Friendsview Manor v. State Tax Commission

427 P.2d 417, 420 P.2d 77, 247 Or. 94

• Court: Oregon Supreme Court
• Decided: May 17, 1967
• Status: Published

Opinions

DENECKE, J.

The issue is whether Friendsview Manor, a retirement home, is a charitable institution and, therefore, exempt from real property taxation. The State Tax Commission found that it was not and the Tax Court affirmed such decision. 2 OTR 130 (1965). The Manor appeals.

ORS 307.130 provides:

“* * * the following property owned or being purchased by incorporated literary, benevolent, charitable and scientific institutions shall be exempt from taxation:

“(1) Except as provided in ORS 740.080, only such real or personal property, or proportion thereof, as is actually and exclusively occupied or used in the literary, benevolent, charitable or scientific work carried on by such institutions.”

The Manor is the product of the inspiration of the Oregon Yearly Meeting of Friends Church (Quakers). In 1956 the plaintiff was organized as a nonprofit corporation; there are no members. Later, the Board of Directors hired a Quaker pastor at $480 per month as executive director.

The principal money raising device was the founder’s fee paid by those who wished to have a room in the Manor. Initially, the fee was $5,000 for a single person. It was ultimately raised to as high as $8,500 for the best rooms. The first $100 from the founder’s fee was irrevocably placed in the Charitable Assistance Fund. This fund also received donations which totaled $15,000 in August, 1964.

The founder’s fee may be partially refunded if a resident leaves. However, one-eighth of such fee is considered expended for each year of residency and is not refundable. If a resident dies, any unexpended balance of the founder’s fee is then considered expended and no part of the fee is refunded to anyone. When a room is vacated, by death or otherwise, it is resold by the Manor. The first $100 of the purchase price is again transferred to the Charitable Assistance Fund and the balance is handled just as is the founder’s fee.

In 1959 a loan of $1,450,000 was obtained. The loan was secured by a mortgage on the land and the about-to-be-built Manor and was guaranteed by the Federal Housing Administration. In 1961 the 125-unit building with the community facilities common to retirement homes was completed and residents moved in.

In addition to the living and community accommodations, the Manor provides board and health care. These are paid for by monthly fees. Initially, the fee was set at $85 per month, per person; increased expenses forced a raise to $117.50.

In making financial projections at the beginning of the operation it was assumed that the founder’s fees and resale fees would be the primary source of funds for the mortgage payments. It was also assumed that the Manor would receive $5,000 in gifts per year to apply on mortgage payments. The mortgage payments in 1961-1962 were $77,000. It was assumed that the monthly payments for board and health care, plus miscellaneous income, would pay operating costs.

These assumptions have not proved out. By August 31,1964, the Manor had lost $133,613. The loss in 1961-1962 was $60,000 and in 1962-1963, $54,000. However, in 1963-1964 the loss was only $800. From the financial statements in evidence it appears that the loss occurred both in operations and in funds for capital payments.

Thirty-four thousand dollars has been expended from the Charitable Assistance Fund for the four years ending August, 1964. Expenditures took the form of payment of all or part of the founder’s fees for certain needy residents and payment of part of the monthly fees for board and health care.

The Articles of Incorporation provide:

“This corporation is formed solely and exclusively for religious, charitable and non-profit purposes, and the earnings, if any, of this corporation shall be used exclusively for the purposes for which this corporation is formed, as hereinabove described. All property, acquired by the corporation, real or personal, and all increments, interests, or earnings thereof are and shall be devoted in perpetuity and irrevocably dedicated to religious, charitable and non-profit purposes, and in the event of the liquidation, dissolution, or abandonment of this corporation, its property will not innre to the benefit of any private person.”

The Bylaws provide:

“Section 2. — Distribution on Dissolution

“In the event of liquidation, dissolution or abandonment of this corporation, after the payment of all of its legal liabilities and obligations, the excess shall be paid to Oregon Yearly Meeting of Friends Church for use in providing for the needs of the aged on an impartial basis without regard to race, color, nationality, creed, or political beliefs.”

The Articles of Incorporation further provide:

“No applicant will be denied the right to occupy housing facilities provided by this corporation on the basis of his race, color, creed or national origin.”

In Oregon Methodist Homes, Inc., Willamette View Manor, Inc. v. State Tax Commission, 226 Or 298, 360 P2d 293 (1961), we held that a retirement home for the elderly was not entitled to the charitable real property tax exemption. The financial plan and the operation of the Manor in that case were different in several significant respects from those of Friends-view Manor. The founder’s-fee plan was used, however. At Willamette View Manor each founder acquired a contractual right to life care for a monthly fee of $100 and each founder could name his successor, which successor could occupy such room for life with no additional payment for the room. All initial residents paid their full founder’s fee and monthly care fee. Upon dissolution the assets were to be distributed to each member in proportion to the contribution made.

We agree with the observation of the Tax Court that Friendsview Manor has qualified for a charitable exemption in many of the respects which were lacking in the Willamette Yiew Manor claim. We also agree with the Tax Court that, nevertheless, Friendsview does not qualify for the charitable exemption.

The Manor does in a few instances pay all or part of the founder’s fee and monthly care charges for persons unable to pay. Admittedly, most of the residents pay their own way. The exemption statute only exempts property “exclusively occupied or used in the * * * charitable * * * work carried on by such institutions.” ORS 307.130. (Emphasis added.) If the application of the charitable exemption were dependent upon whether or not the property was used for caring for those unable to pay for room or care, the Manor could not meet the “exclusive” requirement of the statute.

The Manor’s principal contention is that care for the elderly, whether rich or poor, is a “charitable work” and, therefore, real property used in carrying on such work is real property “actually and exclusively occupied or used in * * * charitable * * * work.” The Manor points out that §368, 2 Restatement (Second), Trusts, states:

“Charitable purposes include

“(a) the relief of property;

(b) the advancement of education;

(c) the advancement of religion;

(d) the promotion of health;

(e) governmental or municipal purposes;

(f) other purposes the accomplishment of which is beneficial to the community.”

We will assume, without deciding, that caring for the aging, rich or poor, is a charitable purpose.

①

The Manor reasons that if a group of persons pays funds to a corporation to construct facilities to provide services to the same group and the providing of such services is a charitable work, as we are assuming it is here because it was caring for the aging, the facilities are exempt because they are used “exclusively in charitable work.” The Manor contends that it is immaterial that the group that provides the funds by payment of past, present and future founder’s fees is also the group that is receiving the benefits. This is identical to what exists when an individual aged person provides his own home or a group of aging persons constructs a cooperative apartment. The purpose in all three is providing housing for the aging, a charitable purpose. It is not suggested that the latter two categories also should have tax-exempt housing.

We conclude that the basic deficiency in the Manor’s reasoning is that it would grant a charitable tax exemption to housing for aging persons paid for by these same aging persons.

If the Manor’s contention is correct, the charitable tax exemption must be granted to many other self-help projects that provide services which if provided to others are held to be for charitable purposes.

The construction of a swimming pool or golf course can be a charitable purpose. Such facilities benefit the community by promoting health and teaching physical education. According to the reasoning of the plaintiff, a group can pay its funds into a nonprofit corporation, organize as Friendsview Manor is, have a pool or golf course built, and credit each hour spent in the pool or a round upon the course against the initial fee paid to construct the facility, and the pool or golf course would be exempt as used exclusively in a charitable work.

If a donor created a trust to provide housing for college students who would be required to pay a reasonable fee, the gift may be held to create a charitable trust (Cf. Kappa Gamma Rho v. Marion County, 130 Or 165, 279 P 555 (1929)), because the housing of college students appears to be a charitable purpose. Under the taxpayer’s reasoning, a fraternity corporation could be formed, a house built with the advance payment of house bills, and the corporation successfully claim a charitable exemption because a charitable purpose is being served.②

The Manor reasons that the fact that the aging persons pay for their own housing does not destroy the charitable nature of the Manor because we have held that hospitals are entitled to the charitable exemption from property tax although patients paid for the hospital services rendered. Corporation, of Sisters of Mercy v. Lane County, 123 Or 144, 155, 261 P 694 (1927), etc.

The Manor has failed to observe that what was being paid for in our hospital decisions is completely different from what is being paid for in the present case.

In our hospital cases the evidence was that the patient who was financially able, paid for his care. There is no evidence mentioned in any of our cases that persons paid money into a fund to build the hospital and were promised in return that they could credit such payments against the charges for the use of such hospital. We know from common experience that “charitable” hospitals are largely built by donations from persons with no agreement for the providing of hospital care in return for the contribution. If the donors later coincidentally happen to use the facilities of the hospital, they will be charged at the same rate as a nondonor. We do not know how hospital income is spent; however, we assume that the distinction we make is not completely precise and that some of the moneys received in payment of charges for care will go toward building maintenance and perhaps repayment of building acquisition costs. However, this is incidental and not the main source of capital funds for a “charitable hospital.”

In the present case it is the land and the building which are claimed to be charitably exempt and such property is principally to be paid for by the present and future users of the facilities. In the hospital cases the property held charitably exempt was acquired by donation of persons who donated to provide services for others, not themselves.

We hold that in order to cloak property with the charitable exemption it is essential that the property be donated by others and not purchased by the users of the property in consideration for being granted such use.③

Ore. Physicians’ Serv. v. State Tax Com., 220 Or 487, 349 P2d 831 (1960), involved the Oregon corporate excise tax, which provides an exemption for organizations “operated exclusively for the promotion of social welfare.” ORS 317.080(6). We there stated:

“* * * A rule of thumb capable of serving the purposes of ORS 317.080(6) in cases of this kind would very likely envision that in order for the activities of a taxpayer to entitle him to exemption as ‘social welfare’ work they must be calculated to benefit some other group than the one which supplies the money and directs its disposition. The group benefited may be large or small, definite or indefinite in number, but in the benefaction some motive of altruism must clearly shine forth.” 220 Or at 506.

In In re Henderson’s Estate, 17 Cal2d 853, 859-860, 112 P2d 605 (1941), the court stated this distinction between providing for one’s self and providing for others:

“If a group of individuals agree to contribute equal amounts into a fund to be used for the benefit of all, such a group may well be said to be noneharitable in nature because each individual is providing only for his own welfare and does not intend to make a free contribution toward the assistance of others. If an outsider, however, receiving no benefits from the organization, makes a gift to it, that gift may well be a charitable one if the members of the organization are sufficiently numerous and it is organized for a purpose beneficial to society such as providing for medical assistance to its members. Such a donor has the charitable purpose of assisting those members of a large group who become sick, without any benefit to himself, and the gift thus may be a charitable one.”

In La Societe Francaise, etc. v. California Employ. Com., 56 Cal App2d 534, 133 P2d 47, cert den 320 US 736, 64 S Ct 35, 88 L ed 426 (1943), the court made the distinction between providing hospital care for others and for one’s self. Members of La Societe paid an admission fee and monthly dues into La Societe. If they became ill they received gratis from La Societe medical and hospital benefits. No profit was made; it was an agency of the Community Chest. Nevertheless, the court held it was not a charitable corporation and thus not exempt from the payment of California Unemployment Insurance taxes. The crux of the court’s decision was as follows:

“It is true that many decisions may be found defining ‘charity’ in a comprehensive and liberal manner, so that practically all institutions of social benefit may be included, but such liberal definition is not appropriate when the statute provides that the institution or corporation must be conducted ‘exclusively’ for charity. * * *. The true rule is that when people band together to purchase hospital care in the event of illness, it is a business venture rather than a charitable undertaking, and the beneficiaries thereof do not consider the benefits received to be ‘charity.’ * * (Emphasis added.) 56 Cal App2d at 545-546.

Similarly, the English courts have found an organization formed by its members to provide hospital care to its members to be noncharitable. Salmon, J., stated: “Moreover, the object of the members of the society is not to do good to others but to themselves. This object is not altruistic and is in my judgment not charitable.” Waterson v. Hendon B. C., [1959] 2 All E R 760, 764 (QB).

In In re Hobourn Aero Components Limited’s Air Raid Distress Fund, L R [1946] Ch 194, the object of the organization was most charitable, relief of air raid distress at Coventry. However, the court held it was not charitable because the donors were helping themselves :

a* * * The my which really puts this case beyond reasonable doubt is the fact that a number of employees of this company, actuated by motives of self-help, agreed to a deduction from their wages to constitute a fund to be applied for their own benefit without any question of poverty coming into it. Such an arrangement seems to me to stamp the whole transaction as one having a personal character, money put up by a number of people, not for the general benefit, but for their own individual benefit. I am not concerned to dispute the proposition that a fund put up for air raid distress in Coventry generally would be a good charitable gift. I have very little doubt that it would be. But there is all the difference in the world between such a fund and a fund put up by a dozen inhabitants of a street, or, it may be, a thousand employees of a firm, to provide for themselves out of moneys subscribed by themselves some kind of immediate relief in case they suffered from an air raid. The Attorney-General and Mr. Upjohn wish to attribute to the fact that these people were putting up money for their own benefit a very slight importance. To my mind, it is of the greatest importance and is quite conclusive in stamping the character of a private and personal trust upon this fund.” L B [1946] Ch at 200-201.

The exact reason behind the government granting tax exemptions to charitable enterprises is not certain because of the hodgepodge of exemption statutes. However, the most reasonable explanation seems to be that the government exempts such organizations from paying taxes because if such enterprises did not exist the government would be required to use tax dollars to do the job the charitable enterprises are now doing.

Using this reasoning, there is no ground for tax exemption for Friendsview Manor. Its residents are largely persons who can financially fend for themselves, either collectively or individually, and the government would not be required to provide housing for them.

Affirmed.

None of the briefs cite Pape v. Title and Trust Co., 187 Or 175, 210 P2d 490 (1949), in which we held that a bequest in trust to purchase a site and construct and equip a building ior “homeless, self-supporting women” was not for a charitable purpose.

ORS 307.134(f) expressly stated that fraternities are not entitled to exemption as a fraternal organization.

Fifield Manor v. County of Los Angeles, 188 Cal App2d 1, 10 Cal Rptr 242 (1961); Topeka Presbyterian Manor, Inc. v. Board of County Com’rs, 195 Kan 90, 402 P2d 802 (1965); and Holbrook, Maxwell and Rourke, Fifield Manor Tax Refund Cases: True Meaning of “Charity” Under California Welfare Tax Exemption Restated, 35 S Cal L Rev 276 (1962), are to the contrary.

In Benevolent Society v. Kelly, 28 Or 173, 192, 42 P 3, 30 LRA 167, 52 Am St Repts 769 (1895), the taxpayer was a benevolent society; however, the court in summary pointed out that its revenues were used exclusively for “payment of current expenses and the relief of the poor and needy.” See Bogert, Trusts & Trustees (2d ed 1964), § 367, particularly pp 47-52 and notes 36 and 38.