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| Tax law is exhausting |
By Amy Davis
Normally I try to pick topics to summarize in areas of law I know pretty well so I don’t have to think too hard. This time I decided to challenge myself. Now I’m sleepy and want a whiskey.
Vermont College of Fine Arts (VCFA) is a nonprofit corporation formed in 2007. In 2008, VCFA purchased a bunch of buildings and some acreage in Montpelier, including Schulmaier Hall. This all is a two-story building with classrooms, faculty lounges, a basement, and an unused attic.
VCFA provides graduate degrees in fine arts. Students only need to reside on campus twice per year for 7-10 days at a time. Because not many students need to reside there, VCFA does not use the majority of the campus. For 2013-2014, 62% of the building space was open for lease. VCFA’s rental income can generate up to $2.8 million in revenue.
In August 2012, VCFA leased the first and second floors of Schulmaier Hall to the State of Vermont. The floors are about 22,300 square feet, rented at $17.80/square foot for the first year, and $18.16/square food the second year, for an annual rent of about $400,000. The State used a portion of the building in 2013 and 2014, and VCFA used a portion of the basement.
In June 2013, the City’s Assessor sent a Notice of Change in Appraisal of Real Estate to VCFA, notifying it that Shulmaier Hall is “now taxable.” The City Manager had also notified VCFA’s president of the change, and gave the president the dates for the process of grieving the decision to the Board of Civil Authority (BCA). The City Manager said that technically tax-exempt status could not be grieved, but that would give VCFA about two weeks to reach an accommodation. VCFA skipped the grievance process and went right to court. VCFA continued to make tax payments under protest (that’s how I make my tax payments, too). In 2014, the State ended its lease.
VCFA filed a motion for declaratory judgment, and both sides moved for summary judgment. The trial court granted the City’s motion for summary judgment, finding that Schulamier Hall was not tax-exempt. Reviewing de novo, the SCOV affirms.
Summary judgment is only appropriate where there is no genuine issue of material fact, and the party is entitled to judgment as a matter of law. Because there are cross-motions for summary judgments, both parties get the benefit of all reasonable doubts and inferences.
VCFA argues that Schulmaier Hall qualifies for tax exemption under “public schools “ or “public use” under 32 V.S.A. § 3804. The City first argues that the SCOV need not decide the merits because VCFA did not exhaust its administrative remedies. But, the SCOV decides to reach merits because it recognizes its “own inconsistent precedent regarding exhaustion in the specific case of § 3802.
The first question is whether the VCFA has to exhaust its administrative remedies before bringing a motion for declaratory judgment. The VCFA argues that the BCA does not have the authority to rule on question of tax-exempt status, so proceeding through the BCA is a waste of time. The SCOV says the BCA does have the authority, and the VCFA should have started there.
The taxable status process starts with the “grand list” of a town, which lists all of the property and the owners of each property. If the property is exempt from taxes, the insurance replacement value is listed. The listers determine whether a property is taxable or exempt, The owner may challenge that decision, and there is a procedure for that. That process matches the timetable set forth in the City Manager’s e-mail to VCFA’s president. The taxpayer who is aggrieved by a decision of the BCA may then appeal that decision to the Superior Court.
This boring process is important because if a party does not exhaust all of the remedies available to it, then the court can dismiss the action. This rule protects the authority of the administrative agency, and keeps the courts operating efficiently. Even if the administrative body did not have the authority, the body would develop a record for a later proceedings.
The SCOV decides to look at the merits anyway because the jurisprudence on this particular issue is, in the SCOV’s words, “inconsistent.” At this point, the SCOV cites a bunch of cases that I axed from this summary in order to conserve internet space.
Anywhoozlebee, when it comes to whether VCFA is a public use, the City argues that because VCFA is an educational institution, it may only apply for the specific provision for schools and colleges. The SCOV says that the exemptions are all independent and VCFA may apply for exemption under multiple clauses.
Now to the question of whether or not Schulmaier Hall fit that tax exception. The idea is that everyone and everything gets taxed, unless you meet a specific exemption. The SCOV finds that because VCFA rented just two floors to the State and not the entire building, there was some rationale in dividing the building by function for determining tax status. But, again, nobody brought this up, and both parties specifically did not bring this up, so the SCOV looks at the entire building instead of a piecemeal approach.
The public schools exemption is to rid the land being used to serve some public purpose from taxation. The educational use, and not just the ownership of the property, is central to determining taxable status. The primary function of the property determines the property’s taxable status. This applies to present use, and not past use or future use.
The SCOV puts the property through a 3-part test which looks at the dedication of the property, the class who benefits from the property, and whether the property is operated on a not-for-profit basis. The SCOV also looks at whether there is a concurrence of mission between the use (by the State) and the ownership (by VCFA) of the property. The SCOV skips right to the third part, determining that VCFA is acting like a for-profit organization in leasing its properties, and doesn’t go any further. Because exemptions are strictly construed against the person or entity claiming them, Schulmaier Hall does not qualify for a public use exemption.
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