Court Opinion

ID: 9783892
Source: CourtListenerOpinion
Date Created: 2023-08-30 20:20:08.838213+00
Date Added: 2024-06-11T07:35:40.639063
License: Public Domain

SCOTT, J.,
dissenting:
From its formation- in 1968 until the events giving rise to this dispute in 2001— some thirty-three years — it appears that nobody ever questioned Prestonsburg Industrial Corporation’s (PIC) status as a purely public charity. Now, although PIC will, continue to operate as a charitable organization, and its property will continue to be employed for purely charitable purposes, its property will be taxed. Consequently, its purely charitable economic efforts on behalf of the Prestonsburg community will be reduced equivalently. This is not only unfair, it is unconstitutional. See Ky. Const. § 170 (exempting from taxation “institutions of purely public charity”). It also defies the wisdom of the old adage, “buy a man a meal and feed him for a day — give him a job and he and his family will feast for a lifetime.” Thus, I must respectfully dissent.
To be entitled to charitable tax exemption under Kentucky Constitution Section 170, PIC must establish three conditions: (1) it “must itself be a charity,” (2) “the income from its property must be used to further its charitable purpose,” and (3) “the property must be employed for a purely charitable purpose.” Banahan v. Presbyterian Hous. Corp., 553 S.W.2d 48, *20451 (Ky.1977) (quoting Iroquois Post No. 229, Am. Legion v. City of Louisville, 309 S.W.2d 353, 354 (Ky.1958)).10
First, PIC is a charity. The majority gives short shrift to PIC’s very illuminating articles of incorporation which, given the appropriate attention, essentially prove this element of the test. For example, the articles specifically state that “[t]he corporation is organized to serve the public interests; accordingly, it shall not be operated for the benefit of private interests.” The articles go on to explain that PIC was created:
... to advance the educational, civic, social, commercial, and economic interests of the City of Prestonsburg and the general welfare and prosperity of its tributary territory; to promote integrity and good faith; just and equitable principles in business and professional activity; and uniformity in commercial usages and to acquire, preserve, and distribute educational, civic, social, commercial, and economic statistics and information of value; and further, to operate exclusively for religious, charitable, scientific or educational purposes for the people residing in the aforesaid area, including, but not limited to, receiving contributions and paying them over to one or more organizations described in Section 501(c)(3) and exempt from taxation under Section 501(a) of the Internal Revenue Code as now in force and afterwards amended.
This sounds unmistakably like a purely public charity.11
Its amended articles of incorporation also lend support to this conclusion:
No part of the net earnings of the corporation shall enure to the benefit of any private individual within the meaning of Section 501(c)(3) of the Internal Revenue Code as now in force or afterwards amended, and that
No compensation shall be paid to any member, officer, Director, Trustee, Creator, or Organizer of the corporation or substantial contributor to it except as a reasonable allowance for services actually rendered to or for the corporation.
Indeed, the evidence established that no part of the net earnings benefitted any such private individual, and no compensation was paid to any of the people listed— both of which are unmistakable characteristics of a purely public charity.
In fact, PIC meets the very definition of “charitable organization.” According to Black’s Law Dictionary, a “charitable organization” is “[a] tax-exempt organization that (1) is organized and operated exclusively for religious, scientific, literary, educational, athletic, public-safety, or community-service purposes, (2) does not distribute earnings for the benefit of private individuals, and (3) does not participate in any way in political candidate campaigns, or engage in substantial lobbying.” The first two prongs are integrated into PIC’s articles of incorporation, and the third is a condition of its agreement with the City; to wit, “[t]he City will actively lobby the Kentucky De*205partment of Transportation and Highway Department for construction of [a split-level interchange at the intersection of US 23 and Kentucky Route 1428] so as to facilitate access to the industrial site and as a means of access to the City.” Apparently, then, PIC does not itself actively “engage in substantial lobbying.” In light of the foregoing, I must conclude that PIC is a charity and therefore satisfies the first element of the Iroquois Post/Banahan test.
Second, it is undisputed that PIC used all the income from its property to further its charitable purpose. Banahan, 553 S.W.2d at 51. As the majority notes, any profits from PIC’s business “were rolled back into PIC for additional purchases and improvements.” Hancock v. Prestonsburg Indus. Corp., No. 2010-SC-000376-DG, op. at 200 (Ky.2012). Thus, the second element of the Iroquois Post/Banahan test is satisfied.
Third, it is clear to me that PIC established the final element of the test: that the property was employed for a purely charitable purpose. PIC purchased the property that is the subject of this litigation from the City of Prestonsburg for $1.00. Thereafter, PIC and the City entered into an agreement with respect to how the property would be developed and how any profits would be distributed. That agreement explains that PIC was obligated to develop the property “for the creation of new jobs or in order to preserve existing jobs in Prestonsburg, Floyd County, or in the Big Sandy Valley Region of eastern Kentucky.” In other words, PIC was required to develop the property consistent with its charitable purpose as stated in its articles of incorporation,12 which is sufficient under our precedent to receive the tax exemption. Banahan, 553 S.W.2d at 51 (holding that “it is sufficient that the ultimate effect of the use of the property is to accomplish the charitable purposes of the institution”).
Unfortunately, the majority mischarac-terizes PIC. First, it portrays PIC’s activities as those “which primarily serve and benefit the buyers or customers of PIC.” Op. at 202. Thus, according to the majority, PIC’s activities only have the “incidental benefit of bringing in new businesses, which may potentially create jobs.” Id. However, this ignores both the articles of incorporation and the agreement between the City of Prestonsburg and PIC. As noted above, the articles explain that the purpose of all of PIC’s business is to “advance the interests of ... the City of Prestonsburg,” not the buyers or customers of PIC (except insofar as they also advance the interests of the City).13 Also, as noted above, the agreement between PIC and the City establishes that the purpose of developing the property in question was to “creatfe] new jobs or ... to preserve existing jobs in Prestonsburg, Floyd County, or in the Big Sandy Valley *206Region of eastern Kentucky.” Thus, the articles and the agreement disprove the majority’s contention that PIC’s activities only incidentally bring in new business and create jobs — this was PIC’s obligation under the agreement.
Moreover, the majority mischaraeterizes the intentions of PIC’s members, alleging that as “local members of the business community, [their] own interests would arguably be served by an increase in commercial and economic development in the area.” Op. at 203. But isn’t this how ancient tribes became communities, which themselves later developed into towns and then cities?
The majority goes on to assert that “a nonprofit organization formed by businessmen to ‘assist in the development of the City ... as a means to attract business and industry ...’ cannot be said to be a ‘charitable institution,’ as its purpose is to make the city more attractive to businesses.” Id. at 203 (quoting Brief for Ap-pellee at 2-3). But businesses employ people — those people (and their families) benefit just as much or more than the incorporated organizations. And once these buildings are erected they will house businesses. Those businesses will pay taxes, including higher ad valorem taxes on property that beforehand was essentially worthless hillside.
And so what if PIC members incidentally benefit from bettering their community? All charitable institutions (and the members thereof) benefit from their work by improving their communities. Thus, the fact that PIC members benefit from PIC’s business is inapposite — a healthier business climate in and around the City of Prestonsburg benefits the entire community, and PIC should not be punished just because its members, incidentally, are part of that community. And today, if you ask any state or federal government official what their number one priority is, they will tell you “jobs!” It is currently the number one social priority in America!
Finally, PIC’s status as the City’s alter ego with respect to developing this hillside property lends support to the conclusion that it should be tax exempt. In Autry v. Western Kentucky University, we extended governmental immunity to WKU’s Student Life Foundation, Inc. (SLF). 219 S.W.3d 713, 719 (Ky.2007). In that case, the issue was who could potentially be held liable for the wrongful death of a WKU student who was brutally assaulted in her dorm room and later died from her injuries. Id. at 716. Although SLF was an independently incorporated entity created by WKU to hold title to the dormitory properties, id. at 718, we held that it was entitled to official immunity in its official capacity as an “agent of alter ego of WKU,” which itself is entitled to official immunity.14 Id. at 719. We held that SLF was cloaked with immunity despite acknowledging that it “is not a governmental agency and that it is clearly acting as a business entity in owning the dormitories and contracting with WKU to operate and manage them.” Id.
Similarly, here we have a private, nonprofit corporation that is acting as an alter ego of the City of Prestonsburg with respect to the property at issue herein. The City sold PIC a one hundred acre tract of land for the nominal fee of $1.00. They then entered into an agreement whereby PIC would develop the land into commercial or industrial property and would share the sale or lease proceeds. Furthermore, *207the agreement requires reciprocal obligations concerning marketing the property and securing financing. And when they are through, the property will be sold, going back on the tax rolls at a hundredfold increase in value. Although I recognize that this is not an immunity case like Autry, similar principles apply, and, assuming that the City of Prestonsburg would be cloaked with tax exempt status, PIC should be as well.
In sum, I believe the majority is wrong in concluding that PIC is not a purely public charity under our Constitution and case law. Everything in the record indicates to me that (1) PIC is a charity, (2) the income from its property is used to further its charitable purpose, and (3) the property is employed for a purely charitable purpose. Moreover, the property carries with it the additional benefit of substantially increasing the tax base of the community when sold.
Accordingly, I would affirm the unanimous judgment of the Court of Appeals.

. Iroquois Post established this test and combined the first two elements: "Two basic conditions must be established in order to warrant an exemption from the payment of taxes. First, the institution must itself be a charity and the income from its property must be used to further its charitable purpose; secondly, the property must be employed for a purely charitable purpose.” 309 S.W.2d at 354. Because the test actually requires satisfaction of three conditions, I separate it into a three-part analysis.

. Moreover, the articles provide that PIC is to "exercise the general powers as set forth in Chapter 273, Kentucky Revised Statutes”; Chapter 273 is titled "Charitable and Educational Societies.”

. Again, PIC’s charitable purposes as stated in its articles of incorporation include "ad-vancefing] the educational, civic, social, commercial, and economic interests of the City of Prestonsburg and the general welfare and prosperity of its tributary territory.” Developing property in order to create jobs, or preserve existing jobs, in Prestonsburg, Floyd County, or in the Big Sandy Valley Region of eastern Kentucky is unquestionably consistent with these charitable purposes.

. Of course, if PIC's purpose in developing this one hundred acre parcel was to primarily benefit its buyers and customers, and not the City and its citizens, then the development would be ultra vires, and could theoretically be challenged legally. ”[A]n act of a corporation is ultra vires, or beyond its power, when the act is outside the objects for which the corporation is created, as defined in the law of its organization.” 19 C.J.S. Corporations § 673 (2007).

. We also held that SLF was entitled to qualified official immunity in its individual capacity because the action (or inaction) for which it was being sued was a discretionary function, not a ministerial one. Id. at 719.