STOCKTON CIVIC THEATRE, Plaintiff and Appellant, v. The BOARD OF SUPERVISORS, COUNTY OF SAN JOAQUIn, State of California et al., Defendants and Respondents.
Stockton Civic Theatre sued the tax authorities for recovery of taxes paid under protest, claiming that it is a charitable organization as the term is used in article XIII, section 1c of the California Constitution and that it is entitled to the “welfare exemption” provided by section 214 of the Revenue and Taxation Code. The trial court rejected the claim, finding that Stockton Civic Theatre is not a charitable organization and that it does not operate as a charity but predominantly for amusement. This court is asked to reverse the judgment.
The record shows that the Stockton Civic Theatre has been something of a triumph and that it has served the amusement needs of the people of Stockton and San Joaquin County in a praiseworthy manner; the production of popular plays and musical comedies has obviously pleased the public, as is confirmed by the increase income in successive years from the sale of memberships and single tickets. It cannot be questioned, either, that financial support from official sources for community cultural entertainment is a widespread phenomenon; the subsidies paid by European countries to ballet in Russia, opera in Italy, and the classical theater in France, exemplify an attitude toward the promotion of worthy amusement which might well be followed by American legislatures. The question before us, however, is not whether the plaintiff is doing laudable work, but whether it is entitled to a tax exemption under the Constitution and statutes of this state, strictly but reasonably construed. (Cedars of Lebanon Hosp. v. County of L.A., 35 Cal.2d 729, 734–736, 221 P.2d 31, 15 A.L. R.2d 1045; Goodwill Industries of Southern California v. County of L.A., 117 Cal.App.2d 19, 23, 254 P.2d 877.)
The complaint alleges that plaintiff is an organized nonprofit corporation and a real property owner and taxpayer in the City of Stockton; the improvements on its land consist of a theater building which practically covers the entire area; the plaintiff alleges that the theater is used solely for educational and charitable purposes, and that no part of the net earnings inures to the benefit of any individual; in 1963, the county assessor assessed the real property at $600 and the improvements at $4,915; the tax was $590.70; on December 3, 1963, plaintiff paid, under protest, the first installment of $295.35, and under similar protest later paid the second installment in the same amount. Plaintiff claimed in its pleading that the land and building are exempt under article XIII, section 1c of the California Constitution, and section 214 of the Revenue and Taxation Code of California; plaintiff's demand that the taxes be refunded was rejected; plaintiff then filed with the county assessor an affidavit and accompanying statements (Rev. & Tax.Code, § 254.5), and copies were sent to the defendant State Board of Equalization; the board found that the claimed exemption should not be granted because the plaintiff is not a charitable institution, and the real property is not used exclusively for religious, hospital, or charitable purposes.
In the second cause of action, plaintiff sought by a common count to recapture the tax which it alleged was illegally exacted, and in a third cause of action, it prayed for a declaratory judgment of rights and duties, including a decision that it is exempt from taxation, and that it has a right to the return of the taxes paid under protest.
The tax authorities of the County of San Joaquin and the City of Stockton, filed a demurrer to the complaint, which was overruled. In their answer, the defendants denied the basic allegations of the complaint and alleged affirmatively that the plaintiff is not entitled to a tax exemption because the theater is not used “exclusively” for religious, hospital, scientific, or charitable purposes; that it is not irrevocably dedicated to religious, hospital, scientific, or charitable purposes; and that upon liquidation, dissolution, or abandonment by the plaintiff-owner, the property may not inure to a “fund, foundation, or corporation organized and operated for religious, hospital, scientific, or charitable purposes.”
The case was tried by the court, sitting without a jury, on an agreed statement of facts.
The parties had stipulated that the judgment would determine the disposition not only of the taxes specifically referred to in the complaint, but also the additional sums of $39.48, taxes on a possessory interest, and $656.32, taxes for the year 1964–65.
The court found that the theater property is used predominantly for entertainment and not for education; that the property is not “irrevocably dedicated” to education; that the corporation is organized and operated mainly for the pleasure of its members and others and for the satisfaction which its amateur actors and actresses derive from developing their own talents in the Thespian art; that though plaintiff may be said to have an “educational” purpose in the sense of “bringing culture to the community,” this purpose is purely incidental; that all statements in plaintiff's complaint to the effect that it is organized or operated for “educational” or “charitable” purposes under the present law or for the advancement of learning are untrue. The court concluded that the theater property is not exempt from taxation, and that the plaintiff is not entitled to a tax refund.
The trial judge issued a comprehensive memorandum incorporating his view that the plaintiff is not basically engaged in charity or education, but, on the contrary, in entertainment of the people of Stockton and San Joaquin County through the production of popular plays and musical comedies (e.g., “Detective Story,” “Mister Roberts,” “The Rainmaker,” “Bus Stop,” “Teahouse of the August Moon,” “Cat on a Hot Tin Roof,” “Guys and Dolls,” and “Once Upon a Mattress”).
At the outset, appellant urges that findings were unauthorized and unnecessary as the case was submitted on a stipulation of facts (2 Witkin, Cal.Procedure, Trial, § 104, p. 1835). This factual statement takes up 25 typewritten pages of the clerk's transcript; it contains numerous details relative to the nature of the organization, its methods of procedure, the names of the plays produced during successive years, the number of people associated in the various productions and their organization, the type of membership available to the public, and financial statements of the operation. The facts, as stated, give rise to conflicting inferences, and the conclusions to be drawn from these multifarious details might well lead to sharply differing conclusions. It still remained for the trial judge, therefore, to decide whether the plaintiff was organized and operated wholly for educational or charitable purposes, and whether it came within the exempting clauses of the present law—in other words, to determine the ultimate facts as pleaded and denied.
When the stipulation, as here, recites only evidentiary facts as distinguished from ultimate facts, it is necessary for the trial judge to make findings (Crisman v. Lanterman, 149 Cal. 647, 655, 87 P. 89), and it appears to us that findings of fact and conclusions of law were necessary and proper in this case. (Taylor v. George, 34 Cal.2d 552, 556, 212 P.2d 505; Temple v. Corporation of America, 71 Cal.App.2d 599, 604, 163 P.2d 67; City of Los Angeles v. GAge, 127b Cal.App.2d 442, 450, 274 P.2d 34; Stevenson v. City of Downey, 205 Cal.App.2d 585, 589, 23 Cal.Rptr. 127; Lagar v. Erickson, 13 Cal.App.2d 365, 367, 56 P.2d 1287.)
Article XIII, section 1, of the Constitution provides in part:
“All property in the State except as otherwise in this Constitution provided, not exempt under the laws of the United States, shall be taxed in proportion to its value, to be ascertained as provided by law, or as hereinafter provided.”
Tax income is the lifeblood of the state, and of the counties and cities within its borders. It is for that reason, as well as because a near-universal spread of tax obligation among property owners is an equitable and democratic principle, that exemptions from taxation are few and far between. When they are granted it is usually because the persons or organizations exempted are carrying on operations which, in the absence of such efforts would have to be performed at the expense of the state or the municipality—such as schools, hospitals, orphan asylums, and homes for the aged. Rarely, exemptions are granted to avoid double taxation or to prevent patent unfairness—such as in the case of mortgages or growing crops. Occasionally, an exemption represents the discharge of a debt of gratitude of the whole people—such as the veterans' exemption. The exemptions granted by law for the most part are definite and unmistakeable; as the exemption of property owned by the state or by a municipality, or the exemptions applicable to free public libraries, free museums, and public schools.
Taxing authorities, including the assessor, are presumed to have correctly exercised the duties of their respective offices and this presumption applies to the defendants in this case. (Code Civ.Proc., § 1963, subd. 15; Hannon v. Madden, 214 Cal. 251, 268, 5 P.2d 4; Metropolitan Life Ins. Co. v. Rolph, 184 Cal. 557, 562, 194 P. 1005; Reynolds v. State Board of Equalization, 29 Cal.2d 137, 141, 173 P.2d 551, 174 P.2d 4; Roma v. Elbert, Ltd., 73 Cal.App.2d 338, 342, 166 P.2d 294; McCracken v. Hummel, 43 Cal.App.2d 302, 305, 110 P.2d 700; E.E. McCalla Co. v. Sleeper, 105 Cal.App. 562, 568, 288 P. 146.)
If any litigant claims tax exemption, it is his duty to prove clearly that his property is exempt (Cypress Lawn C. Assn. v. City & County of San Francisco, 211 Cal. 387, 390, 295 P. 813; Bay Cities Transp. Co. v. Johnson, 8 Cal.2d 706, 711–712, 68 P.2d 710; Serra Retreat v. County of L.A., 35 Cal.2d 755, 758, 221 P.2d 59.) Any constitutional or statutory provision for a tax-exemption is to be strictly but reasonably construed. (Cedars of Lebanon Hosp. v. County of L.A., supra, 35 Cal.2d 729, 734, 221 P.2d 31, 15 A.L.R.2d 1045; Pasadena Hospital Assn. v. County of L.A., 35 Cal.2d 779, 784–785, 221 P.2d 62; Fredericka Home For The Aged v. County of San Diego, 35 Cal.2d 789, 792, 221 P.2d 68; Pacific Home v. County of Los Angeles, 41 Cal.2d 844, 848–849, 264 P.2d 539.) It would not be “reasonable,” for example, to construe the concept of “charity” to mean only relief for the poor. (Fifield Manor v. County of Los Angeles, 188 Cal.App.2d 1, 10 Cal.Rptr. 242; Estate of Henderson, 17 Cal.2d 853, 857, 112 P.2d 605.)
It is said in Sutter Hospital of Sacramento v. City of Sacramento, 39 Cal.2d 33, at page 39, 244 P.2d 390, at page 394:
“ * * * settled principles of statutory construction require that any doubt be resolved against the right to the exemption.”
(See also Helping Hand Home for Children v. San Diego County, 26 Cal.App.2d 452, 458, 79 P.2d 778.)
There are two provisions of law which apply in full force to the question raised by this appeal; one is a constitutional section and the other a legislative enactment contained in the Revenue and Taxation Code. We shall examine them in turn.
Article XIII, section 1c, of the Constitution reads as follows:
“In addition to such exemptions as are now provided in this Constitution, the Legislature may exempt from taxation all or any portion of property used exclusively for religious, hospital or charitable purposes and owned by community chests, funds, foundations or corporations organized and operated for religious, hospital or charitable purposes, not conducted for profit and no part of the net earnings of which inures to the benefit of any private shareholder or individual. As used in this section, ‘property used exclusively for religious, hospital or charitable purposes' shall include a building and its equipment in the course of construction on or after the first Monday of March, 1954, together with the land on which it is located as may be required for the use and occupation of the building, to be exclusively for religious, hospital or charitable purposes.”
As is said in Sutter Hospital of Sacramento v. City of Sacramento, supra, 39 Cal.2d 33, 35–36, 244 P.2d 390, 391:
“Unlike certain other provisions [of the Constitution] relating to tax exemptions, * * * this amendment is not self-executing, and legislation is required in order to effect the exemption of any property. The amendment is purely permissive rather than mandatory in character, and it qualifies section 1 of article XIII, which requires that all property be taxed according to its value ‘except as otherwise in this Constitution provided’. In other words, the Legislature could refrain from exempting any of the property referred to in the amendment or it could exempt only such property as might meet the conditions specified in the amendment and such further conditions as the Legislature might see fit to impose. The Legislature followed the latter course and enacted section 214 of the Revenue and Taxation Code, which imposes conditions in addition to those found in the constitutional amendment. It is therefore a question of the construction to be placed on the conditions set forth in said section 214 which is presented by this appeal.”
(See also Samarkand of Santa Barbara, Inc. v. County of Santa Barbara, 216 Cal.App.2d 341, 347, 31 Cal.Rptr. 151; Nat. Charity League, Inc. v. County of L.A., 164 Cal.App.2d 241, 245–246, 330 P.2d 666.
As the foregoing constitutional provision is not self-executing but merely permissive, we must inquire whether section 214 of the Revenue and Taxation Code contains a tax exemption for community or civic theaters.
Section 214 of the Revenue and Taxation Code provides as follows:
“Property used exclusively for religious, hospital, scientific, or charitable purposes owned and operated by community chests, funds, foundations or corporations organized and operated for religious, hospital, scientific, or charitable purposes is exempt from taxation if:
“(1) The owner is not organized or operated for profit; provided, that in the case of hospitals, such organization shall not be deemed to be organized or operated for profit, if during the immediate preceding fiscal year the excess of operating revenues, exclusive of gifts, endowments and grants-in-aid, over operating expenses shall not have exceeded a sum equivalent to 10 percent of such operating expenses. As used herein, operating expenses shall include depreciation based on cost of replacement and amortization of, and interest on, indebtedness;
“(2) No part of the net earnings of the owner inures to the benefit of any private shareholder or individual;
“(3) The property is used for the actual operation of the exempt activity;
“(4) The property is not used or operated by the owner or by any other person so as to benefit any officer, trustee, director, shareholder, member, employee, contributor, or bondholder of the owner or operator, or any other person, through the distribution of profits, payment of excessive charges or compensations or the more advantageous pursuit of their business or profession;
“(5) The property is not used by the owner or members thereof for fraternal or lodge purposes, or for social club purposes except where such use is clearly incidental to a primary religious, hospital, scientific, or charitable purpose;
“(6) The property is irrevocably dedicated to religious, charitable, scientific, or hospital purposes and upon the liquidation, dissolution or abandonment of the owner will not inure to the benefit of any private person except a fund, foundation or corporation organized and operated for religious, hospital, scientific, or charitable purposes;
“(7) The property, if used exclusively for scientific purposes, is used by a foundation or institution which, in addition to complying with the foregoing requirements for the exemption of charitable organizations in general, has been chartered by the Congress of the United States (except that this requirement shall not apply when the scientific purposes are medical research), and whose objects are the encouragement or conduct of scientific investigation, research and discovery for the benefit of the community at large.
“The exemption provided for herein shall be known as the ‘welfare exemption.’ This exemption shall be in addition to any other exemption now provided by law. This section shall not be construed to enlarge the college exemption. Property used exclusively for school purposes of less than collegiate grade and owned and operated by religious, hospital or charitable funds, foundations or corporations, which property and funds, foundations or corporations meet all of the requirements of this section, shall be deemed to be within the exemption provided for in Section 1c of Article XIII of the Constitution of the State of California and this section.
“Property used exclusively for nursery school purposes and owned and operated by religious, hospital or charitable funds, foundations or corporations, which property and funds, foundations or corporations meet all of the requirements of this section, shall be deemed to be within the exemption provided for in Section 1c of Article XIII of the Constitution of the State of California and this section.”
We search this code section in vain for any provision directly extending a tax exemption to civic theaters or organizations furnishing community entertainment.
The requirements contained in the foregoing subdivisions (1) to (6), with one important exception, are complied with and subdivision (7) is not applicable. It is conceded that plaintiff is not organized or operated for profit. Charges are made for membership including theater admissions and seats are sold to nonmembers for separate productions; there is also a considerable expense budget. The mere reimbursement by beneficiaries of a portion of the expenses of an organization does not ipso facto deprive it of its character as a charity. (Sarah Dix Hamlin School v. City, etc., of San Francisco, 221 Cal.App.2d 366, 342, 34 Cal.Rptr. 376.) There are no shares of stock and therefore no shareholders; no other persons have a financial interest in the conduct of the organization. Up to date, the land and buildings owned by the plaintiff have been used only for the actual operation of the theater itself, and the property is not employed to benefit “any officer, trustee, director, shareholder, member, employee, contributor or bondholder.” Furthermore, the property is not devoted to lodge or social club purposes.
However, the provisions of subdivision (6) of section 214 of the Revenue and Taxation Code are not complied with because Article IX of the articles of incorporation provides:
“Upon the dissolution or winding up, after paying or adequately providing for all debts and obligations, the remaining assets, if any, shall be distributed to any charitable or civic institution or organization in the sole discretion of the directors.” (Italics added.)
As we have seen, subdivision (6) of section 214 requires that that the property of a tax exempt owner must be “ * * * irrevocably dedicated to religious, charitable, scientific, or hospital purposes * * *.” And upon dissolution, liquidation or abandonment the corporations' property will not necessarily inure to the benefit of “ * * * a fund, foundation or corporation organized and operated for religious, hospital, scientific, or charitable purposes” as the subdivision requires. Under its articles of incorporation, the remaining assets of plaintiff might be distributed upon dissolution to some “civic institution or organization” not operated for religious, hospital, scientific, or charitable purposes. Consequently, there is a failure to comply with the requirements of subdivision (6) of section 214. (Goodwill Industries of Southern California v. County of L.A., supra, 117 Cal.App.2d 19, 254 P.2d 877; Pacific Home v. County of Los Angeles, supra, 41 Cal.2d 844, 849, 264 P.2d 539; Pasadena Hospital Assn. v. County of L.A., supra, 35 Cal.2d 779, 785–787, 221 P.2d 62.
The case was decided principally on other grounds, namely, that the Stockton Civic Theatre is not devoted to “charity.” The plaintiff argues that the Supreme Court has held in Lundberg v. County of Alameda, 46 Cal.2d 644, 649, 298 P.2d 1, that “education” is included in the general concept of “charity” as that word is used in the Constitution and the tax laws, that the operations of the theater in fact constitute “education” and that, therefore, its property is exempt. Without intending to reflect upon the sincerity of the plaintiff or its learned counsel, we suggest that this is simply word juggling.
“Education,” like so many other terms in daily use, has an extremely varied connotation, the meaning of which is subject to expansion or contraction according to its use.
Webster's Third New International Dictionary defines “education” as follows:
“The act or process of providing with knowledge, skill, competence, or usual desirable qualities of behavior or character or of being so provided especially by a formal course of study, instruction, or training. * * * ”
In its broadest sense, all human experience is educational. However, we cannot believe that in framing this statute the Legislature intended to employ so wide a concept, as the almost unlimited potentialities inherent in such an interpretation would defeat the very purpose of taxation.
The following excerpt from the article on “Education” in 7 Encyclopedia Britannica, 14th edition, page 964, stresses the proper meaning of the word as applied to the questioned tax statute:
“Many definitions have been given of the word ‘education,’ but underlying them all is the conception that it denotes an attempt on the part of the adult members of a human society to shape the development of the coming generation in accordance with its own ideals of life. It is true that the word has not infrequently been used in wider senses than this. For example, J.S. Mill included under it everything which ‘helps to shape the human being’; and, with some poetic license, we speak of the education of a people or even of the whole human race. But all such usages are rhetorical extensions of the commonly accepted sense of the term, which includes, as an essential element, the idea of deliberate direction and training.”
The Lundberg case, supra, 46 Cal.2d 644, 298 P.2d 1, does not go to the length which the appellant asserts. Section 1c of article XIII of the Constitution was adopted by the people of the state in 1944, and the Legislature first enacted section 214 of the Revenue and Taxation Code in 1945, which with several amendments in successive years, now exempts “[p]roperty used exclusively for school purposes of less than collegiate grade and owned and operated by religious, hospital or charitable funds, foundations or corporations, which property and funds, foundations or corporations meet all of the requirements of this section.” While the Supreme Court in the Lundberg case, supra, held that in proper circumstances an educational institution can be considered “charitable,” the court was there dealing with parochial schools, which were organized in a standard educational way within the definition of education contained in the quoted excerpt from the Encyclopedia Britannica. The Lundberg case does not hold that anything which could be called educational according to the John Stuart Mill definition of the term would ipso facto be entitled to the “welfare exemption.”
As stated in 64 Harvard Law Review at page 291:
“ * * * it would not seem to satisfy the spirit of the educational exemption to include organizations which merely incidentally perform educational functions.”
In Kesselring v. Bonnycastle Club, Inc., 299 Ky. 585, 186 S.W.2d 402, 404, this situation is thus discussed.
“While in its broadest and best sense education embraces all forms and phases of instruction, improvement and development of mind and body, and as well of religious and moral sentiments, yet in the common understanding and application it means a place where systematic instruction in any or all of the useful branches of learning is given by methods of common to schools and institutions of learning. That we conceive to be the true intent and scope of the term ‘institutions of education,’ as used in the Constitution. Thus schools for teaching dancing, riding and other special accomplishments are not schools or institutions of education in the ordinary sense.”
(See also Socialer Turnverein v. Bd. of Tax Appeals, 139 Ohio St. 622, 41 N.E.2d 710; County Assessor, Oklahoma County v. United Brotherhood of Carpenters & Joiners, Local No. 329, 202 Okl. 162, 211 P.2d 790; Jacob's Pillow Dance Festival v. Assessors of Beckett, 320 Mass. 311, 69 N.E.2d 463; Boston Symphony Orchestra v. Board of Assessors, 294 Mass. 248, 1 N.E.2d 6; Columbus Youth League v. County Board of Revision, 172 Ohio St. 156, 174 N.E.2d 110; In re Peoples Theatres, Inc., 266 App.Div. 694, 40 N.Y.S.2d 55; In re Gill's Claim, 12 A.D.2d 427, 212 N.Y.S.2d 815; Little Theatre of Dallas v. City of Dallas, Tex.Civ.App., 124 S.W.2d 863; River Oaks Garden Club v. City of Houston, Tex., 370 S.W.2d 851; National Mah Jongg League v. United States, D.C., 75 F.Supp. 769.)
The findings are supported by the stipulated facts and the legitimate inferences based thereon. That the property of Stockton Civic Theatre is not “used exclusively for a charitable purpose” as those words are employed in the Constitution and the statutory law which follows it and that, consequently, the plaintiff is not entitled to a tax exemption was thus specifically found by the trial court. There is substantial evidence to support the findings and this court is bound accordingly. (Taylor v. George, supra, 34 Cal.2d 552, 556, 212 P.2d 505; Goto v. Goto, 52 Cal.2d 118, 124, 338 P.2d 450; Saint Germain Foundation v. County of Siskiytou, 212 Cal.App.2d 911, 919, 28 Cal.Rptr. 393; Temple v. Corporation of America, supra, 71 Cal.App.2d 599, 604–605, 163 P.2d 67; Lagar v. Erickson, supra, 13 Cal.App.2d 365, 368–369, 56 P.2d 1287; Knox v. Knox, 129 Cal.App.2d 795, 277 P.2d 854; Atkinson v. County of Los Angeles, 180 Cal.App.2d 467, 4 Cal.Rptr. 423; City of Los Angeles v. Gage, supra, 127 Cal.App.2d 442, 450, 274 P.2d 34; Stevenson v. City of Downey, supra, 205 Cal.App.2d 585, 589, 23 Cal.Rptr. 127.)
In his memorandum of opinion, the trial judge stated that he did not choose to render a declaratory judgment in response to the third cause of action, because the facts and the law existing when a decision may be made in some future case will be of the essence; the factors bearing upon the subject could change radically so that they may at some future time lead to a decision that an institution is “charitable” or “educational” within the meaning of the Lundberg case; consequently, the trial judge properly refused to speculate on situations which have not as yet arisen.
However, in a somewhat restricted sense, the trial judge did respond to the prayer for declaratory relief. The essential question which he had to decide was whether this organization is presently entitled to a tax exemption. And the court answered that positively by saying, “No.” Declaratory judgments do not have to speculate on the effect of possible future changes in an organization, or in the applicable constitutional or statutory provisions. If the voters, or the Legislature, should see fit to authorize a tax exemption for civic theaters, and, if pursuant to such authorization a community theater should comply in detail with the requirements of the law as it then exists, it might well be that the organization would be exempt. The court dealt only with the present situation, and, in our opinion, correctly.
The judgment is affirmed.
CONLEY, Presiding Justice.
STONE, J., and McMURRAY, J., pro tem.,* concur.