Opinion ID: 1652750
Heading Depth: 1
Heading Rank: 9

Heading: property of a charitable organization

Text: As disclosed by the examination of Nebraska's earliest statute for tax-exempt property and subsequent exemptive statutes, legislation for tax-exempt property demonstrates a discernible and deliberate pattern of statutory evolution. Initially, only the property's exclusive use was the controlling factor in determining whether property was exempt. Comp.Stat. § 4934 (1903). In 1921, while a property's exclusive use for a charitable or educational purpose remained a factor in tax exemption, for the first time ownership of property became a determinant for tax exemption, although ownership was nondescript, since a particular nature, character, or status of the property owner was unspecified in either the 1921 amendment or the immediately subsequent § 77-202(3) (1943). Thus, property use was the focal point for exemption from property taxation. For that reason, this court, construing availability of the charitable and educational exemptions under § 77-202(3) (1943), commented that in determining whether or not property is within a tax exemption provision, the use of the property and not the status or character of the owner of the property controls. Nebraska Conf. Assn. Seventh Day Adventists v. County of Hall, 166 Neb. 588, 598, 90 N.W.2d 50, 55 (1958). In consideration of § 77-202(1)(c) (Reissue 1971), this court stated: It is the primary or dominant use, and not an incidental use, of the property which is controlling in determining whether property is exempt from taxation.... Bethesda Foundation v. County of Saunders, 200 Neb. 574, 577, 264 N.W.2d 664, 666 (1978). Accord, Lincoln Woman's Club v. City of Lincoln, 178 Neb. 357, 133 N.W.2d 455 (1965); Doane College v. County of Saline, 173 Neb. 8, 112 N.W.2d 248 (1961). Drawing from those preceding use decisions, the Bar Foundation maintains that under § 77-202(1)(c) (Cum.Supp.1984), the controlling factor is the primary or dominant use, not any incidental use. Brief for appellant at 13. Regarding the Bar Foundation's decisional support for its controlling factor test, the precedential value of a decision containing judicial construction of a statute may, and probably does, diminish when the construed statute is subsequently amended in reference to the statutory language which was the subject of the prior interpretative decision. Cf. State v. Schaaf, 234 Neb. 144, 449 N.W.2d 762 (1989) (interpretative precode decisions may have little value in construing the Nebraska Criminal Code). Continuing on our statutory trek through the charitable and educational exemptions from property taxation, in 1980, § 77-202 was amended, so that the specific nature, character, or status of the property owner became a factor in determining whether property was tax-exempt, that is, the property must be owned by [an] educational, religious, [or] charitable organization. § 77-202(1)(c) (Reissue 1981). Thus, through the 1980 amendment, a property owner's nature, character, or status became a determinative factor considered with the additional requirements that the property be used for statutorily specified purposes and not owned or used for financial gain or profit to the property's owner or user. Notwithstanding the 1980 amendment of § 77-202(1)(c), there remained a question for courts: What is a charitable organization in reference to tax-exempt property? In Scottish Rite Building Co. v. Lancaster County, 106 Neb. 95, 98, 182 N.W. 574, 575 (1921), this court characterized charity as that actually done for the relief of the unfortunate and the alleviation of suffering, or in some work of practical philanthropy, as contrasted with the sentimental or ethical viewpoint. In Young Men's Christian Ass'n v. Lancaster County, 106 Neb. 105, 111, 182 N.W. 593, 595 (1921), charity was characterized as something more than mere alms-giving or the relief of poverty and distress, and [as having] a significance broad enough to include practical enterprises for the good of humanity operated at a moderate cost to those who receive the benefits. Accord Lincoln Woman's Club v. City of Lincoln, supra . Still other definitions of charity are found in this court's decisions such as United Community Services v. The Omaha Nat. Bank, 162 Neb. 786, 791, 77 N.W.2d 576, 582 (1956), wherein charity meant a gift, to be applied consistently with existing laws, for the benefit of an indefinite number of persons, by bringing their hearts under the influence of education or religion, by relieving their bodies from disease, suffering, or constraint, by assisting them to establish themselves for life, or by erecting or maintaining public buildings or works or otherwise lessening the burdens of government. (Quoting from 10 Am.Jur. Charities § 3 (1937).) Eventually, in United Way v. Douglas Co. Bd. of Equal., 215 Neb. 1, 337 N.W.2d 103 (1983), this court indicated that the charitable exemption under § 77-202(1)(c) was based on a benefit to the public generally and elimination of services which the state would otherwise have to perform in response to its governmental duties. Cf. St. Louis Union Trust Company v. United States, 374 F.2d 427, 432 (8th Cir.1967) (a reason for the charitable exemption is that the favored entity performs a public service and benefits the public or relieves it of a burden which otherwise belongs to it). One commentator has observed: Exemption of charitable property flows from the concept that property used for public activities and functions should not be taxed. Hence it follows that because charitable property renders a public service and is used for public functions it should be tax exempt. Formulated in terms of the so-called governmental theory of tax exemption, private charities perform functions that the state would be required to undertake and tax exemption is granted as a quid pro quo for the performance of these functions and services. Many courts expand the governmental doctrine into the humanitarian theory under which tax exemption is justified not only for the performance of functions which relieve the state of its burden but also for activities which further socially desirable objectives considered of benefit to the community. These differing theories of tax exemption of charitable property have, to a considerable extent, been responsible for the lack of uniformity which has traditionally characterized the case law in this area. E. Fisch, D. Freed & E. Schachter, Charities and Charitable Foundations § 787 at 602-03 (1974). As the court noted in Child v. United States, 540 F.2d 579, 583 (2d Cir.1976): Relief of general tax burdens alone, in a society with some progressivity in its tax structure, cannot be deemed a single, inalienable mark of charity. Our view is that relief for the public fisc is more symptomatic than evidentiary regarding whether an activity is charitable: charity often results in an absorption of a burden otherwise falling upon the state, particularly where the social welfare is a principal purpose of the state. But this does not mean that activities lessening public expense in any of a myriad of areas of public interest are perforce charitable. In an attempt to eliminate confusion or uncertainty in a definition or characterization of charitable organization, the Legislature in 1984 amended § 77-202(1)(c) by providing: [C]haritable organization shall mean an organization operated exclusively for the purpose of the mental, social, or physical benefit of the public or an indefinite number of persons.... Therefore, for tax-exempt status pursuant to § 77-202(1)(c) (Cum.Supp.1984), property must: (1) be owned by a type of organization designated in § 77-202(1)(c); (2) be used exclusively for at least one of the purposes specified in § 77-202(1)(c), i.e., an educational, religious, charitable, or cemetery purpose; and (3) not be (a) owned or used for financial gain to the property owner or user, (b) used more than 20 hours per week for sale of alcoholic liquors, or (c) owned or used by an organization which, on the basis of race, color, or national origin, discriminates in membership or employment. See, Ev. Luth. Soc. v. Buffalo Cty. Bd. of Equal., 230 Neb. 135, 430 N.W.2d 502 (1988); Immanuel, Inc. v. Board of Equal., 222 Neb. 405, 384 N.W.2d 266 (1986). We again note that § 77-202(1)(c) (Cum.Supp.1984) is the same as the current tax exemption statute, § 77-202(1)(c) (Reissue 1990). Thus, § 77-202(1)(c) contains a two-tier approach to tax exemption for property. At the first tier is the particular nature, character, or status of a property owner as an organization which is one of the types designated in § 77-202(1)(c). At the second tier is use of the property, that is, the specific kinds and degrees of use which qualify or disqualify property concerning the charitable or educational tax exemptions available under § 77-202(1)(c). At the first tier, if an owner is not an organization of a type entitled to property tax exemption pursuant to § 77-202(1)(c), continuation to the second tier, namely, consideration of the property's use, is unnecessary, since the property owner has failed to qualify as an organization entitled to tax exemption for its property. In this manner, through a series of amendments to statutes authorizing tax exemption of property owned by certain types of organizations, the Legislature, by narrowing the definitions for charitable organization and educational organization, has systematically and intentionally broadened the property tax base through limited availability of property tax exemption under § 77-202(1)(c). Consequently, the next question is whether the Bar Foundation, as owner of the Law Center, is a charitable organization within § 77-202(1)(c), that is, an organization operated exclusively for the purpose of the mental, social, or physical benefit of the public or an indefinite number of persons. Operated exclusively, in reference to a charitable organization within § 77-202(1)(c), means an organization's primary or predominant activity. See, Bethphage Com. Serv. v. County Board, 221 Neb. 886, 381 N.W.2d 166 (1986); Lincoln Woman's Club v. City of Lincoln, 178 Neb. 357, 133 N.W.2d 455 (1965); Ancient and Accepted Scottish Rite v. Board of County Commissioners, 122 Neb. 586, 241 N.W. 93 (1932). Regarding mental benefit of the public, as one of the requisite purposes of a charitable organization within § 77-202(1)(c), mental means intellectual, see Webster's Third New International Dictionary, Unabridged 1411 (1981), which in turn means, among other things, engaged in creative literary, artistic, or scientific labor. Id. at 1174. Applying the preceding definition of mental to the Bar Foundation's primary or predominant activity, the Bar Foundation is not operated for generation of literary, artistic, or scientific benefit to the general public. However, might the Bar Foundation's primary or predominant activity relate to the mental benefit of an indefinite number of persons? Relative to a charitable organization within § 77-202(1)(c), an indefinite number of persons means a group of persons with a common characteristic, that is, a class, uncertain in number and composed from the public at large or a community. See, Lynch v. Spilman, 67 Cal.2d 251, 431 P.2d 636, 62 Cal.Rptr. 12 (1967); Am. Soc. for Test. & M. v. Bd. of Rev. of Taxes, 423 Pa. 530, 225 A.2d 557 (1967); Continental Illinois Bank v. Harris, 359 Ill. 86, 194 N.E. 250 (1934); Ancient and Accepted Scottish Rite v. Board of County Commissioners, supra . Generally, the public cannot, except in extremely limited situations, act as lawyers in Nebraska without a license to practice law. Therefore, if we assume that the Bar Foundation operates primarily or predominantly to provide a mental benefit to a class, the benefited class is not composed from the public at large or from a community. Rather, the class which benefits from the Bar Foundation's primary or predominant activity is the membership of the NSBA, a restricted group of persons with a common characteristica license to practice law in the State of Nebraska. The Bar Foundation's other operations are basically law-related activities such as providing grants for continuing education of lawyers and funding for legal publications, for example, Nebraska Annotations to the Restatement (Second) of Trusts, activities which benefit a restricted class, namely, lawyers, and not a class composed from the public at large. Since there is no evidence that the Bar Foundation's operations confer any social or physical benefit on the general public or an indefinite number of persons, as that phrase is used in § 77-202(1)(c), we reach the same conclusion as that reached by the district court: The Bar Foundation is not a charitable organization within § 77-202(1)(c) (Cum.Supp.1984).