated an interesting question would have been presented if preparations had been made for use for charitable purposes. At that time the statute said only "used".
In Institute of Holy Angels v. Borough of Fort Lee (1910), 80 N. J. Law 545, 546, 77 A. 1035, which denied exemption to a building under construction, the court said: " in this ease the natural construction of the language forbids the exemption. In order to be exempt the building must be actually used, and it was held under the tax act of 1866 [Act April 11, 1866 (P. L. 1078)], prior to the present revision of 1903 [Act April 8, 1903 (P. L. 394)], that a building intended for a charitable use, but not yet used for that purpose, was not exempt from taxation. Presbyterian Board v. Fisher [68 N. J. Law 143, 52 A. 228]. The doubt suggested in that case as to the taxability of property where preparations were making before or at the time of the assessment to appropriate and use the property for the charitable purpose is removed by the change in the language of the act and the insertion of the words 'actually used'."
The Pennsylvania statute is more strict than the New Jersey statute. It granted an exemption: " 'Provided, That all property, real or personal, other than that which is in actual use and occupation for the purpose aforesaid, and from which any income or revenue is derived, shall be subject to taxation.' To furnish, a basis for exemption it is not necessary that there be receipt of income, but there must be 'actual use and occupation'." Dougherty v. City of Philadelphia, 112 Pa. Super. 570, 573, 172 A. 177, 178. (Emphasis supplied.)
Appellant cites cases from Colorado and New Mexico which are of no assistance as both states admittedly follow the rule of liberal construction.
Two recent cases in strict construction states reach opposite results. In Cedars of Lebanon Hospital v. Los Angeles County, 35 Cal.2d 729, 221 P.2d 31, 39, 15 A. L. R.2d 1045, the exemption during the construction period was denied. The fact that this decision did not conform to legislative intent is established by the action of the legislature in shortly thereafter amending the exemption statute to specifically include "facilities in the course of construction". California Revenue and Tax Code, section 214.1.
In the Village of Hibbing v. Commissioner of Taxation, 217 Minn. 528, 535, 14 N.W.2d 923, 926, 927, 156 A. L. R. 1294, 1300, the Minnesota court granted exemption .to a property being remodeled and fitted for use as a public hospital which had formerly been a private hospital. The court said: " the right to exemption depends upon the concurrence of the institution's ownership and use of the property as a public hospital. The right of exemption carries with it, as an incident, a reasonable opportunity by an institution entitled to tax exemption of its property, in execution of an intention so to do, to adapt and fit property acquired by it for the use upon which the right of exemption rests."
The court concluded: "The board was warranted in adopting the view that, since on May 1, 1941, the parties were using the opportunity, incident to the exemption, of adapting and fitting the property for use as a public hospital, they were devoting the property to a use comprehended within the exemption, and consequently that it was being used and operated as a public hospital within the meaning of the, exemption provisions of the constitution and statutes."
We conclude it is in accord with legislative intent, more consistent with our own decisions, and not- contrary to any gen eral rule in other jurisdictions to hold that property, which will be exempt under section 427.1(9) when a building being erected thereon is completed and occupied, is also exempt during the construction period.
The trial court is therefore reversed and the matter remanded for judgment in accordance herewith. — Reversed.
IIays, Lakson, Thornton and SNEll, JJ., concur.
Garfield, C. J., and Moore, J., dissent.
MasoN and Rawlings, JJ., take no part.