Appeal from the Kansas Board of Tax Appeals.
1. In an exemption case, all real and personal property in Kansas shall be subject to taxation unless expressly exempted. K.S.A. 79-101. Thus, taxation is the rule and exemption from taxation is the exception under the Kansas Constitution and statutes.
2. The burden of establishing an exemption from taxation is on the party requesting the exemption.
3. Constitutional and statutory provisions exempting property from taxation are strictly construed against the party claiming the exemption.
4. The fundamental rule of statutory construction is that the intent of the legislature governs if that intent can be ascertained. The legislature is presumed to have expressed its intent through the language of the statutory scheme. Ordinary words are given their ordinary meanings. When a statute is plain and unambiguous, the court must give effect to the intention of the legislature as expressed, rather than determine what the law should or should not be.
5. K.S.A. 79-201b Fourth, which specifically deals with tax exemptions for low income housing, is the applicable statute when a taxpayer requests a statutory tax exemption for property that is primarily low income housing.
6. A taxpayer requesting a statutory tax exemption for property that is primarily low income housing must meet the requirements of K.S.A. 79-201b Fourth. Failure to meet those requirements results in the denial of the requested statutory tax exemption.
7. In order for a taxpayer to prove that property fits within the charitable purposes tax exemption of Article 11, §1(b)(2) of the Kansas Constitution, the taxpayer must show (1) that the services provided are free of charge or so nearly free of charge as to make the charges nominal or negligible and (2) that the services are rendered to those who are unable to provide themselves with what the institution provides for them.
The opinion of the court was delivered by: Green, J.
Before HILL, P.J., GREEN and STANDRIDGE, JJ.
Inter-Faith Villa, L.P. (Inter-Faith Villa), and Inter-Faith Development Corporation (IFDC) (collectively appellants) appeal from an order of the State Board of Tax Appeals (BOTA) denying their applications for exemption from ad valorem taxes on two parcels of real estate identified as Villa Central and Villa North in Sedgwick County. The appellants argue that BOTA erroneously interpreted and applied the law pertaining to their applications when it determined that K.S.A. 79-201 Ninth and Article 11, § 1(b) of the Kansas Constitution did not apply to allow an exemption for the subject properties. Moreover, the appellants maintain that BOTA erroneously based its decision on determinations of fact that were unsupported by the evidence and that its order was otherwise unreasonable, arbitrary, or capricious.
We determine that because the subject properties in this case were primarily low income housing facilities, K.S.A. 79-201b Fourth is the applicable exemption statute here. Nevertheless, based on the plain meaning of K.S.A. 79-201b Fourth and the strict construction that must be given to exemption statutes, the appellants were not entitled to a statutory tax exemption due to their failure to meet the requirements of K.S.A. 79-201b Fourth. Moreover, the appellants do not fit within the charitable purposes exemption under Article 11, § 1(b)(2) of the Kansas Constitution because they have failed to show that the services they provided were "free of charge" or so "nearly free of charge as to make the charges nominal or negligible." See Lutheran Home, Inc. v. Board of County Commissioners, 211 Kan. 270, 278, 505 P.2d 1118 (1973). Accordingly, we affirm BOTA's decision.
Inter-Faith Villa owns and operates Villa Central in Sedgwick County. Villa Central contains 37 housing units, two office areas, a community room, a kitchen, and a laundry room for the residents. Eight of Villa Central's housing units are for homeless people with chronic mental disabilities. The remaining 29 housing units are for people who need affordable housing. The rent is $400 for a one-bedroom apartment and $475 for a two-bedroom apartment, with utilities included. Community building activities at Villa Central take place in the on-site community room and include resident social events, life skills classes, community meals, and resident association meetings.
Inter-Faith Ministries Wichita, Inc. (IFM), a tax-exempt Kansas not-for-profit corporation, is the general partner of Inter-Faith Villa. IFM controls the operations of Villa Central. The limited partner is NDC Corporate Equity Fund IV, L.P., a Delaware limited partnership, that assisted in providing some of the financing for the acquisition and construction of Villa Central in exchange for low income housing tax credits. The units are rented at $370 for an efficiency apartment, $444 for a one-bedroom apartment, and $495 for a one-bedroom loft apartment, with all utilities included.
Other funding for Villa Central comes from the U.S. Department of Housing and Urban Development (HUD) Supportive Housing Program, 42 U.S.C. § 11381 (2000) et seq., and the HOME Investment Partnership Program (HOME), 42 U.S.C. § 12721 (2000) et seq., a construction loan from a commercial bank that holds a mortgage on the property, and rental income. All of Villa Central is actually and regularly used exclusively for cooperative housing for people with disabilities or people having a limited or low income, as provided under the HUD Supportive Housing Program.
IFDC owns and operates Villa North in Sedgwick County. Villa North contains 19 housing units for homeless people with chronic mental disabilities or alcohol or drug disabilities. An additional five housing units are for people who desire to live in the community, such as property management staff, security officers, or full-time volunteers, but who do not require supportive services. Nevertheless, these five units have been used only for low income housing since Villa North opened. Villa North is funded by grants from the HUD Supportive Housing Program, by individual and corporate contributions, by HOME funds administered by the City of Wichita, and by rental payments. Housing assisted with HOME funding must meet the affordability requirements as set forth in federal regulations.
Most of the residents at both Villa Central and Villa North receive Section 8 low income vouchers, see 42 U.S.C. § 1404a (2000) et seq., to assist in paying the rent. Residents pay rent for the apartments in accordance with low-income housing tax credits and HOME rent and income guidelines. When a resident is unable to pay the rent, a case manager will help the resident with financial planning and will also help the resident access community services that might assist in the payment of rent. If the resident is still unable to pay the rent, then the resident will be referred to an appropriate agency for help in housing or transferred to one of their temporary shelters. The record indicates that an individual was guaranteed only a 1-week stay at IFM's temporary shelter.
At both Villa Central and Villa North, supportive services are individually tailored to meet the needs of all residents. The supportive services are provided by a case manager who maintains a weekly service provider mainstream information listing to ensure that all residents receive the highest quality and most efficient services available. At a weekly meeting with each resident, the case manager reviews the services applied for and ensures that the services have or will be received. Some of the supportive services include referring residents to other social agencies, referring residents to mental health professionals, finding a trustee to help a resident with his or her finances, assisting residents in obtaining employment, helping a resident with financial planning, providing volunteers through IFM to visit residents and help them with activities of daily living, making residents aware of the eligibility requirements for various social services programs, and transporting residents to services through IFM's transportation program. Community building activities are planned for all residents at Villa Central and Villa North with the goal of creating an inclusive community that is respectful of all people. The office areas at both facilities are used for case management and community building activity planning.
In May 2004, Inter-Faith Villa filed its initial application for exemption from ad valorem tax on Villa Central. The exemption was requested under K.S.A. 79-201b Fourth from June 2001 forward. IFDC also filed an application for exemption from ad valorem tax on Villa North. The exemption was requested under K.S.A. 79-201b Fourth from July 2003 forward. The Sedgwick County Appraiser's office did not request a hearing on the applications and recommended that both exemptions be granted.
BOTA determined that Inter-Faith Villa did not satisfy the financing requirement of K.S.A. 79-201b Fourth and denied the application for exemption for Villa Central. Inter-Faith Villa filed a petition for reconsideration, which was granted by BOTA. In addition, both Inter-Faith Villa and IFDC amended their applications to add K.S.A. 79-201 Ninth as an alternative basis for exemption. The Sedgwick County Appraiser's office again recommended that the exemptions be granted.
In June 2006, BOTA held a hearing on both applications for tax exemption. At the hearing, BOTA's chairperson noted that the appellants had cited Article 11, §1(b) of the Kansas Constitution, the constitutional provision relating to exemption from ad valorem taxation, and asked if there was any authority for the requested exemption to be granted under that constitutional provision. The appellants' attorney requested time to brief that issue. The appellants filed a supplemental brief in which they argued that their applications for exemption fit within Article 11, §1(b) and that this constitutional provision provided an independent basis for an exemption for the subject properties.
In November 2006, BOTA issued its order on reconsideration denying Inter-Faith Villa's application for exemption of Villa Central. Finding that Villa Central was not "used exclusively" for an exempt purpose, BOTA denied the request for exemption under Article 11, §1(b) of the Kansas Constitution. Moreover, BOTA determined that the applicable exemption statute was K.S.A. 79-201b Fourth, which specifically addressed low income housing, instead of K.S.A. 79-201 Ninth, which was the more general exemption statute dealing with property used for providing humanitarian services. Finally, the Board determined that because Inter-Faith Villa did not receive its financing from the federal programs identified in K.S.A. 79-201b Fourth, it was not entitled to an exemption under that statute.
On the same date, BOTA also issued its order denying IFDC's application for exemption for Villa North. BOTA based its decision on the same grounds as those it used to deny Inter-Faith Villa's application for exemption of Villa Central. IFDC filed a petition for reconsideration of BOTA's decision. In a written order, BOTA denied IFDC's petition for reconsideration.
This court's standard of review of an order of BOTA is governed by K.S.A. 77-621, which states:
"(c) The court shall grant relief only if it determines any one or more of the following:
(1) The agency action, or the statute or rule and regulation on which the agency action is based, is ...