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CHAPTER 3
Exemptions and Exempt Properties
Any discussion of taxable property is not complete without a clear understanding of how much and what classes of property are exempt from taxation under Rhode Island Statutes. As a number of exemptions are allowed in this state with the passage of RI General Law 44-3-3, the assessor should become thoroughly familiar with this aspect of his duties.
Exemptions fall basically into two (2) general categories: one, property which is exempt, usually because of its use (military, charitable, religious, etc.) or because it is owned by an institution which is exempt; and two, people who have exemptions because of some special status that they hold (veterans, Gold Star parents, elderly, etc.) or because of a condition or situation that exists (blind, indigent, disability, etc.).
All exemptions from property taxation depend upon an express grant by constitutional provision (Federal or State) or legislative enactment (State). Communities do not have the authority to grant any exemptions without express permission of the State Legislature in the form of special acts. Most of the statutes concerning exempt properties have been in the General Laws for over a century, and some for as long as two (2) centuries without appreciable change. There have been numerous Supreme Court decisions establishing the doctrine that laws exempting properties from taxation are to be strictly construed, and exemptions cannot be read into the statutes. Therefore, since the granting of an exemption is not to be presumed, any doubt or ambiguity must be resolved in favor of taxation. The burden is upon the one claiming an exemption. He/she must show the precise extent of his/her exemption and his/her right thereto by clear proof. He/she must point out an express constitutional or statutory provision granting exemption from taxation, and show clearly that his/her property comes within the scope, operation or contemplation thereof, as well as within its spirit and intent. In other words, he/she must show that his/her property falls within the exempted class, and he/she must bring themselves clearly within the terms of such conditions as the statute may impose.
PROPERTY WHICH IS EXEMPT
Governmental Exemptions
All property ceded to or belonging to the United States is exempt (44-3-3, subpara. 2), unless taxation is authorized by the U. S. Congress (Supremacy Clause, U. S. Constitution, Article 1, Section 10). Property owned by the State is also exempt from property taxation (44-3-4, Subpara. 1). However, there is no section of the law which exempts cities or towns from such tax.
Consequently, property which is owned by one (1) community but which is located in another community is taxable. Examples of this are the Scituate Reservoir, which is owned by the city of Providence (Providence is Scituate’s largest taxpayer), and the reservoir in Portsmouth, which is owned by the city of Newport.
It would be an exercise in futility, however, for a community to assess
itself for its own holdings; so, consequently, they are exempt by custom.
Institutional Exemptions
Within the broad context of institutional exemptions are the educational, religious, charitable and fraternal organizations; but the fact that a corporation's charter or bylaws states that a particular organization is such does not legally make it so under property tax exemption statutes. Nor does the fact that a corporation is "nonprofit" mean that it is exempt from property taxation. In fact, most "nonprofit" corporations are not exempt from such taxes. The exempt status of such organizations is determined by how their property is used, or how their income is expended.
For example, fraternal corporations were created in the last century for two (2) principal reasons: one, to build meeting halls for their meetings;
and, two (more important) to build and support homes, schools and asylums “for the relief, support and care of worthy and indigent members of the fraternity, their wives, widows or orphans.” Its function was to insure against its members or their children winding up in the local "poor house" or "state orphanage."
The second point is the one which determines whether or not the organization is fraternal under Rhode Island law.
Section 44-3-3 (14) stipulates that the meeting halls shall be used for
meetings of the fraternal corporation, the subordinate bodies of such fraternity, or for other fraternal bodies or associations. The halls may not be
used for other purposes or by non-fraternal organizations.
The law also requires that all net income of the corporation be used
to build, furnish and maintain the asylums, homes and schools for its worthy
and indigent members, their wives, widows or orphans. In as much as our society has changed during the last few decades with the coming of Social Security, Medicare, Medicaid, pensions plans, welfare, special assistance for the elderly and disadvantaged persons, there is no longer a need for the archaic fraternal organizations; and there are few left that qualify for exempt status under this section of the law.
Example:
The North Kingstown Independent Order of Odd Fellows owns a hall which
is used primarily for its meetings and the meetings
of its junior organization. The Boy Scouts
also use the building at no charge. Once a month
the hall is leased by a professional auctioneer
to hold a public auction, and occasionally the
hall is rented to local people for wedding receptions
and the like. The property is appraised for
$18,000. Is any portion of the property taxable?
The I. 0. 0. F. is generally considered to be a
fraternal order although some questions have been
raised concerning the allocation of their income.
Assuming that they are a fraternal order, the fact
that in the above case they are using the building
for purposes other than those specified in 44-3-3
(14), their real estate would be taxable in total.
(Case Law 67 R. I. 423.)
Any other property owned by a fraternal corporation (other than
their meeting hall and its furnishings) would be taxable.
Buildings used for educational purposes fall into two (2) categories:
one, Buildings for free public schools, buildings for religious worship, and the land upon which they stand and immediately surrounding them, to an extent not exceeding five (5) acres so far as the buildings and land are occupied and used exclusively for religious or educational purposes: 44-3-3 (5); and two, Buildings and personal estate owned by any corporation used for school, academy or seminary of learning, and the land upon which the buildings stand and immediately surrounding them to an extent not exceeding one (1) acre, so far as they are used exclusively for educational purposes: 44-3-3 (8).
In the case of a school having dormitories and faculty housing, only
those buildings used exclusively for educational purposes would be exempt.
The housing facilities, cafeteria facilities and the like would be taxable.
Private school corporations must be nonprofit; that is, no part of the income or profits of the business may be divided among its owners or stockholders.
Example:
The Pine Swamp Prep School in North Kingstown owned
by a private corporation operates a college preparatory
school. The net profit of the school is expended
as follows:
25% is kept in reserve
50% is donated to the National Council of Churches
25% is paid to the stockholders
The property consists of twenty (20) acres valued at
$1000 per acre, and the total value of the property
is $170,000. Is any portion of the property taxable?
Answer:
The entire property would be taxable as a portion
of the income is distributed to the stockholders
44-3-3 (8).
Because convents are living facilities and are not used exclusively
for educational or religious purposes, they may be taxable under Rhode Island law if they exceed perimeters that are stated such as area or value.
Example:
St. Paul's Church owns a convent adjacent to its
school. The property consists of 1 1/2 acres of land
appraised for $10,000 per acre, and the total property
is appraised for $204,500. Is any portion of the
property taxable?
Answer:
According to Rhode Island General Law 44-3-3 (6) the building and 1 acre of land would be exempt therefore ½ acre would be taxable at a value of $5,000.
The Rhode Island Supreme Court has stated and restated in many of
its decisions that the words "so far as the same is used exclusively" are words of extent (24 R. I. 86). Therefore, unless the property or a specifically divisible part of it is used exclusively for the stipulated purpose, the property or divisible portion of it, is not exempt from taxation.
Property used for religious purposes is covered in 44-3-3, subpara. 5 and is subject to the same restrictions and limitations as property used for free public schools: the building or buildings used exclusively for religious purposes and land upon which they stand and immediately surrounding them not to exceed five (5) acres are exempt. The same words of extent, "used exclusively,” are used in this subparagraph.
Example:
St. Joseph's Church in Warwick is located on three
(3) acres of land - the extra area is paved and used
for parking . The land is appraised for $40,000 per
acre, and the total value of the property is $300,000.
Is any portion of the property taxable?
Answer:
According to 44-3-3 (5), the church and land not to exceed (5) acres of land
would be exempt. Therefore, the entire property both land and buildings is exempt from taxation.
Rectories and one (1) acre of land on which they stand are exempt. However, there are two (2) stipulations for the properties to qualify: one, the house must be owned by or held in trust for a religious organization; and, two, it must be actually used by the organization's officiating clergy.
Example:
St. Paul's Church in Cranston owns a house in which
its rector lives. The property consists of three
(3) acres of land appraised for $60,000 per acre, and
the total property is appraised for $300,000. Is
any portion of the property taxable?
Answer:
The property would be exempt for the dwelling house
and land not to exceed one (1) acre in conformity with
44-3-3 (6).Then only one (1) of the three (3) acres
could receive an exemption and the excess two (2) acres
would be taxable 44-3-3 (6).
Some assessors have exempted motor vehicles owned by a religious order or an order of nuns or monks, and in some cases such orders may be exempt but the assessor should review RI General Law to be sure an exemption applies. There is no section of the law which permits exempt status for real estate or motor vehicles personally owned by a priest, minister or nun and any assessor so doing is violating his/her oath of office.
Examples:
One. The Sisters of the Cross and Passion own
an automobile which is kept at St. Joseph's
Church in Warwick. Is the auto taxable?
Two. Bishop 01Toole owns a car which he keeps
at the rectory of the Roman Catholic Bishop
in Providence. Is the automobile taxable?
Answer:
The automobile owned by the religious order would
not be taxable, but the vehicle held by the Bishop
personally would be taxable.
Charitable institutions are covered in two (2) subparagraphs of
44-3-3 (8) and (12). The former deals with charitable corporations of an educational nature such as museums, schools for the disadvantaged, etc. The one (1) acre restriction and exclusivity of use also apply here.
Subparagraph (12) deals with charitable institutions which aid or support the poor and needy: homes for needy elderly, orphanages for poor friendless children, and assistance for the poor generally, or for a nonprofit hospital for the sick or disabled. Caution should be the rule in cases of charitable institutions. Most organizations are charitable to some degree, but very few utilize their property exclusively for such purposes.
A rule of thumb definition of a charitable institution is: “an organization which performs a necessary function for needy or handi-capped persons which would otherwise have to be performed and/or paid for by the State.” Under section 44-3-3 (12) of Rhode Island Law, the property must be used exclusively for charitable purposes and this purpose must relieve the State from the expense of performing the function. The one (1) acre restriction does not apply in subparagraph (12) – all land attendant to the buildings under charitable use would be exempt. Libraries and hospitals also fall within the context of this subparagraph and would be exempt.
Example:
St. Bernards Home for the Aged in Foster houses
needy elderly people who are, because of very
limited means, unable to support themselves, but
who do not require constant supervision or medical
attention. The home is supported financially
by the Episcopal Church, and it is located on
twenty (20) acres of land. Is any or all of the
property taxable?
Answer:
In accordance with subparagraph (12), “ ….said property
shall be held exclusively for .... the aid or support
of the aged poor .... ,” and because the cost of each
tenant is not borne by the State in this particular
case, the property is totally exempt. 44-3-3 (12).
A corporation may be exempt by charter (44-3-3, subpara. 10), which
means it has been given special exempt status, in whole or in part, by a specific act of the Legislature. These exemptions are quite common (too common, in fact), involving all types of so-called nonprofit corporations. An assessor should not honor such exemption unless he has a certified copy of the specific act from the Secretary of State's Office.