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Okoboji Yacht v. Dickinson Cty. Bd.

Court of Appeals of Iowa
Nov 15, 2002
No. 2-400 / 01-1729 (Iowa Ct. App. Nov. 15, 2002)

Opinion

No. 2-400 / 01-1729.

Filed November 15, 2002.

Appeal from the Iowa District Court for Dickinson County, JOSEPH STRAUB, Judge.

Petitioner appeals from a decree awarding it a partial tax exemption for certain parcels of its property. AFFIRMED.

Ned A. Stockdale of Fitzgibbons Law Firm, Estherville, for appellant.

Edward W. Bjornstad, Spirit Lake, for appellee.

Considered by MAHAN, P.J., and ZIMMER and EISENHAUER, JJ. SACKETT, C.J., takes no part.


Okoboji Yacht Club Sailing School, Inc. (Sailing School), a nonprofit corporation that teaches people sailing safety and techniques, appeals from a decree awarding it a partial tax exemption for certain parcels of its property. It contends (1) its rental of its property to a nonprofit corporation to generate income does not disqualify the property from the tax exemption that Iowa Code section 427.1(8) (1999) grants to exempt organizations when the nonprofit tenant does not use the property for a commercial purpose or to earn a profit, and (2) one certain parcel is entitled to a full exemption because it is used for school purposes. We affirm.

I. BACKGROUND FACTS AND PROCEEDINGS.

The Sailing School enjoys tax-exempt status under section 501(c)(3) of the Internal Revenue Code. It was incorporated in 1975. The purpose of the school is for educational purposes pertaining to the teaching of boating and other safe water procedures to individuals in the vicinity of Lake Okoboji, according to its articles of incorporation.

Until 1981, all Sailing School activities were conducted from a small house owned by the Okoboji Yacht Club, Inc. (Yacht Club), a separate, nonprofit corporation. At that time, the Sailing Club acquired the real property that is at issue in this appeal. The property consisted of ten and a half acres of land and included ten or fifteen small cottages, a convention center, and a mobile home park. The Sailing School has retained the mobile home park but not the cottages. It used the convention center for a time as a classroom and for storage.

The tracts at issue in this appeal are identified as "004" (annex) and "014" (main sailing school building, beach, and boat slips). The Sailing School built the main school building in 1999. The basement level is used primarily for school activities, and the main floor is set up primarily as a lounge. The main floor could be used as a classroom, and videos are shown there at times.

The Sailing School leases its main building to the Yacht Club for the sum of $25,000 per year. The club uses the premises for the following events: sailing races on Wednesdays, Saturdays, and Sundays; sailing regattas and activities pertaining thereto; special sailing series; extra races; making up sailing races; social parties; meetings of Yacht Club members, the Board of Directors, and officers; and other times as permitted. Many of the participants in the Sailing School are from families who belong to the Yacht Club.

The basement of the annex is used to store various things owned by the Sailing School. The top floor includes the apartment of the school's director, Brad Farrar. Farrar lives on the school grounds all year long, although the school is only open for about ten weeks per year.

The Sailing School filed claims for tax exemption for parcels 004 and 014. The Dickinson County Assessor recommended to the Dickinson County Board of Review that no exemption be granted. However, the Board of Review determined that approximately twenty-five percent of the main building space and annex is used for educational purposes, and thus granted a twenty-five percent exemption for parcels 004 and 014.

The Sailing School appealed. The district court determined that the beach and dock area on parcel 014 are used by three different groups, as follows: the mobile home tenants, the Yacht Club members, and the Sailing School students. It found that the main building on that parcel was used fifty percent by the Sailing School for educational purposes and fifty percent by the Yacht Club. It noted that the Sailing School's use of the property was limited to between ten weeks and four months each year. It concluded the exemption for parcel 014 should be raised to forty percent.

The court determined that the annex on parcel 004 is used minimally for educational and charitable purposes. It concluded the apartment in the annex used by Farrar does not qualify for an exemption. Thus, it determined the exemption for parcel 004 should remain at twenty-five percent. The Sailing School appeals.

II. SCOPE OF REVIEW.

An appeal from a decision of a board of review regarding the tax assessment of property is in equity. Van Buren County Hosps. and Clinics v. Bd. of Review of Van Buren County, 650 N.W.2d 580, 585 (Iowa 2002). Accordingly, our review of tax exemption appeals is de novo. Id. Our determination in each case depends upon the unique facts and special circumstances presented. Id. We give weight to the trial court's fact-findings, but we are not bound by them. Id. The taxpayer seeking the exemption has the burden of proving an entitlement to tax-exempt status. Id. Such status must be proven by a preponderance of the evidence. Id.

III. PROPERTY TAX EXEMPTION.

The Sailing School claims that its rental of its property to a non-profit corporation (the Yacht Club) to generate income to support its exempt purpose does not disqualify the property from tax exemption, when it has not used the property for a commercial purpose or to earn a profit. It requests a full exemption rather than the partial exemption awarded by the district court. It contends the trial court erred in failing to apply section 427.1(14) (Supp. 1999) to this action. It argues the use of the facilities by the Yacht Club and use of the beach by the mobile home park tenants is consistent with the educational purpose of the Sailing School. The Board of Review maintains that the Sailing School is merely arguing that it is exempt as a charitable or educational institution, which the Board concedes.

Secondly, the Sailing School argues that its annex is entitled to a full exemption because it is used for school purposes. It claims that seventy-five percent of its space is devoted to educational purposes and the other twenty-five percent houses the executive director. This director, it argues, not only fosters its educational purpose, but also assures the safety and security of the property year round. The Board of Review counters that the Sailing School seeks to have this court consider the parcels separately and not as a whole, a position inconsistent with section 427.1(23) (1999), for purposes of valuation.

As a preliminary matter, we note that the parties agree with the determination that the Sailing School was entitled to an exemption pursuant to section 427.1(8). Therefore, the only matter facing us is whether the school should be awarded a partial or full exemption.

Authority for a partial tax exemption is found in section 427.1(14) (Supp. 1999):

The assessor, in arriving at the valuation of any property of the society or organization, shall take into consideration any uses of the property not for the appropriate objects of the organization and shall assess in the same manner as other property, all or any portion of the property involved which is leased or rented and is used regularly for commercial purposes for a profit to a party or individual. If a portion of the property is used regularly for commercial purposes, an exemption shall not be allowed upon property so used and the exemption granted shall be in the proportion of the value of the property used solely for the appropriate objects of the organization, to the entire value of the property.

Iowa Code § 427.1(14) para. 2 (emphasis added). We strictly construe these statutes, and any doubt about an exemption is resolved in favor of taxation. Carroll Area Child Care Ctr., Inc. v. Carroll County Bd. of Review, 613 N.W.2d 252, 254 (Iowa 2000).

We disagree with the Sailing School's argument that the trial court did not apply this statute. While the court did not specifically cite to it, the court nonetheless noted that "[t]he real issue in this case is to what extent are the sailing school facilities used in furtherance of the sailing school's educational endeavors." The trial court determined the school was entitled to only a partial exemption based on the manner in which it used its facilities. Implicit in the court's ruling is its application of section 427.1(14).

We conclude the Sailing School is entitled to only a partial exemption. The use of the school property by the Yacht Club is not for educating people about sailing and water safety. The club uses the property for meetings, social events, and races, among other things. These uses are not for the appropriate objects of the school. The Sailing School leases its property to the Yacht Club for commercial purposes for a profit. Therefore, the Sailing School is not allowed a full exemption from property taxes, but instead must pay a partial tax on the value of the property that it leases to the Yacht Club or otherwise is not used for the objects of the school.

Furthermore, we determine the Sailing School should not receive a full tax exemption for the property used by Farrar as an apartment. The school is in operation only ten weeks out of the year. While Farrar indicated it was necessary to his employment that he remain on the grounds year-round, his purpose other than the ten weeks of education is not only for the purposes of education. In fact, the record reveals he is primarily there for reasons other than education. For instance, he is able to allow people into the building and keep an eye on the grounds when the school is not in session. The Sailing School should not receive a full tax exemption for these purposes. Additionally, the Sailing School also provides boat slips for a fee to the mobile home park residents. The income is used for Sailing School activities. We disagree with the school's argument that because the revenue from these ventures is used for educational purposes, and because the Yacht Club is also a nonprofit corporation, there is no "commercial purpose for a profit." Indeed, the purposes of these endeavors are commercial in nature, and they raise a profit that helps to support the Sailing School.

We do not consider the Board of Review's argument that the Sailing School seeks to have this court consider the parcels separately and not as a whole, and that this is incorrect. The Board is essentially arguing that the forty-percent exemption awarded by the trial court is incorrect, and that the Sailing School is only entitled to a twenty-five percent exemption as to both parcels implicated in this appeal. The Board did not appeal or cross-appeal from the trial court's ruling. Therefore, it cannot challenge that ruling now. Fed. Land Bank v. Dunkelberger, 499 N.W.2d 305, 308 (Iowa Ct.App. 1993); Prestype, Inc. v. Carr, 248 N.W.2d 111, 121 (Iowa 1976).

We conclude that the Sailing School is entitled to only a partial property tax exemption. Upon our de novo review of the record, we agree with the trial court that the tax exemptions should be twenty-five percent for parcel "004" and forty percent for parcel "014." Thus, we affirm the trial court's ruling.

AFFIRMED.


Summaries of

Okoboji Yacht v. Dickinson Cty. Bd.

Court of Appeals of Iowa
Nov 15, 2002
No. 2-400 / 01-1729 (Iowa Ct. App. Nov. 15, 2002)
Case details for

Okoboji Yacht v. Dickinson Cty. Bd.

Case Details

Full title:OKOBOJI YACHT CLUB SAILING SCHOOL, INC., Petitioner-Appellant, v…

Court:Court of Appeals of Iowa

Date published: Nov 15, 2002

Citations

No. 2-400 / 01-1729 (Iowa Ct. App. Nov. 15, 2002)