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OCLC ONLINE COMPUTER LIBRARY CENTER, INC., Petitioner-Appellant, v. CITY OF BATTLE CREEK, Respondent-Appellee.
Petitioner, OCLC Online Computer Library Center, Inc., appeals as of right from the Michigan Tax Tribunal's judgment that it is not entitled to a personal property tax exemption. We reverse.
The parties have stipulated the following facts. Petitioner is a cooperative membership organization of libraries and is a nonprofit institution exempt from federal income tax pursuant to 26 USC 501(c)(3). Petitioner's purpose, as stated in its articles of incorporation, is to
establish, maintain and operate a computerized library network and to promote the evolution of library use, of libraries themselves, and of librarianship, and to provide processes and products for the benefit of library users and libraries, including such objectives as increasing availability of library resources to individual library patrons and reducing rate of rise of library per-unit costs, all for the fundamental public purpose of furthering ease of access to and use of the ever-expanding body of worldwide scientific, literary and educational knowledge and information.
Libraries use petitioner's databases to catalog library materials, maintain electronic library catalogs, facilitate interlibrary loans, locate library materials, and provide reference information to patrons. Petitioner's on-line catalog is the world's largest and most comprehensive database of bibliographic information.
Any library that agrees to contribute its current catalog information to petitioner's on-line catalog may become a member of petitioner. In order to fund its operations, petitioner charges member libraries based on their individual use of its database. Libraries are credited for any contributions of records they make to the database. None of petitioner's earnings inure to the benefit of any individual or private shareholder. At all times relevant to this appeal, approximately fifteen percent of the member libraries were for-profit libraries; approximately three percent of petitioner's revenue was derived from these for-profit libraries.
Defendant assessed petitioner taxes for the years 1992 and 1993 on its personal property located in Battle Creek, including computer equipment located at Kellogg Community College and Willard Library, and related telecommunications equipment located elsewhere in the city. Petitioner filed a petition with the tax tribunal, claiming that it is exempt from property taxes because it is a charitable institution, a scientific institution, or a library. The tax tribunal rejected petitioner's petition and affirmed the assessments at issue.
This Court generally defers to the decisions of the Tax Tribunal, and judicial review is limited to determining whether the tribunal erred in applying the law or adopted a wrong principle. Const 1963, art 6 § 28; Rose Hill Center, Inc. v. Holly Twp., 224 Mich.App. 28, 30, 568 N.W.2d 332, 334 (1997). Petitioner must prove by a preponderance of the evidence that it is entitled to a property tax exemption. Holland Home v. Grand Rapids, 219 Mich.App. 384, 393-396, 557 N.W.2d 118 (1996). In determining whether petitioner met this burden, we note that tax exemption statutes must be strictly construed in favor of the taxing unit. DeKoning v. Dep't of Treasury, 211 Mich.App. 359, 361-362, 536 N.W.2d 231 (1995). However, this Court will not uphold a strained construction adverse to the Legislature's intent. Holland Home, supra at 396, 557 N.W.2d 118.
The following test, although couched in terms of real estate, applies equally in determining whether a party qualifies for a personal property exemption if the references to realty are treated as references to personalty:
(1) The real estate must be owned and occupied by the exemption claimant;
(2) The exemption claimant must be a library, benevolent, charitable, educational or scientific institution;
(3) The claimant must have been incorporated under the laws of this State;
(4) The exemption exists only when the building and other property thereon are occupied by the claimant solely for the purpose for which it was incorporated. [Edsel & Eleanor Ford House v. Village of Grosse Pointe Shores, 134 Mich.App. 448, 455, 350 N.W.2d 894 (1984).]
In the present case, the parties stipulated that the first and fourth factors have been met. The third is no longer required, having been found to be unconstitutional. See Chauncey & Marion Deering McCormick Foundation v. Wawatam Twp., 186 Mich.App. 511, 515, 465 N.W.2d 14 (1990). Therefore, the sole issue is whether petitioner is a library, a charitable institution, or a scientific institution.1
Petitioner argues that as an association of libraries, its property is exempt from taxation pursuant to the following statutes:
Real estate or personal property owned and occupied by nonprofit theater, library, education, or scientific institutions incorporated under the laws of this state with the buildings and other property thereon while occupied by them solely for the purpose for which the institutions were incorporated is exempt from taxation under this act․ [M.C.L. § 211.7n; M.S.A. § 7.7(4k).]
The following personal property is exempt from taxation:
* * * * * *
(b) The property of all library associations, circulating libraries, libraries of reference, and reading rooms owned or supported by the public and not used for gain. [M.C.L. § 211.9; M.S.A. § 7.9.]
In support of this claim, petitioner likens itself to the plaintiff in Hosp. Purchasing Service of Michigan v. City of Hastings, 11 Mich.App. 500, 506, 161 N.W.2d 759 (1968), in which this Court held that the plaintiff, an association of tax exempt charitable hospitals, was exempt as a charitable institution because all of its member hospitals were unquestionably charitable institutions, and only tax-exempt hospitals could qualify for membership with the plaintiff. In so holding, this Court stated, “[I]t would be unwise to interpret the statutory provisions under scrutiny here so as to conclude that what is free from taxation when accomplished by hospitals individually, is suddenly subject to taxation when hospitals act in concert.” Id.
Here, in contrast, approximately fifteen percent of petitioner's members are for-profit entities, and approximately three percent of petitioner's revenues are derived from these for-profit libraries. Petitioner characterizes the inclusion of these for-profit libraries in its membership as de minimis. This argument misses the mark, because this is not a situation where an otherwise exempt organization is involved in de minimis nonexempt activity. See, e.g., Saginaw Co. Agricultural Society v. Saginaw, 142 Mich.App. 173, 368 N.W.2d 878 (1984); American Legion Memorial Home Ass'n of Grand Rapids v. Grand Rapids, 118 Mich.App. 700, 325 N.W.2d 543 (1982); Christian Reformed Church in North America v. Grand Rapids, 104 Mich.App. 10, 303 N.W.2d 913 (1981). The Tax Tribunal properly determined that because petitioner includes for-profit libraries in its membership, petitioner is not a “library” as that term is used in M.C.L. § 211.7n; M.S.A. § 7.7(4k) and M.C.L. § 211.9(b); M.S.A. § 7.9(b).
Petitioner argues that its personal property should enjoy tax-exempt status under M.C.L. § 211.9(a); M.S.A. § 7.9(a), which exempts from taxation “[t]he personal property of charitable, educational, and scientific institutions.” We agree.
For the proper test of what is a charitable institution, we look to the following definition of “charity”:
“[Charity] ․ [is] a gift, to be applied consistently with existing laws, for the benefit of an indefinite number of persons, either by bringing their minds or hearts under the influence of education or religion, or relieving their bodies from disease, suffering or constraint, by assisting them to establish themselves for life, or by erecting or maintaining public buildings or works or otherwise lessening the burdens of government.” [michigaN united conservation clubs v. lansing twp., 423 mich. 661, 671, 378 N.W.2d 737 (1985) (MUCC ), quoting Retirement Homes of the Detroit Annual Conference of the United Methodist Church, Inc. v. Sylvan Twp., 416 Mich. 340, 348-349, 330 N.W.2d 682 (1982) (emphasis in Retirement Homes).]
To qualify as a charitable institution, petitioner's activities, taken as a whole, must constitute a charitable gift for the benefit of the general public without restriction for the benefit of an indefinite number of persons. Retirement Homes, supra at 349, 330 N.W.2d 682.
The tribunal determined that petitioner was not a charitable institution, in part, because the benefits inured to the member libraries rather than the general public.2 Citing MUCC, supra, the tribunal opined that the benefit to the general public was too attenuated to justify the grant of a property tax exemption. We reject the tribunal's analysis as too narrow.
In MUCC, use of the plaintiff's property and library was generally not available to nonmembers. Id. at 674. Here, in contrast, petitioner's self-described purpose is to “further[ ] access to and use of the ever-expanding body of worldwide scientific, literary and educational knowledge and information.” Such a benefit to a library is, in effect, a benefit to its patrons. Indeed, a library exists to provide services to its patrons and for no other purpose. Petitioner's bibliographic database benefits the participant libraries, individual library patrons, and, ultimately, the general public. We thus conclude that petitioner qualifies as a “charitable institution” as that term is used in M.C.L. § 211.9(b); M.S.A. § 7.9(b).
Petitioner also claims that it is a scientific institution for purposes of the tax exemption because its activities substantially contribute to the advancement of knowledge in terms of collecting, collating, and disseminating bibliographic information. We agree.
It has long been held that “[a] ‘scientific institution,’ under the language of all civilized countries, means an institution for the advancement or promotion of knowledge, which is the English rendering of ‘science’.” Detroit Home & Day School v. Detroit, 76 Mich. 521, 523, 43 N.W. 593 (1889). Here, it is without question that petitioner's activities serve to advance knowledge by assisting libraries and the general public in the gathering and dissemination of bibliographic information. Consequently, petitioner's actions are, literally speaking, scientific. See American Society of Agricultural Engineers v. St. Joseph Twp., 53 Mich.App. 45, 218 N.W.2d 685 (1974) (tax exemption affirmed where the plaintiff collected, edited, and published research done by its members).
This is not the only consideration, however. To qualify as a “scientific institution” entitled to a tax exemption, petitioner must show that it makes a substantial contribution to the relief of the government's burden of producing “scientific” information. Kalamazoo Aviation History Museum v. Kalamazoo, 131 Mich.App. 709, 714, 346 N.W.2d 862 (1984). What constitutes a “substantial contribution” will necessarily vary with each situation. See, e.g., Ladies Literary Club v. Grand Rapids, 409 Mich. 748, 756, 298 N.W.2d 422 (1980); American Society of Agricultural Engineers, supra at 49-50, 218 N.W.2d 685.
In the present case, we find that petitioner's scientific activities sufficiently relieve the burden of the state that petitioner is entitled to enjoy tax-exempt status as a scientific institution. The Michigan Constitution requires that the Legislature provide for the establishment and support of public libraries. 1963 Const, art 8, § 9. The majority of petitioner's member libraries are publicly supported institutions, and state libraries themselves use petitioner's services. Because libraries necessarily catalog their information, petitioner's efforts enable these libraries to serve their patrons with more efficiency, thus relieving a governmental burden. Were it not for petitioner's efforts, the burden imposed on the state government would be appreciably increased.
Accordingly, petitioner has met its burden of establishing that it is a scientific institution as that term is used in M.C.L. § 211.9(a); M.S.A. § 7.9(a). The tribunal erred in determining otherwise.
We reverse the determination of the tax tribunal and remand this case for further proceedings consistent with this opinion. We do not retain jurisdiction.
No taxable costs pursuant to MCR 7.219, a question of public policy being involved.
1. Petitioner does not assert that it is an educational institution.
2. The tribunal also stated that petitioner was not a charitable institution because member libraries paid for all services used. This determination was erroneous, because the mere fact that petitioner charges for use of its services does not negate its status as a charitable institution. See, e.g., Oakwood Hosp. Corp. v. State Tax Comm., 374 Mich. 524, 531, 132 N.W.2d 634 (1965). The parties' stipulations indicate that the fees charged by petitioner do not inure directly or indirectly to any individuals or private shareholders. Petitioner credits member libraries for contributions made to petitioner's database, and, as technological advances continue to streamline information gathering, petitioner returns its savings to the libraries. Further, it appears that the ultimate beneficiaries of petitioner's services, the library patrons, are not charged a fee at all.
Response sent, thank you
Docket No: No. 191360.
Decided: July 22, 1997
Court: Court of Appeals of Michigan.
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