Institute of Professional Practice, Inc. v. Town of Berlin
Annotate this Case
Institute of Professional Practice, Inc. v. Town of Berlin (2001-296);
174 Vt. 535; 811 A.2d 1238
[Filed 20-Aug-2002]
ENTRY ORDER
SUPREME COURT DOCKET NO. 2001-296
MAY TERM, 2002
Institute of Professional } APPEALED FROM:
Practice, Inc. }
}
}
v. } Washington Superior Court
}
Town of Berlin }
} DOCKET NO. 475-9-98 Wncv
Trial Judge: Matthew I. Katz
In the above-entitled cause, the Clerk will enter:
Appellant Town of Berlin appeals from a declaratory judgment granting
appellee Institute of Professional Practice, Inc. property tax exemption
for a lot and building located in the Town of Berlin. The town argues
first that the tax exemption in 32 V.S.A. § 3802(4) is only available to
not-for-profit corporations that provide direct and immediate benefits to
the citizens of Vermont and the local community where the corporation is
located, and second that property used for administration and management is
not tax exempt where other property used by the corporation to provide
direct services is subject to tax or is out of state. We affirm.
The parties have stipulated to the facts, thus they are not in
dispute. The Institute of Professional Practice, Inc. (IPP) is a
not-for-profit corporation. It has no capital stock or shareholders, pays
no dividends, and is not run for profit. IPP owns a 2.33-acre parcel in
the Town of Berlin (Town), where their corporate headquarters is located.
The property is used strictly for administration and management of the
organization, including accounting, human resources, and executive offices.
These functions are necessary to allow IPP to provide services to the
public. IPP provides services to people with developmental and other
disabilities in group homes, foster homes, and other assisted living
programs located in New Hampshire, Massachusetts, Connecticut, and
Maryland. They do not operate any homes in Vermont. Vermont does benefit
from two other programs IPP provides: an employee assistance program, which
assists employers in dealing with their troubled or developmentally
disabled employees, and the Delta Program, which provides services to male
perpetrators of physical, emotional, or psychological abuse. IPP employs
655 people out of state and twenty people in Vermont. Less than one
percent of IPP's gross revenues were generated by services delivered in
Vermont.
IPP sought a declaratory judgment that they were exempt from tax under
32 V.S.A. § 3802(4). In an earlier summary judgment decision, the court
denied an exemption as to a vacant lot that IPP owns. IPP has not appealed
this ruling. The court denied summary judgment twice as to the parcel in
question here because there were still disputed questions of fact. In a
later status conference, the
court found that the dispute was over a question of law and directed the
parties to file stipulated facts, which they did. Four months later,
without a hearing, the court issued its opinion and judgment granting IPP
the tax exemption it sought.
The Town appeals the court's judgment on two grounds. First, the Town
contends that implicit in the requirements for tax exemption in § 3802(4)
is a requirement that the taxpayer provide direct and immediate benefits
principally to Vermonters and citizens of the Town. Second, the Town
argues that the parcel should not be exempt because it is not used for
direct services, and the out-of-state property used for direct services is
all subject to property tax.
The property tax exemption in this case is governed by 32 V.S.A. §
3802(4), which provides, in relevant part, that "[r]eal and personal estate
granted, sequestered or used for public, pious or charitable uses" is
exempt from property taxes. To be exempt from property tax as a public or
charitable use, the property must meet three criteria: "(1) the property
must be dedicated unconditionally to public use; (2) the primary use must
directly benefit an indefinite class of persons who are part of the public,
and must also confer a benefit on society as a result of the benefit
conferred on the persons directly served; and (3) the property must be
owned and operated on a not-for-profit basis." Am. Museum of Fly Fishing,
Inc. v. Town of Manchester, 151 Vt. 103, 110, 557 A.2d 900, 904 (1989).
The parties agree that IPP meets the first and third criteria. Their
dispute focuses on the second criterion.
"It is axiomatic that a tax exemption is to be strictly construed
against the party claiming it, although such a provision must be construed
reasonably and not in a manner that would defeat the purposes of the
statute." Medical Ctr. Hosp. v. City of Burlington, 152 Vt. 611, 615, 566 A.2d 1352, 1354 (1989) (citing Am. Museum of Fly Fishing, 151 Vt. at 108,
557 A.2d at 903). We are in this case construing the tax exemption statute.
If the plain meaning of the statute resolves the controversy, we normally
accept it without going further. See Town of Killington v. State, 172 Vt.
182, 188, 776 A.2d 395, 400 (2001). We must, however, give effect to the
intent of the Legislature, and if the literal meaning of the words is
inconsistent with that intent, the intent must prevail. See Burr & Burton
Seminary v. Town of Manchester, 172 Vt. 433, 436, 782 A.2d 1149, 1152
(2001).
If the benefit of IPP's services were conferred primarily on
Vermonters through services extended in Vermont, there would be no question
that IPP would be entitled to the tax exemption sought. The case would be
essentially indistinguishable from Kingsland Bay School, Inc. v. Town of
Middlebury, 153 Vt. 201, 203-06, 569 A.2d 496, 497-99 (1989); see also
Sigler Foundation v. Town of Norwich, No. 01-433, slip op. at 8-9 (Vt. July
26, 2002). The Town argues, however, that implicit in the definition of
public use is a requirement that the people served must be primarily
citizens of Vermont and the Town because the Legislature would have no
reason to make property exempt to benefit residents of other states. It
recognizes that this requirement appears nowhere in the statutory language
but it argues that as in Burr & Burton Seminary, the requirement must be
implied to honor legislative intent.
The Town argues that we so held in English Language Center, Inc. v.
Town of Wallingford, 132 Vt. 327, 331, 318 A.2d 180, 183 (1974) and, as a
result, all the cases subsequent to English
Language Center, Inc. involve activities primarily for Vermont residents.
It argues that in English Language Center, Inc., we held that property used
to teach English to foreign students was not tax exempt because it was
being used for the benefit of foreign citizens. The Town mischaracterizes
our holding. Instead, we held that the land there was not tax exempt
because the students were using the skills they learned to further their
personal and private business and leisure interests, and not any public
interest. Id., 318 A.2d at 183. We did not hold that the residence of the
beneficiary was determinative; the fact that the residence of the
beneficiaries in later cases was Vermont did not factor into the decision.
For two reasons, we believe we must apply the plain meaning of the
statutory wording here. First, there are many ways that we could design a
tax exemption eligibility policy consistent with the Town's view of
legislative intent. Unlike Burr & Burton Seminary, where the question was
whether land owned by a school had to be used for school purposes, the
choices presented here are complex and far more suited to legislative
resolution than to case-by-case judicial decision making. A decision for
the Town in this case would leave the tax exemption eligibility rules
uncertain and likely spawn much litigation.
Second, we conclude that the policy the Town urges would be
unconstitutionally discriminatory against non-Vermont consumers of IPP's
services. The position the Town advocates is just like the position
advocated by the State of Maine in Camps Newfound/Owatonna, Inc. v. Town of
Harrison. 520 U.S. 564, 572 (1997). There, the United States Supreme
Court struck down a property tax exemption for institutions that are
"operated principally for the benefit" of Maine citizens because it
violated the dormant Commerce Clause power of Congress. Id. at 568, 595;
see U.S. Const. art. I, § 8, cl. 3; Me. Rev. Stat. Ann., Tit. 36, §
652(1)(A) (Supp. 1996). The land in that case was used as a camp for
children who follow the Christian Science faith. The Maine Supreme
Judicial Court ruled that the camp did not qualify for the exemption
because the camp drew ninety-five percent of its campers from outside of
Maine.
The United States Supreme Court framed the issue as "the disparate
real estate tax treatment of a nonprofit service provider based on the
residence of the consumers that it serves." Newfound, 520 U.S. at 572.
"The Commerce Clause presumes a national market free from local legislation
that discriminates in favor of local interests." C & A Carbone, Inc. v.
Town of Clarkstown, 511 U.S. 383, 393 (1994). "Discrimination against
interstate commerce in favor of local business or investment is per se
invalid, save in a narrow class of cases in which the municipality can
demonstrate, under rigorous scrutiny, that it has no other means to advance
a legitimate local interest." Id. at 392; see, e.g., Maine v. Taylor, 477 U.S. 131, 141 (1986) (ban on import of certain species of minnows not a
violation of the Commerce Clause because it was the only way for Maine to
protect its natural environment from parasites). In Newfound, the Supreme
Court held that the Maine statute violated the dormant Commerce Clause in
the same way that any discriminatory regulation does. 520 U.S. at 574-75
("A State's 'power to lay and collect taxes, comprehensive and necessary as
that power is, cannot be exerted in a way which involves a discrimination
against [interstate] commerce.' ") (citing Pennsylvania v. West Virginia,
262 U.S. 553, 596 (1923)).
The Town of Berlin advocates essentially the same position that Maine
took in Newfound. By arguing that the term "public use" in our statute
means a use that principally benefits Vermonters, the Town is arguing for a
facially discriminatory interpretation of § 3802(4). By limiting the tax
exemption to charities that principally serve Vermont, we would be
discriminating against out-of-state recipients of IPP's services. See
Fulton Corp. v. Faulkner, 516 U.S. 325, 333 (1996) (statute facially
discriminatory, in part because it tended "to discourage domestic
corporations from plying their trades in interstate commerce."). "Once a
state tax is found to discriminate against out-of-state commerce, it is
typically struck down without further inquiry." Chem. Waste Mgmt., Inc. v.
Hunt, 504 U.S. 334, 342 (1992). We decline to interpret "public use" in a
way that discriminates against persons who receive IPP's services outside
Vermont.
The Town argues that we can distinguish Newfound because the services
in this case are all rendered out of state; and, thus, the case is more
like Board of Education of Kentucky v. Illinois, 203 U.S. 553 (1906), a
decision relied upon heavily by Justice Scalia in dissent in Newfound. As
the majority concluded in Newfound, the key factor in Board of Education of
Kentucky was that the taxpayer there was an out-of-state corporation and
not, as in Newfound and here, a corporation incorporated in the state
giving the tax exemption. 520 U.S. at 591 n.27. In any case, IPP does not
seek a tax exemption for service facilities located out of state. The
issue is whether its administrative office located in Vermont will receive
a tax exemption if the non-profit corporation serves primarily Vermont
residents and no exemption if it does not. The issue is the same as in
Newfound.
The Town's second argument is that the parcel should not be exempt
because it is not used for direct services, and the out-of-state property
used for direct services is virtually all subject to property tax. "In
applying the general exemption contained in 32 V.S.A. § 3802(4), this Court
has consistently held that the crucial factor is the primary use to which
the property is put." Medical Ctr. Hosp. v. City of Burlington, 152 Vt.
611, 615, 566 A.2d 1352, 1354 (1989) (footnote omitted). The Town argues
that the primary use of the parcel in question is essentially the back
office functions of IPP, which the Town claims are not for the benefit of
the public. As far back as Gifford Memorial Hospital v. Town of Randolph,
119 Vt. 66, 118 A.2d 480 (1955), we have said that "[r]eal estate used for
purposes directly connected with the running of" a charitable institution
is exempt from taxation. Id. at 72, 118 A.2d at 484.
The Town's argument is the same as the arguments we rejected in
Medical Center Hospital and Shelburne Museum, Inc. v. Town of Shelburne,
129 Vt. 341, 278 A.2d 719 (1971). See also Burr & Burton Seminary, 172 Vt.
at 439-40, 782 A.2d at 1154. In Medical Center Hospital, the City of
Burlington argued that several hospital administrative offices and a
parking lot were not exempt from tax because they were not sufficiently
"directly connected" to the operation of the hospital. We rejected that
argument because the hospital could not run without administrative offices
and a parking lot. Medical Ctr. Hosp., 152 Vt. at 624-25, 566 A.2d at
1359. In Shelburne Museum, the Town of Shelburne argued that two houses on
the museum property were likewise not exempt from tax under § 3802(4). We
held that one house, where the museum director lived, was exempt because
the director was required to live in the house, he made himself available
at all times, and he performed many of his job duties there. 129 Vt. at
344, 278 A.2d at 721. The landscaper's house was not tax exempt because
the museum did not require the landscaper to live there, and he did not
do any work in the house for the museum. Id. at 345, 278 A.2d at 721. As
the trial court noted in its declaratory judgment, the use of the museum
director's house is "essentially identical to the bookkeeping, payroll and
executive functions which [IPP] conducts on the property in question."
The Town urges us to distinguish this case because all the service
delivery property is located in other states and is virtually all subject
to taxation. As we held above, we cannot find support in the statute for a
distinction based on the location of the service delivery and believe, as
in Newfound, that the real effect of such a distinction is to impermissibly
determine the availability of a tax exemption based on the residence of the
beneficiaries.
We also cannot find in the statutory language grounds for denial of an
exemption for administrative property that otherwise meets the American Fly
Fishing test because the service delivery property is subject to taxation.
As the stipulated facts show, IPP is paying property taxes on its service
delivery property because it is rented and not owned by IPP. In the one
case in which IPP owns the service delivery property, it is tax exempt. It
would be illogical to judge the tax exempt status of owned property on
whether other property used by the non-profit corporation is owned or
rented.
Affirmed.
BY THE COURT:
_______________________________________
Jeffrey L. Amestoy, Chief Justice
_______________________________________
John A. Dooley, Associate Justice
_______________________________________
James L. Morse, Associate Justice
_______________________________________
Denise R. Johnson, Associate Justice
_______________________________________
Marilyn S. Skoglund, Associate Justice
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