Opinion
No. 21596.
October 1, 1951.
APPEAL FROM THE CIRCUIT COURT, COLE COUNTY, SAM C. BLAIR, J.
J. Andy Zenge, Jr., Canton, for appellants.
John L. Porter and George Senwartz, Jefferson City, for respondents.
This action was brought in the Circuit Court for judicial review of a final decision of the Industrial Commission of Missouri. The Commission had found that Culver-Stockton College, an educational institution, was not required to make contributions with reference to wages paid its employees because of the exemptions enumerated in Sec. 288.020(9) (5) (f), R.S. 1949. Upon review of the record the court set aside the finding and decision of the Commission and remanded the cause with directions to find that the college was not exempt under the above statute. From this judgment, the college appealed.
The facts are not in dispute, and we think the briefest and clearest manner of presenting the issues is to copy the material finding of facts and conclusions of law of the Commission.
"The Commission, after considering all of the evidence, finds the facts to be as follows:
"Culver-Stockton College, * * * a corporation, was issued a charter by the 17th General Assembly on January 28, 1853, under the name of Christian University [Laws 1852-53, p. 293]. On April 9, 1917, the name was changed to Culver Stockton College. The purposes of the corporation as announced by its charter are as follows: (Then is copied Sec. 2 of the charter declaring the college to be an educational institution, about which there is no dispute.)
"The charter further provides that gifts of money or property made to the college shall be strictly applied and used for the purposes intended and that they shall be faithfully applied by the trustees of the college in promoting the cause of education and in building up the university and to no other purposes. The trustees of the college are empowered to buy, sell, lease, or improve property so held. Nothing in the charter itself gives a tax-free status to any of the property held as an endowment by the college.
"The income of the college is derived from its endowments, gifts, and tuitions. No part of the net earnings of the college inures to the benefit of any shareholder or individual.
"About twenty-five years ago a building was given to the college by a local resident on an annuity payable during his lifetime. The building, known as the Martin Building, is situated in the downtown area of Canton, Missouri, about one mile from the college which is located on the outskirts of the town. For a number of years the building was used by a hardware concern. About 1938 the one hotel operating in Canton, * * * went out of business. Thereafter there were no facilities for housing visitors who came to Canton, * * in connection with the school's business. The inability of `college people' to find lodging accommodations became so serious that in 1940 a group of local business men, at the request of the president of the college, formed a hotel company and leased from the college the Martin Building previously referred to. The lease was for a period of five years. It was agreed that the hotel company would make every effort to take care of persons coming to Canton on business connected with the college. Alterations were made to the building and for a period of five years a seventeen-room hotel and grill were operated by the hotel company. Because of the desire of the manager to retire, the lease was not renewed at the expiration of the five-year period. On April 15, 1945, the college employed a manager and began operating the hotel and grill itself. It has continued to do so ever since. The manager is paid a salary. While the hotel and grill are open to the general public, individuals who come to Canton in connection with the affairs of the college are given preference. All guests are charged the same rates. No students are housed in the hotel. Faculty members are frequently housed in the hotel until they can find other living quarters. On several occasions faculty members, because of their inability to find housing, have resided in the hotel throughout the school term. The hotel and grill are open throughout the year except for short periods each summer when they are closed for cleaning and repairs. No evidence was available as to what percentage of the business of the hotel and grill came from so-called `college people' and what percentage came from other patrons.
"Licenses to operate the hotel and grill are in the name of Hotel Canton and Hotel Canton Grill, Culver-Stockton College, Inc. The same is true with respect to utilities. Any profit from the hotel and grill goes into the current fund of the college. The total income from the hotel and grill does not exceed one or two percent of the total income of the college. The hotel and grill, including the building, are valued at from forty to fifty thousand dollars. The total assets of the college are one million eight hundred thousand dollars. Title to the hotel property is held the same as all other college property.
"Conclusions of Law:
"Section 9423, R.S.Mo. 1939, as amended, (now Sec. 288.020, R.S. 1949, supra) provides in part as follows:
"(i) `Employment.'
* * * * * *
"(6) Shall not include:
* * * * * *
"(F) Service performed in the employ of a corporation, community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual;"
"The Commission finds that the net profits derived from the operation of the hotel constitute but a relatively small portion of the total income of the College, and that no part of the net earnings of the hotel inures to the benefit of any private shareholder or individual, and therefore the operation of the hotel is not a substantial deviation from the authorized educational purpose of the College. And the Commission concludes that the operation of the hotel does not destroy the exemption status of the College as a corporation organized and operated exclusively for educational purposes." (Italics supplied.)
The Commission entered an order accordingly.
Thereafter, and within the time allowed by law, the Division of Employment Security (plaintiff herein) filed its petition in the circuit court of Cole County seeking a review and reversal of the findings and order of the Commission. After due consideration the court found that the college is a corporation organized exclusively for educational purposes; that it owned and operated a commercial hotel in the city of Canton; that the operation of such hotel was for a commercial purpose and not for an educational purpose; that this commercial enterprise was substantial in nature and a substantial deviation from the authorized purpose of the college to such an extent that it deprived the college of any right of exemption under Sec. 9423 (1) (6) (f), R.S. 1939, (now Sec. 288.020, (9) (5) (f), R.S. 1949); and that the Industrial Commission erred in fact and in law in findings that all the services performed for wages in the employment of the college since April 15, 1945, are not services in "employment" within the meaning of such section and reversed and remanded the cause to the commission.
The statute, supra, requires that a corporation, to be exempt, must be "organized and operated exclusively" for the purposes therein named. In other words, the college must be both organized and operated exclusively for educational purposes in order to be excluded by the statute. Murphy v. Concordia Publishing House, 348 Mo. 753, 155 S.W.2d 122, 136 A.L.R. 1461; Chamber of Commerce of North Kansas City v. Unemployment Compensation Commission, 356 Mo. 323, 201 S.W.2d 771, 772. It is conceded that the college was organized and operated as an educational institution from its incorporation in 1853 until April 15, 1945, at which time is assumed the operation of the hotel and grill under the circumstances detailed above. Thus we are not concerned with the question whether the college was organized for educational purposes; that is conceded. The sole question is whether the college lost its exemption as an educational institution because of the operation of the hotel and grill.
This requires consideration of the meaning of the word "exclusively," as used in the statute. In cases involving questions of exemption from property taxes under Sec. 6, art. 10 of the 1875 Constitution, and Sec. 10937, R.S. 1939, it is said: "Used exclusively for religious worship, for schools, or for purposes purely charitable," has reference to the primary and inherent use as over and against a mere secondary and incidental use. Young Women's Christian Ass'n v. Baumann, 344 Mo. 898, 130 S.W.2d 499; Salvation Army v. Hoehn, 354 Mo. 107, 188 S.W.2d 826. The same rule has been followed in construing the statute now under consideration. In discussing the last two cases, and others of similar import, the Supreme Court, in Northeast Osteopathic Hospital v. Keitel, 355 Mo. 740, 197 S.W.2d 970, 976, said: "In examining these cases it has been noticed that the activities of a corporation claiming the exemption must be in accord with the primary (exempted) objective and round it out or dovetail into it — though slight, temporary, or in a words immaterial, deviations will not be fatal. * * * The objectives of Y[oung] W[omen's] C[hristian] A[ss'n] * * * and Salvation Army cases were both admittedly charitable, and the question was whether their activities conformed. Slight deviations were held not to be fatal. Substantial deviations would have been fatal." In Jackson County Medical Society v. Industrial Commission, 240 Mo.App. 924, 222 S.W.2d 948, 950, we said: "However, in order to be deprived of its exemptions it is necessary that an operation on which it engages and which is not educational, scientific and charitable, must be substantial in nature." (Italics ours.) To the same effect is the holding in Chased Shel Emeth Society v. Unemployment Compensation Commission, 356 Mo. 726, 203 S.W.2d 454; Better Business Bureau of Washington, D.C. v. United States, 326 U.S. 279, 66 S.Ct. 112, 90 L.Ed. 67. The last four cases cited relate to the question of exemption under the Unemployment Compensation Act.
Thus can it be said, under the evidence in this case, that the Commission erred in holding that the operation of the hotel and grill "is not a substantial deviation from the authorized educational purpose of the College?" In deciding this question we must keep in mind the rule that, in reviewing the finding and conclusions of a commission of this kind, we are authorized to determine, upon the whole record, whether the Commission could have reasonably made its finding and reached its result. Art. V, Sec. 22, Const.Mo. 1945. This does not mean that we are to arrive at our conclusion solely upon a review of the whole evidence and with a total disregard of the finding of the Commission and thereby substitute our judgment on the evidence for that of the administrative tribunal. We must decide from the whole of the evidence whether the Commission could have reasonably found as it did. We are not to set aside that finding unless it is clearly contrary to the overwhelming weight of the evidence. A. J. Meyer Co. v. Unemployment Compensation Comm., 348 Mo. 147, 152 S.W.2d 184; Meyer v. Industrial Commission, 240 Mo.App. 1022, 223 S.W.2d 835, 839. Citing an array of Missouri cases.
The plaintiff (Division of Employment Security) concedes that this is the law, but argues that there is no substantial evidence to support the finding that the operation of the hotel and grill is not a substantial deviation from the authorized educational purposes of the college. This contention is based on the premises that the Commission proceeded on the erroneous theory that the amount or extent of commercial activity which may be engaged in by an educational institution is to be measured solely by the amount of the endowment and income of the college; or, stated another way, that the findings were based solely on the fact that the percentage of income from commercial activity was only one or two percent of the total income of the college from all other sources. We do not so construe the finding of the Commission. The percentage of income from a commercial activity is only one fact to be considered in deciding whether an educational institution has substantially deviated from its primary objective. Other factors should also be considered. The evidence is conclusive that the college had no desire to enter into a competitive and profitable commercial activity. It assumed the operation of the hotel and grill when no other person or organization would do so and operated it at a small profit in 1947 and at a loss in 1948. There was no other hotel in Canton and the college authorities recognized the need for such facilities to accommodate persons having business with the college and the need for housing professors who taught there. The whole evidence justifies the conclusion that the operation of the hotel was a very minor and infinitesimal objective of the college. It would be the height of strict construction to hold that the operation of the hotel was a substantial deviation from the primary purpose of the college.
We are mindful of the settled rule that statutes authorizing exemptions of property from taxation are strictly construed, but strict construction must be a reasonable construction. Salvation Army v. Hoehn, supra; Missouri Goodwill Industries v. Gruner, 357 Mo. 647, 210 S.W.2d 38; St. Louis Council, Boy Scouts of America v. Burgess, Mo.Sup., 240 S.W.2d 684, 686.
The plaintiff stresses the Missouri cases of Chased Shel Emeth Society v. Unemployment Compensation Commission and Jackson County Medical Society v. Industrial Commission, supra. The first of those cases presented the question whether the operation of a Cemetery was a charitable objective and therefore exempt under the statute. After reviewing many authorities and the history of this legislation, the court held that cemeteries were not charities and therefore not exempt under the act. The court said, 203 S.W.2d at page 458: "We are of the opinion that the primary and dominant objective purpose of the appellant, as expressed in its charter and the manner in which it conducts its business, is to operate a cemetery for the burial of persons of the Jewish Faith." (Italics ours.) In the instant case the primary and dominant objective purpose of the college is education, a purpose exempted under the statute. In the Medical Society case we held, under the facts presented, that the operation of the Medical Business Bureau was a substantial deviation from operations claimed to be exempt. The facts and issues in those two cases make them inapplicable to the present question. However, both those cases to hold that a deviation must be substantial before an institution will be deprived of its exemption.
Respondents also cite cases, in this and other jurisdictions, which discuss the question of exemption of property from ad valorem taxes because of the particular use of that specific property. We do not believe the same strict construction should be followed in the instant case as in those cases, for the reason that in assessing the ad valorem tax it is assessed against the only specific property being used for other than religious, charitable or educational purposes, while in the instant case the levying of the social security tax, in effect, converts the College from an educational institution into a commercial business institution in so far as all of its employees are concerned. The ultimate effect and purpose of the two taxes are quite different. For this reason, we think a more reasonable and liberal approach should be adopted in deciding whether an institution, concededly organized for educational purposes, has forfeited its right to exemption by engaging in some inconsequential enterprise which is not strictly educational.
We recognize the rule that the presence of a single non-educational purpose, if substantial in nature, will destroy the exemption, regardless of the number of importance of truly educational purposes. Chased Shel Emeth Society v. Unemployment Compensation Commission, supra, 356 Mo. 726, 203 S.W.2d at page 458. However, that general rule does not answer the question whether the operation of the hotel and grill under the facts, was a substantial deviation from the primary purposes of the college.
The record discloses that the proper Administrative Agency of the federal government had ruled that the operation of the hotel and grill by the college did not deprive the college of its exemption under the Federal Unemployment Tax Act, 26 U.S.C.A. § 1600 et seq. Since our Unemployment Compensation Act copies the exemptions contained in the National Social Security Law, 42 U.S.C.A. § 301 et seq. and follows that law closely for the purpose of securing federal aid, we think the ruling of the federal agency is persuasive and entitled to respectful consideration, although not conclusive. Northeast Osteopathic Hospital v. Keitel, supra. It certainly lends support to the decision of our Commission on the same issue and substantially the same facts.
We agree with the Commission that the operation of the hotel and grill, under the facts, was not a substantial deviation from the primary purposes of the institution and did not deprive the college of its exemption under the law. Certainly there was substantial evidence to support the decision of the Commission and we will not disturb that ruling.
It follows that the judgment is reversed and the cause remanded with directions to affirm the decision of the Commission.
All concur.