Ward Seminary for Young Ladies v. Mayor of Nashville

Mr. Justice Green delivered the opinion of the Court. The complainant is a private corporation organized under the laws of Tennessee for the purpose of teaching any useful profession, trade, business, or art, and of giving instruction in any branch of learning, practical or theoretical. It was chartered under the provisions of chapter 58, sec. 3, of the Acts of 1881, Shannon’s Code, secs. 219I9,-220CX It is a corporation organized for profit, and not an eleemosynary corporation, or corporation organized for general welfare. Ward Seminary has for many years been conducted as a boarding school for girls, and has become quite a famous institution. An attempt was made by the city of Nashville to tax its property within the limits of that city, and this bill was filed to enjoin the city from so doing. The complainant claimed to be exempt as an educational institution under a statute that will be hereafter noted. The ¡chancellor rendered a decree in favor of the complainant, and the city of Nashville has appealed to this court. The complainant owned, in addition to its school equipment, several pieces of real estate. IJpon some of these were buildings used for dormitories and recitation rooms; some of the land was used for exercise and playgrounds; some was vacant and used for no purpose connected with the school, and upon some were stores rented out for business purposes. — 415 — The provisions of onr constitution and of onr statute regarding exemption of educational institutions from taxation are as follows: Article 2, section 28,. of the constitution of the State contains this language: “All property, real, personal or mixed, shall he taxed, hut the legislature may except such as may beheld by the State, by counties, cities or towns, and used exclusively for public or corporation purposes, and such as may be held and used for purposes purely religious, charitable, scientific, literary or educational,, and shall except one thousand dollars’ worth of personal property in the hands of each taxpayer, and the direct product of the soil in the hands of the producer, and his immediate vendee.” The act of 1907, ch. 602, sec. 2, subsec. 2, contains this exemption from taxation: “All property belonging to any religious, charitable, scientific, or educational institutions when used exclusively for the purpose for which said institution was created, or is unimproved and yields no income. All property belonging to such institution used in secular business and competing with a like business that pays taxes to the State shall be taxed on its whole or partial value in proportion as the same may be used in competition with secular business.” The various revenue acts passed since the adoption of the constitution of 1870 are quite similar in the provisions they contain respecting the exemption of property used for religious, charitable, scientific, literary, and educational purposes. — 416 — We have only one reported case dealing with an effort to assess the property of edncational institutions when that property was actually used for school purposes. This is the case of Mayor, etc., of Nashville v. Ward, 16 Lea, 27. In this case the court construed the acts of 1882 and 1883. The court held that the act of 1882 exempted from taxation property which belonged to private individuals, if used for educational purposes. It held, however, that the act of 1883 exempted such property only in case it belonged to incorporated institutions of learning, and did not exempt the same if it belonged to private individuals, although used for educational purposes. The latter holding was based on the use of the word “institution” in the act of 1883; the exemption in that act being to property belonging to religious, charitable, scientific, literary, or educational institutions. The court said that the word “institution” meant a chartered institution, or a corporation, and that the exemption, therefore, did not include the property of individuals which might he used for educational purposes. This construction cannot he adhered to. Such a construction exempts from taxatioii property belonging to corporations for profit, if used for educational purposes, but holds the property of individuáis used for identical purposes liable for such taxes. If subsection 2 of section 2, Ch. 602, Acts of 1907, be so construed, it would be clearly unconstitutional. The court has recently considered the question of discrimination — 417 — between individuals and private corporations in the case of State v. Railroad, 124 Tenn., 16, 135 S. W., 773, Ann. Cas., 1912D, 805, where the authorities are reviewed at length. As pointed ont in State v. Railroad, there must be some natural and reasonable basis for discrimination in legislation between individuals and corporations. Such classification must have some natural and reasonable basis. Nb reason whatever has been suggested for a discrimination between an individual and a corporation for profit, both engaged in educational work, and any attempt of the legislature to make such a distinction as between the two in the matter of exemption from taxation would be invalid. This court, therefore, cannot suppose that the legislature had any such intention, unless the language used coerces this conclusion. This question of arbitrary classification was not called to the attention of the court in Mayor, etc., of Nashville v. Ward, supra. We are of opinion, therefore, that the above-quoted provisions of the act of 1907 exempt from taxation all the property of educational institutions, whether the property or the institution be owned by corporations or individuals if the property is exclusively used for educational purposes. Such is the construction given like acts in most of the States. In a note to Jackson v. Preston, as reported in 21 L. R. A. (N. S.,) 165, the annotator says: — 418 — “In the majority of cases., legislative intent has been construed as including private schools within such terms as ‘school,’ ‘educational institution,’ ‘seminary,’ ‘college,’ or other similar term, whether such schools are conducted for profit to the owners, or because of charitable or religious considerations, and whether they are incorporated or not incorporated.’ A number of cases are collected in this note which fully sustain the quotation made. It is not worth while to undertake a review of the cases from other jurisdictions, since at last the decision of this court must rest upon our own constitution, statutes, and public policy. Our constitution of 1870, art. 11, sec. 12, says: “Knowledge, learning and virtue, being essential to the preservation of republican institutions, and the diffusion of the opportunities and advantages of education throughout the different portions of the State being highly conducive to the promotion of this end, it shall be the duty of the general assembly in all future periods of this government, to cherish literature and science. ’ ’ This court said in State v. Fisk University, 87 Tenn., 233, 10 S. W., 284, speaking of the-foregoing section: “And while it is true that this language is found in the section which treats of the common school fund, it is not confined to it, but is declaratory of the sense of the constitutional convention on the subject of education, and the duty of subsequent legislatures to cherish. ’ ’ — 419 — We think, therefore, in view of this constitutional admonition and the necessity of schools, that it was the intention of the legislature to exempt property used in educational work, whether such property was owned and such work conducted hy individuals or corporations. We know of no one who has accumulated riches in educational endeavor. No abuse is likely to arise if the exemption be confined to property actually used in school work. School teachers have to live, and their property should not be denied exemption when employed in educational work merely because the owners of the property derive some profit from it. In the great majority of cases, this profit is meager, and not at all commensurate with the work done for the youth of our State and the consequent benefit to the whole body politic. The natural construction of our constitution and revenue statutes is to exempt from taxation all property physically used for religious, charitable, and educational purposes, or actually occupied for such purposes. We think the words “educational institution” as used in the act of 1907 mean school, seminary, college, or educational establishment, not necessarily a chartered institution. If the word “institution” be interpreted as in Mayor, etc., of Nashville v. Ward, supra, this section of the act, as we have seen, would be unconstitutional, and it is our duty to give the act a construction that will save it. The exemption is to the owner of the institution, whether corporate or individual. — 420 — In regard to vacant property owned by the complainant and the ‘ property which complainant rents ont, we are of opinion that snch property is not exempt from taxation. In State v. Fisk University, 87 Tenn., 241, 10 S. W., 284; University of the South v. Skidmore, 87 Tenn., 156, 9 S. W., 892, Methodist Episcopal Church, South, v. Hinton, 92 Tenn., 188, 21 S. W., 321, and Vanderbilt University v. Cheney, 116 Tenn., 259, 94 S. W., 90, it was held that certain income-bearing property and vacant property not actually used for religions, charitable, or educational purposes was exempt from taxation. These cases proceeded on the theory that, inasmuch as the profit derived from such property was applied exclusively to educational, charitable, and religious purposes, the property was entitled to immunity from taxation. In all these cases, however, the property belonged to eleemosynary corporations, or corporations for the general welfare. A distinction was taken in the cases referred to between such property so held by such corporations and such property so held by individuals or corporations for profit. It was concluded that while certain property belonging to Vanderbilt University, the Methodist Church, Fisk University, and the 'University of the South was not physically employed in educational, religious, and charitable work, nevertheless, inasmuch as all the income arising from the property was so applied, and the ultimate use of the property was for such purposes, an exemption arose under our Consti — 421 — tution and statutes. Such a question is not presented in this case. The complainant here is a corporation for profit. Its net earnings or ultimate gains go to its stockholders, not to educational, charitable, or religions ends. Therefore the only portion of its property which is entitled to immunity from taxation is that portion physically used and actually occupied in educational work. The doctrine of Methodist Episcopal Church, South, v. Hinton, and of other cases above cited, was announced by divided courts, and has been subjected to criticism. It certainly will not be extended. It must be confined to the property of corporations organized for the general welfare. That portion of the act of 1907, undertaking to exempt the property of educational institutions which “is unimproved and yields no income,” must be held unconstitutional in so far as it applies to the property of such institutions operated by private corporations or individuals. There is no warrant in the constitution for such an exemption. The constitution authorizes the legislature to exempt property “used for purposes purely religious, charitable, scientific, literary or educational.” Vacant property and property held merely as an investment by an institution, such as complainant, a corporation for profit, cannot be exempt. Neither the direct use of such property nor the ultimate use is for purely educational purposes. — 422 — It is suggested that the word ‘‘institution’’ in the act of 1907 should be construed to mean corporations organized for general welfare alone. It is urged that, so construed, the act would be constitutional; it being insisted that a discrimination and distinction between an eleemosynary corporation on the one hand and a private corporation or individual on the other rests on a sound basis. This contention is plausible, hut such an interpretation of the act would subject to taxation all school property in the State owned by corporations for profit. Such property has been considered exempt for thirty years, since the decision of this court in Mayor, etc., of Nashville v. Ward, supra. On the faith of this case, thousands upon thousands of dollars have been invested in school property in Tennessee, held and operated by private corporations. Scarcely a state in the South compares' with Tennessee in the number, efficiency, and value of educational institutions so owned. Such institutions have thus been fostered and built up, and it has been the policy of our State to encourage them. It would be disastrous for the court at. this time to reverse the attitude of the State and to adopt a construction of our revenue statute that would subject such institutions to taxation on the property physically used and actually employed in educational work. Although recognizing the force of the contention made by learned counsel for the city, we are unwilling to adopt such a construction of the Eevenue Act as he urges. If a different policy along these lines is to — 423 — be inaugurated in Tennessee, the legislature should adopt it and not the courts. The result of the whole case is that we hold the property of the complainant which is in reality used in educational work, such as the school buildings, dormitories, exercise grounds and the usual and appropriate equipment of this character of institution, to be exempt from taxation. All of its property which is vacant, and all of its property which is rented out. is liable for taxation. Thus modified, the decree of the chancellor will be affirmed, and the costs will be divided between the city and the complainant in the proportion that the property held exempt bears to the property held subject to taxation.