Volunteer Center of So. Az. v. Staples, Ford, Pima Co.

FILED BY CLERK
IN THE COURT OF APPEALS NOV 29 2006
STATE OF ARIZONA COURT OF APPEALS
DIVISION TWO DIVISION TWO

VOLUNTEER CENTER OF )
SOUTHERN ARIZONA, an Arizona non- )
profit corporation, )
)
Plaintiff/Appellant, ) 2 CA-CV 2006-0084
) DEPARTMENT B
v. )
) OPINION
WILLIAM STAPLES, Pima County )
Assessor; BETH FORD, Pima County )
Treasurer; PIMA COUNTY; and )
ARIZONA DEPARTMENT OF )
REVENUE, )
)
Defendants/Appellees. )
)

APPEAL FROM THE SUPERIOR COURT OF PIMA COUNTY

Cause No. C20055184

Honorable Michael Alfred, Judge

REVERSED AND REMANDED

Lewis and Roca, LLP
By D. Douglas Metcalf Tucson
Attorneys for Plaintiff/Appellant

Barbara LaWall, Pima County Attorney
By Terri A. Roberts Tucson
Attorneys for Defendants/Appellees

E C K E R S T R O M, Presiding Judge.
¶1 Plaintiff/appellant Volunteer Center of Southern Arizona sought a judgment

declaring its entire office building exempt from real property taxes and asking the trial court

to order defendants/appellees, William Staples, the Pima County Assessor; Beth Ford, the

Pima County Treasurer; Pima County; and the Arizona Department of Revenue (collectively,

the Assessor), to refund the taxes the Center had paid for the portion of the property it leases

to another nonprofit corporation. After the trial court denied the Center’s motion for

summary judgment, it found no issues remained and entered judgment against the Center.

For the following reasons, we reverse.

¶2 The underlying facts are not in dispute. The Center and JobPath, Inc. are

nonprofit corporations exempt from federal income tax under 26 U.S.C. § 501(c)(3). The

Center owns a 9,379-square-foot office building and uses approximately two-thirds of the

space for its charitable activities. It leases the remaining one-third to JobPath, which also

uses the space for charitable activities. The Assessor exempted from property taxes the

portion of the property the Center uses but denied an exemption for the space JobPath

leases.

¶3 The Center paid the taxes assessed against it for the 2004 tax year but filed an

action pursuant to A.R.S. § 42-11005, arguing it is entitled to a refund because the taxes

were illegally collected. In its answer, the Assessor asserted the Center did not qualify for

an exemption under the relevant statutory provisions because it leased the space for profit.

The Center moved for summary judgment and the trial court denied its motion, reasoning

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that leasing premises “is not charitable in nature and does not qualify the property in

question for exemption.” Because the denial of summary judgment left no issue to resolve,

the Assessor requested judgment in its favor, which the court granted. This appeal followed.

¶4 Because the material facts are undisputed, we review de novo whether the trial

court correctly applied the law to the facts before it. See Pinal Vista Props., L.L.C. v.

Turnbull, 208 Ariz. 188, ¶ 6, 91 P.3d 1031, 1032-33 (App. 2004). The Center applied for

exemption under two statutes: A.R.S. §§ 42-11107 and 42-11121. Section 42-11107

creates an exemption for the property of “charitable institutions for the relief of the indigent

or afflicted” as long as the “property [is] not used or held for profit.” The second statute,

§ 42-11121, imposes the same requirement that the property not be “used or held for profit.”

Under the latter provision, the property must also be “owned by a community service

organization the mission of which is to serve a population that includes persons who are

indigent or afflicted . . . and that qualifies as a charitable organization and is recognized

under § 501(c)(3) of the internal revenue code.”

¶5 The Assessor concedes the Center met the latter requirement but maintains

that, by leasing part of its property to JobPath, the Center “used or held” the property for

profit. See §§ 42-11107, 42-11121. The Center counters that, as illustrated by A.R.S. §§

42-11154 and 42-11155, Arizona’s property tax exemption scheme clearly provides a tax

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exemption for property owned by one nonprofit organization and used by another.1

Applying this principle, the Center contends that the mere receipt of revenue from JobPath

under the lease did not convert its property into one “used or held for profit”—just as raising

revenue in any other context does not divest a nonprofit organization of its tax-exempt

status.

¶6 In interpreting how a statutory scheme applies, our primary objective is to give

effect to the intent of the legislature; the best evidence of its intent is the language of the

statute itself. Vega v. Sullivan, 199 Ariz. 504, ¶¶ 8-9, 19 P.3d 645, 648 (App. 2001).

“[T]ax statutes relating to the same subject should be read together and construed as a

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Section 42-11154 provides:

1. Nonprofit organization status may be established by
a letter of determination issued in the organization’s name by
the United States internal revenue service or the department of
revenue recognizing the organization’s tax exempt status under
§ 501(c)(3) of the internal revenue code or under § 43-1201.

2. The requirement that property is not used or held
for profit may be met by a letter of determination described in
paragraph 1 of this section and issued in the name of the
organization holding title to the property and for each
organization using the property.

Section 42-11155 provides:

The exemptions provided by article 3 of this chapter
relating to charitable institutions do not apply to property
owned by charitable institutions but primarily held or used by
others whose use is not exempt from taxation by article 3 of this
chapter or by the Constitution of Arizona.

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whole,” Arizona Department of Revenue v. Maricopa County, 120 Ariz. 533, 535, 587

P.2d 252, 254 (1978), a process which includes reading the statute in accordance with any

statutory definitions of the terms used. See US West Commc’ns, Inc. v. City of Tucson, 198

Ariz. 515, ¶ 12, 11 P.3d 1054, 1059 (App. 2000). “If a statute’s meaning is manifestly

unambiguous when all its language is considered as a whole, that meaning is conclusive.”

Id.

¶7 Applying those principles, we agree with the Center that the relevant statutory

provisions, when read together, allow a nonprofit organization to lease its property to

another nonprofit organization without forfeiting its tax-exempt status. In § 42-11154, the

legislature provided a specific method by which nonprofit organizations can demonstrate

that property is “not used or held for profit.” It states: “Nonprofit organization status may

be established by a letter of determination issued in the organization’s name by the United

States internal revenue service or the department of revenue recognizing the organization’s

tax exempt status under § 501(c)(3) of the internal revenue code or under § 43-1201.” § 42-

11154(1). And the “requirement that property is not used or held for profit may be met by

a letter of determination described [in § 42-11154(1)] and issued in the name of the

organization holding title to the property and for each organization using the property.” §

42-11154(2). In short, the legislature unambiguously instructs us to determine whether

property is “used or held for profit” by referring to the official federal tax status of the

organization owning and using the property—not the nature of the specific financial

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transactions conducted on the property. That approach is consistent with traditional notions

of how nonprofit organizations are entitled to function. See S. Methodist Hosp. &

Sanatorium v. Wilson, 51 Ariz. 424, 431-32, 77 P.2d 458, 462 (1938) (“[W]e think the

institution is properly characterized as a charitable one, notwithstanding the fact that it

charges for most . . . of [its] services . . . so long as its receipts are devoted to the necessary

maintenance of the institution and . . . the purpose for which it was organized.”), overruled

in part on other grounds by Ray v. Tucson Med. Ctr., 72 Ariz. 22, 230 P.2d 220 (1951);

accord Restatement (Third) of Trusts § 28 cmt. a(1) (2003).

¶8 The Assessor contends that, if an organization can satisfy the requirement that

its property is “not used or held for profit” simply by virtue of its § 501(c)(3) status, the

specified criteria in § 42-11121 for exempting such an organization’s property would have

no meaning. See Welch-Doden v. Roberts, 202 Ariz. 201, ¶ 22, 42 P.3d 1166, 1171 (App.

2002) (we must interpret statutes to give each phrase meaning). But § 42-11154 provides

an alternative method by which a nonprofit organization can establish that its property is not

being “used or held for profit”: a letter of determination from the Arizona Department of

Revenue recognizing its tax-exempt status under A.R.S. § 43-1201. Section 43-1201 lists

sixteen types of organizations that are exempt from state income tax other than those that

are exempt from federal income tax under 26 U.S.C. § 501(c)(3). Therefore, because

§ 501(c)(3) recognition is not the only acceptable way an organization can meet the

requirement that its property not be “used or held for profit,” our interpretation of the

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legislature’s intent in § 42-11154 does not render either requirement of § 42-11121

superfluous.

¶9 The Assessor argues that the legislature’s use of the word “may” in § 42-

11154(2) as part of the phrase, “[t]he requirement that property is not used or held for profit

may be met,” provides him the discretion to look beyond an organization’s § 501(c)(3) status

in determining whether the property is “used or held for profit.” But the implied subject of

that phrase is the taxpaying organization—which alone has the duty to meet any statutory

requirements. We therefore conclude the taxpaying organization is the beneficiary of any

discretion bestowed by the statute.

¶10 The Assessor also maintains that several Arizona cases support his refusal to

exempt all the Center’s property from taxation. See Conrad v. County of Maricopa, 40

Ariz. 390, 12 P.2d 613 (1932); Tucson Junior League v. Emerine, 122 Ariz. 324, 594 P.2d

1020 (App. 1979); Kunes v. Mesa Stake of Church of Jesus Christ of Latter-Day Saints,

17 Ariz. App. 451, 498 P.2d 525 (1972). In those cases, our courts examined the

organization’s actual physical use of the property; if the use was noncharitable, the entities

were not entitled to a tax exemption—even if the proceeds were ultimately directed to

charitable purposes. See Conrad, 40 Ariz. at 394-95, 12 P.2d at 615; Tucson Junior

League, 122 Ariz. at 325, 594 P.2d at 1021; Kunes, 17 Ariz. App. at 453, 498 P.2d at 527.

But those cases predate the legislature’s enactment of the language now found in § 42-

11154, which first provided a statutory method for establishing that an organization’s

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property is not being “used or held for profit.” See former A.R.S. § 42-271(D), 1991 Ariz.

Sess. Laws, ch. 169, § 1; see also Hause v. City of Tucson, 199 Ariz. 499, ¶ 10, 19 P.3d

640, 643 (App. 2001) (we will presume legislature intended to supersede court’s

interpretation of statute if language or effect of statute clearly requires that conclusion).

¶11 Moreover, to the extent the reasoning of those cases survives that statutory

revision, it would not change the result here. Although the Assessor concedes that JobPath

used the property leased to it by the Center for charitable purposes,2 it maintains the Center

used its property for profit by leasing it to JobPath at the market rate.3 And it maintains that

we must evaluate the owner’s use of the property, not the tenant’s, in determining the

property’s tax status. But, in Conrad, our supreme court held that a Masonic temple owned

by a charitable institution was not tax-exempt because none of the rooms the organization

rented was “used in any manner for the relief of the indigent or afflicted.” 40 Ariz. at 394,

12 P.2d at 615. Similarly, in Kunes, the court examined the actual activity on the land, in

that case farming. 17 Ariz. App. at 453, 498 P.2d at 527. Thus, those cases focused on the

actual physical use to which the property was put—rather than merely the owners’ acts—in

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The Center emphasizes, and the Assessor does not dispute, that JobPath would meet
the requirements of A.R.S. § 42-11121 for holding property exempt from taxation.

We are skeptical that the Center’s leasing the property at a market rate would itself
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demonstrate that the property is being used for profit—even if we were to conclude that the
Center’s mere act of leasing the property was relevant to its tax status. See S. Methodist
Hosp. & Sanatorium v. Wilson, 51 Ariz. 424, 431-32, 77 P.2d 458, 462 (1938) (charitable
organizations entitled to charge for services without loss of charitable status), overruled on
other grounds by Ray v. Tucson Med. Ctr., 72 Ariz. 22, 230 P.2d 220 (1951).

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evaluating the tax status of the property. Further, §§ 42-11154 and 42-11155 specifically

require us to consider the status of both owners and users of property in evaluating whether

the property is being “used or held for profit.” Those statutes are inconsistent with the

Assessor’s implicit contention that we must ignore JobPath’s charitable use of the property

in determining the tax status of the portion JobPath leases.

¶12 We conclude that, in promulgating § 42-11154, the legislature intended to

provide a simple, bright-line rule, anchored in the ultimate function of the organizations

owning or using property, for determining whether the property is being “used or held for

profit.” Specifically, that section provides that, if one § 501(c)(3) organization leases

property to another § 501(c)(3) organization, the property is “not used or held for profit”

and is entitled to a property tax exemption. We therefore conclude the Center was entitled

to a tax exemption on its entire property, and the trial court erred by entering judgment in

favor of the Assessor.

¶13 As the prevailing party in an action against the county challenging the

collection of taxes, the Center requests its attorney fees incurred below and on appeal

pursuant to A.R.S. § 12-348(B)(1). We grant the Center’s request upon its compliance with

Rule 21, Ariz. R. Civ. App. P., 17B A.R.S. See Cornman Tweedy 560, LLC v. City of Casa

Grande, 213 Ariz. 1, ¶ 32, 137 P.3d 309, 316 (App. 2006).

¶14 The judgment is reversed, and the case is remanded for proceedings consistent

with this decision.

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 ____________________________________
PETER J. ECKERSTROM, Presiding Judge

CONCURRING:

____________________________________
J. WILLIAM BRAMMER, JR., Judge

____________________________________
PHILIP G. ESPINOSA, Judge

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