Request By:
Mr. Stuart A. Handmaker
Handmaker, Weber, Meyer & Rose
2307 Citizens Plaza
Louisville, Kentucky 40202
Opinion
Opinion By: Steven L. Beshear
In your recent letter, a question was raised concerning whether land to be donated to the Jewish Community Federation of Louisville, Inc. ("the Federation") would be exempt from ad valorem property tax under Section 170 of the Kentucky Constitution. According to your letter, an individual proposes to donate an undivided one-fourth interest in certain unimproved real estate to the Federation. The Federation will hold legal title to its interest in fee simple and as a tenant-in-common with the owner or owners of the remaining three-fourths interest in the subject property (referred to herein as "the real estate" ). The Federation will not enter into any agreement with the donor restricting its rights as co-tenant to its proportionate share of any income from the property for the proceeds of its sale or restricting its rights as cotenant to sue for a partition of its interest.
This office reviewed the scope of Kentucky Constitution Section 170 fairly recently in OAG 80-598, copy attached. This provision of our constitution provides in part that "institutions of purely public charity, and institutions of education not used or employed for gain by any person or corporation, are exempt from taxation. "
We believe, as do you as indicated in the well-prepared memorandum of law that accompanied your request letter and which we are appreciative of, that investment property owned by a purely public charity is exempt from property taxation pursuant to this section of the Constitution. See City of Louisville v. Presbyterian Orphans' Home Society of Louisville, 299 Ky. 566, 186 S.W.2d 194 (1945). It is clear the exemption applies whether or not the property produces income for the charity by which it is owned. Arcadia Reality Foundation, Inc. v. Hoenig, Ky., 336 S.W.2d 571 (1960).
The former Court of Appeals in the Arcadia case, supra, established that the test for the exemption under Section 170 is whether actual ownership of the property is vested in the charity. Where a charity holds mere legal title, but another party exercises complete domination and control of the property and receives all present benefits of ownership, the charity is not the actual owner of the property and the exemption would not apply. The court stated in Arcadia as follows:
"We do not say that a particular item of property as to which a charitable or educational institution has the rights of beneficial ownership must in fact be so used as to produce benefits for the institution in order to be exempt from taxation, but we do say that if the rights of the beneficial ownership are vested in some other person who does receive the benefits, the property is taxable. 336 S.W.2d at 576, 577."
See also Steiden Stores v. City of Louisville, 303 Ky. 637, 198 S.W.2d 983 (1947), and Louisville Scrap Corporation v. City of Louisville, 303 Ky. 553, 198 S.W.2d 40 (1946) and Broadway & 4th Avenue Reality Company v. City of Louisville 303 Ky. 202, 197 S.W.2d 238 (1946).
It is our understanding that the Federation will be entitled to exercise all legal rights of a tenant-in-common to its proportionate share of the benefits of the property or to sue for a partition of its interest. The Federation will hold full legal rights commensurate with its ownership of a one fourth interest in the real estate, and it may be concluded on that basis that the Federation will be the actual owner of that interest.
As to whether the Federation qualifies as a "purely public charity" within the meaning of this phrase in Section 170, we turn to the Kentucky case law. In OAG 80-598, supra, at pages 2 and 3, in this regard we wrote:
"The test of a charity is set forth in Iroquois Post No. 229 v. City of Louisville, Ky., 309 S.W.2d 353, 354 (1958):
"First, the institution must itself be a charity and the income from its property must be used to further its charitable purpose; secondly, the property must be employed for a purely charitable purpose. "
The court, in Commonwealth v. Isaac W. Bernheim Foundation, Ky., 505 S.W.2d 762, 763-4 (1974), went on to define the word "charity" at page 764:
"Charity is broader than relief to the needy poor and includes activities which reasonably better the condition of mankind." (Emphasis added).
You stated in your legal memorandum that the Federation was an "umbrella" type organization which supports a number of charitable and educational organizations and institutions, as well as several religious organizations. The charitable and educational organizations supported are both Jewish and non-Jewish, and the vast majority are located in Louisville. You provided us with a list of the 1980 Philanthropic fund grants made by the endowment fund of the Federation. You stated none of the organizations supported exclude non-Jews from the services that they provide, although the nature of the services provided by several of these organizations is such that non-Jews would be unlikely to avail themselves of them.
An organization engaged primarily in activities that the state would have to perform if they were not otherwise performed by private individuals or institutions will qualify as a "purely public charity" even though its charity is intended for the benefit of members, and the families of members, of fraternal or religious organizations. See Iroquois Post No. 229, etc. v. City of Louisville, Ky., 309 S.W.2d 353 (1958) and Preachers' Aid Society, etc. v. Jacobs, 235 Ky. 790, 32 S.W.2d 343 (1930). The Preachers' Aid Society case, for example, involved a church fund maintained to support aged ministers of the religion. Specifically addressing the issue of religious preference, the court stated in that case that "purely public charity" refers to:
". . . Equality of the charity, rather than the means by which it is administered, that . . . no private or selfish interests should be fostered under the guise of charity; it was never meant that, because a charity was limited by its terms to objects belonging to a certain sect or fraternal order . . . it was a private, and not a public, charity. " 32 S.W.2d at page 344.
From the cases, it is seen that the word purely refers to and modifies "charity" , not "public" in the phrase "purely public charity" . See Iroquois Post No. 229, supra. Thus, it is no bar to the exemption that some services provided by the Federation are availed of primarily by members of the Jewish religion.
We are also of the opinion it is not any bar to the exemption that the Federation conducts its charitable activities indirectly by supporting various charitable organizations. It is sufficient that the activities of one claiming qualification as a "purely public charity" ultimately accomplished a charitable purpose. See Commonwealth ex rel. Luckett v. Grand Lodge of Kentucky, Ky., 459 S.W.2d 601 (1970). Thus, if the organization supported by the Federation consists primarily of purely public charities, then the Federation will itself qualify as such.
In view of the fact it appears from the information submitted with your letter that approximately 75 percent of the Federation's grants are for charitable purposes and find their way to purely public charities either through direct grants or through grants to other charitable organizations, it is our opinion that the Federation qualifies as a "purely public charity. " For the reasons noted above, we are further of the opinion the Federation's interest in real estate would be exempt from ad valorem taxation.