The Mediation Group v. Board of Assessors of the Town of Brookline (February 3, 2003)

COMMONWEALTH OF MASSACHUSETTS

APPELLATE TAX BOARD



THE MEDIATION GROUP	v.	BOARD OF ASSESSORS OF THE                                   
						TOWN OF BROOKLINE


Docket No. F259624			Promulgated:
						February 3, 2003


	This is an appeal filed under the formal procedure pursuant to G.L. c. 59, §§ 64 and 65, from the refusal of the appellee to abate a tax on real estate owned by and assessed to the appellant under G.L. c. 59, §§ 11 and 38 for fiscal year 2001.
	Commissioner Rose heard the appeal and was joined in a decision for the appellee by Chairman Burns and Commissioners Scharaffa, Gorton and Egan.
	These findings of fact and report are promulgated at the request of the appellant pursuant to G.L. c. 58A, § 13 and 831 CMR 1.32.

	Robert J. Gaines, Esq., for the appellant.
	Jennifer Dopazo, Esq., for the appellee.

FINDINGS OF FACT AND REPORT
	On January 1, 2000, The Mediation Group, Inc. ("Mediation Group" or "TMG") was the assessed owner of a parcel of real estate located at 3 Harvard Street, Unit No.3, Brookline ("the subject property").  For fiscal year 2001, the Brookline Board of Assessors ("assessors") valued the property at $309,000 and assessed a tax at the rate of $22.18 per $1,000, in the amount of $6,835.08.  
	On January 18, 2001, TMG timely applied in writing for an abatement of the assessed property tax claiming that the subject property was entitled to a charitable exemption.  For purposes of the corporate excise and sales tax, Mediation Group is organized as a charitable organization in accordance with G. L. c. 180 and is also organized as an Internal Revenue Code ("I.R.C.") § 501(c)(3) corporation.  Mediation Group timely filed with the assessors a copy of its annual report to the Attorney General's Division of Public Charities (Form PC) and its descriptive list, statement, and certification required by G.L. c. 59, § 5, Third (b) and G.L. c. 59, § 29 (Form 3ABC).
On March 13, 2001 the assessors denied the abatement application, and on May 1, 2001, TMG seasonably filed an appeal with the Appellate Tax Board ("Board").
Based on the evidence presented, the Board found that it had jurisdiction over the subject appeal.
	David Matz, TMG's President, member of its Board of Directors and one of its employee mediators, testified on behalf of TMG.  Mr. Matz is also an attorney and, in addition to his position with TMG, he is also a professor of dispute resolution at the University of Massachusetts.  TMG was organized in 1985 by Mr. Matz, Bradley Honoroff and Jane Honoroff.  At all times relevant to this appeal, these three individuals were TMG's only corporate officers and directors.  In addition to its three officers and directors, TMG also employed a fourth mediator, Barbara Kellman, and two office personnel, during the fiscal year at issue.  
Pursuant to its Articles of Organization, TMG was organized to:
provide services, lessening the burdens of government by enabling individuals and groups to settle their disputes peacefully and specifically reducing the burdens on the judicial system; to mediate conflicts in communities and in organizations; to train and educate individuals and organizations to anticipate conflict, and to handle conflict constructively; to educate the public about the value of various peacemaking techniques and approaches to conflict.


Mr. Matz maintains that in furtherance of the above stated purposes, TMG provides three general areas of service: resolution of individual conflicts; training for corporate employees; and advising corporations on how to better handle conflicts within.  
Mr. Matz explained that TMG's fees are set based on a review of the competitors' fees and then setting TMG "just below the middle."  He noted that the fees are set at an amount that meets the business's expenses and allows TMG to "be competitive."  He further testified that TMG "wants[s] to be in a market where people will see this as accessible" and it will therefore generate business.  Although Mr. Matz claimed that TMG offers reduced-fee and free services to those unable to pay, no fee schedule or other documents showing the fee structure, or criteria for reduced fees, were offered into evidence. 
According to Mr. Matz, from its organization in 1985 through the mid-1990s, TMG was involved with the Massachusetts courts in creating and implementing a conflict resolution program in an attempt to alleviate the courts' case backlog.  Mr. Matz noted, however, that during the period at issue, the court system required very little work by TMG because the court system's conflict resolution program had been established.  
Mr. Matz opined that approximately seventy percent of TMG's business stems from individual mediation services.  He further suggested that approximately twenty percent of these disputes focus around lead paint issues and another twelve percent are attributable to employment discrimination issues.  Mr. Matz testified that in his opinion many of the individuals involved in these disputes earn low incomes and, therefore, the services which TMG provides benefit the general public by affording the  public a forum to be heard.  However, as Mr. Matz noted on cross-examination, he had no evidence to support this claim, but it was an "inference" based on statements made by TMG's clients.  Mr. Matz further testified that approximately sixty percent of the people who hire TMG to perform mediation services pay the market rates set by TMG.  
The balance of TMG mediation cases arise from conflicts involving the elderly, small businesses and various family related matters, including divorce settlements and custody issues.  Mr. Matz suggested that TMG has never denied services to an individual because of his or her inability to pay, but that any reduced-fee schedule was purely "informal" and left to the mediator to resolve.  Mr. Matz also testified that TMG sits on various court panels, which require it to take pro bono and reduced-fee cases.  No testimony concerning the number of such cases which TMG handled during the tax year at issue or other supporting evidence was offered.
In addition to the personal services it offers, TMG also provides services to other corporations and organizations for a fee.  TMG could be retained to handle a specific conflict or to train employees of an organization on how to better handle conflict.  Mr. Matz suggested that TMG also had been hired to evaluate an organization's conflict procedure and to prepare materials which outline ways for the organization to improve its process.  In addition to providing services to private organizations, Mr. Matz testified that TMG also provides services to various governmental agencies and municipalities.
According to Mr. Matz, the fees for organizational work are not based on the same "market rates" charged for mediation.  He noted that the corporate contracts are based on the totality of services provided.  He suggested that when doing work for agencies, municipalities and universities, sometimes a fee is charged and sometimes it is not.  He gave no further explanation.  
The three individuals who founded TMG have been, since its inception, its only officers and directors.  These same three individuals are also the primary employees of TMG with only one other mediator and two office personnel.  For calendar year 1999, TMG reported a total revenue from services of $313,183, of which more than seventy percent went to payment of compensation to Mr. Matz, Brad Honoroff and Jane Honoroff.  Brad Honoroff was the most highly compensated individual at $186,431 for his thirty-five hour workweek.
Pursuant to TMG's Articles of Organization, these three individuals, as directors, are the only individuals responsible for setting TMG's "market rate" fees and also for establishing the compensation to be paid to themselves for the services they perform as mediators.
Based on the evidence presented, and reasonable inferences drawn therefrom, the Board found that TMG did not qualify as a charitable organization for purposes of G.L. c. 59, § 5, Third.  Instead, the Board found that TMG was more akin to a commercial enterprise which operated primarily for the benefit of a limited class of persons, its officers and directors.  The Board further found that any benefit to the public at large was only incidental.  In addition, there is nothing in TMG's Articles of Organization which requires it to provide free and reduced-fee services and that any determination to do so was left to the discretion of TMG's mediator.  Furthermore, TMG failed to offer evidence to support its claim that less than market rates were charged.  
Moreover, Mr. Matz, President, founder, director and employee mediator, testified that TMG based its fees on criteria which are typical of a for-profit business: to pay business expenses, to remain "competitive," and to garner future business.  Accordingly, the Board found that TMG failed to establish that it was a public charity operating for the benefit of the general public, but instead was a commercial enterprise operating for the benefit of its officers and directors.  The Board also found that TMG failed to prove that it lessened a burden of government.  Further, the Board found that TMG failed to prove that its beneficiaries were drawn from an indefinite and broad class of beneficiaries.
Accordingly, the Board issued a decision for the appellee.

OPINION
	All real property situated within the Commonwealth, unless expressly exempt, is subject to taxation.  G.L. c. 59, § 2.  Real property is exempt from taxation if it is owned by a "charitable organization" provided the property is occupied by the corporation for its charitable purposes.  G.L. c. 59, § 5, cl. 3.  "Thus, at the very least, the taxpayer must be a charitable organization in order for its property to qualify for exemption."  Harvard Community Health Plan, Inc. v. Assessors of Cambridge, 384 Mass. 536, 541 (1981)("HCHP").  
	The term "charitable" includes more than almsgiving and assistance to the needy.  New England Legal Foundation v. City of Boston, 423 Mass. 602, 609 (1996).  However,  "'the more remote the objects and methods become from the traditionally recognized objects and methods the more care must be taken to preserve sound principles and to avoid unwarranted exemptions from the burdens of government.'"  HCHP, 384 Mass. at 542 (quoting Boston Chamber of Commerce v. Assessors of Boston, 315 Mass. 712, 718 (1944)).  Consequently, "although many activities and services are commendable, laudable and socially useful, they do not necessarily come within the definition of 'charitable' for purposes of the exemption."  Western Massachusetts Lifecare Corp. v. Assessors of Springfield, 434 Mass. 96, 103 (2001)("Western Mass").
The fact that an organization claiming a property tax exemption has been organized as a charitable corporation pursuant to G.L. c. 180 and I.R.C. § 501(c)(3), does not automatically mean that it is entitled to an exemption for its property.   Western Mass., 434 Mass. at 103.  Rather, the corporation claiming exemption "'must prove that it is so conducted that in actual operation it is a public charity.'"  Id. (quoting Jacob's Pillow Dance Festival, Inc. v. Assessors of Becket, 320 Mass. 311, 313 (1946)).
	Whether or not an organization is to be classified as charitable for purposes of the property tax exemption depends upon its declared purposes and the work performed.  Massachusetts Medical Society v. Assessors of Boston, 340 Mass. 327, 332 (1959).  "'An institution will be classed as charitable if the dominant purpose of its work is for the public good and the work done for its members is but the means adopted for this purpose.  But if the dominant purpose of the corporation is to benefit its members or a limited class, the corporation will not qualify as charitable even if the public derives an incidental benefit.'"  Western Mass., 434 Mass. at 102-103 (quoting New England Legal Foundation, 423 Mass. at 609-610).
Private organizations are charitable only when they perform activities which advance the public good, thereby relieving the burdens of government to do so.  See, e.g., Molly Varnum Chapter DAR v. City of Lowell, 204 Mass. 487 (1909).  To the extent that an organization is conducting business for profit, it is not relieving government of a burden by advancing the public good and, accordingly, it is not a charitable endeavor.  See Hairenik Association v. City of Boston, 313 Mass. 274 (1943).   
	Pursuant to its Articles of Organization, TMG was established primarily to "provide services . . . enabling individuals and groups to settle their disputes peacefully . . . reducing the burdens on the judicial system . . . to train and educate individuals and organization to anticipate conflict . . . to educate the public about the value of various peacemaking techniques and approaches to conflict."  TMG contends that its purposes are accomplished through the performance of conflict mediation and by its organizational consulting services where TMG analyzes and offers recommendations to improve an organization's processes.
TMG maintains that its services help to reduce the courts' caseloads and, therefore, lessens the burdens of government.  TMG offered insufficient evidence to support this claim.  To the contrary, Mr. Matz noted that many of the disputes which are brought to TMG already have lawsuits pending in the courts and he was unable to establish how many, if any, cases were settled prior to a trial due to TMG's services.  He further noted that TMG's mediation decisions are not binding, and, therefore, do not prohibit an individual from pursuing a lawsuit.  Thus, TMG failed to adequately prove a relief to the court system and a corresponding lessening of the burden of government.
Moreover, if providing some service to the government for a "market fee" constituted a lessening of the burden of government so as to establish the "charitable" nature of an enterprise, virtually any entity performing services for the government could make the same claim.  The issue is not whether the burden of government is somewhat lessened or whether the public derives any benefit; the issue is whether the "dominant purpose" of the corporation is to benefit a limited class or the public at large.  See Wesstern Mass., 434 Mass. at 102-103.  
With respect to its corporate advising and training, TMG offered no explanation as to how these services benefit the general public.  Notably, TMG offered no evidence to suggest that it offered any educational programs for the general public.
To the extent that an organization is simply conducting a business for profit, it is not relieving government of a burden by advancing the public good and, accordingly, it is not a charitable organization.  See Hairenik Association, 313 Mass. at 279.  Although charging fees for services will not necessarily preclude an organization's charitable status (see New England Sanitarium v. Inhabitants of Stoneham, 205 Mass. 335, 342 (1910)), the Court has nonetheless found that the provision of lower-cost services is a strong indication of whether the organization is providing a charitable service as opposed to a commercial venture. See HCHP, 384 Mass. at 540.
It is uncontested that TMG charges set fees for its mediation services.  It is not this fact alone which calls into question TMG's status as charitable, but rather the competitive nature of its business and its limited class of beneficiaries.  As explained by Mr. Matz, the fees are based on a "review of the competitors'" fees and they are ultimately set "just below the middle."  He acknowledged that the fees are "market rates" set by the directors so as to allow TMG to pay its expenses, including salaries to the directors in their capacity as employed mediators, and remaining competitive and garnering future business.  
Mr. Matz also testified that TMG does provide reduced-fee services but any fee reduction was made on an "informal" basis and only when a client asked about a reduction in fees.  Once raised, it was then up to the mediator to "work out a deal."  Mr. Matz also testified that TMG provides free and reduced-fee services via their involvement in various panels.  Again, no evidence supporting his claim was offered.
In addition to TMG's failure to prove that its activities qualified it as a "charitable organization" for purposes of G.L. c. 59, § 5, cl. 3, TMG's operation violated the express terms of G.L. c. 59, § 5, cl. 3(a) which provides:
if any of the income or profits of the business of the charitable organization is divided among the stockholders, the trustees or the members, or is used or appropriated for other than literary, benevolent, charitable, scientific or temperance purposes or if upon dissolution of such organization a distribution of the profits, income or assets may be made to any stockholder, trustee or member, its property shall not be exempt

There are only four mediators employed by TMG, three of whom are members of the board of directors responsible for all financial decisions, including establishing the fee schedule and also the compensation packages paid to themselves.  For 1999, more than seventy percent of TMG's revenue was paid out in salaries to its three mediators who were its officers and directors.  TMG argued that the payment to these three individuals was compensation for their mediation and training services and that this did not adversely affect the organization's charitable status. 
However, in HCHP, the Court ruled that the statutory "prohibition against inurement to 'insiders' will preclude exemption . . . where, for example, [those] 'employed' by [the organization] serve on its board or otherwise exert control over its finances."  HCHP, 384 Mass. at 541-542 (citing Fisher School v. Assessors of Boston, 325 Mass. 529, 535 (1950)).  In the present appeal, it is the same three "employed" mediators who, as TMG's officers and directors, are responsible for making all financial decision for TMG, including the amount of their own salaries.  Accordingly, there is a prohibited inurement to TMG "insiders," contravening the express provisions of G.L. c. 59, § 5, cl. 3(a), thereby precluding exemption of TMG's property.  Id.  
In conclusion, to the extent that an organization is simply conducting a business for profit, it is not a charitable organization but a commercial enterprise and, therefore, its property is not entitled to the charitable exemption from property tax.  See Hairenick Association, 313 Mass. at 279.  Furthermore, any inurement to "insiders" precludes exemption.  See HCHP, 384 Mass. at 541.
  In the present appeal, the Board found that TMG was in the business of providing mediation and consulting services.  The Board further found that the general public received only an incidental benefit.  Instead, the individuals who most directly benefited were the officers and directors of TMG who retained a majority of TMG's revenue as compensation.  Consequently, the Board found and ruled that TMG was a commercial enterprise which primarily benefited its three officers and directors.
"Exemption from taxation is a matter of special favor or grace.  It will be recognized only where the property falls clearly and unmistakably within the express words of a legislative command."  New England Legal Foundation, 423 Mass. at 609 (quoting Massachusetts Medical Soc'y, 340 Mass. at 331).  Any doubt must operate against the one claiming tax exemption, because the burden of proof is upon the one claiming an exemption from taxation to show clearly and unequivocally that he comes within the terms of the exemption.  Boston Symphony Orchestra v. Assessors of Boston, 294 Mass. 248, 257 (1936).
  In the present appeal, the Board found that TMG failed to prove that it was a charitable organization which occupied the subject property in furtherance of its charitable purposes and failed to prove the absence of 
private inurement under G.L. c. 59, § 5, cl. 3(a).  Accordingly, the Board issued a decision for the appellee.


				     APPELLATE TAX BOARD


				By:					_____
	  			   Abigail A. Burns, Chairman




A true copy,



Attest:					
     Clerk of the Board

ATB 2003-64