KRUPP PLACE 1 CO-OP, INC., and KRUPP PLACE 2 CO-OP, INC., Plaintiffs-Appellees, vs. BOARD OF REVIEW OF JASPER COUNTY, IOWA, Defendant-Appellant.
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IN THE COURT OF APPEALS OF IOWA
No. 9-938 / 09-0654
Filed December 30, 2009
KRUPP PLACE 1 CO-OP, INC., and
KRUPP PLACE 2 CO-OP, INC.,
Plaintiffs-Appellees,
vs.
BOARD OF REVIEW OF
JASPER COUNTY, IOWA,
Defendant-Appellant.
________________________________________________________________
Appeal from the Iowa District Court for Jasper County, Dale B. Hagen,
Judge.
Appeal from the district court ruling that plaintiffs‟ rental properties should
be classified as residential instead of commercial. AFFIRMED.
Steve Johnson, County Attorney, and Michael Jacobsen, Assistant County
Attorney, Newton, for appellant.
James Nervig of Brick Gentry, P.C., West Des Moines, and Craig Hastings
of Hastings & Gartin, L.L.P., Ames, for appellees.
Considered by Sackett, C.J., Vaitheswaran and Danilson, JJ.
2
SACKETT, C.J.
The Jasper County Board of Review (Board) appeals from the district
court‟s ruling on the plaintiffs‟ combined motions that concluded “the plaintiffs‟
rental
properties
should
be
classified
as
residential
multiple
housing
cooperatives” under Iowa Code chapter 499A (2007). We affirm.
BACKGROUND.
The plaintiffs are two multiple housing cooperatives
organized in November of 2007 under Iowa Code chapter 499A. In March of
2008 the Jasper County Assessor notified the plaintiffs of the 2008 property tax
assessment, classifying the properties as commercial. In May, plaintiffs filed an
objection, contending the properties were misclassified as commercial, but
should properly be classified as residential under Iowa Code section 441.21(11).
The Board adjusted the value of the properties because it determined they were
assessed for more than the market value, but maintained the properties‟
classification as commercial.
In June, plaintiffs filed a petition on appeal in district court, seeking to have
the properties reclassified as residential. The parties filed a joint stipulation of
undisputed material facts, which the district court adopted as its findings of fact in
its February of 2009 ruling on appeal.
The court concluded the plaintiffs
complied with the requirements of Iowa Code chapter 499A in creating the
cooperatives. “However, . . . although they did comply with the letter of the law in
forming their cooperatives, they did not abide by the „spirit of the law‟ and the
corporate entities shall be disregarded.” Many of the conclusions of the court
cited a lack of proof the cooperatives were actually operating as true multiple
3
housing cooperatives instead of standard rental properties. The court ultimately
concluded:
In light of the evidence and the purpose of housing
cooperatives, the court disregards the plaintiffs‟ organization under
chapter 499A and instead treats the apartment buildings by their
true nature—a commercial apartment building. The properties
were properly assessed as commercial and the plaintiffs‟ appeal is
denied.
The plaintiffs filed combined motions under Iowa Rules of Civil Procedure
1.904 (reconsider) and 1.1004 (new trial) and offered other documents, which the
court admitted into evidence, that addressed the court‟s lack-of-proof concerns in
its ruling. At the March hearing on the combined motions, the court admitted the
additional evidence from the plaintiffs. In its April ruling, the court denied the
motion for new trial, noting: “All the information the court needs to reconsider its
previous ruling is found in the exhibit and a new trial would be a waste of judicial
resources.”
The court then addressed the motion for reconsideration. It concluded:
In light of the new evidence provided by the plaintiffs and admitted
by the court, it is apparent the plaintiffs‟ rental properties were
improperly classified and the appeal should be granted, rather than
dismissed as was done in the prior ruling. The plaintiffs followed all
proper corporate formalities and the multiple housing cooperatives
were set up exactly as prescribed by Iowa law. The absence of the
evidence [that] is now before the court had previously raised
questions about the propriety of such cooperatives. However, now
that the court has seen this evidence it is assured the plaintiffs‟
rental properties should be classified as residential multiple housing
cooperatives under the Iowa Code. The February 10th, 2009 ruling
shall be so modified.
The Board appeals, contending the court erred in ruling the properties
should be classified as residential, because the plaintiffs “are operating as a
4
commercial enterprise and should be classified as commercial property for tax
assessment purposes.”
SCOPE OF REVIEW. Appeals from decisions of local boards of review
are heard in equity. Iowa Code § 441.39. Our review would ordinarily be de
novo. Iowa R. App. P. 6.907; Soifer v. Floyd County Bd. of Review, 759 N.W.2d
775, 782 (Iowa 2009). “Here, however, the parties have stipulated to the facts.
Thus our review is really limited to the correction of error, if any, in the court‟s
application of pertinent statutes.” City of Newton v. Bd. of Review, 532 N.W.2d
771, 772 (Iowa 1995).
MERITS. Iowa Code section 499A.1 provides, in relevant part: “Any two
or more persons of full age, a majority of whom are citizens of the state, may
organize themselves for the following or similar purposes:
Ownership of
residential, business property on a cooperative basis.” For tax valuation and
assessment, section 441.21(11) provides: “[A]s used in this section, ‘residential
property’ includes all land and buildings of multiple housing cooperatives
organized under chapter 499A.” The Iowa Administrative Code reinforces this
classification:
Residential real estate. Residential real estate shall include
all lands and buildings which are primarily used or intended for
human habitation, including those buildings located on agricultural
land. . . . Buildings for human habitation that are used as
commercial ventures, including but not limited to hotels, motels,
rest homes, and structures containing three or more separate living
quarters shall not be considered residential real estate. However,
regardless of the number of separate living quarters, multiple
housing cooperatives organized under Iowa Code chapter 499A
. . . , shall be considered residential real estate.
Iowa Admin. Code r. 701-71.1(4) (emphasis added).
5
It is clear the legislature classified “all land and buildings of multiple
housing cooperatives organized under chapter 499A” as “residential property.” A
cooperative “has the right to purchase real estate for the purpose of erecting,
owning, and operating apartment houses or apartment buildings.” Iowa Code
§ 499A.11. Chapter 499A contains no requirement that the property be occupied
by the members.
In fact, section 499A.14 implies that members might not
occupy an apartment as a residence, because it limits the homestead tax credit
to “each member occupying an apartment as a residence,” while requiring “each
member” to pay a proportionate share of the property tax owed by the
cooperative.
Section 499A.11 specifies the relationship between the cooperative and its
members is “a legal relationship of landlord and tenant.” There is no prohibition
in chapter 499A against members subleasing their apartments. The proprietary
leases issued by the cooperative in this case specifically provide for subleases if
the lessor or a majority of the lessor‟s directors approve in writing. The leases
also specify that the cooperative may demand rent from subtenants if a lessee
defaults in paying the rent due, clearly indicating that subleasing is possible.
From the evidence in the record, the district court concluded, “The
plaintiffs followed all proper corporate formalities and the multiple housing
cooperatives were set up exactly as prescribed by Iowa law.” From our review of
the record and the applicable law, we determine the district court correctly
applied the law as set forth in the code and the administrative code.
6
The Board urges us to “look to the actual operation of the cooperative in
classifying the property for tax purposes.” See Carroll Area Child Care Center,
Inc. v. Carroll County Bd. of Review, 613 N.W.2d 252, 255-57 (Iowa 2000)
(applying the “actual use” test to determine if the property was “used solely for
the appropriate objects of the charitable institution”). In Carroll, the issue was
whether certain property qualified for a charitable tax exemption. We determine
the actual use test does not apply to the circumstances before us. Even if we
were to consider the actual use of the property owned by the cooperative, the
statute specifies the purpose of cooperatives as “erecting, owning, and operating
apartment houses or apartment buildings.”
Iowa Code § 499A.11.
That is
exactly what the cooperatives before us are doing.
The Board also urges us to pierce the corporate veil, alleging the
cooperative is operated as a fraud or sham. Although the district court initially
determined the cooperatives complied with the letter but not the spirit of the law,
that determination was based on the perceived lack of compliance with routine
corporate operation as required in chapter 499A.
See, e.g., Iowa Code
§§ 499A.2A (bylaws), .3A (meetings of members), .11 (certificates of ownership
and proprietary leases). Once the court was presented with evidence of careful
adherence to the requirements of chapter 499A, it changed its ruling.
We
determine the district court correctly applied the law to the facts before it, once it
had all the facts.
We conclude the property owned by the cooperatives in the case before
us must be classified as residential property for taxation purposes under Iowa
7
Code section 441.21(11) and Iowa Administrative Code rule 701-71.1(4).
Because the district court correctly applied the law, we affirm its ruling.
AFFIRMED.
Danilson, J., dissents.
8
DANILSON, J. (dissenting)
I respectfully dissent. The fact that the corporations and cooperatives
were established as prescribed by Iowa law does not permit circumscribing the
intent of the law. Our supreme court has stated:
The rental of multiunit dwellings is generally regarded as an income
or profit-oriented enterprise. We, like other jurisdictions, have
recognized the commercial nature of apartment complexes and
their resulting commercial classification for tax purposes.
City of Newton v. Bd. of Review, 532 N.W.2d 771, 773 (Iowa 1995) (internal
citations omitted). Here, the parties stipulated that Krupp Place 1 and Krupp
Place 2 are both buildings each containing twenty-four apartment units. The only
members of each cooperative are Larry Krupp and Connie Krupp. Our supreme
court has previously concluded that transforming a mere tenancy to cooperative
ownership may not be sufficient to merit preferential property tax treatment. Id.
at 774.
In interpreting Iowa Code section 499A.14, our supreme court has
stated:
A “cooperative” is generally defined as a multiunit dwelling in which
each resident has (1) an interest in the entity owning the building,
and (2) a lease entitling the member to occupy a particular
apartment within the building. It is a vehicle for the common
ownership of property, a means of enabling the occupants—as
members of the cooperative—to own, manage, and operate the
apartment without anyone profiting therefrom.
Id. (internal citations omitted). Our supreme court has found no merit in the
contention that an apartment complex was transformed into a cooperative by the
issuance of ownership certificates to the member-tenants where the members
were not granted any actual ownership or management rights. Id.
9
In this action, the tenants lack even a pseudo ownership certificate and
only the two members, Larry Krupp and Connie Krupp, manage and own the
forty-eight apartment units. Under these stipulated facts, no legitimate claim can
exist that Krupp Place 1 and Krupp Place 2 are “cooperatives” and deserve
residential property status for tax purposes.
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