The Nuci Phillips Memorial Foundation, Inc. (the “Foundation”) owns and operates a facility called “Nuci’s Space” in Athens-Clarke County, Georgia. Nuci’s Space provides services for musicians and others who seek help for various mental and emotional challenges and disorders. Fund-raising activities noted by the Supreme Court in Nuci Phillips Memorial Foundation, Inc. v. Athens-Clark County Board of Tax Assessors, Case NO. S10G0448 (Ga. November 8, 2010), include renting out space for music rehearsals, private birthday parties and wedding receptions; receiving donations at its coffee bar and selling limited music supplies.
The Foundation applied for exemption from ad valorem taxation for the property on which the facility is located. The Athens-Clarke County Board of Equalization granted the exemption. The Board of Tax Assessors (the “Board”) challenged. The trial court affirmed the exemption and the Board appealed. The Court of Appeals reversed the trial court, finding that the Foundation does not use its property exclusively in furtherance of its charitable purposes as required by O.C.G.A. § 48-5-41(d) (2) and therefore does not qualify for the exemption. The Supreme Court granted certiorari.
Justice Carley began the majority opinion with the observation that “we must presume that the General Assembly had full knowledge of the existing state of the law and enacted the statute with reference to it.” While perhaps essential as a principle of statutory construction and interpretation by the courts, the accuracy of the presumption has never been assured:
The mischiefs that have arisen to the public from inconsiderate alterations in our laws, are too obvious to be called into question; and how far they have been owing to the defective education of our[legislators], is a point well worth the public attention. The common law of England has fared like venerable edifices of antiquity, which rash and unexperienced workmen have ventured to new-dress and refine, with all the rage of modern improvement. Hence frequently its symmetry has been destroyed, its proportions distorted, and its majestic simplicity changed for specious embellishments and fantastic novelties. For, to say the truth, almost all the perplexed questions, almost all the niceties, intricacies and delays, (which have sometimes disgraced the English, as other courts of justice,) owe their original not to the common law itself, but to innovations that have been made in it by acts of [the legislature]; ”overladen” (as Sir Edward Coke expresses it) “with provisoes and additions, and many times on a sudden penned or corrected by men of none, or very little judgment in law.” This great and well-experienced judge declares, that in all his time he never knew two questions made upon rights merely depending upon the common law; and warmly laments the confusion introduced by ill-judging and unlearned legislators. “But if,” he subjoins, “acts of [the legislature] were after the old fashion penned, by such only as perfectly knew what the common law was before the making of any act of [the legislature] concerning that matter, as also how far forth former statutes had provided remedy for former mischiefs, and defects discovered by experience, then should very few questions in law arise, and the learned should not so often and so much perplex their heads to make atonement and peace, by construction of law, between insensible and disagreeing words, sentences and provisoes, as they now do.” And if this inconvenience was so heavily felt in the reign of Queen Elizabeth, you may judge how the evil is increased in later times, when the statute-book is swelled to ten times a larger bulk; unless it should be found, that the penners of our modern statutes have proportionably better informed themselves in the knowledge of the common law.
Blackstone, Sir William; Commentaries on the Laws of England (15th Edition); republished in Classic Reprint Series, Forgotten Books; pp 9-10. Read by the Author at Oxford University at the opening of the Vinerian lectures, 25 October 1758.
But I digress . . .
Justice Carley continued with the history of applicable tax exemption statutes. Pursuant to the Georgia Constitution of 1877, the General Assembly exempted from ad valorem taxation the property of “all institutions of purely public charity . . . provided, the . . . property so exempted be not used for purposes of private or corporate profit or income.” (Emphasis in original). The Supreme Court construed that statute as prohibiting exemption for property used in any type of private or corporate income-producing activity, whether the activity was charitable or not.
The General Assembly amended the statute after passage of the 1945 Constitution to allow exempt institutions to raise income so long as all income from the property was used exclusively for religious, educational and charitable purposes, or for the purpose of maintaining and operating the institution.
Under these statutes the initial consideration was classification of the institution as a “purely public charity.” The Supreme Court summarized the requirements in York Rite Bodies of Freemasonry of Savannah v. Bd. Of Equalization of Chatham County, 261 Ga. 558 (2), 408 S.E.2d 699 (1991) as follows: “First, the owner must be an institution devoted entirely to charitable pursuits; second, the charitable pursuits . . . must be for the benefit of the public; and third, the use of the property must be exclusively devoted to those charitable pursuits.” Id. From 1946 through 2006, these institutions could, without threatening their tax exemption, use their property to produce income so long as (a) the primary purpose of the property was not to secure income, (b) the income-producing activity was consistent with its charitable activities, and (c) the income was used exclusively for the institution’s charitable purposes. “As long as these three income rules were satisfied, then a charitable organization that raised income would be considered as using its property ‘exclusively’ for its charitable purposes and thus remain a purely public charity.”
Pursuant to a referendum approved November 2006, the General Assembly amended O.C.G.A. §48-5-41 to add Subsection (d) (2), expressly applicable to “purely public charities”, as follows:
real estate or buildings which are owned by a charitable institution that is exempt from taxation under Section 501(c)(3) of the federal Internal Revenue Code and used by such charitable institution for the charitable purposes of such charitable institution may be used for the purpose of securing income so long as such income is used exclusively for the operation of that charitable institution.
The next year the General Assembly revised this provision to provide as follows:
a building which is owned by a charitable institution that is otherwise qualified as a purely public charity and that is exempt from taxation under Section 501(c)(3) of the federal Internal Revenue Code and which building is used by such charitable institution exclusively for the charitable purposes of such charitable institution, and not more than 15 acres of land on which such building is located, may be used for the purpose of securing income so long as such income is used exclusively for the operation of that charitable institution.
The disagreement between the majority and dissenting opinions revolves around this 2007 amendment.
Justice Carley read the added language in O.C.G.A. § 48-5-41 (d) (2) as only adding two tax exemption requirements: (1) designation as a 501(c) ((3) organization and (b) the requirement that any building and not more than 15 acres of land owned by the institution may be used to raise funds so long as the funds are used exclusively for the operation of the institution. “Therefore, the General Assembly must have intended to allow those institutions that otherwise qualify as a purely public charity to use their property to raise income from activities that are not necessarily charitable in nature so long as the ‘primary purpose’ of the property was charitable and any ‘income is used exclusively for the operation of that charitable institution.’”
Justice Carley began his summation with the principle that “in order for an institution to be granted a property tax exemption pursuant to O.C.G.A. § 48-6-41 (a)(4), it must satisfy the York Rite factors and the requirements of the statute. The Foundation’s property was devoted entirely to charitable purposes. The charitable purposes were for the benefit of the public. Therefore, the Foundation qualified as a “purely public charity” under York Rite. The Foundation was a 501(c)(3) organization, issued no stock, made no profit, did not distribute dividends or any income, accumulated no retained earnings and had a board whose members served without compensation. The primary purpose of its property was to provide services to those seeking mental health assistance, with any income being incidental to that purpose. Therefore, the Foundation was entitled to its ad valorem tax exemption.
Dismissing the majority’s construction of the amendments to O.C.G.A. § 48-5-41 (d), and relying on the statute’s “plain language,” Justice Hunstein in her dissent reasoned that property of public charities, consistent with their tax exemption, may be used to produce income only if (a) the charity is a 501 (c) (3) organization that otherwise qualifies as a purely public charity; (b) the property is used by the institution exclusively for the charitable purposes of the institution and (c) the income is used exclusively for the operation of the institution. She concluded that the Foundation failed to show that its property was used exclusively for its charitable purposes, noting especially the leasing of space for private birthday parties and wedding receptions, activities that “cannot be viewed as advancing the Foundation’s mission”.
Key to Justice Hunstein’s analysis were the 2007 amendments, which she identified in italics as follows:
With respect to [OCGA § 48-5-41 (a) (4)], a building which is owned by a charitable institution that is otherwise qualified as a purely public charity and that is exempt from taxation under Section 501 (c)(3) of the federal Internal Revenue code and which building is used by such charitable institution exclusively for the charitable purposes of such charitable institution, and not more than 15 acres of land on which such building is located, may be used for the purpose of securing income so long as such income is used exclusively for the operation of that charitable institution.
She observed that these changes “are critical in that they plainly restrict the circumstances under which income generating property will be exempt from taxation. They are also noteworthy in that they, in essence, encompass the provisions of York Rite.”
According to my reading, the 2007 amendments were actually as follows:
With respect to paragraph (4) of subsection (a) of this Code section,
real estate ora building which areowned by a charitable institution that is exempt from taxation under Section 501(c)(3) of the federal Internal Revenue Code and used by such charitable institution for the charitable purposes of such charitable institution may be used for the purpose of securing income so long as such income is used exclusively for the operation of that charitable institution.
According to the “plain text,” I read the amendment as restricting the property that may be used for the purpose of securing income to (a) a building that is (i) owned by a charitable institution that, in addition to being a 501 (c) (3) organization, is also a purely public charity (perhaps intending to incorporate York Rite) and (ii) is exclusively used for the charitable purposes of the institution and (b) up to 15 acres of land on which the building is located. I therefore summarize the applicable statutory rule under O.C.G.A. § 48-5-41 as follows:
[The property of all] institutions of purely public charity shall be exempt from all ad valorem property taxes in this state, [provided that] (a) the property shall not be used for the purpose of producing private or corporate profit and income distributable to shareholders in corporations owning such property or to other owners of such property, and (b) any income from such property shall be used exclusively for religious, educational, and charitable purposes or for either one or more of such purposes and for the purpose of maintaining and operating such religious, educational, and charitable institutions.
The exemption shall not apply to real estate or buildings (a) rented, leased or otherwise used for the primary purpose of securing an income thereon or (b) not used for the operation of religious, education and charitable institutions except that a building (a) owned by a charitable institution that is (i) otherwise qualified as a purely public charity and (ii) exempt from taxation under Section 501(c)(3) of the federal Internal Revenue Code and (b) used by such charitable institution exclusively for the charitable purposes of such charitable institution, and not more than 15 acres of land on which such building is located, may be used for the purpose of securing income so long as such income is used exclusively for the operation of that charitable institution.
If the requirement of “exclusive” use of the building for charitable purposes excludes any noncharitable use, regardless of how incidental or minimal, then this summary would support Justice Hunstein’s conclusion.