SUPERVISOR OF ASSESSMENTS OF MONTGOMERY CTY. v. Asbury Methodist Home, Inc.

ROSALYN B. BELL, Judge. The Supervisor of Assessments of Montgomery County appeals a decision of the Circuit Court for. Montgomery County. The circuit court, in reversing a decision of the Maryland Tax Court, decided that three apartment buildings located on a campus in Gaithersburg and owned by Asbury Methodist Home, Inc. (Asbury), appellee, were exempt from real property taxes for the 1983-84 tax year under Md.Code Ann. Art. 81, § 9(e) (1957, 1980 Repl.Vol.). ³⁵⁴ The Supervisor argues that the court erred in reversing the tax court because that body’s decision was correct as a matter of law and was supported by substantial evidence.

Asbury owns and maintains a campus on which it has constructed the Asbury Village Apartments, three buildings with 393 units housing approximately 500 senior citizens, the Asbury Methodist Home, a 180-person residential facility for elderly Methodists and for Apartment residents who require domiciliary services and intermediate nursing care, and the Herman M. Wilson Health Care Center, a 279-bed medical facility which provides intermediate and skilled nursing care for the Home and Apartment residents and elderly patients from the surrounding community. Prior to 1983, all three facilities were exempt from Maryland real property taxes. To be exempt, Md.Code Ann. Art. 81, § 9(e)(2) requires that the property be owned by a nonprofit charitable organization and be “actually used exclusively for and necessary for charitable ... purposes ... in the promotion of the general public welfare of the people of the State.” Contrary to past determinations, the Supervisor assessed the Apartments for taxes for the 1983-84 tax year. 1 The Property Tax Assessment Appeal Board for Montgomery County reversed the Supervisor’s assessment and granted the exemption. The Supervisor appealed to the Maryland Tax Court contending that the Apartments were not used for a charitable purpose as required by § 9(e)(2) because providing nonprofit housing for the elderly was not charitable.

The tax court concluded from the facts presented that Asbury’s three facilities, the Home, the Health Care Center, and the Apartments, function as an integrated whole. On that basis, the tax court determined that the Apartments satisfied the test for tax exemption under § 9(e)(2) because they were “actu ³⁵⁵ ally used exclusively for and necessary for charitable ... purposes____” The Supervisor moved for a reconsideration on the basis of an opinion the Circuit Court for Montgomery County had rendered in Friends House, Inc. v. Supervisor of Assessments of Montgomery County, Civil No. 0099 (1985). Friends House, Inc., which was rendered after the tax court’s first hearing in the case sub judice, involved the tax exemption status of property used as housing for the elderly. The tax court had denied a tax exemption to Friends House and the circuit court had affirmed holding that “it is not charitable to provide low-cost housing to those who do not need financial assistance, whether they are young or old.” The Supervisor argued to the tax court at its reconsideration of the instant case that Friends House, Inc. controlled the result in this case.

After a second hearing in the case sub judice, the tax court revised its opinion and denied Asbury a tax exemption for the Apartments. In its Memorandum of Grounds for Decision, the tax court did not reconsider its original findings of fact or make new ones. It simply reasserted that the Apartments are operated at no profit to Asbury and that the entrance fees charged to Apartment residents “are used to repay the construction loan to [Asbury’s] capital fund and could be used to subsidize apartment residents who are unable to pay full charges.” The tax court quoted from the circuit court’s recent holding in Friends House, Inc. that provision of low-cost housing to the elderly is not charitable, and concluded, therefore, that the Apartments are not used for a charitable purpose. Accordingly, the tax court ordered the tax exemption denied.

Asbury appealed the tax court’s decision to the circuit court which reversed the decision, ruling that the Apartments were exempt from taxation. 2 The circuit court’s ruling against the Supervisor precipitated this appeal. ³⁵⁶ I. REVIEW OF TAX COURT DECISIONS “[J]udicial review of decisions of the Maryland Tax Court is severely limited.” Comptroller of the Treasury v. Mandel, Lee, Goldstein, Burch Re-Election Comm., 280 Md. 575, 578 , 374 A.2d 1130 (1977); Supervisor of Assessments of Anne Arundel County v. Southgate Harbor, 279 Md. 586, 595 , 369 A.2d 1053 (1977); Comptroller of the Treasury, Income Tax Div. v. Diebold, Inc., 279 Md. 401, 407 , 369 A.2d 77 (1977). Maryland Code Ann. Art. 81, § 299(o) (1957, 1980 Repl.Vol., 1986 Cum.Supp.), requires that a reviewing court “shall affirm the Tax Court order if it is not erroneous as a matter of law and if it is supported by substantial evidence appearing in the record.” This standard, however, imposes “no statutory constraints” upon the reviewing court in reversing a tax court order “which is premised solely upon an erroneous conclusion of law.” Ramsay, Scarlett & Co. v. Comptroller of the Treasury, 302 Md. 825, 834 , 490 A.2d 1296 (1985). We hold that the circuit court was correct in concluding that the tax court erred as a matter of law. The tax court denied the tax exemption based on its determination that provision of nonprofit housing to the elderly is not charitable.

As we explain below, the proper test for determining the tax exempt status of a portion of the property ³⁵⁷ owned by a charitable institution is whether the subject property is actually and exclusively used for and necessary for the charitable purposes of the whole organization. Considering the use of the Apartments in isolation from the charitable purposes of the Asbury enterprise was error. Thus, the circuit court was correct in substituting its judgment for that of the administrative body under Art. 81, § 229(o). Accordingly, we will affirm the circuit court’s decision.

II

THE APPLICABLE TEST UNDER § 9(e)(2) The circuit court agreed with the tax court, as do we, that the Legislature intended a narrowing of charitable exemptions when it amended § 9(e) in 1972. In Supervisor of Assessments of Baltimore City v. Friends School, 67 Md.App. 508, 515-16 , 508 A.2d 514 (1986), this Court recognized the stricter language of the amended provision in establishing its three-prong test for determining whether property owned by an institution is exempt under § 9(e)(2). Friends School dealt with property owned by an educational institution but, since § 9(e) groups together property owned by nonprofit charitable, fraternal, sororal, benevolent, educational and literary institutions, the test from Friends School applies equally to property owned by a charitable organization. The property must be 1) owned by a charitable organization; 2) “actually used exclusively for and necessary for” the charitable purposes of the organization; and 3) used in the promotion of the general public welfare of the citizens.

See Friends School, 67 Md.App. at 518-19 , 508 A.2d 514 . Appellant does not dispute that the Apartments are owned by a charitable organization or that their use promotes the general public welfare. Appellant focuses only on the second prong of the test. This Court’s opinion in Friends School contains a thorough review of the proper analysis under the second prong where, as here, a portion of property is assessed as nonexempt in relation to the remainder of the property of a charitable or educational organization.

In Friends School , this Court made it clear that the second prong of the test for exemption under § 9(e)(2) requires that the subject property “be actually used and necessary for the [charitable] purposes of that institution or organization.” 67 ³⁵⁸ Md.App. at 518-19, 508 A.2d 514 (emphasis supplied). To determine whether the use to which the subject property is put qualifies for exemption under § 9(e)(2), “the activities that occur in or on the subject property must directly relate to the [charitable] goals of the institution.” Friends School, 67 Md.App. at 519 , 508 A.2d 514 (emphasis supplied). In applying this test to a caretaker’s residence located on the property of a day school campus, we concluded in Friends School that “no activity either directly or indirectly related to the educational goals of the school took place in or on the residence.” 67 Md.App. at 521 , 508 A.2d 514 (emphasis supplied). We did not review the activities at the caretaker’s residence in total isolation from the educational goals of the school.

The Friends School analysis makes clear that the purpose which the Asbury Apartments must serve, in order to qualify for exemption under § 9(e)(2), must relate to the purpose of the whole Asbury enterprise. Appellant cites Lodge #817, Trustees Benevolent and Protective Order of Elks v. Supervisor of Assessments of Wicomico County, 292 Md. 533 , 439 A.2d 591 (1982), and Supervisor of Assessments of Baltimore County v. Trustees of Bosley Methodist Church Graveyard, 293 Md. 208 , 443 A.2d 91 (1982), to support an argument that use of the Apartments must be viewed in a vacuum. Both cases, however, support rather than reject our conclusion. In Lodge #817, the Court of Appeals considered whether a golf course situated on property owned by the Lodge was exempt under § 9(e)(2).

There, the golf course was not used for any charitable causes. It was available solely for recreational use by members and their guests. Lodge # 817, 292 Md. at 535-36 , 439 A.2d 591 . The Court rejected the argument that, because the golf course served as an inducement for members to participate in charitable events, it was part of the charitable purpose of the whole organization.

Lodge #817, 292 Md. at 538-39 , 439 A.2d 591 . Thus, the Court ruled that the use of the subject property did not serve the charitable purpose of the Lodge as a whole. ³⁵⁹ Bosley is similarly unhelpful to appellant’s position. There the Court of Appeals considered whether a caretaker’s residence was tax exempt under Md.Code Ann., Art. 81, § 9(c) (1957, 1980 Repl.Vol.), as property “actually used exclusively for public religious worship.” 3 The Court determined that the property was not exempt because no religious worship was ever conducted at the caretaker’s residence. Bosley, 293 Md. at 218-19 , 443 A.2d 91 .

Providing the caretaker with rent-free housing was only ancillary to the religious goal of the whole organization, that is, to hold services for public religious worship. Thus, Bosley supports rather than contradicts our construction of the test to be applied when assessing the tax exempt status of a portion of the property belonging to a charitable institution. Under the second prong of the test enunciated in Friends School , we look to whether the Apartments are “actually used exclusively for and necessary for” the charitable purposes of the whole Asbury enterprise. The Supervisor does not dispute that the Corporation serves a charitable purpose.

The purpose stated in Asbury’s charter is to provide homes for the aged. To achieve this purpose Asbury provides continuing care to the elderly in three different stages: nonprofit apartment-style housing, intermediate nursing care within a domiciliary facility, and a medical facility that provides skilled and comprehensive nursing care. Hence, Asbury meets its charitable purposes through its operation of a low-cost, nonprofit community structured to serve the housing, medical and financial needs of the older members of our society. Having identified Asbury’s charitable purposes, the next step is to determine whether the Apartments are “actually used exclusively for and necessary for” these charitable purposes served by the whole Asbury enterprise. ³⁶⁰ Actual and Exclusive Use Actual use is determined by looking to the type and frequency of the activity occurring on the subject property.

Friends School, 67 Md.App. at 519-20 , 508 A.2d 514 ; see also Bosley, 293 Md. at 216 , 443 A.2d 91 . The statutory requirement of “exclusive” use is satisfied where the property is used primarily for the charitable purposes of the organization. Bosley, 293 Md. at 215 n. 5, 443 A.2d 91 ; Friends School, 67 Md.App. at 514 n. 1, 508 A.2d 514 . Our review of the uncontroverted facts leads us to conclude that the Apartments satisfy the actual and exclusive use requirements of § 9(e)(2).

The type of activity occurring at the Apartments is moderate-priced living quarters for persons age 65 and over. When an applicant is accepted to occupy a unit in the Apartments, he or she signs a Resident Agreement. The resident agrees to pay monthly maintenance fees which cover the cost to operate the Apartments, 4 a daily meal in the dining room, laundry facilities and full use of all the public areas on campus for resident activities, at no profit to the Corporation. 5 Peg McRory, who qualified as an expert on housing in Montgomery County, testified that the monthly maintenance charges at the Apartments are comparable to rental rate structures for low- and moderate-income housing in the County. She further testified: “...

I can state without any reservation whatever that the housing which is provided [at the Asbury Apartments] is moderate income housing, no matter who lives in it. It is moderate priced. The comparable market project that I know of are at such a different range of price that it would curl your hair.” ³⁶¹ Harold Wells, the Administrator for the Apartments, described another use of the Apartments broader than the mere provision of moderate-priced housing. The Apartments provide housing that offers security and fellowship that is often lacking in the resident’s previous environment.

Wells stated: “They come seeking a broader range of fellowship and social interaction than they find sometimes in a community in which they may have lived for twenty or twenty-five years, and suddenly find themselves the outsider because of the changes in the socialogical [sic] aspects of our