Opinion
No. 103,424
Opinion filed: June 3, 2011. NOT DESIGNATED FOR PUBLICATION
Appeal from the Court of Tax Appeals. Opinion filed June 3, 2011. Affirmed.
Conrad Miller, Jr., of Miller Law Firm of Kansas, P.A., of Overland Park, for appellant, Cross Line Towers, Inc.
Ryan Carpenter, assistant counsel, of Unified Government of Wyandotte County/Kansas City, Kansas, for appellee.
Before MALONE, P.J., PIERRON and ARNOLD-BURGER, JJ.
MEMORANDUM OPINION
Cross Line Towers, Inc. (CLT), appeals the decision of the Court of Tax Appeals (COTA) denying its application for ad valorem tax exemption under K.S.A. 2009 Supp. 79-201b Fourth. CLT claims that COTA erred in finding the subject property was not used exclusively for exempt purposes. Finding no error in COTA's decision, we affirm.
CLT was formed as a not-for-profit corporation to purchase and renovate a 185,000 square-foot hotel in downtown Kansas City, Kansas, for use as a 140-unit apartment in order to house the elderly and disabled. The purchase and renovation of the hotel was directly financed by the federal government through § 202 of the National Housing Act (Act). See 12 U.S.C. § 1701 (2006) et seq.; 42 U.S.C. § 1437 et seq. In order to qualify for the loan, CLT must restrict its operations in order to comply with § 202 of the Act. The restrictions dictate the income level, age, and disability level of residents in CLT. In addition to the restrictions, CLT is part of the Housing Assistance Payments (HAP) program. To qualify for the HAP program, the Kansas Housing Resources Corporation (KHRC) must approve the rents that CLT may charge residents, and residents may be charged no more than 30 percent of their adjusted gross income.
There is additional space on the ground floor of CLT which is not used for residences. This space is used by commercial businesses, including two restaurants, a laundry service, an eye clinic, and a beautician. At the time of the COTA hearing, CLT was renting to a clothing store for between $600 and $650 per month, an attorney's office for approximately $400 per month, and an art gallery being used by a not-for-profit group. CLT also rents out space to be used for support groups. At the time of the COTA hearing, CLT was actively seeking additional commercial tenants.
CLT applied for ad valorem exemption in Wyandotte County under K.S.A. 2010 Supp. 79-201b Fourth. The county appraiser recommended that the application for tax exemption be denied. CLT appealed to COTA. After reviewing the case, COTA determined that CLT had failed to comply with the requirements of K.S.A. 2010 Supp. 79-201b Fourth because the subject property was not being used exclusively for its exempt purposes. CLT filed a petition for reconsideration, which COTA denied. CLT timely appealed.
On appeal, CLT claims that COTA erred in denying its application for ad valorem tax exemption under K.S.A. 2010 Supp. 79-201b Fourth. CLT argues that its application for ad valorem tax exemption should have been granted because the revenue generated from the nonexempt commercial activities is minimal compared to the overall revenue generated by the subject property.
This appeal involves the interpretation of K.S.A. 2010 Supp. 79-201b Fourth. The interpretation of a statute is a question of law over which an appellate court has unlimited review. In re Tax Exemption Application of Mental Health Ass'n of the Heartland, 289 Kan, 1209, 1211, 221 P.3d 580 (2009). While statutes imposing tax must be interpreted strictly in favor of the taxpayer, statutes granting exemptions must be interpreted strictly in favor of the tax and against allowing the exemption. 289 Kan. at 1211.
K.S.A. 2010 Supp. 79-201b Fourth provides that the following property shall be exempt from ad valorem taxes to be levied under the laws of the state of Kansas:
"Fourth. All real property and tangible personal property, actually and regularly used exclusively for: (a) Housing for elderly and handicapped persons having a limited or lower income, or used exclusively for cooperative housing for persons having a limited or low income, assistance for the financing of which was received under 12 U.S.C.A. 1701 et seq. or under 42 U.S.C.A. 1437 et seq., which is operated by a corporation organized not for profit under the laws of the state of Kansas. . . ." (Emphasis added.)
The sole question in this case is whether CLT's property was used exclusively for its exempt purposes. Case law has defined "`used exclusively'" to mean "the use made of the property sought to be exempted from taxation, must be only, solely and purely for the purposes stated, and without admission to participation in any other use." Seventh Day Adventist v. Board of County Commissioners, 211 Kan. 683, 690, 508 P.2d 911 (1973).
CLT admits the weight of case law is against its position. However, CLT cites to two Kansas cases to argue the nonexclusive use of the property in its case should not disqualify the corporation from ad valorem tax exemption. The first case is Kansas Wesleyan Univ. v. Saline County Comm'rs, 120 Kan. 496, 243 Pac. 1055 (1926). In Kansas Wesleyan, our Supreme Court found that a building donated to the university where the president of the university lived qualified for tax exemption and was used exclusively for educational purposes. In reaching this decision, the court found that the purpose of having the president live in the building was to keep him close to campus and to facilitate the operation of the university. The court found that where the primary purpose of the building was for the school's benefit rather than the occupant's benefit, the building's purpose was exclusively for educational use. 120 Kan. at 497-99. By contrast, allowing commercial businesses to operate on the ground floor of CLT does not serve the primary purpose of providing low cost housing to the elderly and the disabled. Instead, its purpose is to keep the spaces from remaining vacant and to produce revenue for CLT.
The second case cited by CLT is Board of Johnson County Comm'rs v. Ev. Luth. Good Samaritan Soc., 236 Kan. 617, 694 P.2d 455 (1985). In Good Samaritan, a 9-story building known as Olathe Towers was being used to house elderly and disabled individuals of low income. Four of the building's occupants were elderly but did not qualify for federal rent subsidies. Our Supreme Court found that the elderly occupants who did not qualify for federal assistance were still part of the exempt function of the property. The court found that whether the elderly occupants received assistance was a matter between the Department of Housing and Urban Development (HUD) and the facility, and it did not pertain to whether the property was eligible under K.S.A. 79-201b Fourth. Accordingly, the court determined that Olathe Towers was entitled to exemption from ad valorem taxation based upon K.S.A. 79-201 b Fourth. 236 Kan. at 625.
Good Samaritan is also distinguishable from the present case. In Good Samaritan, the presence of the four elderly occupants who did not qualify for federal assistance did not affect the use of the building because even with their presence, the purpose of the building was still for housing the elderly and handicapped. In the present case, however, there are clearly two separate uses for CLT's property. CLT provides low income housing for the elderly and disabled, but it also actively recruits commercial tenants to rent the lower level of the property in order to generate revenue for the corporation.
In addition to Seventh Day Adventist, several Kansas cases have held that where part of an otherwise exempt property is leased for nonexempt purposes, the property is not "used exclusively" for the exempt purpose. See, e.g., Tri-County Public Airport Auth. v. Board of Morris County Comm'rs, 245 Kan. 301, 301-02, 777 P.2d 843 (1989) (property used both for an exempt function and leased commercially was not exempt from ad valorem tax); Kenneth Godfrey Aviation, Inc. v. Smith, 12 Kan. App. 2d 434, 439-40, 746 P.2d 1068, rev. denied 242 Kan. 903 (1988) (commercial airplane used exclusively by its owners for exempt purposes, but leased for nonexempt purposes, was not "used exclusively" for exempt purposes).
Both this court and our Supreme Court have made it clear that where part of the subject property is used for leasing in order to generate revenue, the property is not "used exclusively" for its exempt purpose. Here, CLT leased a portion of its property for commercial use and therefore the property was not used exclusively for housing low income elderly and disabled individuals. Accordingly, we conclude that COTA did not err in denying CLT's application for ad valorem tax exemption under K.S.A. 2010 Supp. 79-201b Fourth.
Affirmed.