Doing Good is Not Good Enough: Wisconsin Court of Appeals Weighs in on Another Benevolent Purpose Property Tax Exemption Claim

September 8, 2014

The Court of Appeals case Harry and Rose Samson Family Jewish Community Center, Inc. v. City of Mequon addressed a taxpayer’s claim for exemption from property taxes under the “benevolent purpose” exemption contained in §70.11(4), Wis. Stat.  The property at issue in the case was an outdoor water park owned by the taxpayer, an organization whose mission was to serve the local Jewish community and enhance the quality of Jewish life.  The water park was made available to the taxpayer’s members primarily for open use of the pool, sand volleyball, basketball and playground facilities.  The taxpayer offered some programming and structured activities too.  The parties did not dispute that the property was used primarily for the recreation of the taxpayer’s members.

The park opened in 2007 and the taxpayer applied for a property tax exemption in 2008 based on the “religious, educational and benevolent association” exemption contained in §70.11(4), Wis. Stat.  The City denied the exemption application and assessed the property for more than $1,800,000.  The taxpayer challenged the denial in circuit court and lost.  On appeal, the court explained that the relevant inquiry in determining whether the “benevolent purpose” exemption applies is (1) whether the taxpayer is a benevolent organization; (2) whether the taxpayer owns and exclusively uses the property; and (3) whether the taxpayer uses the property for benevolent purposes.  At issue was whether the property’s use as a water park qualified as a benevolent purpose.  The parties disagreed over what a taxpayer must show in order for a property’s use to be considered “benevolent.”

The taxpayer had two theories.  First, the taxpayer argued that if its use of all of its properties, when viewed in the aggregate, has a benevolent purpose, then all of the properties, including the water park, qualify for the “benevolent purpose” exemption even if the water park, considered individually, does not qualify.  The court held that a taxpayer may not aggregate its properties together in order to qualify all or any one of its properties for the benevolent purpose exemption.  Second, the taxpayer argued that the water park, considered individually, served a benevolent purpose—namely, Jewish community building.

The City argued that a “benevolent purpose” is one that provides “a benefit to an indefinite number or class of persons that relieves the state of an expense that the state would otherwise incur.”  The court declined to adopt the City’s definition of a “benevolent purpose.”

Ultimately, the court concluded that the taxpayer had failed to show that its use of the water park clearly qualified for the “benevolent purpose” exemption.  The court explained that property tax exemptions are strictly construed and that a taxpayer must provide clear evidence that its property falls within the exemption.  Any doubts are resolved in favor of taxability.  The taxpayer’s downfall was simply that it failed to produce convincing factual or legal arguments that its particular brand of community building via recreational activities was actually benevolent.

The court went out of its way not to adopt any particular definition or standard for what constitutes a “benevolent purpose.”  Rather, the court explained that recreational activities, under the right circumstances, could be considered “benevolent” for purposes of the exemption.

Bottom line.  The Jewish Community Center, Inc. case shows that “doing good” is by itself not enough to qualify for the benevolent purpose exemption.  The fact that a taxpayer uses its property exclusively to provide some benefit to some people is not sufficient to qualify as a benevolent purpose.  The court refused to adopt a bright-line rule concerning what is and what is not a “benevolent purpose.”  Instead, the court was careful not to rule out the possibility that “doing good” through unstructured recreational activities may in fact be a benevolent purpose that meets the requirements of the exemption.

If you have any questions about how the information in this article may affect you or your business, please contact your Stroud attorney.

DISCLAIMER: The information in this article is provided for general informational purposes only, is not necessarily updated to account for changes in the law, and should not be considered tax or legal advice.  This article is not intended to create, nor does the receipt of it constitute, an attorney-client relationship.  You should consult with your own legal and/or financial advisors for legal and tax advice tailored to your specific circumstances.