By Joe Haberzetle, JD, LLM and Bob Heller, JD, LLM
In recent years the Washington Board of Tax Appeals has developed a reputation as a difficult venue for taxpayers to achieve positive results, particularly with respect to excise tax and property tax exemption issues. However, the Board’s recent decision in St. Andrews Building Corporation v. Department of Revenue1 is a solid win for the taxpayer and may create opportunities for other Washington not-for-profit organizations to claim the public meeting hall property tax exemption.
Washington law states that in order to be eligible for the public meeting hall exemption, the property at issue must be “used exclusively for public gatherings” and “available to all organizations or persons.”
[For purposes of these provisions, “public gathering” is defined as “any social function that the general public could, if invited, attend.” For example, a wedding, reception, funeral, or meeting of an organization that is open to nonmembers would qualify as a public gathering for purposes of this exemption.]
However, the regulation on point, WAC 458-16-300 (“Rule 300”), provides that the “exclusive use” requirement will not disqualify entities that schedule regular meetings at their facilities, so long as the following two requirements are met: (1) the owner must not use the property more than 25% of the useable time; and (2) the facility must be used an equal or greater number of times for public gatherings than the number of times it is used by the owner for gatherings not open to the general public. The regulation also states that property used more than 50% of the time by a nonprofit organization, association or corporation that allows only members to attend its activities will not qualify for exemption.
The Case and Resulting Decision
In St. Andrews, the taxpayer was a nonprofit corporation that owned the meeting hall used by a local Masons’ lodge. It filed a timely application with the Washington Department of Revenue’s Property Tax Division for the public meeting hall exemption, but the Department denied the exemption. The Department’s rejection of the application was apparently based on its conclusion that the lodge was used primarily by the Masons for private meetings, and was not generally available to the public as the exemption requires.
Since the term “usable time” is not defined in the relevant statute or in Rule 300, the Board considered the usable time of the lodge to be 8 AM to 11 PM, 365 days a year. Thus, it calculated the total usable time of the facility as 5,475 hours per year, meaning the owner’s use of the facility for 85 five-hour functions per year kept it well below the 25% threshold.
In applying the “public gatherings” test, the Board compared the number of private lodge meetings and building board meetings (21) to public lodge events and public events held by affiliated organizations (64), and concluded that the taxpayer met this test as well.
The Board emphasized that this test looks “not at the owner’s percentage of the facility’s total useable time, but at the number of times the owner uses the facility for private meetings relative to the total number of times the facility is used for public gatherings.”
The Board also held that the property at issue was not used more than 50% of the time by a nonprofit organization, association or corporation that allows only members to attend its activities. In applying this test, the Board clarified that “time” as used here means “useable time,” so only the use of a public meeting hall property for greater than 50% of its total useable time by a members-only organization would lead to disqualification under this provision.
Furthermore, the Board stated that this test applies not to the use by the owner (which is limited to 25% of the useable time in any case), but to use by any other nonprofit entity. If more than one non-owner uses the property, this test is applied individually to each such entity; their use is not aggregated.
Finally, the use of the facility by an organization that holds at least some public events would not trigger this provision – it is only if all of its events at the facility are restricted to its own members that use by a third-party organization would trigger this exclusion.
Given the Board’s generally permissive interpretation of the relevant statute and regulation, the public meeting hall exemption could benefit some not-for-profit organizations located within the state that have previously relied on property tax exemptions with stricter usage limitations.
For example, the exhibition spaces used by many performing arts organizations could potentially qualify for the public meeting hall exemption under the Board’s interpretation, even in situations that might disqualify the same exhibition spaces from the exemption specifically directed towards performing arts spaces.
Another takeaway from the St. Andrews decision is the Board’s willingness to interpret both the exemption statute and the Department’s interpreting regulation in a manner beneficial to the organization claiming exemption.
As most other Washington property tax exemptions available to nonprofits contain similar usage limitations, St. Andrews may provide valuable ammunition should the Department attempt to disqualify other organizations’ property on the basis of these usage rules. Although it is too early to tell if St. Andrews signals a fundamental shift in the Board’s interpretation of these exemptions, it is at the very least a promising sign that it was willing to issue a thoughtful, well-reasoned decision on the facts presented to it.
1 Washington Board of Tax Appeals Docket Nos. 81959 through 81962 (March 13, 2013).
© Clark Nuber PS, 2013. All Rights Reserved