Sisters of the Good Shepherd v. District of Columbia

WAGNER, Chief Judge: Appellants, The Sisters of the Good Shepherd of the City of Washington, D.C. (Good Shepherd) and the Selma M. Levine School of Music (Levine School), both nonprofit organizations, appeal from a decision of the trial court denying a tax exemption for real property owned by Good Shepherd and leased to the Levine School. The principal issue presented for review is whether the subject real property qualifies for tax exemption under D.C.Code § 47-1002(10) (1997 Repl.), which exempts from taxation “[bjuildings belonging to and operated by schools ...” where the property is operated by a non-profit school, but owned by a different type of non-profit entity. Also presented for review is whether the property is exempt under D.C.Code § 47-1002(8), which exempts property of a non-profit entity which is “used for purposes of public charity principally in the District of Columbia.” The trial court concluded that the District of Columbia’s Department of Finance and Revenue (DFR) reasonably interpreted D.C.Code § 47-1002(10) to require concurrence of ownership and use by the same type of non-profit entity in order to qualify for exemption. The court also rejected the alternative request for exemption under D.C.Code § 47-1002(8) on the grounds that § 1002(8) is a general exemption provision, and only the more “specific” provision of § 1002(10) could apply. We conclude that the real property qualifies for the exemption under D.C.Code § 47-1002(10) and reverse. I. The facts are not in dispute. Good Shepherd is a religious order, incorporated as a non-profit organization in the District, which owns the real property involved in this litigation.1 Good Shepherd operates residential treatment centers for women and children to address their medical and psychological needs. Since 1984, Good Shepherd has rented a part of its property to the Levine School. The Levine School is also a District of Columbia non-profit corporation. It is a community-based school which provides musical education, including training to qualified students regardless of their ability to pay. The Levine School is funded by tuition and charitable contributions. During the tax years at issue here (1993-1995), Good Shepherd has leased the subject property, located at 1690 — 36th Street, N.W., to the Levine School for an annual rental amount. The lease for the property provides that the Levine School may use the property for a “music school and related services and for no other purpose whatsoever, including residential use, without the prior written consent of the landlord.” The lease provides for Good Shepherd to pay the real property taxes [312] and for the Levine School to reimburse Good Shepherd for any real estate taxes assessed for the property. Good Shepherd has paid all of the tax assessments at issue in this case, and the Levine School has reimbursed Good Shepherd as required by the lease. In 1992, Good Shepherd applied for an exemption from property taxes for the Levine School under D.C.Code §§ 47-1002(8) and (10) and other statutory provisions which are not at issue in this appeal. The District’s DFR denied the request, concluding that: (1) subsection (10) was inapplicable to exempt the property because the school did not own it; and (2) the property did not qualify for any other exemption because its use as a school meant that “the use requirements of other subsection[s] have not been met.” The parties filed cross-motions for summary judgment in the trial court. In granting the District’s motion, the trial court concluded that D.C.Code § 47-1002(10) is a “specific” provision which addresses tax exemptions for school property, while § 47-1002(8) is a more general provision, applying to charitable institutions. Therefore, the court analyzed the question of the exemption under § 1002(10). Finding the language of § 1002(10) to be ambiguous, the court deferred to the agency’s interpretation, concluding that it was reasonable and consistent with the statutory language and the legislative history of the statute. Thus, it denied the exemption because the Levine School, which was using the property as a school was not the owner of the property for which the exemption was sought. Specifically, the trial court explained that: the property is owned and operated by two different types of nonprofit entities. Good Shepherd is a nonprofit religious organization. Levine School is a nonprofit music school. Each entity is guided by different subsections of the exemption statute. There is no question that if the property was owned and operated by Levine School, that the property would be exempt. The same would be true if Good Shepherd were a nonprofit school, college or university, that recognized the generally recognized relationship of teacher and student.... [T]he Court concludes that the DFR was reasonable in interpreting that concurrence of ownership and use by the same type of entity is required to obtain exempt status under § 47-1002(10). II. Appellants argue that the trial court erred in determining that D.C.Code § 47-1002(10) requires that the same type of non-profit entity both own and operate the property in order to qualify for the property tax exemption. They contend that the property is tax-exempt under § 1002(10) because it is owned by a non-profit religious organization and operated by a nonprofit school. They take the position that the statutory language does not compel the interpretation that concurrent ownership and operation by the same type of nonprofit entities are required for exemption and that such an interpretation is unreasonable. Section 47-1002(10) exempts from taxation real property consisting of: [bjuildings belonging to and operated by schools, colleges, or universities which are not organized or operated for private gain, and which embrace the generally recognized relationship of teacher and student[.] The trial court concluded that this section of the statute is ambiguous insofar as whether it exempts from taxation property belonging to schools and property operated by schools or whether it exempts only property that is both owned and operated by schools. The District argues first that the statute is unambiguous and clearly requires concurrent ownership and operation by non-profit schools, colleges, or universities. In support of its argument, it points to the use of the conjunctive instead of the disjunctive “or” in the statute. [313] We agree with appellant that the statutory language is ambiguous in that it does not resolve definitively by its plain language that concurrent ownership and use by a school is required for exemption under this section of the statute. The word “and” may be used to join a list of different types of property which may be entitled to the exemption, for example, property belonging to schools and property operated by schools. We have had occasion to read “and” as “or” in interpreting a statute to avoid an absurd result and “to follow the legislative intent despite an ill chosen word.” Mulky v. United States, 451 A.2d 855, 857 (D.C.1982).2 Interpreting similar tax exemption language, the Court of Appeals rejected the argument that concurrence of use and ownership in the same tax exempt entity was required. See Catholic Home for Aged Ladies v. District of Columbia, 82 U.S.App.D.C. 195, 161 F.2d 901 (1947). The statute at issue in Catholic Home exempted from taxation “buildings belonging to and operated by institutions which are not operated for private gain, which are used for purposes of public charity principally in the District of Columbia.” 82 U.S.App.D.C. at 196, 161 F.2d at 902. The building in question belonged to one charitable corporation and was operated by an auxiliary charity. Id. The District took a position similar to the one it takes in this case, i.e., that the exemption would only apply where there was a concurrence of ownership and operation in one institution. Id. The Court of Appeals did not read the “belonging to and operated by” language in the conjunctive, but rather determined that “[a] more logical construction is that there must be use by a charitable organization and ownership by a charitable organization.” Id. While the present case presents a slightly different issue, Catholic Home is instructive, nevertheless, in suggesting that the “belonging to and operated by” language is not so unambiguous that the conjunctive interpretation is clear and therefore, conclusive. The District argues that this court and its predecessor have rejected the disjunctive reading of this section in District of Columbia v. Catholic Univ. of America, 397 A.2d 915 (D.C.1979) and Howard Univ. v. District of Columbia, 81 U.S.App.D.C. 40, 155 F.2d 10, cert. denied, 329 U.S. 739, 67 S.Ct. 53, 91 L.Ed. 638 (1946). Identical statutory language was under review in Catholic University. There, the question was whether a concurrence of use and ownership of the property was required for the exemption. Catholic Univ., 397 A.2d at 918. The court determined that a regulation which required concurrence of ownership and use by the organization seeking the exemption under D.C.Code § 47—801(a)(j)3 (pertaining to exemptions for buildings “belonging to and operated by schools, colleges, or universities”) to be inconsistent with the statutory language as interpreted by the court in Catholic Home, supra, and Trustees of St. Paul Methodist Episcopal Church South v. District of Columbia, 94 U.S.App.D.C. 78, [314] 83 n. 6, 212 F.2d 244, 249 n. 6 (1954).4 Catholic University does not reject the disjunctive reading of this section, although it mentions that the conjunctive interpretation under the regulation would not be “necessarily inconsistent with the statute.” 397 A.2d at 919. A portion of the property was held not to be exempt in Catholic University not because Catholic University was not the sole owner and user, but because it had rented a portion of the property to a profit-making entity. Id. at 917, 922. The portion of the property leased by Catholic University to another non-profit school was held to be tax exempt, while the portion leased to a profit-making entity was disqualified for the exemption. Id. Thus, Catholic University does not support the proposition that the court has rejected the disjunctive reading of subsection (10). Nor does Howard University, supra, support the District’s argument. The issue in Howard University was not a general school exemption, but a special statute which exempted the property of Howard University provided it was “used only for the purposes set forth in the charter,” specifically, “the education of youth in the liberal arts and sciences.” Howard Univ., 81 U.S.App.D.C. at 40, 155 F.2d at 10. In summary, the meaning of § 47-1002(10) is not clear with reference only to its language. The courts have found the evident ambiguity in the language, and therefore, resorted to the legislative history and rules of statutory construction to ascertain its meaning and to effectuate its purpose. Considering the legislative history of the statute, the court has rejected the requirement of reading the statute in the conjunctive and requiring concurrence of use and ownership in the same nonprofit school entity to qualify for the exemption under D.C.Code § 47-1002(10).5 However, the question not previously resolved in this jurisdiction is whether the exemption is available under § 47-1002(10) when the property is operated by a non-profit school, but owned by a nonprofit religious order. The District concedes that if the Levine School leased the property from another non-profit school, or if Good Shepherd leased its property to another religious entity, each would qualify for real property tax exemption under different sections of the Code.6 The District denied the exemption on the theory that Good Shepherd and the Levine School are different types of non-profits. The question is whether they lose the benefit of the statutory exemption which would otherwise be available because they lease to or from different types of charitable organizations rather than the same type of nonprofit. Such an interpretation would be an anomaly and contrary to the legislative intent to permit non-profit charitable organizations, schools, and religious groups- to operate in the District of Columbia without the burden of taxation. In Catholic Home, supra, the court outlined the legislative history of the exemption statute which reflects its legislative purpose. The bill embraces 4 classes of property which would be exempt under its [315] terms — property which is devoted to education, with respect to which no profit inures; property which is devoted to religious purposes, with respect to which no profit inures; property devoted to charity, with respect to which no profit inures; and property which is devoted to science. 82 U.S.App.D.C. at 195-96, 161 F.2d at 901-02 (quoting 88 Cong. Rec. 9485 (1942)). The reference to the legislative history continues: This bill defines privately owned nonprofit institutions which, because of their religious, charitable, education, and scientific activities in the District, should be permitted to operate without the burden of taxation. The bill seeks to exclude from tax-exempt status those institutions which claim to perform this type of work, but are organized and operated for private profit and gain in contrast to those which derive no profit or gain from their operation. Id. (quoting H.R. Rep. No. 2635 at 1, 77th Cong., 2d Sess. (1942); S. Rep. No. 1634, 77th Cong., 2d Sess. at 1-2.) The House and Senate Reports also note that “it is the unanimous opinion that where the relationship of teacher and student exists, the property of schools, colleges, or universities not organized or operated for private gain should be exempt from taxation.” H.R. Rep. No. 2635, at 3; S. Rep. No. 1634, at 3. The legislative history of the tax exemption statute indicates that it was the intent of Congress that the tax exempt status of property depend upon the use of the property and whether it is operated for private profit or gain. To deny the exemption because the property, which is operated by a non-profit school, is owned by a non-profit religious order would contravene the legislative intent to exempt from taxation all “property which is devoted to education with respect to which no profit inures.” 88 Cong. Rec. 9485 (1942) (remarks of Sen. McCarran). Subsection (10) premises the tax exemption on the character of the entities owning or operating the property. Either the owner or the user must be a school, college or university which is “not organized for private gain and embrace the generally recognized relationship of teacher and student,” and neither the owner or operator may be a for-profit entity. There is nothing in the legislative history which would show that Congress intended to deny a tax exemption where the property is both owned and used by the types of entities exempt from taxation under the statute simply because the owner and user would qualify ordinarily under different sections of the statute. The District argues that because tax exemptions should be strictly construed against the property owner who claims the exemption, any ambiguity should be resolved in favor of the government. See, e.g., National Med. Ass’n v. District of Columbia, 611 A.2d 53, 55 (D.C.1992). It also contends that the court should defer to the reasonable interpretation of the statute by the agency responsible for its enforcement. “We defer to an agency’s interpretation of a statute or regulations it is responsible for enforcing as long as the interpretation is not plainly wrong or inconsistent with the legislature’s intent.” Downs v. Police & Firefighters Retirement & Relief Bd., 666 A.2d 860, 861 (D.C.1995) (citations omitted); Catholic Univ., supra, 397 A.2d at 919 (citations omitted). We are persuaded that the District’s interpretation is contrary to the legislative intent as reflected in the legislative history. For the same reason, we reject the District’s argument that strict construction requires interpretation of the statute in the District’s favor.7 For the foregoing reasons, the decision of the trial court is reversed and remanded with instructions to enter judgment in favor of appellants and granting the exemption under D.C.Code § 47-1002(10). Reversed and remanded. Footnotes [1] The real property is described as Lot 14 in Square 1304 improved by the premises known as 1690 — 36th Street, N.W., in the District of Columbia. A portion of the property is used as a convent, and that portion is exempt from taxation and not involved in this litigation. [2] At issue in Mulky was the scope of the trial court’s discretion in sentencing a defendant upon revocation of probation where the statute read that upon revocation, the court was to "impose a sentence and require [the probationer] to serve the sentence or pay the fine originally imposed, or both[.]” Mulky, 451 A.2d at 856 (citing D.C.Code § 24-104 (1973) (emphasis added)). The literal language of the statute permitted the court to impose a sentence and require the defendant to serve the original sentence. Id. at 857. The government argued that the trial court was obligated to impose the original sentence upon revocation of probation based upon the language of the statute. Id. at 856. To effectuate the legislative purpose and preserve the Act’s constitutionality, this court read “and” for “or,” concluding that "[t]he legislative history belie[d] any such intent, and, in any event, imposition of a new sentence in addition to the old would result in double jeopardy.” Id. at 857 (citation and footnote omitted). [3] D.C.Code § 47-801(a)(j) is identical to D.C.Code § 47-1002(10), the statutory provision under consideration in this case. [4] Both of these cases were binding on the court under M.A.P. v. Ryan, 285 A.2d 310 (D.C.1971). [5] In recognizing that the word "and” may be interpreted in the disjunctive, we do not mean to suggest that an entity can qualify for tax exemption simply by meeting either prong of the particular exemption provision. For example, there could be no exemption under § 47-1002(10) where a profit-making entity owns the property, but leases it to a qualifying school not organized or operated for private gain. On the contrary, as will be discussed infra, to qualify for the exemption under discussion, both entities must come within the classes of property intended for exemption under § 47-1002, even if not the identical provision. [6] It is undisputed that the Levine School is a non-profit school within the meaning of D.C.Code § 47-1002(10) and that Good Shepherd is a non-profit religious and charitable organization within the meaning of D.C.Code §§ 47-1002(8) and (14). [7] In light of our disposition, we need not resolve appellants’ argument that the property is exempt based on its use for purposes of public charity under D.C.Code § 47-1002(8).