ORDERS:
FINAL ORDER AND DECISION
STATEMENT
OF THE CASE
This
matter is before the Administrative Law Court (ALC or Court) pursuant to a
request for a contested case hearing filed by The Fellowship Society (The
Society). The Society challenges the South Carolina Department of Revenue’s
(Department’s) determination that The Society is not entitled, under S.C. Code
Ann. § 12-37-220(B)(12) (2000), to a property tax exemption for certain real
property. After notice of the date, time, place, and nature of the hearing was
timely given to all parties, a hearing was held at the ALC on January 8, 2008.
FINDINGS
OF FACT
Having observed the
witnesses and exhibits presented at the hearing and taking into consideration
the burden of persuasion and the credibility of the witnesses, I make the
following findings of fact by a preponderance of evidence:
Background
The Property at issue
is located at 1035 Jenkins Road, Charleston, South Carolina (Tax Map Number
351-14-00-074), and has two buildings on it. The Society leases one building for
which it has not requested tax exempt status. The property tax exemption is
requested only for the building used for meetings (the Hall) and related land,
which is .37 acres or 44.58% of the total .83 acres. The Hall was acquired out
of proceeds from the sale of a prior clubhouse on Kings Street which was sold
by The Society for $675,000 in 2000. The Society had owned the Kings Street property since 1904.
The Society applied for
the property tax exemption, which was denied by the Department on the basis
that The Society’s organizational documents did not require The Society to
provide charity and that the taxpayer had not, in fact, provided a sufficient
level of charity.
The Fellowship Society
The Society was founded
in 1762. The predecessor corporation was incorporated by an Act of the General
Assembly of the then-colony of South Carolina on August 23, 1769. In 2004, The
Society incorporated under the S.C. Nonprofit Act as a public benefit
corporation under Title 33, Chapter 31. The Articles of Incorporation contain
three optional provisions. These state as follows:
1. Notwithstanding any other provisions of these articles, the purposes for which the corporation is organized are exclusively religious, charitable, scientific, literary, and educational within the
meaning of 501(c)(3) of the Internal Revenue code of 1986 or the corresponding
provision of any future United States Internal Revenue law.
2. Notwithstanding any other provisions of these articles,
this organization shall not carry on any activities not permitted to be
carried on by an organization exempt from Federal income tax under section
501(c)(3) of the Internal Revenue Code of 1986 or the corresponding
provision of any future United States Internal Revenue law.
3. Upon dissolution of the corporation, assets shall be
distributed for one or more exempt purposes within the meaning of Section
501(c)(3) of the Internal Revenue Code of 1986 or the corresponding provision
of any future federal tax code, or shall be distributed to the federal
government, or to a state or local government for a public purpose. Any such
assets not so disposed of shall be disposed of by the Court of Common Please of
the county in which the principle office of the corporation is then located,
exclusively for such purposes or to such organization or organizations, as said
court shall determine, which are organized and operated for such purposes.
(emphases added). The Society has
no paid employees and it is exempt from federal income taxes. It was
originally formed to establish a hospital, but it later abandoned that goal.
According to the bylaws adopted by The Society in 2005, the aim of The Society
is “the preservation of its traditions and charity to fellow members in
sickness and distress.”
The Society holds business meetings on Wednesday
evenings, every week of the year. Most of the members meet before the business
meeting, which starts at 8:00 p.m., to socialize. Every other Wednesday, the
members have a meal together. The members take turns preparing the meals. The
Society also holds an annual meeting on the second Monday of March. At that
meeting, the members dine together and elect their officers. All of The
Society’s meetings are recorded in its minute books. The Society also holds a
variety of special events, including a Christmas party, New Year’s Day
luncheon, and an annual banquet.
The Society has five standing committees, including
the Committee on Relief. The Committee on Relief checks on those
members who “haven’t been around for a while,” and it sends a card or gift to
those members who are in the hospital. Additionally, according to The
Society’s bylaws, the Committee on Relief sends flowers to the funerals of
members, as well as to the funerals of spouses, unmarried children, and parents
of members.
For a week each summer,
members of The Society travel to Camp Happy Days, a camp for children with
cancer, to prepare meals for the children at the camp. Additionally, in the fall,
members prepare meals for Family Camp, a weekend event for the families of
children with cancer. The Society also holds an annual oyster roast to raise
money for Camp Happy Days. In 2005, after Hurricane Katrina hit the Gulf Coast, members of The Society travelled to Mississippi and prepared meals for the National
Guard and law enforcement officers. The members also travelled to Florida to provide similar relief after Hurricane Ivan hit in 2004. Furthermore, in 2005,
The Society established a charitable fund in memory of a deceased member and,
the following year, donated $2,500 from the fund to the Exchange Club of
Charleston.
Those seeking to become a member of The Society must
first act as a guest to a member on at least three occasions. If they are
nominated for membership, The Society looks into their background and then brings
them up for a vote. According to The Society’s bylaws, newly-admitted members
must be given a membership certificate with The Society’s seal affixed thereto
and must subscribe to The Society’s pledge.
The Society uses the Hall, which is adorned with portraits of former presidents and other items
demonstrating the long history of The Society, for conducting its business, regular weekly meetings, annual meetings and
annual banquets. The Hall is used almost exclusively for The Society, and it
contains, among other rooms, a meeting room, library, kitchen and game room
(with pool table, dart board and shuffleboard).
It is open year round for the enjoyment of its members except on days with
regularly scheduled events.
CONCLUSIONS
OF LAW
This Court has subject
matter jurisdiction in this case pursuant to S.C. Code Ann. § 1-23-310 et
seq. (2005 & Supp. 2007) and S.C. Code Ann. § 12-60-460 (Supp. 2007).
The hearing before the ALC is a contested case hearing pursuant to the APA and
is heard de novo. Marlboro Park Hosp. v. S.C. Dep’t of
Health and Envtl. Control, 358 S.C. 573, 595 S.E.2d 851 (2004). The proper
standard of proof to be applied is a preponderance of the evidence. Anonymous
(M-156-90) v. State Bd. of Med. Examiners, 329 S.C. 371, 496 S.E.2d 17
(1998); National Health Corp. v. Dep’t of Health and Envtl. Control, 298
S.C. 373, 380 S.E.2d 841 (Ct. App. 1989). Furthermore, the burden of proof is
upon the party asserting the affirmative of an issue and, therefore, The
Society bears the burden in this case of proving that the Department’s decision
was in error. Leventis v. Dep’t of Health and Envtl. Control, 340 S.C.
118, 530 S.E.2d 643 (Ct. App. 2000).
The Society applied for
the property tax exemption citing S.C. Code Ann. § 12-37-220(B)(12) (2000) as
the basis for the exemption. Section 12-37-220(B)(12) provides that:
(B) In addition to the exemptions
provided in subsection (A), the following classes of property are exempt from
ad valorem taxation subject to the provisions of § 12-4-720:
* * *
(12) The property of any fraternal society, corporation or
association, when the property is used primarily for the holding of its
meetings and the conduct of its business and no profit or benefit therefrom
shall inure to the benefit of any private stockholders or individuals.
Thus, to qualify for the exemption,
The Society must satisfy the following three conditions: (1) that it is a
fraternal organization; (2) that the Hall is used primarily for the holding of
The Society’s meetings and the conduct of its business; and (3) that no profit
or benefit from such business shall inure to the benefit of any individual
member. Hibernian Soc’y v. Thomas, 282 S.C. 465, 469, 319 S.E.2d 339,
342 (Ct. App. 1984).
The Department
concedes that The Society uses the Hall primarily for the holding of its
meetings and that there is no private inurement. Nevertheless, the Department
contends that to constitute a “fraternal” organization, the organization must have
both a fraternal and a charitable component. Following that assumption, the
Department reviewed The Society’s organizational documents to determine whether
it had a sufficient charitable component to its organization. The Department
found that The Society’s organizational structure and operations did not demonstrate
that The Society was suitably engaged in charitable work.
Charitable
Function
“As a general rule, tax
exemption statutes are strictly construed against the taxpayer.” Hibernian,
282 S.C. at 470, 319 S.E.2d at 342. “This rule of strict construction simply
means that constitutional and statutory language creating tax exemptions will
not be strained or liberally construed in the taxpayer’s favor.” Id. It does not mean that a court will search for an interpretation in the taxing
authority’s favor where the plain and unambiguous language of the statute leaves
no room for such a construction. Southeastern-Kusan, Inc. v. S.C. Tax
Comm’n, 276 S.C. 487, 489, 280 S.E.2d 57, 58 (1981).
Here, S.C. Code
Ann. § 12-37-220(B)(12) provides for an exemption from ad valorem taxation of
the property of a fraternal society that is used primarily for the holding of its
meetings and “no profit or benefit” from the organization’s business inures to “any
private stockholders or individuals.” That Section, however, does not provide
that a fraternal society or association must do some charitable act(s) in order
to receive an exemption. The Department nevertheless asserts that the Court of
Appeals’ definition of a fraternal organization in Hibernian, 282 S.C.
465, 319 S.E.2d 339, mandates that a charitable requirement be read into
Section 12-37-220(B)(12).
In Hibernian, the
Court of Appeals concluded that the Hibernian Society was a fraternal
organization entitled to exemption from taxation under Section 12-37-220(B)(12)
for real property that it owned. In reaching its decision, however, the court
did not specifically define fraternal organization but rather relied upon
definitions set forth in two cases from other jurisdictions: In Re Mason
Tire & Rubber Co., 11 F.2d 556 (D.C. Cir. 1926); and First National
Bank in Dallas v. Comm’r, 45 F.2d 509 (5th Cir. 1930).
In Mason Tire,
the issue before the court was specifically whether the National Safety Council
was a fraternal organization. In determining that the Council was such an organization,
the court defined a fraternal organization as “[a]ny society organized for the
accomplishment of some worthy object through the efforts of its members working
together in brotherly union, especially if it be organized not for selfish
gain, but for the benefit of the membership or for the benefit of the membership
and men in general.” Mason Tire, 11 F.2d at 557. Thus, under the Mason
Tire definition, to be a fraternal organization, an organization does not
necessarily have to be organized for the benefit of “men in general;” rather, it
may be organized simply for the benefit of “the membership” as long as it meets
the other requirements of the definition.
In First
National, the issue before the court was less germane to the issue in Hibernian or to the present case. In that case, the court was faced with the question of
whether a donation to the York and Scottish Rites of Masonry constituted a gift
to a corporation “organized and operated exclusively” for charitable purposes.
The court determined that the Masonry, a fraternal organization, was not operated exclusively for charitable purposes. In reaching that determination,
the court held that “[f]raternal organizations may be described generally as
social in their nature, and designed not exclusively for charitable purposes
but for the enjoyment of their members in many ways.” First National, 45
F.2d at 511. Thus, the reference to a charitable purpose in First National related not to a requirement that fraternal organizations be engaged in charitable
works. Rather, the First National court simply recognized that
fraternal organizations like the Masonry are not generally operated exclusively
for charitable purposes.
Returning to Hibernian,
the Hibernian Society was an organization that was originally formed to aid in
the assistance of immigrants from Ireland. At the time of its formation, as
well as at the time of the case, the Hibernian Society was “an organization of
men with various social and charitable objectives.” Hibernian, 282 S.C.
at 468, 319 S.E.2d at 341. Its “principal charitable orientation” at the time
of the case was “toward the granting of college scholarships to worthy
students.” Id. The Hibernian Society was also a “social organization” in which
members would meet at the organization’s hall “on an informal basis to
associate with each other and enjoy good fellowship.” Id. It held regular monthly
meetings, as well as an annual meeting, to conduct its charitable and social
activities.
In determining
whether the Hibernian Society constituted a fraternal organization within the
meaning of 12-37-220(B)(12), the court first addressed the issue of whether the
social activities of the Hibernian Society precluded it from being a fraternal
organization. Relying on Mason Tire and First National, the
court concluded that they did not, holding, “it is clear that a fraternal
organization can be formed with a charitable purpose but not exclusively to
that end; the members thereof may benefit socially from their organization.” Id. at 470, 319 S.E.2d at 342. The court then turned to the ultimate issue in the
case – whether the Hibernian Society was a fraternal organization. In
concluding that the Society was such an organization, the court noted that the
Society was “formed with the purpose, inter alia, of engaging in charitable
work which purpose presently exists.” Id. However, nowhere in the
opinion did the court expressly state that charitable work is a
requisite to being a fraternal organization. This is significant since,
under the Mason Tire definition of a fraternal organization, a variety
of organizations could be considered fraternal (including some that are not organized
to benefit the general public).
Furthermore, in South Carolina “[w]here a word is not defined in a statute, our appellate courts have
looked to the usual dictionary meaning to supply its meaning.” Lee v.
Thermal Engineering Corp., 352 S.C. 81, 91-92, 572 S.E.2d 298, 303 (Ct.
App. 2002); see also Hibernian, 282 S.C. at 470, 319 S.E.2d at
342. (“[T]he language of a tax exemption statute must be given its plain and
ordinary meaning.”). A review of several dictionaries evidences no definition
of “fraternal” that mentions charity. See, e.g., Blacks Law
Dictionary 455 (7th ed. 1999); American Heritage College
Dictionary 541 (3rd ed. 1993); Merriam-Webster’s Online Dictionary, http://www.merriam-webster.com/dictionary.
In fact, other state courts have concluded that an organization can be
fraternal even where it is not organized to perform charitable works. For
instance, in Woman’s Club of Little Falls v. Township of Little Falls,
26 A.2d 739 (N.J. Bd. of Tax Appeals 1942), the New Jersey Board of Tax Appeals
addressed the issue of whether two separate organizations, the Woman’s Club of
Little Falls and the Forum Club of Madison, constituted fraternal organizations
exempt from property tax. The court reviewed the decision in Alpha Rho
Alumni Ass’n v. City of New Brunswick, 18 A.2d 68 (N.J. Sup. Ct. 1941), aff’d, 21 A.2d 737 (N.J. 1941), and concluded that:
[W]e are to accord exemption to the
property of any organized body of men (or of women, or both) who are banded
together, not for pecuniary profit, but for mutual assistance, and to promote
moral, intellectual or social benefits among the members, if the property is
used for the purposes of the organization. . . . To this extent, it now
appears that we are not to seek for and require, as a condition for exemption
under R.S. Section 54:4-3.26, N.J. 54:4-3.26, any showing of benefit to the
general public, over and above, or other than such as incidentally flows from
the activities of a fraternal organization . . .
Woman’s Club, 26 A.2d at 741
(emphasis added).
The court then held that the Woman’s Club of Little Falls was a fraternal
organization, noting that “[t]he actual activities of the organization are
those, typically, of hundreds of such clubs in the state, primarily for
social purposes and to foster programs designed to edify the
members along cultural lines.” Id. (emphases added). The court
also held that the Forum Club of Madison was a fraternal organization, stating:
This organization appears from the testimony to be, in every
respect but its name, a fraternal organization, with a ritualistic initiation
ceremony for the admission of members, and operating a club building containing
meeting and committee rooms, a reading room, card room, and a bar restricted to
members of the organization. While, as seen above, it is not necessary
under the Alpha Rho case for a fraternal organization to engage in charitable
or community activities to qualify for exemption, this petitioner does
maintain a regular program of charitable activities on behalf of
underprivileged and needy children and families in its community.
Id. (emphasis added).
More recently, in Boise Cent. Trades & Labor Council, Inc. v. Bd. of Ada County Comm’rs, 831
P.2d 535 (Idaho 1992), the Idaho Supreme Court, in addressing whether a labor
council constituted a fraternal organization entitled to a property tax
exemption under Idaho law, concluded that to be “fraternal” an organization “must
be established to achieve some worthy objective which benefits its members or
benefits men and women in general, without regard to profit.” Id. at 538. The court also determined that, in applying this definition of
fraternal, courts should consider “the stated purposes of the petitioning
organization’s undertaking and whether the petitioning organization functions
as a fraternal organization as it is defined.” Id. The court then set
forth the stated purposes of the labor council and held:
It is clear from [the Labor Council’s] stated purposes that
the Labor Council was organized to benefit its members. The record also
shows that the Labor Council was established to benefit its members without regard to profit. . . . Furthermore, consistent with its stated
purpose, the Labor Council, through the use of the Labor Temple, provided
offices, conference rooms and a meeting room at a reduced rate to its member
tenants. Accordingly, the record is sufficient to support the trial court’s
finding that the Labor Council is a fraternal organization within the In re
Mason Tire definition which we adopt.
Id. at 539 (emphases added).
Thus, like the D.C. Circuit in Mason Tire, the Idaho Supreme Court in Boise concluded that to be “fraternal” an organization does not necessarily have to
be organized to benefit individuals outside of the organization’s membership.
Finally, the cardinal
rule of statutory interpretation is to ascertain the intent of the
legislature. State v. Scott, 351 S.C. 584, 588, 571 S.E.2d 700,
702 (2002). In determining that intent, the “words in a statute must be
construed in context.” Southern Mut. Church Ins. Co. v. South
Carolina Windstorm & Hail Underwriting Ass’n, 306 S.C. 339, 342, 412
S.E.2d 377, 379 (1991). Additionally, “[i]n ascertaining the intent of the
legislature, a court should not focus on any single section or provision but
should consider the language of the statute as a whole.” Mid-State Auto
Auction v. Altman, 324 S.C. 65, 69, 476 S.E.2d 690, 692 (1996). Here, Section
12-37-220(B)(12) contains no specific charitable requirement. To the
contrary, Section 12-37-220 (A)(4) provides that “charitable trusts and
foundations used exclusively for charitable and public purposes” may receive an
exemption for the “buildings and premises actually occupied by the owners of
the real property.” Therefore, looking at the statute as a whole, it is clear
that if the General Assembly had intended for Section 12-37-220(B)(12) to
contain a charitable component, it certainly could have imposed that condition
as it did in Section 12-37-220(A)(4). For these reasons, the Court concludes
that Section 12-37-220(B)(12) does not contain a charitable component.
Fraternal
Function
With this
conclusion in mind, the Court now addresses the primary issue presented here –
whether The Society constitutes a fraternal organization under Section
12-37-220(B)(12). While several definitions of fraternal organization have
been discussed herein, the Court concludes that the Mason Tire definition is the most appropriate one for this Court to adopt. To restate, Mason Tire provides that a fraternal organization is “[a]ny society organized for the
accomplishment of some worthy object through the efforts of its members working
together in brotherly union, especially if it be organized not for selfish
gain, but for the benefit of the membership or for the benefit of the
membership and men in general.” Mason Tire, 11 F.2d at 557.
As both Hibernian and Boise make clear, in applying this definition, courts should consider
the organization’s stated goals and purposes as well as its actual activities. Moreover,
courts should also keep in mind that the determination of an organization’s
fraternal status is “necessarily an individual matter, to be decided on a case
by case basis.” Boise, 831 P.2d at 538.
Here,
The Society is organized under South Carolina law as a nonprofit corporation,
and it has no paid employees. It annually elects officers, holds weekly and
annual meetings, and keeps minutes of all meetings held. The Society’s bylaws declare
that the aim of The Society is, inter alia, to provide “charity to fellow members
in sickness and distress,” and The Society does in fact look after the welfare
of its members through its Committee on Relief. Furthermore, members of The
Society pledge to make The Society “desirable and attractive to others,” and
they frequently engage in activities that promote camaraderie, such as cooking
and dining with one another. Additionally, The Society’s Hall is decorated in
a way that fosters a sense of shared history among its members, and it contains
rooms designed for socializing, such as a meeting room and a game room. Finally,
while, as discussed above, it is not necessary for The Society to engage in
charitable activities to qualify for exemption, members do, among other things,
regularly get together to prepare meals and engage in fundraising activities
for children with cancer. Based on these facts, the Court concludes that The
Society constitutes a fraternal organization under Section 12-37-220(B)(12).
ORDER
Based upon the above
findings of fact and conclusions of law, it is hereby:
ORDERED that The
Fellowship Society is entitled to an ad valorem property tax
exemption for the building used for meetings on .37 acres at 1035 Jenkins Road, Charleston, South Carolina.
AND IT IS SO
ORDERED.
_________________________________
Ralph
King Anderson, III
Administrative
Law Judge
May 5, 2008
Columbia, South Carolina
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