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
       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

       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

       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

       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

       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

       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


                                       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