Reply to: Revenue Section Telephone: (919) 716-6550 Fax: (919) 715-3550
February 5, 2002
Mr. Hamlin L. Wade Mecklenburg County Tax Attorney Ruff, Bond, Cobb, Wade & Bethune, L.L.P. Suite 2100 301 South Tryon Street Charlotte, North Carolina 28282-1992
Re: Advisory Opinion: Charlotte/Mecklenburg Development Corporation; Eligibility for Ad Valorem Tax Exemption; N.C.G.S. § 105-278.7
Dear Mr. Wade:
In your letter of November 21, 2001 you request our opinion as to the taxable status of property owned by Charlotte/Mecklenburg Development Corporation (“CMDC”). CMDC contends it qualifies for exemption under N.C.G.S. § 105-278.7 as the owner of “real and personal property used for educational, scientific, literary, or charitable purposes.”
From the documents forwarded, we understand that CMDC is a non-profit corporation which has purchased a site in Charlotte’s inner city referred to as the Wilkinson Property. CMDC’s goal is to demolish the buildings on the property, and to undertake environmental clean up and site development for commercial purposes. It then intends to sell parcels of the property but does not anticipate that there will be financial gain from the project. It anticipates that at least 10 businesses will purchase parcels.
G.S.§ 105-278.7 states in part:
- Buildings, the land they actually occupy, and additional adjacent land necessary for the convenient use of any such building shall be exempted from taxation if wholly owned by an agency listed in subsection (c),below, and if: (1) Wholly and exclusively used by its owner for nonprofit educational, scientific, literary or charitable purposes ...
- The following agencies, when the other requirements of this section are met, may obtain property tax exemption under this section:
(1) A charitable association or institution ...
Hamlin L. Wade
February 5, 2002
(7) A nonprofit community or neighborhood organization. . . .
(e) The fact that a building or facility is incidentally available to and patronized by the general public, so long as there is no material amount of business or patronage with the general public, shall not defeat the exemption granted by this section.
A property owner claiming exemption or exclusion has the affirmative burden of establishing the eligibility of his property. G.S. §105-282.1; In re Appeal of Church of the Creator, 102 N.C. App. 507, 402 S.E. 2d 874 (1991).
The general rule is liability to taxation, and that all property shall contribute its share to the support of the government which protects it. Exemption from taxation is exceptional. It needs no citation from reiterated precedents that such exemptions should be strictly construed, and that if we had any doubts (which we have not) they should be resolved in favor of liability to taxation.
United Brethren v. Commissioners, 115 N.C. 489, 497, 20 S.E. 626, 627 (1894).
“By the rule of strict construction, however, is not meant that the statute shall be stintingly or evenly narrowly construed ... but it means that everything shall be excluded from its operation which does not clearly come within the scope of the language used.” State v. Whitehurst, 212 N.C. 300, 303, 193 S.E. 657, 659 (1937) (internal citations omitted).
It appears that it is not necessary to address the issue of whether CMDC will qualify as a charitable organization under G.S. § 105-278.7 because the property itself fails to qualify on two other grounds.
First, the statute only exempts property “used” wholly and exclusively for charitable purposes. As explained in Odd Fellows v. Swain, 217 N.C. 632,638, 9. S.E. 2d 365,368 (1940):
Property held for any of these purposes is supposed to be withdrawn from the competitive field of commercial activity, and hence it was not thought violative of the rule of equality or uniformity, to permit its exemption from taxation while occupying this favored position. But when it is thrust into the business life of the community, it loses its sheltered place, regardless of the character of the owner, for it is then held for profit or gain.
In Rockingham County v. Elon College, 219 N.C. 342, 13 S.E. 2d 618 (1941) the Supreme Court elaborated on this idea. The college was claiming exemption for a three story office building because the rents from the building were used exclusively for educational purposes. Denying the exemption, the court noted:
[i]t is the use of property other than in private competitive business that justifies its Hamlin L. Wade
February 5, 2002
exemption from taxation. This is the rationale of all the decisions on the subject.
Those who are required to pay taxes on their property are deserving of equal
consideration. Their burden is made heavier whenever property of any kind is
withdrawn from the field of taxation. It is difficult for the owners of other rental
properties to understand why their buildings should be taxed and the office building
of their neighbor granted an exemption. They are competitors in the same kind of
business, and they look to the same government for protection. They pay their share
of the public cost incurred for fire protection, police protection, streets and sidewalks,
health and sanitation and for the various facilities and instrumentalities of government
which are maintained by the community for the common good. The Constitution
declares that those in the same class shall be treated alike.
Id at 346.
Although the language of Odd Fellows v. Swain seems to indicate the exemption will turn on whether the property is susceptible of showing a profit, the courts have not analyzed the cases in that way. In Town of Warrenton v. Warren County, 215 N.C. 342, 2 S.E. 2d 463 (1939) the Town of Warrenton had purchased a hotel, not for gain, but to protect its investment in the property. The Town actually incurred a loss on the operation of the hotel. The court (citing Board of Financial Control v. Henderson County, 208 N.C. 569, 181 S.E. 636 (1935)) said: “If a municipal corporation can go into a rental business and escape taxation, it would have a special privilege not accorded to others who are in a like business.”
Second, the property of CMDC is not exempt because the statute contemplates that the only property which will be exempt is the buildings and land they occupy used by the charity for its purposes. All of the reported cases which were presented with the question apply the statute or its predecessors to property in physical proximity to the buildings in which the charitable, educational or religious entity actually carries out its mission. In re Forestry Foundation, 296 N.C. 330, 250 S.E. 2d 236 (1979) denied exemption to forest land in Jones and Onslow County on the basis that it was not exclusively used for the foundation’s purpose. While the court did not undertake to determine whether it fit within the location requirement, the Attorney General’s opinion rendered in that matter (40 N.C.A.G. 787 (1969)) did note that “[f]urther difficulty in sustaining the exemption of the Foundation’s land in Jones County arises because of the clear insistence of the statute to exempt only buildings, land occupied by buildings and adjacent land necessary for the convenient use of buildings.” (emphasis in the original). CMDC has specified that the property in question has no buildings on it or that any remaining buildings are scheduled to be demolished.
There are several cases dealing with unimproved property; however, in these cases the property is contiguous to the buildings actually used by the charity. In In re Appeal of Southview Presbyterian Church, 62 N.C. App 45, 302 S.E. 2d 298 (1983), the Court of Appeals found that roughly 15 acres of a 20 acre tract were exempt where the property was used for neighborhood recreation and Boy Scout and Girl Scout activities such as campouts which could reasonably be viewed as furthering the beliefs of the church and therefore reasonably necessary for the convenient use of the church. The court also distinguished this case from In re Forestry Foundation and Cemetery, Inc. v. Rockingham County, (273 N.C. 467, 160 S.E. 2d 293 (1968)) in that the property Hamlin L. Wade
February 5, 2002
in this case was not being put to a commercial use.
That the statute is intended only to apply to the offices or physical plant of a charity is confirmed by subsection (e) of the statute which allows incidental use of a building or facility by the public.
In re Appeal of Mecklenburg County, 69 N.C. App. 133, 316 S.E. 2d 330 (1984) cited by the taxpayer in support of exemption, is distinguishable. The property at issue there was personal property owned by the nonprofit corporation, used by a contractor hired by the corporation to do research of the type that the nonprofit was organized to pursue. The case turned on the issue of what constituted “exclusive use” of the personal property by the owner. The court there held that property could still be in exclusive use by an owner where it was actually used on a day to day basis by the owner’s agent since the owner still controlled the purpose of its use and its disposition.
In light of the above , our opinion is that the Wilkinson property owned by CMDC is not entitled to an exemption pursuant to G.S. §105-278.7. We hope the foregoing is helpful.
Reginald L. Watkins Senior Deputy Attorney General
Alexandra M. Hightower Assistant Attorney General