Court Opinion

ID: 9741123
Source: CourtListenerOpinion
Date Created: 2023-08-26 20:49:49.031029+00
Date Added: 2024-06-11T07:24:22.419910
License: Public Domain

Kelly, Justice
(concurring specially).
I concur in the majority decision because the main issue here is in a gray area and our cases have favored taxation rather than exemption. As I view the issue before this court, it could be decided either way, depending upon one’s personal views as to the desirability of promoting the economic development of the state at the expense, initially at least, of other taxpayers. Presumably, to the extent that the state’s economic development is enhanced by North Star’s presence in the area, any initial costs to other taxpayers may be more than replaced by the additional tax revenues generated by the increased economic activity. The weight that such factors should have in solving the problem at hand depends upon a variety of complex economic and political questions that could best be solved by the legislature. Indeed, that body was chosen by the people to determine the precise issue presented here.
We pointed this out in State v. North Star Research & Development Institute, 294 Minn. 56, 80, 200 N. W. 2d 410, 425 (1972) in these words:
“* * * 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.”
The factors that make it desirable for the legislature to define and thereby determine North Star’s status are not only complex but innumerable. A few of them should be mentioned as they are *18the bases for our having exercised judical restraint with the hope that the legislature would indicate its preference by action.
I would start with a short statement about the genesis of North Star and the reason for its creation. While we might accept this history at face value, the legislature might desire to question it in the arena of legislative hearings. In the first North Star case, we summarized this history:
“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.1 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 Corpora*19tion (MADC) in 1962. MADC, a profitmaking corporation, had been organized for the purpose of stimulating the economy by bringing new business in to the area.2 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.”
*20As we pointed out in North Star, there are approximately a dozen research centers in the United States. We were then advised that two of them were substantially supported by state funds. We do not know how many of them were promoted and fostered by tax advantages. We do know that Battelle Memorial Institute apparently was not. Should the legislature, in order to promote this economic development of this state, give financial aid by a tax advantage to North Star? The policy of this state is indicated in part at least by Minn. St. 362.12, subd. 1(6), which provides that the Department of Economic Development shall conduct or encourage research designed among other things to develop new products, and industrial processes.1 The University of Minnesota has engaged in applied research in the fields of agriculture and mining, apparently thereby favoring research that will promote the economic wellbeing of the area. The taconite process developed by research at the University of Minnesota is perhaps the most shining example. That process probably was offered to any who would use it, while if developed by North Star the process would be confidential and given only to the person or corporate entity requesting and paying for the research. Where the process or product results from an idea for research and the research is paid for by the entrepreneur who furnishes the idea, it isn’t very realistic to assume that the research should be other than confidential. Without any payment for its services, North Star could not survive without substantial aid from the state. Thus, one pertinent question to be answered by the legislature would be — should the fact that the entrepreneur or enterprise paying for the research obtains the direct *21benefits of that research because of its confidentiality prevent an otherwise purely public charity from being that? It should be noted that in only 10 instances patents were applied for and in the overall affairs of North Star these items could be said to be de minimis. (Moreover, as knowledgable people are aware, many patents turn out to be invalid after protracted litigation.) Thus, it would seem that the confidential nature of the research will in many instances be dissipated as soon as the product is marketed or the services are sold.
Our majority opinion in large measure is based on the reasoning in the Battelle Institute case. While I agree that reasoning is persuasive, I must admit that the answers to the issue at hand are not as one-sided as the Battelle case could lead one to believe. We should not forget that without commercial enterprises there would be little charity of any kind. First of all, we should not assume that all applied research insures a profit, let alone an immediate profit. However, it is a reasonable assumption that in many instances applied research supplied by an institute such as North Star will result in a profit. When that happens, the government then becomes a partner in those profits through taxation and the corporation that risked its capital to acquire a process or product finds itself paying Federal and state income taxes, if it is a business of any consequence, of over 50 percent of its profits. If the owner-stockholders realize any return on their investment, then the government gets an additional share in the returns from the efforts of the research institute and the investment by industry. These taxes are used in large measure for welfare purposes and it is safe to say that today the government is the source of most social welfare. To the extent that applied research results in creating jobs and reducing unemployment, the need for charity by the government is reduced even as more taxes are generated from the pay of our work force. Should research institutes such as Battelle and North Star be given tax-exempt status because of the end result of their research *22or should tax-exempt status be withheld because businesses with risk capital may make a profit? How should courts equate this type of decision with one which would give a tax-exempt status to an entity engaged in fostering the performing arts or other cultural objectives? I suspect that if, in an appropriate case, a “nonprofit corporation” in the statutory meaning of that phrase were to engage in a business with the avowed purpose of creating jobs for minorities or the handicapped, we might conclude that such an entity would have a tax-exempt status solely because jobs were provided for the disadvantaged. Applied research, at least when successful, would provide employment although not just for the disadvantaged. Should this make that much difference?
It perhaps would be conceded that applied research will provide a better quality of living overall because of better products and services, less unemployment, and a greater financial ability on the part of the government to improve its welfare programs.
The main reason for deciding that a research institute such as North Star should not be defined as a public charity is that in the first instance the benefits that may accrue from the research go to the profit-making entity that pays for that research. Undoubtedly, if that research were made available to the public, we would not hesitate to declare North Star to be a public charity. I agree that this distinction is sufficient to sustain our decision, but would also agree that the line thus drawn could conceivably be drawn differently by the legislature. We should not forget that it is the research institute alone and not some of its customers that is to be or not to be a public charity. Legislative policy might dictate that the work of such an institute is of such benefit to this state that its performance should be extended or improved by a tax-exempt status.
If we compare the present case with the so-called Guthrie case,2 we can perhaps more clearly see that any definition of *23“purely public charity” now devised is inadequate and the ultimate decision is based on a philosophical view rather than any real legal reasoning.
In Guthrie, the issue presented was whether the Tyrone Guthrie Theatre Foundation and the Minnesota Theatre Company Foundation were purely public charities — thereby exempting their properties from taxation. In Guthrie, as in the instant case, it was conceded that the entities involved were nonprofit and the only substantial issue was whether or not their activities were such as to bring them within the scope of a purely public charity. There were some educational aspects involved in their activities, but in the main and perhaps by way of oversimplification, these entities were operating a classical repertory theater. As such, it unquestionably became a cultural resource of this state. The majority opinion commented on this aspect as follows:
“The charitable objectives of all of the Interveners can be conveniently summarized as the promotion of the public good by providing the community at large with the benefits of a valuable cultural resource without purpose of private profit. The presence of the Theatre and the imaginative use of its facilities have injected new vitality into the cultural life of our region and in so doing, have stimulated the minds and enriched the spirits of hundreds of thousands of our citizens.
“The value of the Theatre as a cultural resource is indicated by the direct uses to which it has been put during the first two seasons of its existence, by the way in which its policy of integrating its activities with other cultural resources of the community has already augmented, supplemented, and enhanced the programs of these other institutions by the ferment of new ideas that it has excited and by the admiration and regard it has been accorded locally, nationally and internationally. This is charity in the broad sense.”
*24In Guthrie the Tax Court decided that these activities were those of a purely public charity. This decision was not appealed to this court. The legislature has not seen fit to change that decision although approximately 10 years have elapsed.
I do not intend by these comments to imply that the Guthrie decision was erroneous. I merely wish to point out that if one were to ask whether furnishing this community with the classical performing arts was of greater benefit to the state than the furnishing of applied research with the resulting improvement of products and employment, and thus generation of taxes, I suspect most people would choose the applied research. Our legal decisions are not based on the same factors that legislators might use in their legislative processes. We might emphasize the history involved to a greater degree. In North Star, the majority opinion correctly points this out. Somehow anything with a commercial aspect doesn’t seem to fall into a “public charity” and yet from a benefit-to-mankind approach, some activities with that commercial aspect probably should. At least for the present, any steps in that direction should be taken by the legislature, and this is especially so where a compromise may be called for. As Mr. Chief Justice Burger observed in a dissenting opinion in Twentieth Century Music Corp. v. Aiken, 422 U. S. 151, 170, 95 S. Ct. 2040, 2051, 45 L. ed. 2d 84, 98 (1975):
“* * * In my view, we should bear in mind that ‘[our] ax, being a rule of law, must cut straight, sharp, and deep; and perhaps this is a situation that calls for the compromise of theory and for the architectural improvisation which only legislation can accomplish.’ ”
For the reasons stated, I concur in the majority opinion. I sincerely hope, however, that the legislature will give its attention to this matter and determine as a matter of policy, rather than on some finely drawn legal grounds, the tax status of North Star. A number of persons and entities have given their time and substantial assets to secure a research institute to improve the *25economic climate in Minnesota and the surrounding states and their efforts should be rewarded by at least having a complete ventilation of the issue at the legislative level.
Mr. Justice Scott took no part in the consideration or decision of this case.

“1 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; Spindle-top Research Inc., Lexington, Kentucky; and Gulf South Research Institute, Baton Rouge Louisiana. The last two are substantially supported by their respective states.

“2 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.” 294 Minn. 58, 200 N. W. 2d 412.

 Minn. St. 362.13(9), additionally empowers this department to aid the tourist and resort industry. The legislature has also seen fit to furLKo* aid the resort business if devoted to temporary and seasonal residential occupancy ror recreational purposes by creating a partial tax advantage. See, Otis Lodge, Inc. v. Commr. of Taxation, 295 Minn. 80, 206 N. W. 2d 3 (1972). Thus, the encouragement of certain commercial enterprises by the creation of tax advantages would not be innovative as far as legislative policy is concerned.

 City of Minneapolis v. Commr. of Taxation, Minnesota Theatre Company Foundation, T. B. Walker Foundation, Incorporated, Tyrone Guthrie Theatre Foundation, and Walker Art Center, Intervenors, a *23Minnesota Tax Court case decided June 23, 1966 (Docket Nos. 1205, 1206, 1207).