Appeal by taxpayer from decision entered 25 March 2003 by the
North Carolina Property Tax Commission. Heard in the Court of
Appeals 26 April 2004.
Maupin Taylor, P.A., by Charles B. Neely, Jr., Nancy S.
Rendleman and Kevin W. Benedict, and Di Santi, Watson & Capua,
by Anthony S. di Santi, for taxpayer Appalachian Student
Housing Corporation.
Hedrick & Eggers, by Jeffery M. Hedrick, and Eggers, Eggers,
Eggers & Eggers, by Rebecca Eggers-Gryder and Stacy C. Eggers,
IV, for Watauga County.
MARTIN, Chief Judge.
Appalachian Student Housing Corporation (ASHC) appeals from a
decision by the North Carolina Property Tax Commission holding that
real property held in trust by ASHC for Appalachian State
University (ASU) was not exempt from ad valorem taxation by Watauga
County (County).
The subject property is known as the University Highlands
apartment complex, which is situated on a 37.269 acre lot in
Watauga County, located approximately two and one-half miles from
the ASU campus. ASU Students began moving into the complex as
tenants in August 2000. The property contains ten buildings that
have 768 bedrooms in two and four-bedroom apartments. Each
apartment at University Highlands is connected to the ASU computer
network. A management and maintenance office, study carrels, group
study and meeting space, a computer lab, and a clubhouse are
located on the property, in addition to weightlifting equipment,
aerobic exercise space, tennis courts, basketball goals, a walking
trail and a swimming pool.
ASHC manages the daily operations of University Highlands
apartments. ASHC limits rental availability to ASU students,
though some students at community colleges that participated in the
Appalachian Learning Alliance program were initially allowed to
live in University Highlands. Each potential lessee must prove his
or her current enrollment status at ASU before being granted a
lease. The lease terms for the apartments mirror ASU's academic
calendar. If a student has a complaint concerning the operation of
University Highlands he or she must appeal that matter to the ASU
Office of Student Development, which is the same process that isfollowed when a student has a complaint while living in a
traditional ASU residence hall.
Plans to build University Highlands took shape in 1998, when
ASU faced a student housing shortage due to aging residence halls
and an increase in student enrollment. The Board of Governors of
the University of North Carolina endorsed the use of privately
funded student housing in order to meet this need. At least four
other UNC-system member schools have developed plans to construct
student housing managed by non-profit corporations for those
institutions, including North Carolina Agricultural and Technical
University, the University of North Carolina at Pembroke,
Fayetteville State University and Winston-Salem State University.
ASHC was originally incorporated as ASU Housing Foundation,
Inc. (Housing Foundation) on 19 August 1999 by ASU as a non-profit
corporation to fund construction of the project and manage
University Highlands once construction was complete. The Articles
of Incorporation stated “the purpose of ASU Housing Foundation
shall be to develop, finance, prepare, provide and supervise
residential housing facilities for the students and faculty of
[ASU].” In the event of dissolution of the corporation, all its
corporate assets are to be transferred to ASU. The ASU Chancellor
and two Vice Chancellors served as officers and directors of
Housing Foundation. The ASU Board of Trustees approved the
construction project and formation of the corporation.
After construction of the University Highlands complex was
completed in September 2000, ASHC bought the real property and
improvements from the developer for approximately $24 million. On7 June 2001, ASHC and ASU executed a document entitled “Trust
Agreement”, which contained the following clause:
All funds and property received by ASHC shall
be held in trust and used or expended for the
benefit of ASU to the extent such expenditure
is not inconsistent with lawful restrictions.
. . ASHC may, from time to time, transfer any
net revenue from its operations to ASU for
support of student housing acquisition,
development and operation. ASHC shall not
transfer any funds or other assets to any
person or entity other than ASU except in
exchange for capital assets, goods or services
at fair market value.
ASHC qualified for tax exempt status under the Internal Revenue
Code as a section 501 (c)(3) non-profit corporation and is not
subject to State or Federal income taxes. On 27 June 2000, ASHC
and the Town of Boone executed an agreement which prohibits ASHC
from transferring legal title to the property to ASU until 2025.
On 9 February 2001, ASHC requested a property tax exemption
from Watauga County for the 2001 tax year, which was denied by the
Watauga County Board of Commissioners on 21 August 2001. ASHC
timely filed an appeal to the North Carolina Property Tax
Commission (Commission) on 13 September 2001. On 11 January 2002,
ASHC filed an application for a property tax exemption for the 2002
tax year, which was denied on 10 October 2002. The Commission,
sitting as a board of equalization and review, consolidated ASHC's
appeals from the 2001 and 2002 tax exemption applications.
The Commission affirmed the County's denial of exemption after
the presentation of ASHC's evidence. The Commission found: ”The
operation of a student housing facility is not a use that qualifies
under the statutes of North Carolina as an educational purpose” and
that “the subject student housing facility is not owned byAppalachian State University[.]” As a result, the Commission
concluded, in pertinent part:
4. The Taxpayer, Appalachian Student Housing
Corporation, did not show that the
subject property is wholly and
exclusively used for an educational
purpose since student housing is not an
activity that is naturally and properly
incident to the operation of an
educational institution. Thus, the
subject property is not used for an
educational purpose and is not entitled
to exemption pursuant to N.C. Gen. Stat.
§ 105-278.4.
5. The Taxpayer has failed to prove that the
use of the subject property in question
was wholly and exclusively for charitable
or educational, scientific or literary
purposes. The Taxpayer neither meets the
ownership or use requirements for an
exemption from ad valorem taxation
pursuant to N.C. Gen. Stat. §§ 105-278.6
or 105-278.7.
6. The Taxpayer's exemption requests for the
subject property must be denied because
the subject property is not entitled to
exemption from ad valorem taxation
pursuant to N.C. Gen. Stat. § 105-278.1.
______________________________________________
I.
The standard of review for decisions of the Property Tax
Commission is contained within N.C. Gen. Stat. § 105-345.2(b):
So far as necessary to the decision and where
presented, the court shall decide all relevant
questions of law, interpret constitutional and
statutory provisions, and determine the
meaning and applicability of the terms of any
Commission action. The court may affirm or
reverse the decision of the Commission,
declare the same null and void, or remand the
case for further proceedings; or it may
reverse or modify the decision if the
substantial rights of the appellants have beenprejudiced because the Commission's findings,
inferences, conclusions or decisions are:
(1) In violation of constitutional
provisions; or
(2) In excess of statutory authority or
jurisdiction of the Commission; or
(3) Made upon unlawful proceedings; or
(4) Affected by other errors of law; or
(5) Unsupported by competent, material and
substantial evidence in view of the
entire record as submitted; or
(6) Arbitrary or capricious.
N.C. Gen. Stat. § 105-345.2(b)(2003). “In making the foregoing
determinations, the court shall review the whole record or such
portions thereof as may be cited by any party . . . .” N.C. Gen.
Stat. § 105-345.2(c)(2003).
In its review, “[t]he court may not
consider the evidence which in and of itself justifies the
[Commission's] decision without [also] taking into account the
contradictory evidence or other evidence from which conflicting
inferences could be drawn.”
In re Moses H. Cone Memorial Hospital,
113 N.C. App. 562, 571, 439 S.E.2d 778, 783 (1994)(citation
omitted). “[T]he legal effect of evidence and the ultimate
conclusions drawn by an administrative tribunal from the facts . .
. are questions of law” that are decided under
de novo review.
Employment Security Com. v. Kermon, 232 N.C. 342, 345, 60 S.E.2d
580, 583 (1950);
see In re Appeal of The Greens of Pine Glen Ltd.
Part., 356 N.C. 642, 647, 576 S.E.2d 316, 319 (2003). However,
“the 'whole record' test is not a tool of judicial intrusion;
'instead, it merely gives a reviewing court the capability to
determine whether an administrative decision has a rational basis
in the evidence.'”
In re Appeal of Owens, 132 N.C. App. 281, 286,
511 S.E.2d 319, 323 (1999)(citation omitted). The taxpayer, ASHC, bears the burden of proving that its
property meets the requirements of an
ad valorem taxation
exemption.
See In re Appeal of Atlantic Coast Conference, 112 N.C.
App. 1, 4, 434 S.E.2d 865, 867 (1993),
aff'd per curiam, 336 N.C.
69, 441 S.E.2d 550 (1994). “The general rule established by the
Constitution is that all property in this State is liable to
taxation, and shall be taxed in accordance with a uniform rule.
Exemption of specific property, because of its ownership by the
State or by municipal corporations, or because of the purposes for
which it is held and used, is exceptional.”
Hospital v. Rowan
County, 205 N.C. 8, 10, 169 S.E. 805, 806 (1933)(quoting
Latta v.
Jenkins, 200 N.C. 255, 156 S.E. 857 (1931)). The taxation laws
“should be construed strictly, when there is room for construction,
against exemption and in favor of taxation.”
Hospital, 205 N.C. at
11, 169 S.E. at 806.
[1] Here, ASHC argues that the property in question should be
exempted from
ad valorem taxation for several reasons: (1) the
property belongs to the State, exempting the property under N.C.
Const. art. V, § 2 and N.C. Gen. Stat. §§ 116-16 and 105-278.1(b);
(2) the property is owned by a non-profit educational organization
and is used exclusively for educational purposes, exempting the
property under N.C. Gen. Stat. § 105-278.4; and (3) the property is
owned by a non-profit charitable organization and is used
exclusively for charitable purposes, exempting the property under
N.C. Gen. Stat. § 105-278.7. The Property Tax Commission rejected
each basis for ASHC's request for exemption. The North Carolina Constitution states: “Property belonging to
the State, counties, and municipal corporations shall be exempt
from taxation.” N.C. Const. art. V, § 2(3). This exemption for
State-owned property is reiterated in N.C. Gen. Stat. § 105-
278.1(b)(2003): “Real and personal property belonging to the State,
counties, and municipalities is exempt from taxation.”
Specifically, the General Assembly has stated that “[t]he lands and
other property belonging to the University of North Carolina shall
be exempt from all kinds of public taxation.” N.C. Gen. Stat. §
116-16 (2003). Appalachian State University is part of the
University of North Carolina.
See N.C. Gen. Stat. § 116-4 (2003).
Therefore, all real and personal property owned by ASU is owned by
the State of North Carolina and exempt from taxation.
ASHC contends that the University Highlands apartment complex
was owned by ASU and therefore is tax-exempt. ASHC argues that
while it holds legal title to the property, ASU holds equitable
title to the property according to the terms of the 7 June 2001
Trust Agreement. This beneficial ownership, according to ASHC, is
sufficient to trigger the exemption from taxation contained within
the North Carolina Constitution and the General Statutes.
The question of whether equitable title to property held in
trust qualifies as property “belonging to” the State of North
Carolina is one of first impression. Therefore, we must determine
the meaning of the phrase “belonging to” as it was used in the
North Carolina Constitution, art. V, § 2(3) and N.C. Gen. Stat. §
105-278.1(b). The North Carolina Attorney General has published an advisory
opinion that attempted to define “belonging to” as it was used in
G.S. § 105-278.1(b). 2000 N.C. AG LEXIS 1. The Town of Ocean Isle
Beach, which leased real property from a private owner to provide
public beach access and parking, requested the Attorney General's
opinion as to whether, by reason of the Town's leasehold interest,
such property qualified as property “belonging to” the State under
G.S. § 105-278.1(b) so as to be exempt from taxation. The Attorney
General opined that the language “belonging to” meant having title
to a parcel of land or owning the parcel of land.
In
In re Forestry Foundation, 296 N.C. 330, 250 S.E.2d 236
(1979), the North Carolina Supreme Court affirmed a Property Tax
Commission decision denying an
ad valorem taxation exemption
request, for property owned by the North Carolina Forestry
Foundation, Inc., a nonprofit corporation. The Foundation was
created to develop new forestry methods and improve timber growing,
while also giving financial assistance to the Division of Forestry
at North Carolina State University.
Forestry, 296 N.C. at 331, 250
S.E.2d at 237-38. The Foundation acquired approximately 80,000
acres of land known as the Hoffman Forest, located in Onslow and
Jones County.
Forestry, 296 N.C. at 332, 250 S.E.2d at 238
. In
1945, the Foundation granted a 99-year lease to a paper company,
which began logging operations on the property.
Id. Students from
North Carolina State University's forestry program were still
permitted to conduct research in the Forest.
Forestry, 296 N.C. at
333, 250 S.E.2d at 238-39. The Supreme Court held that the Forest
was not used exclusively for educational or charitable purposesbecause the paper company was using the property commercially as
well, so the property did not qualify for a tax exemption under
G.S. §§ 105-275, 105-278.4, and 105-278.6.
Forestry, 296 N.C. at
339-40, 250 S.E.2d at 241-42. With regard to the State ownership
exemption, the Court held as follows:
We note that the Foundation is the sole owner
of the Forest. Examination of this record
discloses that the University of North
Carolina has no
legal or equitable title to
the land in question. Thus, the land simply
does not “belong” to the University of North
Carolina.
Forestry, 296 N.C. at 340, 250 S.E.2d at 242 (emphasis added). By
implication, the Court indicated that either legal or equitable
title held by the Foundation would have qualified the property for
the state ownership exemption.
Conversely, in
Latta v. Jenkins, 200 N.C. 255, 156 S.E. 857
(1931), a trustee held title to real property according to the
terms of a will, which directed the trustee to sell the property
and dedicate 55% of the proceeds from the land sale to various
religious and charitable institutions.
Latta, 200 N.C. at 257, 156
S.E. at 858. The trustee applied for a tax exemption under the use
statutes, claiming that the proceeds from the land would be used
for charitable, educational and religious purposes in accordance
with the statutes.
Id. However, the Supreme Court refused to
exempt the property from taxation since none of the beneficiary
organizations owned or occupied any part of the property during the
tax year in question.
Latta, 200 N.C. at 259, 156 S.E. at 859.
The Court reasoned: In the instant case, the title to all the
property on which taxes were levied by
Buncombe County for the year 1928, was in the
plaintiff, as trustee. The beneficiaries of
the trusts had no right, title or interest in
the property. They had the right only to
certain percentages of the proceeds of the
sale of the property, to be paid to them by
the plaintiff after the sale of the property
at any time within five years from the date of
the judgment and decree of the Superior Court
of Mecklenburg County, at December Term, 1927.
Latta, 200 N.C. at 259, 156 S.E. at 859. The denial of the tax
exemption in
Latta was based upon the use exemption. Since the
terms of the trust instructed that the beneficiaries only had an
interest in the profits from the sale of the land and not an
interest in the rents from the land or a possessory interest in the
land itself, the Court held that the land was not presently being
used for charitable, religious or educational purposes.
Watauga County contends that our decision in this matter is
controlled by
Atlantic R.R. v. Commissioners, 75 N.C. 474 (1876).
In
Atlantic, the State owned two-thirds of the capital stock in the
Atlantic and North Carolina Railroad (Railroad).
Atlantic, 75 N.C.
at 474. The State's controlling interest in the stock of the
corporation was held not to exempt the Railroad's land from
taxation.
Atlantic, 75 N.C. at 474. The
Atlantic Court based its
holding upon a requirement that State-owned property be used for a
public purpose before the tax exemption would apply, and the
Supreme Court has since expressly overruled the public purpose
requirement of
Atlantic.
See In re University of North Carolina,
300 N.C. 563, 268 S.E.2d 472 (1980). The Supreme Court clarified
that its decision in
Atlantic was correct because the Railroad,rather than the State itself was the owner of the property in
question.
University, 300 N.C. at 567, 268 S.E.2d at 475 (“Even
though the State held a controlling interest in the Railroad
Company's common stock, the property, both real and personal,
belonged to Atlantic and N.C.R.R. Co. and was therefore properly
subjected to ad valorem taxation.”) However, the Court rejected the
proposition that State-owned property was not exempted from
taxation unless it was used for a public purpose.
University, 300
N.C. at 572, 268 S.E.2d at 478. “[The State ownership] exemption
follows by virtue of the property's ownership and occurs
irrespective of the purposes for which the property is held.”
Id.
The County argues that the equitable interest held by ASU is
equivalent to the interest held by the Railroad in
Atlantic. We
disagree. In an active trust, legal title vests in the trustee of
the property.
See Fisher v. Fisher, 218 N.C. 42, 9 S.E.2d 493
(1940). “[W]hen any control is to be exercised or any duty
performed by the trustee [in relation to the trust property or in
regard to the beneficiaries], however slight it may be . . . the
trust is active.”
Finch v. Honeycutt, 246 N.C. 91, 99, 97 S.E.2d
478, 485 (1957)(quoting
Chinnis v. Cobb, 210 N.C. 104, 185 S.E. 638
(1936)). In an active trust, the legal and equitable titles to the
trust property do not merge.
See Finch, 246 N.C. at 91, 97 S.E.2d
at 478;
Poindexter v. Trust Co., 258 N.C. 371, 128 S.E.2d 867
(1963).
Property held in an active trust is therefore “owned” in
some sense by both the trustee and the beneficiary.
Here, the trust agreement specifically outlines the
relationship between ASHC and ASU. ASHC is required to manage thedaily operations of University Highlands apartments. When ASHC
receives rents, it must expend that income only in exchange for
capital assets or goods and services necessary for the maintenance
of the apartment complex. Alternatively, ASHC's income may be
directed to ASU, to support ASU student housing. Therefore, the
trust agreement between ASHC and ASU is an active trust and ASU's
equitable interest in the property remains separate from ASHC's
legal interest.
We hold that the equitable title held by ASU as beneficiary of
this trust is sufficient to show that the property belongs to the
State of North Carolina. Neither the North Carolina Constitution
nor G.S. § 105-278.1(b) require the State to have legal title in
order to exempt the property from taxation. Nor do we find
persuasive Watauga County's argument that the
ad valorem tax
exemption law of North Carolina applies only to exempt property to
which the taxpayer holds legal title. Although we recognize that
the doctrine of
expressio unius est exclusio (“expression of one
thing is the exclusion of the other”) is still the rule in North
Carolina, the mention of equitable title in two parts of the
Machinery Act (N.C. Gen. Stat. §§ 105-277.1(b) and 105-277.2(4)(a))
does not imply that real property does not belong to the State when
it holds only equitable title. Because the real property parcel in
question here belongs to the State, it is exempted from
ad valorem
taxation according to both the constitutional exemption in Art. V,
§2 and the statutory exemptions in G.S. §§ 116-16 and 105-278.1(b).
As a result, there is insufficient evidence to support the
Commission's finding of fact #7, which states that the property isnot owned by the State, and we reverse the Commission's decision
regarding the requested exemptions for 2001 and 2002.
ASHC argues several other grounds for exemption of the
property from taxation, including G.S. §§ 105-278.4 and 105-278.7.
Because we have already determined that the property in question is
owned by the State of North Carolina so as to exempt it from
taxation, we need not reach ASHC's arguments on these points.
However, we do write briefly to express our strong disagreement
with the Commission's conclusion of law #4 that states “student
housing is not an activity that is naturally and properly incident
to the operation of an educational institution.” In previous
cases, this Court has held that a building where athletic
conference television contracts are negotiated,
see In re Appeal of
Atlantic Coast Conference, 112 N.C. App. 1, 434 S.E.2d 865 (1993),
and a stadium parking lot,
see In re Wake Forest University, 51
N.C. App. 516, 277 S.E.2d 91,
disc. rev. denied, 303 N.C. 544, 281
S.E.2d 391 (1981), are considered “incidental” to the operation of
educational institutions so as to qualify for an exemption under
N.C. Gen. Stat. § 105-278.4.
Certainly student housing, which is
one of the more traditional accoutrements of an educational
facility, should be considered incidental to the educational
institution.
II.
Watauga County made seven cross-assignments of error; only one
of which has been brought forward in its brief. The remainder ofits cross assignments of error are deemed abandoned. N.C.R. App.
P. 28(a).
[2] The County argues that if University Highlands belongs to
the State, through ASHC's holding title for the benefit of ASU,
then ASHC's use of the property is in violation of N.C. Gen. Stat.
§ 66-58, which provides in pertinent part:
[I]t shall be unlawful for any unit,
department or agency of the State government,
or any division or subdivision of the unit,
department or agency, or any individual
employee or employees of the unit, department,
or agency in his, or her, or their capacity as
employee or employees thereof, to engage
directly or indirectly in the sale of goods,
wares or merchandise in competition with
citizens of the State, or to engage in the
operation of restaurants, cafeterias or other
eating places in any building owned by or
leased in the name of the State, or to
maintain service establishments for the
rendering of services to the public ordinarily
and customarily rendered by private
enterprises, or to provide transportation
services, or to contract with any person, firm
or corporation for the operation or rendering
of the businesses or services on behalf of the
unit, department or agency, or to purchase for
or sell to any person, firm or corporation any
article of merchandise in competition with
private enterprise.
N.C. Gen. Stat. § 66-58(a) (2003). Watauga County argues that
ASHC's actions as a State entity leasing property to ASU students
is an example of the government engaging in competition with
private enterprise. We do not find this argument persuasive.
Without deciding whether ASHC is or is not a State entity, ASHC is
not providing a service that is ordinarily and customarily rendered
by private enterprise. Although many private individuals and
businesses house students in condominiums, apartments and otherhousing, few limit their lessees to the student population of a
certain university, as the universities themselves do. This type
of limited student housing is not a service normally provided by
private enterprise, so the government may participate in providing
that service. We see no violation of G.S. § 66-58 in the apartment
rentals at issue in this case, primarily because the lease allows
only ASU students to reside in University Highlands. Watauga
County's cross-assignment of error is overruled.
For the reasons stated, the Commission's decision is reversed
and this cause remanded for entry of a decision exempting the
subject property from
ad valorem taxation.
Reversed and remanded.
Judges HUNTER and THORNBURG concur.
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