English v. County of Alameda

This is an appeal from a judgment denying a petition for a writ of mandate.

Petitioners (appellants) are resident citizen-taxpayers who brought this class action on behalf of themselyes and all other taxpayers similarly situated. Respondents are the Assessors and Counties of Alameda, Contra Costa, Los Angeles, Marin, Orange, San Bernardino, San Diego, San Francisco, Santa Barbara, San Mateo and Santa Clara, and the State Board of Equalization. The Hospital Association of Northern California, the California Hospital Association, and the California Association of Homes for the Aging participate in the action as intervening parties.

The petition sought to compel respondents to identify, appraise and assess the tenancies or other possessory interests of certain employees and beneficiaries (i.e., hospital and college administrators, professors, doctors, nurses, aged persons) who occupy quarters or use property owned by tax-exempt colleges, universities, hospitals and other nonprofit organizations. It was stipulated by the parties that each category of the above institutions is properly exempt from property taxation either under California Constitution (Const.), article XIII, section 4, subdivision (b) (formerly § lc) and Revenue and Taxation Code (Rev. Code) sections 214-214.9 (welfare exemption) or Const., article XIII, section 3, subdivision (e) (formerly § la) and Rev. Code, section 203 (college exemption). It was likewise stipulated that the occupancies or other property uses at issue are incidental to and reasonably necessary for the accomplishment of the charitable purposes upon which the exempt status of the property is predicated.

Based upon the stipulated facts, the trial court found that “2. [Separately definable property interests exist but are not subject to taxation as possessory interests, or otherwise, arising from the occupancy, by persons described in the stipulation of the parties, of property made exempt from ad valorem taxation pursuant to Section 4(b) (formerly Section lc) of Article XIII of the California Constitution and Section 214 of the Revenue and Taxation Code (the welfare exemption).

“3. [Separately definable property interests exist but are not subject to taxation as possessory interests, or otherwise, arising from the occupancy, by persons described in the stipulation of the parties, of

“4. In respect to property made exempt from ad valorem taxation pursuant to former Section la of Article XIII of the California Constitution (the former college exemption), which was repealed effective November [5], 1974, there were definable property interests subject to taxation, as possessory interests, arising from the occupancy, by persons described in the stipulation of the parties, of such college-exempt property; the imposition of assessments in respect to such property interests would be of no practical benefit to petitioners because of the insubstantiality ór de minimis nature of the net tax revenues which would be realized.”

The trial court concluded that none of the persons described in the stipulation were subject to ad valorem taxation by reason of. their occupancy of either welfare or college exempt property, and accordingly denied the petition for mandate.

Thus, the fundamental issue is clearly in focus, namely whether a separate taxable property interest may be said to exist in property which is concededly entitled to either the welfare or college exemption when the use of the property is incidental to or reasonably necessary for the accomplishment of the exempt purpose.

Appellants contend that the conclusion reached by the trial court is erroneous, arguing that the occupancy of other use of tax exempt property by private individuals should be subject to ad valorem taxation. Appellants’ logic runs as follows: (1) unless otherwise provided by the Constitution or statute, as a general rule all property is taxable (Const., art. XIII, § 1); (2) possessory interests in land or improvements are a species of real property (Rev. Code, §§ 103-107; Kaiser Co. v. Reid (1947) 30 Cal.2d 610 , 618 [ 184 P.2d 879 ]), which are not explicitly exempted from taxation; (3) the occupancy or other use of the tax exempt property by the individuals described in the stipulation constitute separately definable possessory interests which substantially sub-serve an independent, private interest of the user or occupier (United States of America v. County of Fresno (1975) 50 Cal.App.3d 633 , 638 [ 123 Cal.Rptr. 548 ]); ergo (4) such possessory interests as a matter of law ought to be made taxable to the private individuals; even if the property

To put it -in more basic terms, appellants advocate the adoption of a so-called dual-use theory under which property used for the exclusive purpose of tax-exempt charitable institutions would be excepted from taxation as to the. institutions, but would be subject to an ad valorem tax as to the private individuals who, while occupying or using the tax exempt property for the fulfillment of recognized charitable purposes, also utilize it for their own private end and benefit as well. In countering these arguments, respondents and interveners maintain that the position advanced by appellants is totally unsupported by the Constitution and the statutes enacted pursuant thereto, and is in sharp conflict not only with the case law expanding on and interpreting.the scope and meaning of the legislative enactments concerning the welfare and college exceptions, but also with the notion of “exclusive use” as defined in established judicial opinions. Even more significantly it is contended that the eventual adoption of appellants’ theory would fly directly in the face of a public policy which favors tax-exempt status for charitable institutions and would frustrate the very policy goal the promotion of which was intended by granting such exemption. We agree with respondents and interveners and affirm the judgment for the reasons which follow.

Welfare Exemption: Since our primary task is to interpret the pertinent provisions of the California Constitution and the legislative enactments adopted pursuant thereto, initially we set out the general rules governing statutory construction. As emphasized time and again, the fundamental rule of statutory interpretation is tó ascertain the intent of the Legislature so as to effectuate the purpose of the law (County of Alameda, v. Kuchel (1948) 32 Cal.2d 193 , 199 [ 195 P.2d 17 ]). Statutes should be given a reasonable interpretation in accordance with the apparent purpose and intention of the lawmakers (Freedland v. Greco (1955) 45 Cal.2d 462 , 467 [ 289 P.2d 463 ]). The legislative intent may be ascertained not only by considering the words used, but also by taking into account 'other matters as well, such as the object in view, the evils to be remedied, the legislative history, public policy and contemporaneous administrative

In the execution of the constitutional mandate, the Legislature enacted Rev. Code, section 214, which provides in inclusive terms that property used exclusively for religious, hospital, scientific, or charitable purposes owned and operated by community chests, funds, foundations or corporations organized and operated for religious, hospital, scientific, or charitable purposes is exempt from taxation if the conditions set out in the section have been met.

In deciphering the meaning of the word “property,” which plays a crucial role in ascertaining the legislative intent and defining the scope of welfare exemption, we take recourse to the statute itself. By statutory definition, “property” includes all matters and things, real, personal, and mixed, capable of private ownership (Rev. Code, § 103). “Real estate” or “real property” comprises inter alia the possession of, claim to, ownership of, or right to the possession of land and improvements (Rev. Code, § 104, subds. (a) and (c)). “Improvements” encompass buildings, structures, fixtures and fences erected on or affixed to the land (Rev. Code, § 105, subd. (a)). Possessory interests as defined by the statute mean: “(a) Possession of, claim to, or right to the possession of land or improvements, except when coupled with ownership of the land or improvements in the same person. [If] (b) Taxable improvements on tax-exempt land.” (Rev. Code, § 107.)

It thus clearly appears that the possessory interests existing in land or improvements constitute but a part or ingredient of the property, and the latter as a broader notion includes by definition the possessory interests as well. Therefore, giving a plain meaning to the language used in the statute, as we must, the word “property” must be deemed to

The conclusion that, by using the word “property” in the statute, the Legislature intended to extend the welfare exemption to the aggregate of property rights is further underlined by the circumstance that pursuant to the cited constitutional provisions the Legislature was empowered to exempt all or any portion of property used exclusively for charitable purposes and owned by the qualifying charitable organizations. By employing the all-inclusive term of “property” without any limitation or restriction in Rev. Code, section 214, the Legislature expressed its intent that the tax exemption accorded charitable organizations should include not only parts or fractions, but the entirety of the property rights. Consequently, appellants’ contention that taxable possessory interests may exist in welfare exempt property must fail, in the first place, as a matter of statutory construction.

Additionally, it bears emphasis that one of the most important conditions of obtaining a welfare exempt status is that the property owned by the charitable institution be used exclusively for religious, hospital, scientific or charitable purposes (Const., art. XIII, § 4, subd. (b); Rev. Code, § 214). The courts have consistently held that “exclusive use” includes any property of the charitable organization which is used exclusively for any facility which is incidental to and reasonably necessary for the accomplishment of the charitable purpose (Cedars of Lebanon Hosp. v. County of L. A., supra, 35 Cal.2d 729 , 736; Y. M. C. A. v. County of L. A., supra, 35 Cal.2d 760 , 767; Fredericka Home v. County of San Diego, supra, 35 Cal.2d 789 , 795; see also Serra Retreat v. County of L. A. (1950) 35 Cal.2d 755 [ 221 P.2d 59 ]; Fifield Manor v. County of Los Angeles (1961) 188 Cal.App.2d 1 [ 10 Cal.Rptr. 242 ]).

The extensive judicial interpretation of the phrase “exclusive use” carries an overriding significance in the case at bench. Reduced to simplest terms, it means that even if the use of certain property is only incidental or reasonably necessary to attain the charitable goal and, therefore, at least in the eveiy day sense of the word, does not foreclose some additional or complementary use on the part of certain authorized private individuals (the very type of use alleged by appellants here), for the purpose of property taxation such incidental or reasonably necessary use must be and is considered as an exclusive use which calls for exemption from ad valorem taxation both under the Constitution and

To begin with, the Constitution and case law indicate that the sole basis of the tax exemption of public land is the ownership of the property, and the use to which the property is put is neither a legal element nor a prerequisite of the grant of exemption (Const., art. XIII, § 3, súbds. (a) and (b) (formerly § 1); Anderson-Cottonwood 1. Dist. v. Klukkert (1939) 13 Cal.2d 191 , 199 [ 88 P.2d 685 ]). Since the public policy underlying the tax exemption in the public land cases is to secure .the tax privilege to the government alone, the automatic extension of the tax exemption to the private users of public land who have obtained and enjoy substantial possessoiy interests therein is not required .either as a matter of law or public policy. Indeed, since as early as 1859 it has been

Second, and aside from the explicit language of the statute, appellants’ novel proposition is not supported by public policy considerations either. T he cases in point make it abundantly clear that the tax exemption granted to charitable organizations is provided not only for the well-being of the immediate beneficiaries of the institutions (e.g., elderly persons in homes for the aging; occupiers of student and faculty residences and dormitories on college campuses; patients of hospitals), but also for the benefit of the public at large. As we put it in John Tennant Memorial Homes, Inc. v. City of Pacific Grove (1972) 27 Cal.App.3d 372 , 382 [ 103 Cal.Rptr. 215 ], “ The fundamental basis for all exemptions in favor of charitable institutions is the benefit conferred by them on the public and the consequent relief of the burden on the state to care for and advance the interests of its citizens.” (Italics added. Accord: Fifield Manor v. County of Los Angeles, supra, 188 Cal.App.2d 1 , 20.) In amending Rev. Code, section 214 in 1968, the Legislature also expressed the idea that the grant of property tax exemption to charitable institutions is of benefit to the state itself. The pertinent portion of the declaration of intent reads as follows: “If obligated to pay taxes on this property, the purpose for which these nonprofit corporations have been established—to provide low-cost rentals to elderly and handicapped families—will be .defeated, as the amount of tax added to the rent payments will make such rental units too expensive for the families

Third, in accordance with the legislative intent, the underlying public policy and the longstanding judicial interpretation of the charitable property exemption provisions of the Constitution and the statute, respondent Board of Equalization promulgated regulations which at the relevant time and in pertinent part stated as follows: “ ‘Taxable possessory interest’ means a possessory interest in nontaxable publicly owned real property, as such property is defined in section 104 of the Revenue and Taxation Code, and in taxable publicly owned real property subject to the provisions of sections 1 and 1.60 through 1.68, Article XIII, of the Constitution.” (Tit. 18, Cal. Admin. Code, § 21, subd. (b); italics added.) This is in accord both with the definition laid out in Pacific Grove-Asilomar Operating Corp. v. County of Monterey (1974) 43 Cal.App.3d 675 , 683 [ 117 Cal.Rptr. 874 ], and that given in the Assessor’s Handbook, promulgated pursuant to Rev. Code, section 401.5. The latter also reaffirms that “The term possessory interest as it is used in property taxation in California includes either the possession or the right to possession of real estate, title to which is held by a tax-exempt public agency.” (Italics added; Cal. Assessors’ Handbook 517 (April 25, 1961) p. 11; see also 517 (Feb. 1968) p. 5.) It is, of course, well recognized that the administrative construction of the statute along with consistent administrative practice are entitled to great weight and constitute a significant factor in ascertaining the meaning of the legislative enactment (Culligan Water Conditioning v. State Bd. of Equalization (1976) 17 Cal.3d 86 , 92-93 [ 130 Cal.Rptr. 321 , 550 P.2d 593 ]; DiGiorgio Fruit Corp. v. Dept. of Employment, supra, 56 Cal.2d 54 ; Mudd v. McColgan, supra, 30 Cal.2d 463 ).

While it is apparent that the language of the Constitution and the statute providing for college exemption is not identical to that governing the welfare exemption, the all-important criterion of the privilege, namely that the specified property be used exclusively for the exempt purpose, is the same. It is likewise evident that the courts, in interpreting the college exemption, have construed the phrase “used exclusively” consistently with the interpretation rendered in the welfare exemption cases. Thus, in Church Divinity Sch. v. County of Alameda, supra, 152 Cal.App.2d 496 , the court was invited to decide whether certain college properties (family residences occupied rent free by faculty members, apartment houses occupied by married students, student parking lot) were exempt from ad valorem property taxation. In holding that the properties specified above should be held immune from property tax, the court cited the welfare exemption cases (Cedars of Lebanon Hosp. v. County of L. A., Fredericka Home v. County of San Diego, Y. M. C. A. v. County of L. A., all supra), and by compelling analogy concluded that the property “ ‘used exclusively for . . . purposes of education’ ” should include any facilities which are reasonably necessary for the fulfillment of a generally recognized function of a complete modern college. (P. 502.)

We note incidentally that our conclusion that the tax exemption should turn on the use of the property for the tax exempt purpose is further corroborated by Ross v. City of Long Beach (1944) 24 Cal.2d 258 [ 148 P.2d 649 ], a case dealing with the college exemption. In Ross, the property used for school purposes was leased to the school by a private owner, and the primary issue was whether the owner was immune from

In sum, we conclude that despite differing language in the constitutional and statutory provisions, the policy reasons that have been spelled out with regard to the taxability of possessory interests in welfare exempt property ought to be deemed equally applicable to possessory rights existing in college exempt property. Accordingly, we hold that similar to possessory interests in the property of welfare exempt institutions, the stipulated occupancies in college exempt property must be held exempt from ad valorem taxation regardless of the circumstance whether said college property had been made exempt prior to or after November 5, 1974.

The judgment is affirmed.

Taylor, P. J., and Rouse, J., concurred.

Appellants’ petition for a hearing by the Supreme Court was denied July 28, 1977.