Court Opinion

ID: 1060213
Source: CourtListenerOpinion
Date Created: 2013-10-09 18:43:07.610857+00
Date Added: 2024-06-11T13:06:51.093150
License: Public Domain

Present:    All the Justices

CHILDREN, INCORPORATED

v.   Record No. 950441         OPINION BY JUSTICE ELIZABETH B. LACY
                                          January 12, 1996
CITY OF RICHMOND

           FROM THE CIRCUIT COURT OF THE CITY OF RICHMOND
                      Randall G. Johnson, Judge

     Children, Incorporated (Children) filed an application

pursuant to Code § 58.1-3984 for relief from tax assessments

levied by the City of Richmond for tax years 1989 through 1993.

Children, a charitable organization, challenged assessments

which taxed personal property it owned and used in its

charitable activities.    Children asserted that it was entitled

to a tax exemption under the second clause of Article X,

Section 6(f), of the 1971 Constitution of Virginia, generally

referred to as the "grandfather clause."     Based on stipulated

facts and argument of counsel, the trial court determined that

personal property owned by Children on July 1, 1971, the

effective date of the 1971 Constitution, was exempt from

taxation under the grandfather clause, but that personal

property obtained after that date was not exempt.     Children

appealed, assigning error to that portion of the trial court's

judgment holding that personal property acquired after 1971 was

not exempt from taxation.      Because we find that Children met

its burden to show that personal property it acquired after

July 1, 1971, was entitled to a tax exemption, we will reverse

the judgment of the trial court.
     The grandfather clause in Article X, Section 6(f), of the
1971 Constitution of Virginia provides that
     all property exempt from taxation on the effective
     date of this section shall continue to be exempt
     until otherwise provided by the General Assembly as
     herein set forth.

Children claims that on the effective date of the 1971

Constitution it was entitled to a tax exemption under § 183(f)

of the 1902 Constitution of Virginia and former Code § 58-12(6)

for the personal property it owned and used for its charitable

purposes. 1   The grandfather clause preserved this exemption,

Children argues, for the personal property it acquired after
                                                                 2
July 1, 1971, and presently uses in its charitable activities.
     1
      Section 183(f) of the 1902 Constitution provided a tax
exemption for

     [b]uildings with the land they actually occupy, and
     the furniture and furnishings therein belonging to
     any benevolent or charitable association and used
     exclusively for lodge purposes or meeting rooms by
     such association, together with such additional
     adjacent land as may be necessary for the convenient
     use of the buildings for such purposes.

This subsection along with the other subsections of § 183 were
codified in former Code § 58-12. It now appears as paragraph
(A)(7) of Code § 58.1-3606.
     2
      Precisely which exemptions were preserved by the
grandfather clause has been the subject of considerable debate.
 The primary dispute centered on whether the word "property" as
used in the clause meant the continuation of a tax exemption
for the classes of property contained in § 183 of the 1902
Constitution or whether it meant preservation of a tax
exemption for only a specific piece of property which was
treated as exempt under § 183 on July 1, 1971. Various
interpretations and applications of the clause and its
corresponding legislation have been advanced by commentators,
legislative reports, and opinions of Attorneys General. See
Note, Property Tax Exemptions for Charitable, Benevolent, and
Religious Organizations in Virginia, 71 Va. L. Rev. 601 (1985),
for an extensive description and discussion of the history of

                               - 2 -
The exemptions preserved by that clause, however, continued

only "until otherwise provided by the General Assembly."    Va.

Const. art. X, § 6(f).   As pointed out and relied on by the

parties here, the General Assembly has enacted and amended the

relevant tax exemption statutes over the years.   Thus, we must

first determine whether the grandfather clause has been

superseded by legislation and, if so, how such legislation

affects the tax exemption sought by Children in this case.
     The General Assembly amended Code § 58.1-3606 and its

predecessors in 1972, 1973, 1974, 1984, and 1985.   Acts 1972,

ch. 667 at 887; Acts 1973, ch. 438 at 641; Acts 1974, ch. 469

at 907; Acts 1984, ch. 675 at 1406; Acts 1985, ch. 495 at 801.

These amendments basically continued the codification of the

list of property classes exempt from taxation under § 183 of

the 1902 Constitution of Virginia.

     The legislative changes relevant to our inquiry affected

that portion of the statute preceding the list of exempt

property classes.   From 1972 through 1984, Code § 58.1-3606

began as follows:
     The following classes of real and personal property,
     which were exempt from taxation on July 1, 1971,
     shall continue to be exempt from taxation under the
     rules of statutory construction applicable to exempt
     property prior to such date: . . . .

This language perpetuated exemptions available under the 1902

the grandfather clause and relevant legislative reports, cases,
and legislation.

                              - 3 -
Constitution and continued by the grandfather clause.    As

indicated previously, the specific contours of the exemption

were subject to debate; nevertheless, there was agreement that

the exemptions were available only to organizations that

existed on July 1, 1971.   Westminster-Canterbury v. City of

Virginia Beach, 238 Va. 493, 501, 385 S.E.2d 561, 565 (1989);

1983-84 Op. Att'y Gen. 362-63; 1977-78 Op. Att'y Gen. 416.

     In 1985, the General Assembly amended that portion of the

section preceding the list of exempt property classes to read

as follows:
     A.   Pursuant to the authority granted in Article X,
     Section 6(a)(6) of the Constitution of Virginia to
     exempt property from taxation by classification, the
     following classes of real and personal property shall
     be exempt from taxation: . . . .

Code § 58.1-3606(A).   This amendment was significant because it

stated a specific legislative intent to exercise the authority

under Article X, Section 6(a)(6) to create new property

exemptions by classification. 3   The exemptions under this

section were no longer limited to any specific date.     Property

qualifying under one of the listed classes "shall be exempt

from taxation" regardless of when the organization seeking the

exemption was created or the property acquired.    See

     3
      Article X, Section 6(a)(6) authorizes the General
Assembly to exempt by classification "[p]roperty used by its
owner for religious, charitable, patriotic, historical,
benevolent, cultural, or public park and playground purposes."
 The exemption must be passed by three-fourths vote of the
members of each house.

                              - 4 -
Westminster-Canterbury, 238 Va. at 498-502, 385 S.E.2d at 563-

66 (applying Code § 58.1-3606(A)(5) to post-1971 organization).

Thus, the 1985 amendment expanded or created new property tax

exemptions.

     The amendment creating the new exemptions did not alter

the list of exempt classes of property; however, it did alter

the standard for construing those exempted classes.       Under both

the 1902 Constitution and the grandfather clause, the

exemptions were liberally construed.       The 1971 Constitution,

however, required that tax exemptions enacted under Article X,

Section 6(a)(6) be strictly construed.       Va. Const. art. X,

§ 6(f).   A major effect of the 1985 amendments to Code § 58.1-

3606, therefore, was the imposition of a rule of strict

construction upon the tax exemption classifications.        See

Westminster-Canterbury, 238 Va. at 501, 385 S.E.2d at 565.

     This new canon of construction had the potential to

seriously disrupt the exemptions granted to and enjoyed by

numerous organizations under the 1902 Constitution and the

grandfather clause.    For example, under a liberal construction,

an organization qualified as "charitable" if it was "organized

and conducted to perform some service of public good or

welfare."     City of Richmond v. United Givers Fund, 205 Va. 432,

436, 137 S.E.2d 876, 879 (1964).        Property was considered to be

used "exclusively" for the charity's purposes if charity was

the dominant use of the property.        Id. at 438, 137 S.E.2d at

                                - 5 -
880.       A strict construction of these terms could result in a

different conclusion.       See, e.g., Westminster-Canterbury, 238

Va. at 501, 385 S.E.2d at 565 (applying strict construction of

"exclusively" as used in Code § 58.1-3606(A)(5)).

       The General Assembly addressed this potential problem by

adding subsection B to Code § 58.1-3606.      That subsection

provides:
     B.   Property, belonging in one of the classes listed
     in subsection A of this section, which was exempt
     from taxation on July 1, 1971, shall continue to be
     exempt from taxation under the rules of statutory
     construction applicable to exempt property prior to
     such date.

Thus, the rule allowing liberal construction of exemptions was

preserved under certain circumstances. 4     Those circumstances

are plainly and unambiguously set out, avoiding the uncertainty

generated by the word "property" in the grandfather clause.

Property, as used in subsection B, belongs "to a class"; it

does not mean "a class of property."      Thus, the word property

refers to a specific piece of real or personal property.

       Subsection B limits the use of liberal rules of

construction to circumstances involving a specific piece of

property that (i) belongs to one of the classes described in

subsection A, and (ii) was exempt from taxation on July 1,
       4
      Applying a liberal construction in this instance does not
conflict with the constitutional requirement of strict
construction. Subsection B does not create any new exemptions
under the 1971 Constitution, but merely continues pre-1971
exemptions preserved by the grandfather clause.

                                  - 6 -
1971.    Requiring a piece of property to be exempt on a specific

date presumes that the property existed on that date.    And,

because tax exemptions do not run with property, see Code

§ 58.1-3601, an organization must have owned the piece of

property on July 1, 1971, to qualify for a tax exemption under

the liberal construction allowed by subsection B.

        In summary, the 1985 amendments to Code § 58.1-3606 under

the authority of Article X, Section 6(f) created exemptions by

classification for classes of property owned and used by

certain benevolent, charitable, and other organizations.    The

exemptions must be strictly construed, unless subsection B is

applicable to the claimed exemption.    In that case, liberal

rules of construction may be applied.
        Subsection B is the legislative disposition anticipated in

the grandfather clause, which "otherwise provided" for the

exemptions initially addressed and preserved by the grandfather

clause.    Thus, while the exemption Children seeks in this case

has its historical roots in the grandfather clause and § 183(f)

of the 1902 Constitution, it is governed by the current

provisions of Code § 58.1-3606.

        Applying these principles to the present case, we conclude

that, because the specific personal property at issue here did

not exist and therefore could not have been exempt from

taxation on July 1, 1971, the tax exemption sought by Children

is not entitled to liberal rules of statutory construction

                                - 7 -
under subsection B.    Nevertheless, Children may be entitled to

an exemption for that property if the property belongs to one

of the classes in subsection A, applying a strict construction.

     As mentioned earlier, Children's exemption is based on the

class of property currently contained in paragraph 7 of Code

§ 58.1-3606(A).   That paragraph provides a tax exemption for

the following:
     Buildings with the land they actually occupy, and the
     furniture and furnishings therein belonging to any
     benevolent or charitable organization and used by it
     exclusively for lodge purposes or meeting rooms
     . . . .

The parties in this case have stipulated that Children is a

charitable organization and that its personal property "has

continuously been used since it was acquired as a part of

[Children's] charitable operation, . . . [that] the tangible

personalty is used in the various facets of the charitable

operation . . . . [and that it] is used for meetings and

conferences" of the organization with staff, donors, and

prospective donors.    There is no evidence that the personal

property was used for any purpose other than Children's

charitable purposes.   Therefore, we conclude that Children met

its burden of establishing that it was entitled to a tax

exemption for personal property acquired after July 1, 1971,

which it used exclusively for its charitable purposes pursuant

to Code § 58.1-3606(A)(7).

     Accordingly, we will reverse that part of the judgment of

                               - 8 -
the trial court holding that personal property acquired after

July 1, 1971, was not exempt from property tax by the City of

Richmond.
                                            Affirmed in part,
                                            reversed in part,
                                            and final judgment.

                             - 9 -