Sunday, August 24, 2014

Maine Supreme Judicial Court Holds that Conservation Lands Open to the Public are Exempt from Property Tax

FSHT copyIn Francis Small Heritage Trust, Inc. v. Town of Limington, 2014 Me. 102 (Aug. 7, 2014), the Maine Supreme Judicial Court held that conservation lands owned in fee by a charitable conservation organization and open to public are eligible for a property tax exemption. The decision relies in part upon the recent similar holding of the Massachusetts Supreme Judicial Court in New England Forestry Foundation v. Board of Assessors of Town of Hawley, SJC-11432 (May 15, 2014). Both cases are examples of attempts by cash-strapped towns to limit the scope of the property tax exemption granted to charities.

Background

Francis Small Heritage Trust (FSHT) is a charitable conservation organization, the mission of which is “to conserve natural resources and to provide free public access to those natural resources.” FSHT owns eleven contiguous parcels on and near Sawyer Mountain in the Town of Limington, Maine. Many of the parcels are protected by third-party, “forever-wild” conservation easements and a few are further protected by Department of Inland Fisheries and Wildlife easements.

FSHT’s properties are “used and operated as conserved wildlife habitat” and are open to the public 365 days a year. Local schools use the properties for field trips and environmental education, and the properties are open for hunting, fishing, hiking, cross-country skiing, and snowmobiling. FSHT has also engaged in other activities, such as sponsoring a Limington Boy Scout Troop, participating in a project with Maine Medical Center to research the risk of exposure to Lyme-disease-transmitting deer ticks, and conducting a workshop on invasive plants.

FSHT petitioned the Town of Limington for a charitable exemption from property taxes with respect to its properties. The Town denied the petition and FSHT appealed to the State Board of Property Tax Review. The Board sided with the Town, concluding that FSHT was not entitled to an exemption because “its activities are not restricted solely to benevolent and charitable purposes.” Among other things, the Board noted that FSHT’s Articles of Incorporation permitted the organization to engage in commercial activities such as farming and logging. FSHT appealed, and the trial court vacated the Board’s decision, finding that FSHT was entitled to the charitable exemption. The Town then appealed the trial court’s ruling.

The Two-Pronged Test

In holding that FSHT qualified for the charitable exemption with regard to its properties, the Maine Supreme Judicial Court explained that qualification for the exemption requires satisfaction of a two-pronged test under 36 M.R.S. § 652(1)(A), (C)(1)

  1. the organization claiming the exemption must be “organized and conducted exclusively for benevolent and charitable purposes,” and
  2. the property must be “owned and occupied or used solely for [the organization’s] own purposes.”

The Town did not argue that FSHT failed to satisfy the second prong of test. Accordingly, the court addressed only the first prong.

Organized and Conducted Exclusively for Charitable Purposes

The Legal Backdrop

In assessing whether FSHT is “organized and conducted exclusively for benevolent and charitable purposes” the Maine Supreme Judicial Court first discussed the “legal backdrop.”

Definition of "Charitable" 

The court explained that an activity or purpose is “charitable” if it is

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 otherwise lessening the burdens of government.

This is the same definition of charitable quoted by the Massachusetts Supreme Judicial Court in NEFF v. Hawley.

The Quid Pro Quo Factor

The court explained that part of the rationale for granting an exemption to charitable institutions is that:

[a]ny institution which by its charitable activities relieves the government of part of [its] burden is conferring a pecuniary benefit upon the body politic, and in receiving exemption from taxation it is merely being given a “quid pro quo” for its services in providing something which otherwise the government would have to provide.

The court noted that providing opportunities for even “casual and limited group recreational and relaxation activities” can constitute a quid pro quo because it “provid[es] something that government would otherwise provide, through the government system of parks, public lands, and recreational facilities.”

Holbrook

The court acknowledged that it had not previously addressed whether land conservation constitutes a charitable purpose within the meaning of the tax-exemption statute. The court had, however, previously considered whether a wildlife refuge qualifies for exemption. In Holbrook Island Sanctuary v. Inhabitants of the Town of Brooksville, 161 Me. 476 (1965), a charitable organization sought an exemption for property that it operated as a wildlife sanctuary and to which the public was granted only very limited access. Only persons and organizations engaged in nature study were permitted in the sanctuary and they had to be accompanied by the sanctuary’s full-time warden. In addition, the sanctuary blocked off existing access roads on the property with the intention of permitting the roads to become overgrown and return to their natural state. The court concluded that the wildlife sanctuary was not “charitable,” because it was “nothing in substance more than a game preserve,” the purpose of which was “plainly to benefit wild animals”; it provided “no benefit to the community or to the public”; and it was contrary to public policy favoring state-regulated game management areas.

In FSHT v. Limington, amici urged the court to overrule or limit Holbrook, citing the following scholarly criticism of the decision:

[Holbrook ‘s] holding, that a benefit to wild animals did not equate to a benefit to the community and was therefore not charitable, might be assessed differently by a court with a modern awareness of the public benefits of ecosystem preservation.

The court chose to distinguish rather than overrule Holbrook. It explained that Holbrook was based on the absence of any benefit to the public from a game preserve operated in a manner that (i) heavily restricted public access and (ii) was contrary to public policy, and that neither rationale applied to FSHT’s properties. FSHT’s properties are freely open to the public 365 days a year and their operation is consistent with public policy as expressed by the Maine legislature in numerous statutes. 

Other Appellate Court Decisions

The court explained that numerous appellate courts from other jurisdictions have held that “land conservation is a charitable purpose, at least when coupled with public access, or where conservation of the land otherwise confers a public benefit.” The court quoted NEFF v. Hawley, in which the Massachusetts Supreme Judicial Court of held that a nonprofit land conservation organization’s purposes were charitable because

the environmental benefits of holding land in its natural state ‘inure[d] to an indefinite number of people,’ and because the organization ‘lessen[ed] the burdens of government’ by ‘assist[ing] the State in achieving its conservation policy goals.’

Public Policy

The court also explained that the Maine legislature has “enunciated a strong public policy in favor of the protection and conservation of the natural resources and scenic beauty of Maine” and “recognized the important role played by conservation organizations in achieving these goals.”

The Facts

Having discussed the legal backdrop, the court next considered whether FSHT is organized and conducted exclusively for charitable purposes. The court explained that FSHT’s purpose is to conserve natural resources for the benefit of the public; FSHT opens its properties to the public year-round, free of charge; and FSHT permits school field trips, hunting, fishing, hiking, cross-country skiing, and snowmobiling. The court agreed with the trial court that FSHT “essentially operates its properties in the manner of a state park.” In doing so, said the court, FSHT “assists the state in achieving its conservation goals…and “provid[es] something that government would otherwise provide, through the government system of parks, public lands, and recreational facilities” (i.e., FSHT lessens the burdens of the government). Accordingly, the court held that, under the circumstances of the case, FSHT was organized and conducted exclusively for charitable purposes within the meaning of Maine’s tax-exemption statute. 

The court dismissed the Board’s argument that FSHT was not entitled to the charitable exemption because a special statute relating to the taxation of open space land “preempted” the charitable exemption with regard to such land. The court explained, citing in part to NEFF v. Hawley, that the open space taxation statute and the charitable exemption statute “are distinct in their scope and purpose,” and nothing in the language or legislative history of the open space taxation statute indicated in intent to preempt or otherwise displace the charitable exemption, the origins of which can be traced back to the 1800s. 

The court also dismissed the Board’s argument that tax-exemption should be denied because FSHT’s Articles of Incorporation permitted it to engage in logging, farming, and other “compatible commercial activities” (i.e., that it was not organized or conducted "exclusively" for charitable purposes). The court first noted that the Articles of Incorporation provide that one of FST's purposes is to “protect” appropriate uses such as logging, farming and other compatible commercial activities (i.e., the Articles do not directly authorize or require such activities). There also was no evidence that FSHT had engaged in any purely commercial activities on the properties. Rather, the court found that FSHT’s plan to harvest trees as part of a sustainable forestry education program, with any revenue therefrom to be used by FSHT in accordance with its purposes, was consistent with the organization’s charitable purposes. The court also noted that, even if the Articles of Incorporation permitted FSHT to engage in nonexempt uses, “incidental, nonexempt use of property will not render the property ineligible for exemption.” 

Grandfather Mtn copyCompare In re Grandfather Mountain Stewardship Foundation, 2014 WL 4071200  (Ct. Appeals N.C. 2014), in which the Court of Appeals of North Carolina denied property tax exemptions to a charitable foundation with regard to three properties  because the properties were not  “wholly and exclusively used” for nonprofit educational or scientific purposes. Although The Nature Conservancy holds a conservation easement on the propertes and the foundation uses the properties for educational and scientific activities, the court found that the foundation also operates the properties to some extent as a for-profit tourist attraction, charging market-rate admission fees and generating more than $1 million annually from retail sales of items such as hiking equipment, souvenirs, and snacks.   

Conclusion

In sum, in Maine, a nonprofit conservation organization’s lands that are used for conservation purposes and open to the public are eligible for a property tax exemption, even if the lands are or could be used for incidental nonexempt purposes. If the organization denies public access to its conservation lands, however, it would have to make the case that “conservation of the land otherwise confers a public benefit.” While the Maine Supreme Judicial Court did not indicate how that might be done, in NEFF v. Hawley the Massachusetts Supreme Judicial Court explained that the organization would have to present “compelling facts” demonstrating that exclusion of the public is necessary to enable the organization to achieve a public benefit through other activities carried out on the land. The court further explained that such “other activities” may often be time-limited—e.g., 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. 

Nancy A. McLaughlin, Robert W. Swenson Professor of Law, University of Utah S.J. Quinney College of Law

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Nice write up, Nancy! Here's my take on the key points, which largely agrees with yours, from my recent Maine Land Conservation Law E-Bulletin:

Major Court Victory for Maine Land Trusts

In early August, the Maine Supreme Judicial Court issued a landmark pro-conservation decision in Francis Small Heritage Trust, Inc. v. Town of Limington, 2014 ME 102 (Me. 2014). The opinion puts to rest several arguments that municipalities have raised over the years in denying property tax exemption applications. I was pleased to play a role in this process by co-authoring with Karin Marchetti Ponte a joint Land Trust Alliance – Maine Coast Heritage Trust amici brief in support of FSHT. Here are the major findings and issues discussed by the Law Court:

Land Conservation Is a Charitable Purpose – Francis Small Heritage Trust leaves no doubt that land conservation is indeed a charitable purpose within the meaning of 36 M.R.S. § 652(1)(a) and that the typical land trust preserve is eligible for property tax exemption. The Court quoted extensively from three Maine statutes (the Natural Resources Protection Act, the Land For Maine’s Future enabling act, and the Growth Management Act) in declaring that “the Legislature has enunciated a strong public policy in favor of the protection and conservation of the natural resources and scenic beauty of Maine.” Because FSHT assists the state in achieving these conservation goals, its land conservation activities are charitable. This analysis follows the traditional “lessen the burdens of government” prong for demonstrating that an activity is charitable.

The Court also cited to a growing body of case law from other states finding that conservation is charitable for property tax purposes. The most recent of these is a seminal May 2014 decision by the Massachusetts Supreme Judicial Court in New England Forestry Foundation v. Board of Assessors of the Town of Hawley, 9 N.E.3d 310 (Mass. 2014), which dealt with many of the same issues as the FSHT case. These cases have emphasized that land conservation benefits the general public in a number of ways.

Public Access is Not Essential For Exemption, But It Helps — Significantly, the Law Court distinguished the typical Maine land trust preserve, where public access is permitted and encouraged, from the facts of a troublesome older case, Holbrook Island Sanctuary v. Inhabitants of the Town of Brooksville, 161 Me. 476 (Me. 1965), involving a wildlife sanctuary where public access was heavily restricted and discouraged. Thus, although the Law Court doesn’t go so far as to say that public access is a prerequisite for exemption, a land trust seeking exemption where public access is prohibited or significantly restricted will have a heavier burden in demonstrating public benefit. This outcome tracks the analysis of the Massachusetts high court’s opinion in New England Forestry Foundation.

Incidental Commercial Activities and Accompanying Purpose Provisions in Articles Won’t Defeat Exemption – The Law Court also dispensed with the Town’s contention that a section of FSHT’s Articles of Incorporation reflected a non-charitable purpose. The key disputed phrase was that FSHT’ purposes included “protect[ing] appropriate uses such as logging, farming and other compatible commercial activities.” Because there was no evidence that FSHT engaged in any purely commercial activities, the Law Court did not find this language disqualifying. In a key footnote, the court noted that even if an organization engages in incidental commercial activities, language in the Articles that authorizes these activities will not defeat an otherwise legitimate exemption request. This holding should be very helpful in preventing municipalities from denying exemptions based on minor drafting ambiguities.

Open Space Tax Program Does Not Supplant Property Tax Exemption – Finally, the Law Court ruled that the Open Space Tax Program, whereby landowners can apply for reduced taxation of open space parcels, does not supplant property tax exemption for Maine land trusts. The two legislative schemes can coexist, and land trusts can elect to apply for Open Space, exemption, or neither. The Law Court’s resolution of this issue resolves a niggling issue from a 1991 trial court decision (Cushing Nature Preserve), where the lower court ruled that Open Space did preclude and supplant exemption.

Clarity for Land Trusts and Towns – As a result of the comprehensive decision in Francis Small Heritage Trust, both land trusts and towns have much-needed clarity. Hopefully, the conflict points will be greatly reduced. At the same time, land trusts and all nonprofits must recognize that towns are increasingly pressed for revenues, and there will be ongoing attempts to limit the scope of the charitable exemption through the legislative process. Along these lines, some land trusts might continue their policies of paying property taxes in full, or applying for Open Space, even though exemption is now clearly an option.

Posted by: Rob Levin | Aug 27, 2014 4:50:05 AM

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