Wednesday, November 17, 2010
The recent Georgia Supreme Court decision confirming the tax exempt status of the Nuçi’s Space property is but the latest chapter in a story that stretches back almost four decades. Interestingly, most of the judicial and legislative action over that period originated right here in Athens-Clarke County, a point to which I will return later.
Back in the early 1970s, tax officials up in Rabun County sought to tax the property of a private school that generated revenue through its ancillary dairy operations. Generally speaking, property owned by educational institutions is exempt from property taxes, but in its November, 1971 decision, Rabun Gap-Nacoochee School v. Thomas et al; and vice versa, the Georgia Supreme Court ruled that if the property was used to generate revenue, even if such revenue was used entirely for charitable purposes, the property was subject to taxation. Note, though, that collection of the tax by the county government was optional, not mandatory.
Fast forward to 2003, the year in which tax officials here in the Classic City discovered the Supreme Court’s decision from decades earlier. Upon reapplying for its previously held tax exemption after moving the location of its thrift store, Habitat for Humanity subsequently received a property tax bill on the new location. Property tax bills for the Salvation Army on its thrift store and Athens Christian School on a couple of houses that it rented to faculty members quickly followed (in the event, property tax was eventually collected on church parking lots, concession stands at Sanford Stadium and Stegemen Coliseum, and the UGA Bookstore according to their income producing activities). Needless to say, the property tax bills concerning the two thrift stores prompted appeals to the Board of Assessors and then the Board of Equalization. Both bodies denied the appeals, being perfectly justified in so doing under existing case law.
During the following year, 2004, the matter shifted from the judicial arena to the legislative one. Louise McBee, a longtime member of the Georgia House of Representatives from Athens, got the ball rolling by asking the House’s legislative counsel to draft legislation that would exempt the kind of property in question from property taxes. McBee retired from office before such a bill could be introduced into the House.
Upon succeeding McBee in the 2005-2006 legislative session, Jane Kidd introduced HB 370. This measure, which had five cosponsors (including local GOP pariah Bob Smith but notably absent local Democrat Keith Heard), “relating to property exempt from ad valorem taxation, so as to provide for an exemption for certain charitable institutions” and further “to provide for a referendum” on the matter. Kidd’s bill began the legislative and committee processes in the House in February, 2005 but never emerged from the Ways and Means Committee.
Undaunted, Kidd revisited the matter in the form of HB1388 in February, 2006. This time, the bill had two cosponsors (again including Bob Smith but not Keith Heard). The bill emerged from the legislative process on this second attempt and resulted in Referendum C, a constitutional amendment item on the general election ballot of November, 2006. The statewide measure passed by an electoral margin of 68.5% to 31.5%.
It is only at this point that Nuçi’s Space enters the discussion, as under the 2006 amendment to the Constitution of the State of Georgia its location would have been exempt form property taxes. The Nuçi Phillips Memorial Foundation, Inc., owner of the property, applied for the exemption at its first opportunity in 2007. However, the Athens-Clarke County Board of Tax Assessors claimed that, since the Foundation sold alcoholic beverages for consumption on the premises, rented out space for private functions, rented out rehearsal space, and sold musical supplies it forfeited any claim to an exemption from property taxes.
Needless to say, the Foundation claimed that the location was, in fact, exempt from property taxes and appealed the matter to the Athens-Clarke County Board of Tax Equalization, a citizen panel appointed to resolve such disputes. In the event, the Board of Tax Equalization ruled in favor of the Foundation.
The Board of Tax Assessors in turn appealed this ruling to the Superior Court of Athens-Clarke County. Both parties stipulated a non-jury trial and Chief Judge Lawton Stephens heard the case in October, 2008. In December of that year, Stephens issued his ruling in the case Athens-Clarke County Board of Tax Assessors v. Nuçi Philips Memorial Foundation, Inc. in favor of the latter, noting that:
By a preponderance of the evidence presented at the trial the Court finds that the Foundation has met the test for exemption as articulated by the Supreme Court of Georgia . . . The Foundation has proven by a preponderance of evidence that it is an institution devoted entirely to charitable pursuits, that the charitable pursuits of the Foundation are for the benefit of the public, and that the use of the property is exclusively devoted to those charitable pursuits.
All funds collected by the Foundation directly support the programs, services, and mission of the Foundation.
The Court finds that Nuçi Phillips Memorial Foundation, Inc. continues to operate as a purely public charity and has not deviated from the original purpose and vision of its founder Linda Phillips to honor the memory of her late son.
Not content with that outcome, the Board of Tax Assessors pursued matter up the judicial ladder. In November, 2009 a three-judge panel of the Court of Appeals of Georgia reversed the Superior Court’s decision in Athens-Clarke County Board of Tax Assessors vs. Nuçi Phillips Memorial Foundation, Inc., noting that:
In support of its argument, the board points to undisputed record evidence demonstrating that the foundation rented space to individuals hosting birthday parties and wedding receptions. The foundation also rented rehearsal space. Based upon this undisputed evidence, the foundation cannot demonstrate that its property was “exclusively devoted to conduct that benefits the public by furthering the charitable pursuits of its owner.” (Emphasis supplied.) . . . An organization does not dispense purely public charity when a person obtains its services by paying a fee.
The Court based its opinion on the contention that even if the revenue generated by Nuçi’s Space went toward fulfilling its charitable purpose, the mere act of generating such revenue disqualified it from a property tax exemption, citing the requirements of O.C.G.A. 48-5-41(d)(2).
Unsurprisingly, the Foundation differed with the logic used in the appellate ruling and took the matter to the Georgia Supreme Court. Earlier this month, the high court overturned the appellate court, saying in the case of Nuçi Phillips Memorial Foundation v. Athens-Clarke County Board of Tax Assessors that:
The Foundation is not disqualified from the tax exemption under the restrictions in OCGA § 48-5-41(c) and (d) (1). The institution issues no stock, makes no profit, does not distribute any dividends or any income to members, accumulates no retained earnings, and has a Board of Directors whose members serve without compensation. Although the organization periodically rents out part of its building to third parties, the primary purpose of the building is not to raise income but to provide services for those seeking mental health assistance. Any income raised is incidental to the primary use of the property, and the purpose of raising the income is to help fund the organization’s charitable services, including the payment for direct professional therapy for those who cannot afford it.
So there you have it. Where we may go from here has yet to be determined. The Board of Tax Assessors, and by that I mean the Unified Government of Athens-Clarke County because the mayor and commission can bring this process to a halt at any time of their choosing, continue to debate the wisdom of further beating this dead horse.
So, other than as an academic exercise into the history and specifics of the Nuçi’s Space case, why does this matter? It matters because this expensive and drawn out process demonstrates the lengths to which government – and in fairness, I do not mean just the folks down at City Hall – will go to generate revenue. Since Athens-Clarke County officials discovered the case from Rabun County, this entire matter, be it in the state legislature or in the courts, has hinged on nothing but the fact that the Unified Government has consistently sought more revenue, going a mere one for four in the appeals and judicial proceedings assiocited with its quest.
I have maintained for years, in print, in person, and in the blogosphere that government, be it local, state, or national, suffers not from a revenue problem; it instead suffers from a spending problem.
The Unified Government of Athens-Clarke County will be desperate for revenue going forward, revenue to offset its spending problem. The Feds have already shot their stimulus bolt, failing miserably (and predictably), so don’t look to Washington for more financial largess. Similarly, the folks under the Gold Dome are not in a position to bail local governments out anymore, as evidenced by the discontinuance of Homeowner Tax Relief Grant back in 2009.
Instead, it will be up to the folks down at City Hall to fund their own spending. They will do so through increased property tax assessments (remember the claim that every piece of property in the county is reevaluated every year), millage rate increases, never-ending LOST, never-ending SPLOST, increased water fees, increased sewer fees, increased trash pickup fees, increased landfill fees, imposition of the stormwater utility fee, a proposed increase in the hotel/motel tax, a proposed plastic shopping bag tax, a proposed trash hauler fee, a proposed septic tank inspection fee, a hoped-for tax on Internet sales, a hoped-for expansion of the existing sales tax to more items, etcetera, etcetera. That – and that alone – is what the Nuçi’s Space brouhaha is all about.
For those interested, coverage of these matters over the years in the Banner-Herald, can be found here, here, here, here, here, here, here, here, and here.
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Posted by James at 8:37 AM