Opinion
No. CV04-40001666S, CV05-4005912S, CV06-4010191S, CV07-4013155S
November 15, 2007
MEMORANDUM OF DECISION RE MOTION FOR SUMMARY JUDGMENT #109
FACTS
The plaintiffs, C.C.C. Real Estate, Inc., and Connecticut Counseling Centers, Inc., appeal from the assessment of real estate taxes against their property at 2977 East Main St., Waterbury, by the defendant, the city of Waterbury, for the years 2003-2006. The parties have stipulated to the following facts.
C.C.C. Real Estate, Inc. (C.C.C.) is a nonprofit corporation authorized to acquire, hold title to, manage and collect income from real property and to turn over the entire amount of such income, less expenses, to its parent company, C.C.C. Holding Company, Inc. (Holding) for the benefit of Holding's capital and expenses. C.C.C. was designated by the Internal Revenue Service (IRS) as a nonprofit title holding company pursuant to Title 26, § 501(c)(2) of the United States Code, exempt from federal and state corporate income taxes. Upon dissolution or termination of C.C.C., all of its property and assets are to be transferred to Connecticut Counseling Centers, Inc. (Counseling), which is also a subsidiary of Holding and has operated an outpatient substance abuse treatment center since at least April 28, 1993. Counseling leases the property at 2977 East Main St. from C.C.C., which acquired title on August 24, 1994. C.C.C. owns no other real property and its sole tenant has been Counseling; both parties have used the property exclusively for the purposes for which they were organized since August 24, 1994.
Pursuant to a prior tax dispute and consequent lawsuit, the parties entered into a stipulation for judgment on February 27, 1998, which was approved and entered by the court, Kulawiz, J., on March 8, 1998. The judgment provided in relevant part that "the [a]ssessor [of the city of Waterbury] shall list the property [at 2977 East Main St.] . . . on the nontaxable portion of the October 1, 1997 and subsequent grand lists, provided that the [p]laintiff or other property owner continues to engage in an activity which qualifies it for the exemption described in § 12-81(7) of the General Statutes or any other lawful exemption (it being acknowledged that the [p]laintiff's status as a § 501(c)(2) organization and other considerations qualifies it for the exemption described therein) and further provided that the [p]laintiff or other property owner fulfills its obligation to submit for review by the [d]efendant's [a]ssessor quadrennial filings regarding the exemption it claims, if necessary."
C.C.C. Real Estate, Inc. Waterbury v. Docket No. CV 96 0133729.
The defendant exempted the property from taxation for the years 1995 through 2002. On November 1, 2001, when the quadrennial filing became due, Counseling filed a quadrennial renewal form (Form M-3) with the city in accordance with the stipulated judgment and § 12-81(7); C.C.C., on the other hand, did not file a quadrennial renewal form. On July 1, 2004, C.C.C. received a tax bill for the property, its first notice that the city's assessor, David Dietsch, had moved the property to the taxable portion of the October 1, 2003 grand list. Dietsch had otherwise routinely sent reminder notices to entities which historically had applied for exemption under § 12-81(7) but failed to file the renewal form, and had reinstated the tax exempt status of such an entity during an interim year between the quadrennial filings of the Form M-3 if the form was filed by the November 1 deadline of the year for which the exemption is sought. C.C.C. filed M-3 forms with the city on October 21, 2004, October 31, 2005 and November 1, 2006, seeking reinstatement of its exempt status, all of which were rejected, and property taxes were assessed against the subject property for the years 2003-2006. C.C.C. has paid these taxes under protest, and now seeks to recover the amounts wrongfully paid.
Pursuant to the terms of their lease agreement, Counseling was responsible for paying any property taxes on the property. Counseling is not entitled to the exemption, however, as it is not the owner of the property. See Whole Life, Inc. v. Board of Tax Review, Superior Court, judicial district of Tolland, Docket No. CV 91 0047471 (November 20, 1992, Booth, J.) ( 8 C.S.C.R. 48). According to the assessor, the only reason the property was continued on the exempt portion of the grand list in 2001 and 2002 is that the office was overwhelmed from the recent and long-due revaluation of property, and simply did not notice C.C.C.'s failure to file a timely quadrennial report until 2003.
On September 24, 2007, C.C.C. filed a motion for partial summary judgment; three days prior, on September 21, 2007, the defendant had filed its own motion for summary judgment (entitled "cross-motion for summary judgment"). Also on September 24, 2007, C.C.C. filed a request for leave to amend and an amended appeal in accordance with the directive of the court, Agati, J., to add Counseling as a plaintiff and to combine the claims from several companion cases into a single appeal.
These cases, sharing the same title as the present case, bore the docket numbers CV 05 4005912, CV 06 4010191, and CV 07 4013155.
Count one is brought pursuant to General Statutes §§ 12-81(7) and 12-119 for the year 2003. Counts two, eleven, seventeen, and twenty-three are brought under § 12-119 and the terms of the stipulated judgment for the grand list years 2003, 2004, 2005, and 2006, respectively. Count three alleges a lack of notice pursuant to § 12-119 for the grand list year 2003. Counts four, thirteen, nineteen, and twenty-five allege a manifestly excessive assessment under § 12-119 for the grand list years 2003, 2004, 2005, and 2006, respectively. Counts five, eight, fourteen, and twenty are brought pursuant to § 12-81(7), General Statutes § 12-89, General Statutes § 12-117a and the stipulated judgment, and allege that either the plaintiffs appealed to the board of tax appeals, which declined to hear their appeals for the grand list years 2003, 2004, 2005, and 2006, respectively. Counts six, ten, sixteen, and twenty-two allege a breach of the stipulated judgment and § 12-117a for the grand list years 2003, 2004, 2005, and 2006, respectively. Counts seven, twelve, eighteen and twenty-four allege overvaluation of the property under § 12-117a for the grand list years 2003, 2004, 2005, and 2006, respectively. Counts nine, fifteen and twenty-one are brought under §§ 12-81(7) and 12-119, the stipulated judgment and the order for the grand list years 2003, 2004, 2005, and 2006, respectively.
DISCUSSION
Appeals from municipal assessors or boards of tax review "follow the same course of pleading as that followed in ordinary civil actions;" Practice Book § 14-7(d); and, therefore, may be resolved by summary judgment. Practice Book § 17-44. "Practice Book § 17-49 provides that summary judgment shall be rendered forthwith if the pleadings, affidavits and any other proof submitted show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. In deciding a motion for summary judgment, the trial court must view the evidence in the light most favorable to the nonmoving party." (Internal quotation marks omitted.) Old Farms Associates v. Commissioner of Revenue Services, 279 Conn. 465, 479, 903 A.2d 152 (2006).
While "Practice Book § 17-44 . . . provides that a party must obtain the judicial authority's permission to file a motion for summary judgment after the case has been assigned for trial;" Tarzia v. Great Atlantic Pacific Tea Co., 52 Conn.App. 136, 140 n. 3, 727 A.2d 219 (1999), appeal dismissed, 254 Conn. 786, 759 A.2d 502 (2000); both parties here agree that there are no material facts in dispute and have both filed for summary judgment. Therefore, the court will address their arguments despite the lack of a formal request for permission.
Summary judgment may be granted on stipulated facts. See, e.g., Moncrease v. Chase Manhattan Auto Finance Corp., 98 Conn.App. 665, 667 911 A.2d 315 (2006) (affirming grant of summary judgment by trial court based on stipulated facts); see also Labor Dept. v. America's Cup, Superior Court, judicial district of Hartford, Docket No. CV 92 0516750 (April 21, 1994, Hennessey, J.) [ 11 Conn. L. Rptr. 379] (summary judgment granted on basis of stipulation of facts submitted in lieu of affidavits).
The plaintiffs move for summary judgment on the ground that they are exempt from property taxation under § 12-81(7), arguing that the definition of "charitable purpose" therein has been construed broadly, and includes uses incidental to a primary charitable purpose, such as the rental of property to an entity engaged in charitable uses. Alternatively, the plaintiffs contend that the issue of whether C.C.C. is entitled to the exemption has already been litigated, and that, pursuant to the stipulated judgment issued in 1998, the defendant is estopped from refusing to recognize its tax exempt status.
Section 12-81 (Rev. to 2001) provides in relevant part: "The following-described property shall be exempt from taxation:
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(7) subject to the provisions of sections 12-87 and 12-88, the real property of, or held in trust for, a corporation organized exclusively for . . . charitable purposes . . . and used exclusively for carrying out . . . such purposes and the personal property of, or held in trust for, any such corporation, provided (A) any officer, member or employee thereof does not receive or at any future time shall not receive any pecuniary profit from the operations thereof, except reasonable compensation for services in effecting one or more of such purposes or as proper beneficiary of its strictly charitable purposes, and (B) in 1965, and quadrennially thereafter, a statement shall be filed on or before the first day of November with the assessor or board of assessors of any town, consolidated town and city or consolidated town and borough, in which any of its property claimed to be exempt is situated. Such statement shall be filed on a form provided by such assessor or board of assessors . . . (Emphasis added.)
This section of the statute was amended by Public Acts 2007, No. 07-254. However, as the 2001 revision was the operative statute at all times relevant to this appeal, all subsequent references to § 12-81(7) refer to the 2001 revision, unless otherwise specified.
The defendant moves for summary judgment on the ground that the plaintiffs are not entitled to the exemption. It first argues that a stipulated judgment is more in the nature of a contract than a judicial determination of any litigated right, and that C.C.C. breached this agreement by not filing a timely quadrennial report in 2001. The defendant next maintains that C.C.C. is not entitled to the statutory exemption because entities created solely to hold real property for charitable organizations do not engage in any statutorily exempt functions and the property produces rent, which takes it outside the exemption.
The court first determines that the plaintiffs cannot rely on the stipulated judgment to support their claims. By failing to timely file a quadrennial report in 2001, C.C.C. expressly breached the requirement of the stipulated judgment that "the plaintiff or other property owner fulfills its obligation to submit for review by the . . . assessor quadrennial filings regarding the exemption it claims, if necessary." As a result, the defendant was no longer required to honor its obligation to grant C.C.C. tax exempt status. See Spanish American Development Agency v. Bridgeport, Superior Court, judicial district of Fairfield, Docket No. 349376 (April 3, 2001, Ford, J.) [ 29 Conn. L. Rptr. 479] ("it is clear that a property is subject to taxation when the charitable organization that owns it fails to file a quadrennial tax exemption statement"). Once the defendant was aware that no report had been filed when due in 2001 for C.C.C., it was at liberty to remove C.C.C. from the tax exempt portion of the grand list. Therefore, the court must look to whether the C.C.C. was, as a matter of law, exempt from municipal property taxation under General Statutes § 12-81(7).
The plaintiffs argue that the phrase "if necessary" indicates that quadrennial filings were not absolutely required under the terms of the stipulation. The defendant responds that the phrase merely contemplates the possibility of the plaintiffs claiming another exemption under § 12-81 that does not require the filing of quadrennial reports; e.g., §§ 12-81(8) and (12)-(15); noting that a statute existing at the time of the agreement's execution must be read into the agreement as if it were actually an express part of the agreement. LMK Enterprises, Inc. v. Sun Oil Co., 86 Conn.App. 302, 307, 860 A.2d 1229 (2004). The defendant's interpretation of the phrase is more reasonable; C.C.C. was obligated by § 12-81(7) to file quadrennial reports, and could not, by the inclusion of the phrase "if necessary" in the stipulated judgment, circumvent that responsibility.
"[I]n order for real property used for charitable purposes to qualify for tax exemption under . . . § 12-81(7) . . . the property must: (1) belong to or be held in trust for a corporation organized exclusively for charitable purposes; (2) be used exclusively for carrying out such charitable purposes; (3) not be leased, rented or otherwise used for a purpose other than the furtherance of its charitable purposes . . ." Isaiah 61:1, Inc. v. Bridgeport, 270 Conn. 69, 76-77, 851 A.2d 277 (2004). The definition of "charitable purpose" is defined broadly in Connecticut. Id., 76; see also Camp Isabella Freedman of Connecticut, Inc. v. Canaan, 147 Conn. 510, 514, 162 A.2d 700 (1960). When property owned by a charitable organization is leased or rented out for a purpose related to the charitable mission, courts have generally held that an exemption under § 12-81(7) is available. See Isaiah 61:1, Inc. v. Bridgeport, supra, 85 ("the rental of property does not necessarily prevent the property from qualifying for tax exemption, as long as the property is used exclusively for carrying out the charitable purposes of the organization to which the property belongs"); Loomis Institute v. Windsor, 234 Conn. 169, 178-79, 661 A.2d 1001 (1995) (real property used primarily as faculty housing was tax exempt because "having faculty members living on campus serve[s] the educational purpose of providing counseling and other services for the school's boarding students"); Hartford Hospital v. Hartford, 160 Conn. 370, 377-78, 279 A.2d 561 (1971) (property provided by hospital as on-site housing for its interns and residents was exempt, even though hospital charged them rent); Girl Scouts, CT Trails Council, Inc. v. East Haven, 47 Conn.Sup. 550, 554-55, 815 A.2d 308 (2002) [ 33 Conn. L. Rptr. 442] (cottage on property of plaintiff, a seasonal girl scout camp, was exempt even though rented to caretaker for groundskeeping services in lieu of payment of rent).
The present case differs from the foregoing cases in that the property is not owned by the organization actually making use of the property for its charitable purposes. C.C.C.'s sole business function is to hold title to the property; it does not directly fulfill a charitable purpose like the plaintiff in Isaiah 61:1, Inc. v. Bridgeport, supra, CT Page 19579 270 Conn. 69, which was both the owner of the subject property and the entity primarily engaged in a charitable function. The present case is more akin to that in Whole Life, Inc. v. Board of Tax Review, Superior Court, judicial district of Tolland, Docket No. CV 91 0047471 (November 20, 1992, Booth, J.) ( 8 C.S.C.R. 48), wherein the plaintiff, a § 501(C)(3) organization, claimed exemption for property taxes on the property it leased from CLI Realty Associates, Inc., also a § 501(C)(3) organization. Pursuant to the terms of its lease, Whole Life was responsible for paying the real estate taxes on the property. Id., 49. The court reasoned that Whole Life was not entitled to the exemption because it did not own the property. More interestingly, the court also noted that "[l]ikewise, it might be possible for CLI to claim the exemption but to have the form M-3 filed on its behalf by its agent, Whole Life, Inc. This question is . . . not before the [c]ourt." Id., 50.
Similarly, in the present case, Counseling is responsible for the payment of property taxes under its lease with C.C.C., and Counseling filed for its own exemption for itself in 2001.
On the other hand, the court in Bradford Foundation v. Avon, Superior Court, judicial district of Hartford, Docket No. CV 99 0496299 (October 3, 2001, Aronson, J.) ( 30 Conn. L. Rptr. 461), presented with another strikingly similar factual situation, reasoned that it "kn[e]w of no authority that allows a property owner to claim a property exemption under § 12-81(7) based upon the assertion that the tenant uses the property for an educational or charitable purpose." Id., 362. The plaintiff, Bradford Foundation, was a Pennsylvania nonprofit corporation that leased the subject property to a nonprofit child daycare center. The court concluded that, since the rental of real property is not in itself a charitable use, even if the lessee uses the property as such, an owner of property who leases it to an unrelated charitable organization is not entitled to exemption under § 12-81(7). See also Common Fund v. Fairfield, 228 Conn. 375, 636 A.2d 795 (1994).
There are two crucial differences between Bradford Foundation and the present case, however; first, the plaintiff's lease was with an entirely unrelated corporation; second, the lease was " solely for the purpose of producing rental income" to pay off its tax exempt bonds. Bradford Foundation v. Avon, supra, Docket No. CV 99 0496299. These two factors also distinguish the present case from Common Fund v. Fairfield, supra, 228 Conn. 375, wherein the plaintiff, an organization that, for a fee, pooled the investments of various educational institutions to achieve a higher return for each, was "(1) . . . a corporate entity distinct from the participating educational institutions that it serves; and (2) . . . charge[d] the participating educational institutions a fee for the services that it renders." Id., 379.
The plaintiff taxpayer in Common Fund v. Fairfield, supra, 228 Conn. 375, was also not exempt under subsections (c) or (d) of I.R.C. § 501 as contemplated by General Statutes § 12-89a, but under subsection (f), which is not contemplated by § 12-89a. See id., 381-82.
In United Church of Christ v. West Hartford, 206 Conn. 711, CT Page 19580 539 A.2d 573 (1988), the Supreme Court established two requirements for tax exemption for a charitable organization: (1) the corporation must be so operated that it relies on charitable donations for a portion of its maintenance and, therefore, is not self-supporting; and (2) its operation lessens the likelihood that its residents would become burdens on society. Id., 720-22. Both requirements are met in the present case. Although C.C.C. collects rent from Counseling to cover its expenses, the board of directors does not receive compensation for its administration of the business. The value of these services is a sufficient charitable donation to fulfill the first prong of the United Church of Christ test. Additionally, the provision of substance abuse and other mental health services certainly lessens the likelihood that participants will become a burden on society, even though the actual provision of such services is shouldered by Counseling, not C.C.C. This court, however, does not believe this dichotomy detracts from the charitable nature of C.C.C.'s operation.
While C.C.C. and Counseling are distinct entities with discrete functions, as a practical matter, they are very closely related as subsidiaries of the same holding company and operate jointly towards a common purpose: that of operating a nonprofit counseling center. Although it is true that "statutes which exempt from taxation must be strictly construed against the party claiming the exemption . . . [i]t is also true . . . that such strict construction neither requires nor permits the contravention of the true intent and purpose of the statute as expressed in the language used." (Citations omitted; internal quotation marks omitted.) Hartford Hospital v. Hartford, supra, 160 Conn. 375. C.C.C. derives no income from its operations, and upon its dissolution, all its assets will be transferred to Counseling. Any surplus from rent moneys can be transferred to Connecticut Counseling Centers Fund, Inc., the "fourth corporation in the Connecticut Counseling family," which funds are then invested for the future benefit of Counseling. Thus, C.C.C.'s ownership of the property is more incidental to Counseling's charitable operations than vice versa. If the "definition of charitable uses and purposes has expanded with the advancement of civilization and the daily increasing needs of men" (internal quotation marks omitted); United Church of Christ v. West Hartford, 206 Conn. 719; it may expand to encompass the economic reality of one business entity existing and owning property for the very narrow purpose of benefitting of a related charitable entity. If Counseling owned the property and itself had applied for the exemption, there would be no dispute over its entitlement to a § 12-81(7) exemption, as the city recognizes. For all practical purposes relevant to this appeal, however, C.C.C. is an extension of Counseling and operates to further Counseling's charitable purpose, which the court in Whole Life, Inc. v. Board of Tax Review, supra, 8 C.S.C.R. 50, appeared to have recognize when stating that "it might be possible for CLI [the title holding company] to claim the exemption [under § 12-81(7)] . . ." Moreover, "[i]n tax law, we should remember, substance, rather than form, determines tax consequences." Cottage Savings Assn. v. Commissioner of Internal Revenue, 111 S.Ct. 1519 (1991) (Blackmun, J., dissenting), citing Commissioner v. Court Holding Co., 324 U.S. 331, 334, 89 L.Ed. 981, 65 S.Ct. 707 (1945); California Savings Bank v. United States, 439 U.S. 180, 199, 99 S.Ct. 476, 58 L.Ed.2d 444 (1978); see also The Stanley Works v. Hackett, 122 Conn. 547, 554, 190 A. 743 (1937).
It is also relevant that C.C.C. is exempt from federal income taxation under the Internal Revenue Code, 26 U.S.C. § 501(C)(2); 26 C.F.R. 1.501(c)(2). See Leonard v. Commissioner of Revenue Services, 264 Conn. 286, 295, 823 A.2d 1184 (2003) ("in construing our tax laws, we often look to federal law, in recognition that, in many instances, our tax laws incorporate federal tax principles") (internal quotation marks omitted); see also Bannon v. Wise, 41 Conn.Sup. 469, 483, 586 A.2d 639 (1990), aff'd, 217 Conn. 457, 586 A.2d 596 (1991) (considering application of succession taxes; General Statutes § 12-347; court noted that "[o]f significance to this court is the fact that the inn has been granted exempt status as a charitable institution by the federal government under § 501(C)(3)"). The Internal Revenue Service has expressly recognized the situation presented by this appeal, and determined that an organization holding title for a charitable organization is entitled to the same exemptions such charitable organization would be if the latter owned the property itself. See Internal Revenue Ruling 71-544 (1971).
It is also worth noting that § 12-81(7) was recently amended by Public Acts 2007, No. 07-254, to include the provision: "The real property shall be eligible for the exemption regardless of whether it is used by another corporation organized exclusively for scientific, educational, literary, historical or charitable purposes or for two or more such purposes." The defendant argues that this amendment indicates that the statute as it applied over the subject period did not cover an entity such as C.C.C. because it specifically carves out an exemption for title holding corporations. The plaintiffs counter by arguing that, if an amendment is meant to clarify a statute, it necessarily has retroactive effect; the plaintiffs point to comments from the amendment's legislative history suggesting that the act is meant to clarify the statute. Neither argument is particularly persuasive; the plaintiffs,' in particular, fails to recognize that the statement "for the most part this amendment clarifies language;" 50 H.R. Proc., Pt. 26, 2007 Sess., p. 8504; is in reference to the act's amendments to the taxing of telecommunications companies; e.g., General Statutes § 12-692. There is no indication that the "clarification" refers to § 12-81(7), the amendments to which are not discussed at all. Nevertheless, the amendment does evince a legislative intent that an entity such as C.C.C. falls under the exemption. While this court will not apply the amendment retroactively, the amendment bolsters the court's conclusion that the overarching purpose of § 12-81(7) contemplates the inclusion of a nonprofit title holding company such as C.C.C., which operates solely for the benefit of its lessee charitable organization and related entity.
Therefore, this court concludes that the plaintiff, C.C.C., . . . was entitled to an exemption from taxation under § 12-81(7) for the subject property at all times relevant to this appeal. Because C.C.C. filed a timely exemption form (form M-3) for the years 2004-2006, the assessor wrongly assessed the property on the grand list, and C.C.C. may recover the amounts it paid in taxes for those three years. C.C.C. did not file a timely quadrennial report when due in 2001, nor did it file a renewal form in 2003; however, in count three of the appeal, C.C.C. claims exemption for the year 2003 based on the failure of the assessor to provide it with notice of its reinstatement on the taxable grand list.
Because the court concludes in the plaintiffs' favor on these grounds, it need not address the plaintiffs' alternative argument of collateral estoppel.
C.C.C. has proffered no legal argument regarding its claim of lack of notice in 2003. The parties have stipulated that "since approximately 2005 . . . Dietsch has routinely sent reminder notices to entities which historically have applied for exemption under § 12-81(7) and which have failed to file their renewal Forms M-3" and that "Dietsch has reinstated the tax exempt status of a nonprofit organization's property during an interim year between the quadrennial filings . . . if the organization . . . files a renewal Form M-3 by the November 1st deadline of the year for which the exemption is sought." Nevertheless, the plaintiffs have not cited any legal basis by which such a habitual practice may provide grounds for the reversal of a tax assessment rightfully made on the basis of a failure to file a quadrennial report; moreover, they have only stipulated that the assessor has done so since 2005. It was incumbent upon C.C.C. to file a timely quadrennial report, and the assessor had no legal responsibility to assist C.C.C. in doing so. Therefore, the plaintiffs are not entitled to recover its payment of taxes for the grand list year 2003. Accordingly, summary judgment is granted for the plaintiff on counts eight through twenty-five, and granted in part for the defendant on counts one through seven. Pursuant to the order of the court, Agati, J., trial must be held on the plaintiffs' claims of manifestly unjust assessment and overvaluation for the year 2003.
The only statute that might conceivably create such a duty, General Statutes § 12-87a, merely provides that an assessor, "upon receipt of proof of substantial compliance by such organization with the requirements concerning submission of such statement, may allow an extension of time not exceeding sixty days within which such statement may be filed . . ." (Emphasis added.) This does not create a duty to inform the taxpayer of its failure to file, however, nor does it require the assessor to allow an extension. In any event, the plaintiffs have not sought relief under this section.
The court need not address the plaintiffs' claims of manifestly excessive assessment or overvaluation for the years 2004-2006, as the court's judgment in the plaintiffs' favor renders these issues moot.
The IRS designation occurred on March 31, 1992, when C.C.C. was still known as Connecticut Counseling Foundation, Inc.; it changed its name to C.C.C. Real Estate, Inc. pursuant to an amended and restated certificate of incorporation on April 28, 1993.