Opinion ID: 1465764
Heading Depth: 1
Heading Rank: 3

Heading: Self-Supporting Nature of the Institution

Text: The second factor that we have considered is that, in order to serve a charitable purpose, an organization must not be completely self-supporting. E.g., Common Fund v. Fairfield, 228 Conn. 375, 383, 636 A.2d 795 (1994). This factor has been considered to a lesser extent than the primary statutory requirement, and the ad hoc nature of its utilization has led to some confusion. In this context, the town points to the trial court's finding that the Center does not receive, nor is it in need of, outside financial support in the operation of the skilled nursing home facility. It is on this finding that the town rests its claim that the facility is self-supporting and thus not charitable. We do not agree. This court has considered the self-supporting requirement in three prior cases, and in none of those cases is it particularly well-defined. [32] Generally speaking, we have concluded that entirely self-supporting organizations are not charitable in nature. For instance, in Common Fund, we stated that, [f]or the purpose of determining eligibility for a property tax exemption, a Connecticut property owner is not `a corporation organized exclusively for ... charitable purposes' ...if it is entirely self-supporting. (Citation omitted.) Common Fund v. Fairfield, supra, 228 Conn. at 383, 636 A.2d 795. In Common Fund, we held that a nonprofit corporation that managed investment funds, for a fee, solely for tax-exempt schools, colleges and universities, was not exempt from property taxes under § 12-81(7). Id., at 382-84, 636 A.2d 795. The plaintiff in Common Fund managed assets of approximately $12 billion, and its chief executive officer received an annual salary of $500,000. Id., at 378, 636 A.2d 795. Importantly, there was no evidence that the plaintiff in Common Fund received any charitable contributions, and it appears to have supported itself entirely on the investment fees that it charged to its institutional clients. See id., at 383, 636 A.2d 795. The connection between the receipt of outside charitable support and the notion of a charitable organization not being self-supporting was made even more explicit in Waterbury First Church Housing, Inc. v. Brown, supra, 170 Conn. at 556, 367 A.2d 1386. In Waterbury First Church Housing, Inc., we evaluated the claim of a nonprofit corporation involved in providing housing for the elderly that it should be exempt from the sales and use tax because it was a charitable organization. Id., at 557, 367 A.2d 1386. We noted that the requirement that the exempt organization's income be based to some measureable extent on sums coming from private sources which are spent for the public weal remains. (Internal quotation marks omitted.) Id., at 563, 367 A.2d 1386. We concluded that [i]t [did] not appear from the record that the plaintiff [was] the beneficiary of any gifts from private sources, and the only funds which it ha[d] to distribute consist[ed] of rental income from its tenants and the federal subsidies which it receive[d]. (Emphasis added.) Id., at 564, 367 A.2d 1386. In holding that the plaintiff was not entitled to the tax exemption, we were specifically concerned that we could not find, on the record before us, that the plaintiff ha[d] shown sufficient private intervention and private effort to earn charitable status.... The plaintiff's enterprise to provide needed low-cost housing to a certain segment of [the] population with the assistance of the federal government was intended to be self-supporting, without any indication that gifts or charity [was] involved. (Citation omitted.) Id., at 564-65, 367 A.2d 1386. Finally, in United Church of Christ v. West Hartford, supra, 206 Conn. at 711, 539 A.2d 573, we considered a tax exemption claim for property being used for an elderly housing project. See id., at 713-14, 539 A.2d 573. The cost of constructing and maintaining the project was to be borne almost exclusively by the prospective residents, who each were required to pay an up-front fee of $73,000 for the privilege of occupying a unit. Id., at 715, 539 A.2d 573. Importantly, each resident was entitled to dwell in the subject housing only as long as he or she was able to live there independently. Id. In addition, each resident was to be charged a monthly fee of $350, which covered all of the required maintenance on the property. Id. In holding that the plaintiff corporation's property did not qualify for a charitable exemption under § 12-81(7), we noted that the [plaintiff corporation] had failed to prove that the project [was] not [then] self-supporting. The plaintiff [corporation was] under no legal obligation to provide any services that would impose any significant financial burden on it. Id., at 721, 539 A.2d 573. A common thread in each of these cases is that the organizations in question were designed from the outset to be self-supporting. In every case in which we determined that the institution in question failed to meet the requirement that it not be self-supporting, we noted that there was no reliance on, or expectation of, private charitable support. In other words, to constitute a charitable organization, the entity must be structured in such a way that it is intended to function with the aid of at least some private charitable support and must, in fact, seek out and receive such support. We also agree with the Pennsylvania Supreme Court, however, which stated, in a similar context, that, it is not indispensable that the institution be maintained by charity.... [O]ne would have to be removed from modern-day realities to believe that such costs [of elderly health care] are easily subsidized [by charitable donations], even in part. (Emphasis added; internal quotation marks omitted.) St. Margaret Seneca Place v. Board of Property Assessment, Appeals & Review, 536 Pa. 478, 489, 640 A.2d 380 (1994). In this case, the trial court's finding that the Center does not receive, nor is it in need of, outside financial support in the operation of the skilled nursing home facility contradicts uncontested documentary and testimonial evidence presented at trial, and is clearly erroneous. The record plainly indicates that, for each of the years in question, the Center received outside financial support in the form of private charitable contributions and testamentary gifts. For the years 2000 through 2005, the Center's financial statements reflect individual contributions totaling $41,136, $18,584, $56,563, $33,706, $30,668, and $51,755, respectively. The facility's administrator testified that these financial contributions were extremely helpful ... for [the Center's] bottom line, you know, to make [the Center's] debt service [coverage] ratio, definitely. This evidence alone is sufficient to contradict the trial court's finding. [33] The record also indicates that the Center receives significant financial assistance from the diocese in the form of a reduction in the cost of health insurance for its employees, up to $120,000 in savings for fiscal year 2006. Finally, the trial court ignored the value of the significant in-kind contributions of volunteers to the Center. Although reasonable people can disagree over the relative significance of this outside support, the substantial weight of the unchallenged evidence convinces us that the Center does indeed receive valuable in-kind volunteer contributions and financial aid in support of its charitable goals and, therefore, is not self-supporting. [34] The town claims that the fact that the Center often has enjoyed excess revenue bolsters the town's contention that the Center is self-supporting. In this regard, the trial court found that the Center generates an excess of operating income over operating expenses and for several years made payments to the diocese that are related to lease payments although the Center is in possession of the subject property by virtue of a quitclaim deed, not a lease. With respect to the Center's excess revenue, we cannot see how that is relevant to the question of whether the facility is organized and exclusively used for a charitable purpose. We do not believe that the legislature could have intended the tax exemption statutes to create a perverse incentive for charitable organizations to run inefficiently and to operate at a loss in order to preserve their tax-exempt status. We agree wholeheartedly with the well reasoned opinion of the Michigan Supreme Court on this issue: [T]he idea that an institution cannot be a charitable one unless its losses exceed its income places an extraordinaryand ultimately detrimentalburden on charities to continually lose money to benefit from tax exemption. A charitable institution can have a net gainit is what the institution does with the gain that is relevant. Wexford Medical Group v. Cadillac, supra, 474 Mich. at 218, 713 N.W.2d 734. A nonprofit charitable entity can take in surplus revenue without losing its status as a charity, provided it uses those funds in a manner not inconsistent with its charitable purpose. See, e.g., Nuns of the Third Order of St. Dominic v. Younkin, 118 Kan. 554, 559-60, 235 P. 869 (1925) (as long as revenue is used to support charitable operations and not for pecuniary gain of individuals, excess revenue does not defeat charitable purpose). We thus examine how the Center uses its excess revenue. The record reflects that the surplus revenue of the Center primarily is used to maintain compliance with the requirements of its CHEFA mortgage. The funds so used must be sequestered in separate trust accounts and generally cannot be used for operational expenses. In fact, the Center's agreement with CHEFA specifically mandates that the Center maintain a debt service coverage ratio of 1.25:1; that is, the Center must ensure that its revenue exceeds its expenses by an amount that is at least 25 percent greater than its annual CHEFA mortgage payment, or risk facing a potentially existential default. [35] We cannot conclude that the legislature intended to establish a loan facility for nonprofit enterprises while simultaneously creating a situation in which these nonprofit enterprises could jeopardize their tax-exempt status by taking advantage of this funding opportunity and maintaining compliance with the mortgage agreement. See, e.g., In re William D., 284 Conn. 305, 313, 933 A.2d 1147 (2007) (the legislature is always presumed to have created a harmonious and consistent body of law [internal quotation marks omitted]). The fact that the Center for several years made payments to the diocese likewise does not influence our determination of whether the Center is self-supporting or whether its purpose is ultimately charitable. The town's reliance on this finding in support of its argument that the Center is self-supporting highlights a flaw inherent in the approach of the trial court and implicitly urged throughout the town's brief. We cannot determine whether an organization generally is self-supporting or charitable simply by focusing on disparate facts taken out of their surrounding context. As we note in the exclusive use context in part II of this opinion, the correct approach is much more comprehensive. We evaluate the overall nature of the institution, as opposed to its specific activities, to ascertain its charitable nature. Wexford Medical Group v. Cadillac, supra, 474 Mich. at 213, 713 N.W.2d 734. A single expenditure listed on a financial report, even if it could be characterized as noncharitable, cannot form the basis of a conclusion that the Center is self-supporting. Rather, as we discussed previously, the focus must be on the organization's sources of income and to what uses that income is generally put. In this case, we cannot say that a single charitable donation to an affiliated, nonprofit benefactor is sufficient, when considered in context, for us to conclude that the Center is entirely self-supporting. We note that both the trial court's decision and the town's brief rely on language culled from prior cases quoting a passage in § 12-88 that often has been misunderstood and misapplied, and this may have led the trial court to rely too heavily on the fact that the Center charges for its services and often has a surplus of revenue over expenses. [36] General Statutes § 12-88, an adjunct to many subdivisions in § 12-81, including subdivision (7), provides in relevant part: Real property belonging to, or held in trust for, any organization mentioned in subdivision (7) ... of section 12-81, which real property is so held for one or more of the purposes stated in the applicable subdivision, and from which real property no rents, profits or income are derived, shall be exempt from taxation.... Taking this clause out of context, several of our cases; see, e.g., Fanny J. Crosby Memorial, Inc. v. Bridgeport, supra, 262 Conn. at 221, 811 A.2d 1277; have grafted onto the tax exemption analysis a requirement that the property for which exemption is sought produce no rent, profits or income. (Internal quotation marks omitted.) Id. As we attempted to explain in Isaiah 61:1, Inc. v. Bridgeport, supra, 270 Conn. at 85-88, 851 A.2d 277, however, this provision is directly subordinate to the following clause of the statute: though not in actual use therefor by reason of the absence of suitable buildings and improvements thereon, if the construction of such buildings or improvements is in progress. General Statutes § 12-88. Thus, when the statute is read in its entirety, it makes clear that the restriction relating to rents, profits or income is only relevant if the property is not being used for a charitable or other exempt purpose by reason of the absence of suitable buildings and improvements thereon, if the construction of such buildings or improvements is in progress. General Statutes § 12-88. Unless such a specific claim is raised, this portion of § 12-88 simply is irrelevant to the analysis under § 12-81(7). [37] Accordingly, we conclude that the Center is not self-supporting and that the trial court's findings to the contrary are clearly erroneous.