NO. 90-106
IN THE SUPREME COURT OF THE STATE OF MONTANA
1990
STEER, INC.,
Plaintiff and Respondent,
THE DEPARTMENT OF REVENUE OF
THE STATE OF MONTANA,
Respondent and Appellant.
APPEAL FROM: District Court of the First Judicial District,
In and for the County of Lewis and Clark,
The Honorable Dorothy McCarter, Judge presiding.
COUNSEL OF RECORD:
For Appellant:
Eric J. Fehlig, Esq., Department of Revenue, Helena,
Montana
For Respondent:
Bryan L. Asay, Esq., Kelley & Asay, Helena, Montana
Submitted: October 25, 1990
Decided: December 11, 1990
Filed: 0
Clerk
Chief Justice J. A. Turnage delivered the Opinion of the Court.
The Department of Revenue (DOR) appeals an order of the First
Judicial District Court, Lewis and Clark County, which grantedtax-
exempt status to cattle owned by Steer, Inc. (Steer), on the basis
that the cattle were property owned by an "institution of purely
public charityn under §§ 15-6-201(1)(e), and -201 (2)(a), MCA. This
holding reversed a prior decision of the State Tax Appeal Board
(STAB). We reverse the ~istrictCourt's order.
DOR raises the following issues:
1. Did the District Court err in finding STAB'S Findings of
Fact IX and XI clearly erroneous?
2. Did the District Court err by failing to remand the case
to STAB for suitable findings when it found STAB'S Findings of
Facts IX and XI clearly erroneous?
3. Did the ~istrictCourt err when it held that tax-exempt
property of an institution of purely public charity need only be
owned, and not used, by the institution?
4. Did the District Court err when it found that the
requirements of a purely public charity did not preclude uses that
are significantly non-charitable in nature?
5. Did the ~istrict Court hold that the dissemination of
religious teachings is a charitable purpose qualifying the
institution for a property tax exemption, and if so, was this an
error?
6. Did the District Court err when it found that the
production of revenue from property is a charitable purpose
qualifying the institution for a property tax exemption?
7. Did the District Court err when it found that the
beneficiaries of an institution of purely public charity do not
have to be persons who would otherwise be the recipients of aid
from local or state Montana governments?
FACTS
Steer, a non-profit North Dakota corporation, conducts a
stewardship program that raises funds, and in turn, donates these
funds to member evangelical organizations. This unique stewardship
program, which originated in 1 9 5 6 and is currently operating in
twenty-eight states, creates a three-way partnership between a
donor, a farmer, and a member evangelical organization.
A donor contributes $ 6 0 0 . 0 0 increments to Steer, and receives
a one-time tax deduction for the charitable contribution. Steer
then purchases a livestock unit with each $ 6 0 0 . 0 0 contribution.
Steer places the livestock unit with a farmer. The farmer
agrees to provide free feed and care to the livestock unit, as well
as its offspring. The farmer sells the livestock's offspring in
Steer's name, and forwards all of the profits from the sale to
Steer. The farmer's costs associated with the care of the
livestock unit are tax deductible.
Steer then donates all profits, less twenty-seven percent for
administrative and insurance costs, to a member evangelical
organization, which can be designated by the donor or farmer. To
be a member, an evangelical organization must complete an applica-
tion and be approved by Steer's Board of Directors. Once selected,
the member evangelical organization must pay Steer an annual
membership fee .
The livestock unit is reinvested in this stewardship program
and continues to yield profit which is donated to member evangeli-
cal organizations until it is too old to produce. The old
livestock is then culled and sold, whereby, again, all sale profits
go to Steer for distribution to member evangelical organizations.
Steer currently has approximately 100 head of cattle in Garfield
County, Montana.
From 1982 to 1987, Garfield County's Assessor classified
Steer's then approximate seventeen cattle as taxable property under
5 15-6-136, MCA, and assessed Steer $485.92 in taxes. Steer
appealed to the Garfield County Tax Appeal Board for a refund on
April 22, 1987--this appeal was denied. On June 29, 1987, Steer
further appealed to STAB.
On January 30, 1989, STAB denied Steer's appeal on the basis
that Steer did !'not advance a charitable purpose. The evidence
establishes that the cattle are raised and sold for a profit. The
profit is used to advance and further evangelical gospel and
doctrine.
4
Steer petitioned for judicial review on March 24, 1989. On
December 18, 1989, the District Court reversed and remanded STAB'S
decision, and held that ind dings of Fact IX and XI were clearly
erroneous:
Steer, Inc. objects to STAB'S Finding of Fact
IX which states that I1[e]ach missionary reci-
pient has as its principal purpose the dis-
semination of evangelical gospel and prin-
ciples." Because this finding ignores its
commitment to providing services and goods to
the needy, Steer, Inc. argues, it shows that
STAB failed to look beyond the religious
aspect of Steer Inc.'s organization. STAB
also found in Finding of Fact XI that I1[t]he
evidence in the case establishes that the
cattle and the property owned by Steer, Inc.
are not used for any purpose other than the
purposes set forth in the Findings of Fact
above." These findings are clearly erroneous
based upon the evidence on the record.
The District Court further stated that STAB ignored testimony that
stated that Steer's funds were used in projects "that were
charitable rather than strictly evangel is ti^^^ such as a hospital
construction and educational contributions. From this decision,
DOR appeals.
STANDARD OF REVIEW
We recognize that in the past this Court has interpreted 5 2-
4-704, MCA, the standards for judicial review of an administrative
ruling, to mean that an agency's findings of fact are subject to
a ''clearly erroneous1'standard and agency's conclusions of law are
subject to a broader ''abuse of discretion1I standard. City of
Billings v. Billings Firefighters (1982), 200 Mont. 421, 430, 651
P.2d 627, 632; P.W. Berry Co., Inc. v. Freese (1989), 239 Mont.
183, 188, 779 P.2d 521, 524 (citations omitted). "[A] finding is
'clearly erroneous1 when, although there is evidence to support it,
a review of the record leaves the court with the definite and firm
conviction that a mistake has been committed." Wage Appeal of
Montana State Highway Patrol Officers v. Board of Personnel Appeals
(1984), 208 Mont. 33, 40, 676 P.2d 194, 198 (citations omitted).
"Appellants carry the burden of showing prejudice from a clearly
erroneous decision.'' Terry v. Board of Regents of Higher Education
(1986), 220 Mont. 214, 217, 714 P.2d 151, 153 (citations omitted).
An agency's conclusions of law will be reversed for abuse of
discretion I1[w]here it appears that the legislative intent is
clearly contrary to agency interpretation." Billinqs Fireficrhters,
200 Mont. at 431, 651 P.2d at 632.
In the future, we will continue to use the "clearly erroneous1'
standard for reviewing findings of fact. However, in reviewing
conclusions of law, our standard of review will be merely to
determine if the agency's interpretation of the law is correct,
instead of applying the inappropriate abuse of discretion standard.
In the past, we have applied this standard when reviewing
conclusions of law of the Workers1 Compensation Court. See Sharp
v. Hoerner Waldorf Corp. (1978), 178 Mont. 419, 423, 584 P.2d 1298,
1301; Wassberg v. Anaconda Copper Company (1985), 215 Mont. 309,
315, 697 P.2d 909, 912; Schaub v. Vita Rich Dairy (1989), 236 Mont.
6
389, 391, 770 P.2d 522, 523. The reasoning for simply determining
if the court's conclusions are correct is that no discretion is
involved when a tribunal arrives at a conclusion of law--the
tribunal either correctly or incorrectly applies the law. For that
reason, this Court concludes that our standard of review relating
to conclusions of law, whether the conclusions are made by an
agency, workers' compensation court, or trial court, is whether the
tribunal's interpretation of the law is correct.
Our standard of review relating to conclusions of law is not
to be confused with our review of discretionary trial court
rulings. This has been defined as "encompassing the power of
choice among several courses of action, each of which is considered
permissible." See ~ldisert,
The Judicial Process, 1976, page 759.
Such rulings are usually trial administration issues, scope
of cross-examination, post-trial motions, and similar rulings. The
standard of abuse of discretion will be applied to these rulings.
ANALYSIS
Because we find reversible error involving two of the seven
issues presented on appeal, we will limit our discussion to 1)
whether the District Court erred in finding STAB'S Findings of Fact
IX and XI clearly erroneous, and, 2) whether the District Court
erred when it held that tax-exempt property of an institution of
purely public charity need only be owned, and not used, by the
institution.
7
1. Did the District Court err in finding STAB'S Findings of
Fact IX and XI clearly erroneous?
STAB'S Findings of Fact IX and XI read as follows:
IX
Each missionary recipient has as its principal
purpose the dissemination of evangelical
gospel and principles.
XI
The evidence in the case establishes that the
cattle and the property owned by Steer, Inc.
are not used for any purpose other than the
purposes set forth in the Findings of Fact
above.
DOR asserts that the District Court incorrectly found Findings
of Fact IX and XI clearly erroneous because contrary to the
District Court's holding, STAB did not ignore the fact that Steer,
in part, supports charitable projects. Rather, DOR argues that
STAB correctly found that Steer's member evangelical organizations1
principal purpose is to disseminate evangelical gospel and
principles. "Principal, here, does not mean llexclusivell--STAB
used the word "principal" to put into perspective Steer's religious
activities compared to its charitable activities.
Additionally, DOR argues that STAB'S Finding of Fact XI
properly distinguishes that when considering whether personal
property is tax-exempt under Mont. Const. art. VIII, 5 5 (1), and
§ 15-6-201(1) (e) and -201 (2)(a), MCA, it is the use of the
personal property and not the ownership that is determinative.
Here, DOR argues that Steer used its cattle exclusively as a
capital investment for the production of revenue, which in turn,
was donated to member evangelical organizations--Steer was not
directly using the cattle as a source of food for the needy.
Finally, DOR argues that the record is void of evidence that
Steer was prejudiced by STAB'S decision or that STAB made a
mistake. Accordingly, DOR argues that the District Court had no
basis to find Findings of Fact IX and XI clearly erroneous in light
of Terry and Waqe, supra.
We agree with DOR1s arguments. The record indeed contains
substantial evidence to support STAB'S finding that Steer's member
evangelical organizations1 principal purpose was the dissemination
of evangelical gospel and principles. This finding does not ignore
the fact that Steer conducts charitable activities; it does,
however, properly balance its charitable activities in relation to
its primary, religious activities. Furthermore, we agree with DOR
that when considering tax-exempt status, it is the use of the
property that is determinative rather than the ownership of the
property. See Flathead Lake Methodist Church Camp v. Webb (1965),
144 Mont. 565, 570, 399 P.2d 90, 93. Steer exclusively used the
cattle as a capital investment to produce funds, which in turn,
were donated to member evangelical organizations that provide
beneficial services to the needy; Steer did not directly use the
cattle to feed needy people. Finally, we hold that STAB'S decision
did not prejudice Steer and the record does not reveal that STAB
made a clearly erroneous mistake. Therefore, based on the
standards of review under Terry and Waqe, the District Court
9
incorrectly found STAB'S Findings of Fact IX and XI clearly
erroneous.
2. Did the District Court err when it held that tax-exempt
property of an institution of purely public charity need only be
owned, and not used, by the institution?
Steer, through its innovative stewardship program, provides
a valuable service by raising funds which, in turn, are donated to
needy people world-wide. However, the fact that Steer's unique
fund-raising method produces worthwhile results through its member
evangelical organizations does not negate its tax obligations under
Montana constitutional and statutory mandate. We have already
held that Steer's use of its cattle as a capital investment was
determinative in deciding that it did not qualify for a tax-
exemption based on being an "institution of purely public charity.''
We feel, however, that this case requires us to further clarify
"institutions for purely public charity."
In order to receive tax-exempt status, Steer's cattle must
qualify as "institutions of purely public charity1' under Mont.
Const. art. VIII, 5 5(1), and 5 5 15-6-201(1) (e) and -201(2) (a) MCA,
The primary focus is whether "institutionI1 means entity or
property.
Mont. Const. art. VIII, 5 5(1) provides:
(1) The legislature may exempt from taxation:
(a) Property of the United States, the state,
counties, cities, towns, school districts,
municipal corporations, and public libraries,
but any private interest in such property may
be taxed separately.
(b) Institutions of purely public charity,
hospitals and places of burial not used or
held for private or corporate profit, places
for actual religious worship, and property
used exclusively for educational purposes.
(c) Any other classes of property. [Emphasis
added. ]
Section 15-6-201(1)(e), MCA, provides:
(1) The following categories of property are
exempt from taxation:
(e) institutions of purely public charity
[Emphasis added].
Section 15-6-201(2)(a), MCA, provides:
( 2 ) (a) The term llinstitutions of purely
public charity1'includes organizations owning
and operating facilities for the care of the
retired or aged or chronically ill, which are
not operated for gain or profit.
Exemptions from property taxation are to be strictly con-
strued. Cruse v. Fischl (1918), 55 Mont. 258, 265-66, 175 Pac.
878, 881; Town of Cascade v. Cascade County (1926), 75 Mont. 304,
308, 243 Pac. 806, 807; Flathead Lake Methodist Camp v. Webb
(1965), 114 Mont. 565, 573, 399 P.2d 90, 94-95; Old Fashion Baptist
Church v. Montana Deplt of Revenue (1983), 206 Mont. 451, 455, 671
P.2d 625, 627. Taken together, the Montana Constitution and the
Montana legislative acts intend llinstitutionsll mean property or
to
place employed for purely public charitable purposes or activities
rather than an entity. The cattle are property and tax is imposed
on property. If it is charitable property in its purpose and
employment and not for profit or gain of income, taxes are not
imposed. Here, the cattle1 employment was for the gain of income,
s
and therefore, the cattle are taxable.
Mont. Const. art. VIII, § 5(1) provides that the legislature
mav exempt property from taxation. The exemptions of property from
taxation is clearly left to the discretion of the legislature and
as noted, are to be strictly construed. The history and provisions
of 3 15-6-201, MCA, reflect the many times when this section of the
code has been amended to add property to the list of exempted
items, which includes such items as residences of the clergy to a
bicycle used for personal transportation of the owner. The
judiciary may not add livestock to the list of exemptions.
Accordingly, we reverse the District Court and hold that Steer's
cattle do not qualify as "institutions of purely public charity,"
and therefore, are not tax-exempt.
Reversed.
We concur:
Justices
Justice John C. Sheehy, dissenting:
The majority take a very narrow view of the charitable
exemption from taxation provided by our State Constitution and our
statutes. The majority interpretation of that exemption gives it
a twist that will certainly be a troublemaker in the future.
First, we must recognize that the constitutional and
legislative language is imprecise. Montana Constitution, Art.
VIII, 5 5 (1)(b), provides:
(1) The legislature may exempt from taxation:
. . . (b) Institutions of purely public charity,
hospitals and places of burial not used or held for
private or corporate profit, places for actual religious
worship, and property used exclusively for educational
purposes.
With regard to the meaning of the constitutional exemption for
purely public charity institutions, the intent is open to argument.
While other clauses of the constitutional permission for tax
exemptions refer to property of the entities, with respect to
charity organizations it merely exempts llinstitutions.ll could
It
be argued and some members of this Court think that the exemption
is only to the "institutionw as an entity, and not to the property
of the institution. That position is akin to arguing that the
taxation exemption is applicableto an abstraction, the entity, and
not to its property, which has a physical existence.
The majority Opinion rejects that argument, holding that the
Constitution and the legislature intended llinstitutionsll mean
to
property or place and not the entity itself. That position, of
course, is correct. Having reached the proper interpretation of
the imprecise language, however, the majority then reverse their
logic, holding that the entity's property is taxable. On the one
hand, the majority hold that the property of an institution is what
is intended to be exempted though held by a purely public charity;
on the other hand, they take away that exemption by holding the
property of such an institution is taxable.
What that position means for other property held by purely
public charities is threatening. One can think of examples. If
a donor gives shares of corporate stock to a purely public charity,
and the charity holds the stock for income to accomplish its
purposes, under the logic of the majority the stock itself is
taxable as property, unless other statutory provisions intervene.
The donor of a bed to a purely public charity, to be used by the
charity to acquire income for the charity's purposes would find the
bed also taxable, although in Bozeman Deaconess Foundation v.
Gallatin County (1968), 151 Mont. 143, 439 P.2d 915, this Court
held that such property was not taxable. (Of course, a bed in a
charity organized for the care of the retired, the aged or the
chronically ill is specifically exempted under S 15-6-201 (2)(a),
MCA, but what of a bed used by a charity to gain funds for the
homeless or needy transients?)
Judge McCarter, sitting in the District Court in this case,
saw the issue quite clearly. She said: "The question is whether
Steer, Inc. is a purely charitable organization pursuant to 5 15-
6-201(l) (e), MCA. Necessarily, the definition of a purely
charitable organization is crucial to answering this question."
Such a simple and direct statement of the issue, if followed by the
majority, would have led to a correct conclusion. If