SSDN d/b/a SOUTH SIDE DAY NURSERY,	)
	)
Complainant,	)
	)
v.	)		Appeal No. 03-20006
	)
	)
ED BUSHMEYER, ASSESSOR,	)
ST. LOUIS CITY, MISSOURI,	)
	)
Respondent.	)

Complainant has failed to present substantial and persuasive evidence demonstrating that its property meets the tests for tax exemption. Complainant’s property is not dedicated unconditionally to the charitable activity in such a way that there will be no profit, presently or prospectively, to individuals or corporations.

The issue in this case is whether or not the subject property is exempt from taxation.

Complainant appeals the assessment of its building on Cherokee Street on the basis that it is a not for profit organization which should be exempted from taxation. The Board of Equalization determined that the subject property was taxable and had a value of $250,000 (assessed value $80,000). The market value of the property is not an issue in this appeal.

On October 19, 2004, an evidentiary hearing was held before the Tax Commission hearing officer, Luann Johnson, at the St. Louis City Hall, St. Louis, Missouri. Complainant appeared by counsel, Harry Murray. Respondent appeared by counsel, Carl W. Yates III.

1. Jurisdiction over this case is proper. Complainant timely filed its appeal from the decision of the St. Louis City Board of Equalization. Complaint for Review of Assessment.

2. Complainant SSDN, also known as South Side Day Nursery, is a Missouri not-for-profit corporation formed in 1888 "to prevent pauperism by assisting bread winners with young children on their hands to earn an honest living." Complainant’s Exhibit A.

In 1950, the Articles of Association were amended and the new stated purpose was "to establish, maintain and operate on a non-profit basis a day nursery school to provide care for young children." The association was given the power "to own and hold in its own name such real and personal property as may be required to be actually used for the accomplishment of the objects and purposes of the association." Complainant’s Exhibit A.

No evidence was presented suggesting that the Articles of Association had been amended after 1950. Unexecuted By-Laws were introduced into evidence showing the mission of SSDN was "Providing and supporting good care of young children; assisting families to earn a sufficient living; and developing productive, healthy citizens who contribute to neighborhood economic stability and cultural richness." Complainant’s Exhibit A.

On October 30, 2002, the corporate name was changed from South Side Day Nursery to SSDN. Complainant’s Exhibit A.

3. Complainant is involved is something called a "business incubator" on Cherokee Street. SSDN provides below market rent space to small businesses and assistance with the development of business plans, accounting functions, marketing, and employee development. The "main use of the property is for the business incubator." The purpose of the incubator is to assist a company to become a viable business. Complainant’s job is to help the business be successful and the goal is to help grow the business. Complainant’s Exhibit I, p. 7, 11; Tr. 8, 9, 17.

4. The subject property is identified as parcel number 1568-00-01300, more commonly known as 2718 through 2726 Cherokee Street, St. Louis, Missouri. Complaint for Review of Assessment; Tr. 7.

5. The property is improved with a two story brick structure and a four story brick structure. Respondent’s Exhibit 06-01, Narrative Report, p. 1.

6. The two story structure, also known as 2718 through 2722 Cherokee Street, houses a retail discount clothing store on the first floor. Said store rents 7,400 square feet of space. The second floor and mezzanine are not in use and are in need of renovation. Respondent’s Exhibit 06-01, Narrative Report, p. 1.

7. The four story structure, also known as 2724 Cherokee Street, contains approximately 16,000 square feet. A grocery store has rented approximately 2,000 square feet on the first floor. Respondent’s Exhibit 06-01, Narrative Report, p. 1, Tr. 7-8. On the tax day, the present grocery store was not in operation but a different grocery store had been in the building.

8. The outlet store and the grocery store are owned and operated on a for profit basis. Tr. 22. Neither store is owned or run by Complainant. Tr. 8, 13. Complainant does not pay salaries or benefits for the stores’ employees. Tr. 10, 11.

9. Complainant asserts its "gift" is assistance with business applications, marketing and below market rents. Tr. 15. Further, Complainant asserts that this "gift", in turn, assists with the stabilization and revitalization of the neighborhood.

Although a taxing statute is construed strictly against the state, an exemption statute is strictly construed against the one claiming the exemption. State ex rel. Union Electric Co. v. Goldberg, 578 S.W.2d 921, 923 (Mo. banc 1979).

In order to prevail, Complainant must demonstrate by substantial and persuasive evidence, that it is entitled to an exemption.

Substantial evidence is that evidence which, if true, has probative force upon the issues, i.e., evidence favoring facts which are such that reasonable men may differ as to whether it established them, and from which the Commission can reasonably decide an appeal on the factual issues. Cupples-Hesse Corporation v. State Tax Commission, 329 S.W.2d 696, 702 (Mo. 1959).

Persuasive evidence is that evidence which has sufficient weight and probative value to convince the trier of fact. The persuasiveness of evidence does not depend on the quantity or amount thereof but on its effect in inducing belief. Brooks v. General Motors Assembly Division, 527 S.W.2d 50, 53 (Mo. App. 1975).

Properties which can be exempted from taxation are set out within our Constitution and the statutes enacted to enforce that Constitution, to wit:

". . .all property, real and personal, not held for private or corporate profit and used exclusively for religious worship, for schools and colleges, for purposes purely charitable, . . .may be exempt from taxation by general law but any such law may provide for approximate restitution to the respective political subdivisions of revenues lost by reason of the exemption. All laws exempting from taxation property other than the property enumerated in this article, shall be void. Article X, Section 6, Mo. Const. of 1945.

In support of this Constitutional provision, the Legislature has enacted Section 137.110, RSMo, which provides in relevant part:

The following property shall be exempt from taxation:

(5) All property, real and personal, actually and regularly used exclusively for religious worship, for schools and colleges, or for purposes purely charitable and not held for private or corporate profit, except that the exemption herein granted does not include real property not actually used or occupied for the purpose of the organization but held or used as investment even though the income or rentals received therefrom is used wholly for religious, education or charitable purposes.

1. The property must be actually and regularly used exclusively for a charitable purpose, as charity is defined by Salvation Army v. Hoehn, 188 S.W.2d 826 (Mo. banc 1945). "Charity" is therein defined as ". . .a gift, to be applied consistently with existing laws, for the benefit of an indefinite number of persons, either by bringing their hearts under the influence of education or religion, by relieving their bodies of disease, suffering or constraint, by assisting them to establish themselves for life, or by erecting or maintaining the public buildings or works or otherwise lessening the burdens of government." Salvation Army at 830.

2. The property must be owned and operated on a not-for-profit basis. The property "must be dedicated unconditionally to the charitable activity in such a way that there will be no profit, presently or prospectively, to individuals or corporations. Any gain achieved in use of the building must be devoted to achievement of the charitable objectives of the project." Franciscan Tertiary Province v. State Tax Commission, 566 S.W.2d 213, at 224 (Mo. banc 1978).

3. The dominant use of the property must be for the benefit of an indefinite number of persons and must directly or indirectly benefit society generally. "It is required that there be the element of direct or indirect benefit to society in addition to and as a result of the benefit conferred on the persons directly served by the humanitarian activity". Franciscan at 224. See also, Barnes Hospital v. Leggett, 589 S.W.2d 241 (Mo. banc 1979).

The exclusive use of a property means the primary and inherent use rather than merely a secondary or incidental use. Central States Christian Endeavors Association v. Nelson, 898 S.W.2d 547, 549 (Mo. banc 1995).

The test to be applied for determination of a charitable use that would bring this property within the parameter of the statute has three prongs, each of which must be satisfied by the evidence offered by the Complainant. Failing one portion of the test precludes an exemption.

The first prong of the test is that the subject property must be actually and regularly used exclusively for a charitable purpose. To qualify for an exemption, there must be a dominant (primary) use which meets the definition of a gift as that term is used in Salvation Army.

The use of the property is the focus of the exemption and the general nature of the owning organization – other than it is not-for-profit – cannot be said to determine whether the use of the particular property is charitable or not. Franciscan, supra at 223.

"[T]he main use of this property is for the business incubator." We also question whether SSDN may be exceeding the scope of its stated charitable purpose, to wit, "to establish, maintain and operate on a non-profit basis a day nursery school to provide care for young children," by engaging in this activity. See Twitty v. State Tax Commission, 896 S.W.2d 680 (Mo. App. S.D. 1995). The dominant use of the property was to help individuals start their own businesses. While this may, secondarily, benefit the neighborhood, said use does not meet the definition of a "gift" inasmuch as it does not benefit an indefinite number of persons, either by bringing their hearts under the influence of education or religion, by relieving their bodies of disease, suffering or constraint, by assisting them to establish themselves for life, or by erecting or maintaining the public buildings or works or otherwise lessening the burdens of government.

Stabilizing a neighborhood is a vague concept that says little about meeting the basic needs of individuals or benefiting government. And, even if neighborhood stabilization and revitalization is a charitable purpose, there was no evidence presented which suggested that the subject neighborhood needed stabilization or revitalization.

Helping individuals start their own businesses is a noble goal. Likewise, neighborhood improvement is a noble goal. But neither are necessarily charitable goals.

The second prong of the test is similar and requires that the property be both owned and operated on a not-for-profit basis. The property "must be dedicated unconditionally to the charitable activity in such a way that there will be no profit, presently or prospectively, to individuals or corporations."

An exemption will not be granted covering property which houses a business operated for the purpose of gaining a profit, even if the profit is turned over to a parent organization to be used for what are admittedly. . .charitable purposes. Sunday School Board of Southern Baptist Convention v. Mitchell, 658 S.W.2d 1, 6 (Mo. banc 1983).

There is no dispute that the businesses using the subject property are for profit and are attempting to make a profit off the use of the building. Complainant’s Exhibit H, p. 2, Exhibit I, p. 5.

As stated in Marlene Levine’s written direct testimony, the goal of "social entrepreneur" is to make a profit and Complainant’s goal is to foster such "social entrepreneurs." Complainant’s Exhibit I, pp. 5, 7. In other words, Complainant fully intends that private individuals will utilize its property to make a private profit. To facilitate this endeavor, Complainant rents the premises to the businesses at a below market rent, thus creating an immediate profit for the business owners.

The fact that the buildings house for profit businesses, disqualifies the properties from receiving a tax exemption.

The final test which must be passed if the property is to be exempt is that the dominant use must be for the benefit of an indefinite number of persons and provide a direct or indirect benefit to society in general.

Complainant argues that operating "business incubators" assists with the stabilization and revitalization of the neighborhood which results in a benefit to an indefinite number of people. While we don’t disagree with the general notion that businesses may help to stabilize a neighborhood, the dominant use of the buildings was to incubate businesses; to grow businesses; and to foster social entrepreneurship. But, even assuming a public benefit, Complainant’s claim of exemption ultimately fails because the property is being used for a private profit.

The non-exempt status the subject property, as determined by the Assessor and approved by the Board of Equalization, is AFFIRMED.

A party may file with the Commission an application for review of a hearing officer decision within thirty (30) days of the mailing of such decision. The application shall contain specific detailed grounds upon which it is claimed the decision is erroneous. Failure to state specific facts or law upon which the appeal is based will result in summary denial.

If an application for review of a hearing officer decision is made to the Commission, any protested taxes presently in an escrow account in accordance with this appeal shall be held pending the final decision of the Commission. If no application for review is received by the Commission within thirty (30) days, this decision and order is deemed final and the Collector of St. Louis City as well as the collectors of all affected political subdivisions therein, shall disburse the protested taxes presently in an escrow account in accord with the decision on the underlying assessment in this appeal. If any protested taxes have been disbursed pursuant to Section 139.031(8), RSMo, either party may apply to the circuit court having jurisdiction of the cause for disposition of the protested taxes held by the taxing authority.

Any Finding of Fact which is a Conclusion of Law or Decision shall be so deemed. Any Decision which is a Finding of Fact or Conclusion of Law shall be so deemed.

SO ORDERED January 21, 2005.

STATE TAX COMMISSION OF MISSOURI

Luann Johnson

Hearing Officer