Friday, May 16, 2014
In New England Forestry Foundation v. Board of Assessors of Town of Hawley, SJC-11432 (May 15, 2014), the Massachusetts Supreme Judicial Court held that land owned in fee by a charitable conservation organization, the New England Forestry Foundation (NEFF), and open to the public was eligible for a property tax exemption. The court drew an important distinction between conservation lands to which the public is permitted access and those to which the public is denied access, and imposed a heightened burden in the latter case to qualify for the exemption.
NEFF’s mission is to provide “for the conservation and ecologically sound management of privately owned forestlands.” It accomplishes this mission by, among other things, educating landowners, foresters, forest product industries, and the general public about the benefits of forest stewardship; permanently protecting forests through gifts and acquisitions of land; actively managing lands as demonstration and educational forests; and supporting the development of forest policy and forest practices that encourage and sustain private ownership.
The property at issue is a 120-acre parcel of forested land, known as the “Hawley Forest,” which is bordered on two sides by a State forest. NEFF conducts sustainable forestry practices on the property and the property is open to the public.
NEFF applied for a full property tax exemption for the property under Massachusetts G. L. c. 59, § 5, Third (Clause Third), which exempts from taxation “real estate owned by … a charitable organization and occupied by it or its officers for the purposes for which it is organized.” The Board of Assessors of the Town of Hawley denied the application, and in a January 2013 opinion (discussed here), the Massachusetts Appellate Tax Board upheld that denial. NEFF appealed, and both NEFF and assessors filed applications for direct review by the Massachusetts Supreme Judicial Court.
The Two-Pronged Test
In holding that NEFF qualified for an exemption with regard to the Hawley Forest for the year at issue, the Massachusetts Supreme Judicial Court explained that qualification for an exemption under Clause Third requires satisfaction of a two-pronged test:
- the organization seeking the exemption must qualify as a “charitable organization” within the meaning of Clause Third, and
- the organization must occupy the property in furtherance of its charitable purposes.
The court found that NEFF satisfied both prongs of this test.
1. Charitable Organization Requirement
The court explained that neither an organization’s legal status as a charitable corporation nor its exemption from federal taxation under IRC § 501(c)(3) is sufficient to satisfy Clause Third’s “charitable organization” requirement. Rather, the organization must prove that “it is in fact so conducted that in actual operation it is a public charity.”
Citing to Jackson v. Phillips, 14 Allen 539, 556 (1867), the court explained that charity is
a gift, to be applied consistently with existing laws, for the benefit of an indefinite number of persons, either by bringing their minds or hearts under the influence of education or religion, by relieving their bodies from disease, suffering or constraint, by assisting them to establish themselves in life, or by erecting or maintaining public buildings or works or by otherwise lessening the burdens of government.
The court then explained that the closer an organization’s dominant purposes and methods hew to these traditional charitable purposes, the more likely the organization is to qualify as a “charitable organization” under Clause Third.
The court found that NEFF’s purposes constituted traditional charitable purposes within the meaning of Clause Third and the Jackson v. Phillips definition of charity because NEFF’s programs and activities both (i) benefit an indefinite number of people and (ii) assist in lessening the burdens of government.
a. Benefiting an Indefinite Number of People
When the Massachusetts Appellate Tax Board denied NEFF’s application for a tax exemption, it dismissed NEFF’s argument that the Hawley Forest should be exempt because it provides an environmental benefit in the form of preservation of a habitat for diverse species. In support of its denial, the Board cited a 1966 tax exemption case, Assessors of Boston v. The Vincent Club, 351 Mass. 10, 14 (1966), in which the court stated
simply keeping land open and allowing its natural habitat to flourish is not sufficiently charitable. Appellant must demonstrate ‘an active appropriation to the immediate uses of the charitable cause for which the owner was organized.’
The Board also noted that “the absence of public access to land has consistently proven fatal to a landowner’s claim of charitable exemption.”
Recognizing that times have changed in the almost 50 years since it decided Vincent Club, the court updated its view in NEFF v. Hawley. The court explained:
Historically, the “benefit” provided by land held as open space or in its natural state has been measured by the direct access of people to that land for such purposes as recreation, scenic views, or education…. However, as the science of conservation has advanced, it has become more apparent that properly preserved and managed conservation land can provide a tangible benefit to a community even if few people enter the land. For example, … conservation of large forested blocks of land [i]s an effective means of contributing to “ecosystem resilience” in the face of rising temperatures and more severe storms because forests naturally absorb carbon and other harmful emissions. Additionally, open space land naturally absorbs and helps dissipate stormwater runoff without the need for drainage systems that are required in paved and developed areas. Furthermore, forest land helps to clean the air by filtering particulates naturally, and it regulates and purifies the fresh water supply by stabilizing soils that store water over time and filter contaminants.
The court concluded that, “by holding land in its natural pristine condition and thereby protecting wildlife habitats, filtering the air and water supply, and absorbing carbon emissions, combined with engaging in sustainable harvests to ensure the longevity of the forest, NEFF engages in charitable activities of a type that may benefit the general public.”
The court also noted in a footnote that, for purposes of satisfying the “charitable organization” requirement of Clause Third, the Massachusetts Appellate Tax Board has required land conservation organizations to demonstrate that they “invite, encourage, and facilitate the entry of the public at large onto their lands.” The court rejected this test, emphasizing that public access is not required, provided the organization can demonstrate that it is not simply seeking to set aside land for its own private use or as a buffer around its members’ private property and, instead, is carrying out land conservation and environmental protection activities that benefit the public at large.
b. Lessening the Burdens of Government
With regard to whether NEFF’s activities lessen the burdens of government, the court explained that the Massachusetts constitution obligates the State to engage in conservation and environmental protection and NEFF assists the State in achieving its conservation policy goals. The court noted, among other things, that (i) the Hawley Forest, which is bordered on two sides by a State forest, extends a block of forested land preserved by the State, and this is important to the preservation of species that require a certain amount of continuous area to thrive and to the biodiversity of forest lands more generally, (ii) NEFF and other conservation organizations have been identified as essential partners in statewide conservation efforts, and (iii) the contribution that privately held forest land can make to improving air and water quality and mitigating the effects of erosion, rising temperatures, and other ecosystem disruptions assists the State by reducing the cost associated with safeguarding air and water supplies and responding to the effects of pollution. The court also cited a California case that acknowledges that property used exclusively as a nature preserve to protect native plants or animals may qualify as charitable because it lessens the government’s burden to preserve ecological communities and native flora and fauna.
2. The Occupancy Requirement
To qualify for the exemption, NEFF also had to show that it “occupied” the Hawley Forest in furtherance of its charitable purposes for the year at issue. To make sense of this requirement, the court looked to the purpose of Clause Third. The court explained that Clause Third recognizes the contribution a charity makes to the public either on, or through, its use of its property. Unlike a private landowner whose land ownership burdens the government by making use of a range of public services and benefits, the burden a charity’s ownership of land places on the government may be offset by its use of the land in a manner that benefits the public and lessens the burdens of government. Thus, explained the court, it is fair and proportional to tax privately held land while exempting a charitable organization’s land provided the organization uses the land in a manner that contributes to the community and reduces the burdens of government. In sum, the requirement that land be “occupied” for an organization’s charitable purposes is “best understood as the Legislature seeking to ensure that a charity’s land is not being held as a private landowner would hold it and, instead, is being held as an entity would hold it for the public good.”
The court went on to explain, however, that in the case of open space or conservation land, this inquiry is complicated by the fact that both private and charitable landowners may have an incentive to hold land in an undeveloped state (such as to benefit from lower property tax rates). Accordingly, in this context, a charitable organization must demonstrate that it occupies the land at issue in a manner less like a private landowner and more like an entity seeking to further the public good.
In NEFF’s case, the Massachusetts Appellate Tax Board approached this inquiry by focusing on the degree of public access NEFF encouraged and achieved at the Hawley Forest, and the Board concluded that NEFF’s promotion of public access was insufficient to demonstrate that it occupied the land for the benefit of the public. The court disagreed with this approach, explaining that Clause Third does not impose an affirmative duty to promote and facilitate public access on conservation lands. The court also acknowledged that, in certain circumstances, such as in the case of a particularly fragile habitat or ecosystem, a public access requirement could operate to thwart the very conservation objectives an organization is seeking to achieve. Accordingly, the court concluded that, in a case such as NEFF’s, where public access to the property is allowed but not necessary for the organization to achieve its charitable purposes, the promotion and achievement of public access is not required to demonstrate “occupancy” for purposes of the Clause Third exemption.
The court went on, however, to note that the right that is most central to the “bundle” of rights enjoyed by a private property owner is not the freedom from an obligation to invite visitors, but the affirmative right to exclude others from one’s property. Consequently, said the court, the appropriate inquiry (regarding whether property is being held as a private landowner would hold it or, instead, as an entity would hold it for the public good) begins with whether the entity takes affirmative steps to exclude the public from the land, such as through physical barriers, “no trespassing” signs, or actively patrolling the land. The court then stated:
If a charitable organization engages in such exclusion, the organization faces a heightened burden to show that such exclusion of the public is necessary to enable it to achieve its charitable purposes. Although an organization may succeed in meeting this burden, it may do so only by presenting compelling facts demonstrating that the exclusion of the public is necessary to achieve a public benefit through other activities carried out on, or through use of, the land, such as when conservation activities may pose a danger to public safety or where the ecosystem is so fragile that any human presence could undermine the organization’s conservation efforts. Such rationales may often be time-limited, such as during a timber harvest when trees are being felled or during the nesting period of a vulnerable species. Placing a high burden on organizations that actively exclude the general public from their lands helps to identify and exclude from exemption those land-conservation organizations that treat their land more as a private club or a buffer zone around the private property of organization insiders. However this requirement also acknowledges that in particular circumstances the exclusion of the public from the land may be necessary for a bona fide land-conservation organization to carry out its mission and therefore should not per se preclude an organization from otherwise demonstrating that it occupies the land.
Accordingly, a “charitable organization” within the meaning of Clause Third that affirmatively excludes the public from its conservation lands has to make a particularly convincing case that such exclusion is necessary to enable it to carry out its conservation mission.
NEFF did not fall into this category because it did not take active steps to exclude the public from the Hawley Forest during the tax year in question. Rather, it took steps to inform the public that the property was available for recreation. The court noted that, if NEFF’s only claimed charitable purpose were recreational or educational, it might have had to demonstrate more regular public use of the property to satisfy the occupancy requirement. However, since NEFF also used the Hawley Forest for sustainable forestry and environmental preservation purposes, the court found that it met its burden to show that it “occupied” the Hawley forest in furtherance of its charitable purposes within the meaning of Clause Third.
In sum, a land conservation organization that satisfies the “charitable organization” requirement must divide its conservation lands into two rough categories for purposes of determining satisfaction of the “occupancy” requirement.
- Conservation land to which the public is permitted access. A conservation organization would appear to satisfy the occupancy requirement with respect to this land, and therefore be eligible for the exemption, even if it does not actively encourage or advertise public access, provided the organization uses the land for charitable purposes that can be accomplished without public access, such as sustainable forestry and environmental preservation. On the other hand, if the organization uses the land for recreational or educational purposes only, the organization would have to demonstrate more regular public use.
- Conservation land to which the public is denied access. A conservation organization would appear to satisfy the occupancy requirement with respect to this land, and therefore be eligible for the exemption, only if the organization makes a particularly convincing case that exclusion of the public is necessary to enable it to achieve a public benefit through other activities carried out on the land. Moreover, such other activities may often be time-limited. For example, exclusion of the public may be necessary only during a timber harvest for safety reasons, or only during the nesting period of a vulnerable species to ensure the species is not disturbed during this critical period.
While the court recognized that many public benefits can flow from conserving land in its undeveloped state in addition to public access to the land, the court also was concerned about abuse. Accordingly, it held that land conservation organizations that want to claim a property tax exemption with regard to their conservation lands must make a compelling case of necessity if they want to affirmatively exclude the public from such lands. Not explored in the court's opinion is the extent to which the feared abuse—land-conservation organizations treating their lands as a private club or a buffer zone around the private property of organization insiders—is occuring.
Nancy A. McLaughlin, Robert W. Swenson Professor of Law, University of Utah S.J. Quinney College of Law