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In re Appeal of Springmoor Inc.

April 03, 1998


The opinion of the court was delivered by: Frye, Justice.

Appeal of Wake County pursuant to N.C.G.S. § 7A-30(1) from a unanimous decision of the Court of Appeals, 125 N.C. App. 184, 479 S.E.2d 795 (1997), reversing an order of the Property Tax Commission entered 16 November 1995 and holding N.C.G.S. § 105-275(32) unconstitutional in part. On 5 June 1997, the Supreme Court allowed discretionary review of an additional issue. Heard in the Supreme Court 14 October 1997.

The issue in this case is whether N.C.G.S. § 105-275(32) is unconstitutional and, if so, whether the allegedly unconstitutional subpart (v) may be severed, allowing the remainder of the statute to stand.

Springmoor, Inc. (Springmoor) is a nonprofit North Carolina corporation which manages and operates a self-contained residential community for the elderly, also called Springmoor, in Raleigh, North Carolina. Springmoor leases all of the real property on which it is located from Ammons, Inc. (Ammons) under a lease which provides that Springmoor will pay all ad valorem taxes assessed on the property.

On 27 January 1994, taxpayers Ammons and Springmoor applied for property tax exemptions for this real property and for personal property used in the operation of the retirement community. On 22 February 1994, the Wake County Tax Assessor denied both requests. Subsequently, the Wake County Board of Equalization and Review agreed with the assessor and denied the requests for exemption. Both parties appealed to the North Carolina Property Tax Commission (Commission).

The Commission concluded that Springmoor met all the requirements for exclusion under N.C.G.S. § 105-275(32) except that of religious or Masonic affiliation as required by subpart (v). The Commission affirmed Wake County's denial of tax relief, but noted that it did not have the authority to act upon constitutional challenges to tax statutes. Springmoor and Ammons filed timely notice of appeal to the Court of Appeals and excepted to the Commission's order on the ground that N.C.G.S. § 105-275(32)(v) is unconstitutional. Wake County cross-assigned error, asserting that the Commission's order denying the tax exclusion is sustainable on the basis that the entire statutory provision N.C.G.S. § 105-275(32) is unconstitutional.

The Court of Appeals concluded that N.C.G.S. § 105-275(32)(v) violates the prohibition against the establishment of religion found in Article I, Section 13 of the North Carolina Constitution and the Establishment Clause of the First Amendment to the United States Constitution as applied to the states through the Fourteenth Amendment. The Court of Appeals applied the doctrine of severability, however, and allowed the remaining provisions of N.C.G.S. § 105-275(32) to stand.

N.C.G.S. § 105-275 is entitled "Property classified and excluded from the tax base." The constitutional challenge in this case is solely against N.C.G.S. § 105-275(32) and, more specifically, subpart (v) of that subsection. N.C.G.S. § 105-275(32) provides that the following property "shall not be listed, appraised, assessed, or taxed":

Real and personal property owned by a home for the aged, sick, or infirm, that is exempt from tax under Article 4 of this Chapter, and used in the operation of that home. The term "home for the aged, sick, or infirm" means a self-contained community that (i) is designed for elderly residents; (ii) operates a skilled nursing facility, an intermediate care facility, or a home for the aged; (iii) includes residential dwelling units, recreational facilities, and service facilities; (iv) the charter of which provides that in the event of dissolution, its assets will revert or be conveyed to an entity organized exclusively for charitable, educational, scientific, or religious purposes, and which qualifies as an exempt organization under Section 501(c)(3) of the Internal Revenue Code of 1986; (v) is owned, operated, and managed by one of the following entities:

a. A congregation, parish, mission, synagogue, temple, or similar local unit of a church or religious body;

b. A conference, association, division, presbytery, diocese, district, synod, or similar unit of a church or religious body;

c. A Masonic organization whose property is excluded from taxation pursuant to G.S. 105-275(18); or

d. A nonprofit corporation governed by a board of directors at least a majority of whose members elected for terms commencing on or before December 31, 1987, shall have been elected or confirmed by, and all of whose members elected for terms commencing after December 31, 1987, shall be selected by, one or more entities described in A., B., or C. of this subdivision, or organized for a religious purpose as defined in G.S. 105-278.3(d)(1); and

(vi) has an active program to generate funds through one or more sources, such as gifts, grants, trusts, bequests, endowment, or an annual giving program, to assist the home in serving persons who might not be able to reside at the home without financial assistance or subsidy.

N.C.G.S. § 105-275(32) (1997) (emphasis added). Under this statute, a "home for the aged, sick, or infirm" "shall not be listed, appraised, assessed, or taxed," meaning that it is excluded from the tax base. In order to be excluded from the tax base, such a home for the aged, sick, or infirm, under subpart (v) of N.C.G.S. § 105-275(32), must be owned, operated, and managed by a religious or Masonic organization, in addition to meeting the other requirements of subsection (32).

Both Wake County, appellant in this case, and Ammons and Springmoor, appellees, contend that subpart (v) of N.C.G.S. § 105-275(32) constitutes a law respecting an establishment of religion. For this reason, this Court, on 16 October 1997, instructed the Attorney General to file a brief, pursuant to N.C.G.S. § 1-260, addressing the constitutionality of N.C.G.S. § 105-275(32). The Attorney General filed a brief, on 17 November 1997, taking the position that N.C.G.S. § 105-275(32) is unconstitutional. However, a group of continuing-care homes for the elderly which are owned and operated by churches argues as amicus curiae in this case that N.C.G.S. § 105-275(32) is constitutional. Because we do not lightly strike down an enactment of the General Assembly, we address the issue of constitutionality.

Article I, Section 13 of the North Carolina Constitution guarantees that

[a]ll persons have a natural and inalienable right to worship Almighty God according to the dictates of their own consciences, and no human authority shall, in any case whatever, control or interfere with the rights of conscience.

N.C. Const. art. I, § 13. Article I, Section 19 guarantees that "[n]o person shall be denied the equal protection of the laws; nor shall any person be subjected to discrimination by the State because of . . . religion." N.C. Const. art I, § 19. The First Amendment to the United States Constitution provides that "Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof." U.S. Const. amend. I.

This Court has previously stated that "[t]aken together, these provisions . . . coalesce into a singular guarantee of freedom of religious profession and worship, `as well as an equally firmly established separation of church and state.'" Heritage Village Church & Missionary Fellowship, Inc. v. North Carolina, 299 N.C. 399, 406, 263 S.E.2d 726, 730 (1980) (quoting Braswell v. Purser, 282 N.C. 388, 393, 193 S.E.2d 90, 93 (1972)) (emphasis added). "Stated simply, the constitutional mandate is one of secular neutrality toward religion." Id. We have recognized that while the religion clauses of the state and federal Constitutions are not identical, they secure similar rights and demand the same neutrality on the part of the State. Id. at 406 n.1, 263 S.E.2d at 730 n.1. Thus, we may utilize Establishment Clause jurisprudence to examine legislation for "aspects of religious partiality" prohibited by both constitutions. Id. at 406, 263 S.E.2d at 730.

Amicus curiae homes contend that N.C.G.S. § 105-275(32) does not breach the required separation of church and state and that the Court of Appeals erred in holding otherwise. They rely on Walz v. Tax Comm'n of N.Y., 397 U.S. 664, 25 L. Ed. 2d 697 (1970), which held that a New York statute granting tax exemptions to religious organizations for property used solely for religious worship did not violate the religion clauses of the First Amendment. The United States Supreme Court explained that "[t]he grant of a tax exemption is not sponsorship since the government does not transfer part of its revenue to churches but simply abstains from demanding that the church support the state." Id. at 675, 25 L. Ed. 2d at 705. However, we conclude that Walz does not control the outcome of this case because N.C.G.S. § 105-275(32) differs in purpose, function, and constitutional authority from the statute analyzed and upheld in Walz.

The New York statute at issue in Walz provided in pertinent part:

"Real property owned by a corporation or association organized exclusively for the moral or mental improvement of men and women, or for religious, bible, tract, charitable, benevolent, missionary, hospital, infirmary, educational, public playground, scientific, literary, bar association, medical society, library, patriotic, historical or cemetery purposes . . . and used exclusively for carrying out thereupon one or more of such purposes . . . shall be exempt from taxation as provided in this section."

Id. at 667 n.1, 25 L. Ed. 2d at 700 n.1 (quoting N.Y. Real Prop. Tax Law § 420(1)) (alterations in original).

The authority for granting these property tax exemptions was a provision of the New York Constitution which stated in relevant part:

"Exemptions from taxation may be granted only by general laws. Exemptions may be altered or repealed except those exempting real or personal property used exclusively for religious, educational or charitable purposes as defined by law and owned by any corporation or association organized or conducted exclusively for one or more of such purposes and not operating for profit."

Id. at 666-67, 25 L. Ed. 2d at 700 (quoting N.Y. Const. art. 16, § 1).

Central to the Supreme Court's holding in Walz was that New York had "not singled out one particular church or religious group or even churches as such; rather, it ha[d] granted exemption to all houses of religious worship within a broad class of property owned by nonprofit, quasi-public corporations." Id. at 673, 25 L. Ed. 2d at 703-04. The Court therefore found that the tax exemption for houses of worship "simply spare[d] the exercise of religion from the burden of property taxation levied on private profit institutions." Id. at 673, 25 L. Ed. 2d at 704.

North Carolina has similar constitutional and statutory provisions that allow the General Assembly to exempt from property tax properties used for religious purposes. Article V, Section 2(3) of the North Carolina Constitution reads in relevant part:

Exemptions. Property belonging to the State, counties, and municipal corporations shall be exempt from taxation. The General Assembly may exempt cemeteries and property held for educational, scientific, literary, cultural, charitable, or religious purposes . . . . Every exemption shall be on a State-wide basis and shall be made by general law uniformly applicable in every county, city and town, and other unit of local government.

N.C. Const. art. V, § 2(3). Under this authority, the General Assembly has enacted the following statutory tax exemptions: N.C.G.S. §§ 105-278.2(a) (burial property), -278.3 (real and personal property used for religious purposes), -278.4 (real and personal property used for educational purposes), -278.5 (real and personal property of religious educational assemblies used for religious and educational purposes), -278.6 (real and personal property used for charitable purposes), -278.7 (real and personal property used for educational, scientific, literary, or charitable purposes), and -287.8 (real and personal property used for charitable hospital purposes). These statutes require whole and exclusive use of the property for the constitutionally authorized purpose and disallow the exemption to the extent that any part of the property is used for other purposes.

This group of statutes, like the statute challenged in Walz, exempts from taxation a broad range of property based upon usage. It is not challenged that the North Carolina property tax exemption equivalent to that challenged in Walz, N.C.G.S. ยง 105-278.3 (1997), is constitutional under the analysis used by the United States Supreme Court in Walz. Religious organizations whose property is used exclusively for religious or other constitutionally authorized purposes may share in the benefit bestowed upon other groups which the State has determined have a "beneficial and stabilizing influence[] in community life." Walz, 397 U.S. at 673, 25 L. Ed. 2d at 704. Indeed, all of the fifty states have similar tax exemptions for property used for religious purposes. See id. at 676, 25 L. Ed. 2d at 705; see also John W. Whitehead, Tax Exemption and Churches: A Historical and Constitutional Analysis, 22 Cumb. L. Rev. 521, 547 (1992). Such tax exemptions constitute an acceptable accommodation of religion, ...

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