Maryland State Fair & Agricultural Society, Inc. v. Supervisor of Assessments

Prescott, J., delivered the opinion of the Court. This is an appeal from an order of the Circuit Court of Baltimore County entered on December 7, 1960, reversing in part an order of the Maryland Tax Court by holding that Maryland State Fair and Agricultural Society, Inc. (hereinafter sometimes called the “Society”) must pay ordinary ⁵⁷⁷ (property) taxes for the year 1959 on that portion of its property used to conduct horse racing as a feature attraction of the Maryland State Fair. The case originated in the Appeal Tax Court of Baltimore County which divided the Fair Grounds owned by the Society into what that court designated as “Exhibition Section” and “Race Track Section.” The Appeal Tax Court held that the Society was exempt by the Code (1957 and 1960 Cum. Supp.), Article 81, Section 9 (7) and (8) from paying property taxes on the “Exhibition Section,” but that it must pay taxes on land and improvements which that court listed in the “Race Track Section.” The Maryland Tax Court held that the Society is entitled to an exemption as to “all of the 83.410 acres of land [the acreage being stipulated] and improvements erected thereon owned by the Society at Timonium.” This, of course, included both the “Exhibition Section” and the “Race Track Section.” The Circuit Court of Baltimore County affirmed the Maryland Tax Court in holding that the Society is a non-profit educational and charitable institution, exempt from property taxes under Article 81, Section 9 (7) and (8), but reversed the Maryland Tax Court in part by holding that the Society is taxable on most of the property which the Appeal Tax Court had listed under the designation “Race Track Section.” Under the decision of the Circuit Court, the Society must pay taxes for the year 1959 on 42.961 acres of the Fair Grounds and on certain improvements of which the grandstand, race track, bleachers, four stables and jockeys’ quarters are the principal items.

The record does not clearly show that the midway was included in this 42.961 acres, but we were informed during argument that it was. The Society was organized in 1950 by a group of altruistic and public-spirited citizens to purchase the Fair Grounds and preserve the State Fair when the Maryland Jockey Club threatened to sell the property for use as an industrial site. A large number of citizens of Maryland subscribed to $600,000 in bonds to purchase the Fair Grounds for $500,000 ⁵⁷⁸ and to provide $100,000 in working capital. The certificate of incorporation states the purposes to be: “the acquisition and operation of Maryland State Fair Grounds (known as Timonium Fair Grounds), Baltimore County, Maryland in the best interests of those engaged in agricultural, horticultural and related pursuits; the betterment of the conditions of those engaged in agricultural and horticultural pursuits, the improvement of the grade of their products, and the development of a higher degree of efficiency in their respective occupations; the conduct of a Maryland State Fair at Maryland State Fair Grounds to encourage the development of better agricultural and horticultural products through a system of awards; the education and instruction of those engaged in agricultural and horticultural pursuits; the conduct of such other entertainments, amusements, contests, horse shows, horse racing and trials of speed, expositions and other activities at Maryland State Fair Grounds as may aid and assist the aforesaid purposes; and any business or objects designed or calculated to aid, assist or achieve these purposes.” The Society has operated since 1950 in accordance with these declared purposes, and no dividend or distribution has ever been declared, or paid to stockholders.

No director or officer has ever been paid any salary or other compensation, except the general manager, who is a year round employee. The question for our determination is whether the Society’s exemption from property taxes under Subsections (7) and and (8), mentioned above, applies to all of the land and improvements constituting the Maryland State Fair Grounds, or only a part thereof? The appellee asserts that under the provisions of said Subsections 7 and 8 there are four elements in the test which the property of the appellant must meet before it qualifies for the privilege of exemption from taxation: (1) The property must be that of an educational or charitable institution, (2) ⁵⁷⁹ no part of the net income (with an exception not here pertinent) of the institution can inure to the benefit of any private shareholder or individual; (3) the property must be actually used by the educational or charitable institution; (4) and the use of the property must be reasonably necessary for the charitable or educational work of the institution. We agree. 1 Appellee concedes that the appellant is either an “educational” or “charitable” institution, or both, compare 36 Op.

A.G. 303, and that the appellant and the use of its property meet the requirements of (2) and (3); but the appellee earnestly contends that the use of that portion of appellant’s property, ruled by the court below to be taxable, is not reasonably necessary for the charitable or educational work of the institution. Our question, therefore, narrows to this single contention. In order to determine whether the use of the appellant’s-property is reasonably necessary for its educational and charitable purposes within the spirit, intent and wording of the legislature in enacting Subsections 7 and 8, it is necessary to-consider the background and historic aspects of the Society’s-fairs, and of fairs in general. Fairs are events where people congregate to present and observe exhibitions that disclose how other people work, live and play; for the purpose of buying and selling live stock and commodities; for holding and 1 participating in contests; and for pleasure and enjoyment.

The word “fair” is derived from the Latin word feria, meaning a holiday or feast day, but fairs were held in many countries of the world long before the time of the Romans. The very ancient fairs were connected with religious matters, but, even at that early date, they usually staged games- and contests, the famous Olympic games being held at one of the fairs of Ancient Greece. As time wore on, “market” fairs were held, where commodities were bartered and sold, and thereafter came the “agricultural” fairs. ⁵⁸⁰ The first one of this latter type to be held in this country was the Berkshire Cattle Show, about 1810. For the first time, women actively participated, sending in their pickles, jellies and other household goods, and receiving medals and prizes for the best.

This type of fair became very popular throughout America, especially in the rural areas. Corn huskings, quilting bees, athletic contests, horse races, automobile races, and spectacular events were added to the programs, as time passed, for amusement, pleasure and instruction. 2 After pointing out the many advantages accruing from the holding of agricultural fairs, 1 Ency. Britannica, pp. 418, 419 (1959 Ed.) has this to say: “In its early years the agricultural fair was one of the main recreations available to farm families. The form that the recreational and amusement facilities should take has been debated since the beginning of fairs.

Critics of the programs have charged that the amusements have overshadowed the exhibits. Early proponents of extensive recreational features replied that the farmer was entitled to relaxation and amusement, while during the 20th century the fair had to compete with many other means of recreation. Much controversy centered around the question of horse racing. This event grew steadily in popularity from its introduction as a feature of a few agricultural fairs in the 1830s, until by 1900 it had proved its importance as a permanent and colourful part of the annual program.

By the mid-20th century the typical agricultural fair had an extensive entertainment program that appealed to urban and rural audiences alike. “The modern county or state fair, with its permanent buildings devoted to farm produce, livestock, farm machinery, automobiles and handicraft, midway, horse and auto racing, dance pavilions, spectacular evening shows and fireworks, has something ⁵⁸¹ to appeal to every taste and yet still demonstrates agricultural progress and achievement. “The agricultural fairs and shows that survived until past the middle of the 20th century seemed well established and continued as a major force for a better agriculture, serving both the educational and recreational needs of the nation.” This brings us to the actual operation of the Society in conducting Maryland State Fairs at Timonium. The first fair at this location was held in about 1878, and as early as 1903 it became known as the Maryland State Fair, and is now officially designated as such. The evidence clearly shows that horse racing has been a traditional feature attraction of the Fair for many years. Newspaper articles as early as 1894 disclose “First-Class Racing This Year” as the main event of the Fair.

The Fair runs for approximately two weeks each year under the supervision of the Maryland State Farm Board— the first week being basically set aside for youth groups; the second for adults. A typical day at the Fair was described by the Society’s president as beginning at 9:00 a.m. with 4-H (a national association of farm youth clubs, which teaches young people all phases of farm life) and F. F. A. (another national organization for instructing farm youths) dairy and livestock exhibits, and 4-H dairy cattle, livestock and egg-grading judging contests. These are followed throughout the day with exhibits of baked and canned foods, jellies, candies, clothing, needlework, arts and crafts and flower arrangements, etc. Some of the exhibits are entered by the Farm Bureau and State Grange, two national farm organizations for adults, by the University of Maryland Extension Service, and by the State Department of Forests and Parks.

There are also demonstrations in meat cutting and cooking, in hand weaving, lace making, pottery making and other crafts. Horse races are held in the afternoon, except Sundays. The midway entertainment continues throughout the day, and in the evening the Farm Queen Dinner is held. There was expert testimony tending to establish the many ⁵⁸² beneficial practical results and the educational value of the overall operation of the Fair.

The horse racing is conducted on a one-half mile track under license from the State Racing Commission with pari-mutuel betting permitted. No races are held except during the Fair. Breeders are permitted to use the stables and the track, without charge, when the Fair is not in progress. The midway has the usual merry-go-round, Ferris wheel and other rides, bingo, wheel-of-fortune, hit-the-baby-doll and other games.

And on each night during the Fair, a theatrical show is given in front of the grandstand. All of the above activities are conducted on one tract of land (stipulated as consisting of some 83 acres), which is owned and operated by the Society as an integrated whole. The segregation into the “Exhibition” and “Race Track” sections was done by the Appeal Tax Court of Baltimore County. The land is improved by numerous fair and exhibition buildings, included among which is a large modern grandstand, completed in 1959 at a cost of about $1,000,000; and this building apparently is the cause of this litigation.

The large investment in the grandstand was not initiated by officials of the Society, but was the result of a suggestion from the Racing Commission that the old grandstand would have to be replaced, if the Fair desired to continue high-class racing as an attraction. The grandstand is used for horse racing on twelve afternoons of the Fair, but it is also used for many other events during the Fair and at various times during the year. Each evening of the Fair, it is used for theatrical shows, horse-pulling contests or other entertainments. It is also used for the Farm Queen Dinner, for the crowning of the Farm Queen, for a 4-H parade, and parade of farm implements.

In the mornings, it is sometimes used for demonstrations and 4-H activities. Between Fairs, the grandstand is used, without charge, for the Maryland Pony Show, thoroughbred yearling class show, cattle shows and other activities of a civic or agricultural nature. The operation of the Maryland State Fair is financed by a grant from the State of Maryland and by revenues from a number of the activities conducted as a part of the Fair. For ⁵⁸³ the year 1959, the largest single source of revenue was the grant of $83,000 from the State, and the second largest source of revenue was the $77,380.16 in net income realized from horse racing.

Other important sources of revenue were admissions at $58,494.50 and the midway at $31,500. The precise question posed herein does not seem to have been decided by this Court, and there is a dearth of authority elsewhere directly in point. The case of City of Lewiston v. All Maine Fair Ass’n, 21 A. 2d 625 (Me.), involved property taxes on all of the property of the All Maine Fair, under a statute that exempted the property of literary and scientific institutions “occupied by them for their own purposes,” but taxed “so much of the real estate of such corporations as is not occupied by them for their own purposes.” The Fair Association owned a large tract of land upon which were a race track, grandstand, stables and numerous other buildings. It also owned other land, which it used for a skating rink, for ground rentals as lots upon which to erect cottages, and as a site of a “victualing” house.

The argument in that case was quite similar to the contention in the instant one. The City of Lewiston claimed the association was not occupying the race track, grandstand and other buildings “for [its] own [literary or scientific] purposes.” The Court held taxable the property not used by the Fair for its own purposes, and stated: “The land upon which the race track is laid out, the grandstand and the buildings used in connection with the operation of the annual Agricultural Fair, having been acquired and designed and always used in good faith for that purpose, are not taxable.” The liability,