Center for Human Development, Inc. v. Board of Assessors of the City of Springfield (May 20, 2010)

COMMONWEALTH OF MASSACHUSETTS

APPELLATE TAX BOARD


CENTER FOR HUMAN 		   v. 	 BOARD OF ASSESSORS OF
DEVELOPMENT, INC.		 THE CITY OF SPRINGFIELD
			

Docket No. F293247		 		 Promulgated:
					 		 May 20, 2010
   	  				
This is an appeal under the formal procedure, pursuant to G.L. c. 58A, § 7 and G.L. c. 59, §§ 64 and 65 from the refusal of the appellee Board of Assessors of the City of Springfield ("assessors" or "appellee") to abate real estate taxes on certain real estate located in Springfield, owned by and assessed to the appellant, Center for Human Development, Inc., ("CHD" or "appellant") under G.L. c. 59, §§ 11 and 38 for fiscal year 2007 ("fiscal year at issue").  
 Commissioner Scharaffa heard this appeal.  Chairman Hammond and Commissioners Egan, Rose and Mulhern joined him in the decision for the appellant.    
	These findings of fact and report are made pursuant to a request by the appellee under G.L. c. 58A, § 13 and 831 CMR 1.32. 

	Robert A. Gelinas, Esq. and Daniel J. Finnegan, Esq. for the appellant.  

	Patricia Bobba Donovan, Esq. for the appellee.  

			FINDINGS OF FACT AND REPORT

On the basis of the testimony and exhibits offered into evidence in the hearing of this appeal, the Appellate Tax Board ("Board") made the following findings of fact.  As of July 1, 2006, the relevant date for the determination of exemption for the fiscal year at issue, the appellant was the assessed owner of a 2.65-acre parcel of land improved with a 34,290 square-foot building and an asphalt parking lot, located at 50 Warehouse Street in Springfield ("subject property").  For the fiscal year at issue, the assessors valued the subject property at $824,700, and assessed a tax thereon, at a rate of $31.91 per $1,000, in the total amount of $26,316.18.  
	On February 24, 2006, in accordance with G.L. c. 59, § 5, Clause Third ("Clause Third"), the appellant timely filed with the assessors its Form 3ABC for the fiscal year at issue, with a copy of its Form PC attached.  On December 31, 2006, the Collector of Taxes for Springfield mailed the fiscal year 2007 actual tax bills.  The appellant timely paid the taxes due without incurring interest.  On January 31, 2007, the appellant timely filed an Application for Abatement with the assessors, which was deemed denied on April 30, 2007.  The appellant timely filed its petition with the Board on July 27, 2007.  Based on the foregoing facts, the Board found and ruled that it had jurisdiction to hear and decide this appeal.  
The issue presented in this appeal was whether the subject property was exempt from tax under Clause Third.  At all times relevant to this appeal, the subject property was owned by CHD.  The parties did not dispute, and the Board found, that CHD was a charitable organization.  CHD was a non-profit corporation, organized under Chapter 180 of the General Laws in 1972.  According to its articles of organization, CHD was formed for the purpose of
[t]he establishment of group residences to provide for the welfare and 'in the community' development of persons in need of supportive services; the establishment of educational facilities with power to award diplomas or certificates of accomplishment; the development of training programs for the staffs of the above mentioned and closely related facilities and the development of such other programs as shall be deemed appropriate by the Board of Directors.  

As of the time of the hearing of this appeal, CHD was providing social services to approximately 4,000 children, adults and families through approximately 45 different programs in Massachusetts and Connecticut.  CHD's services included clinical and outreach therapeutic services, crisis assessment and stabilization, shelter and supported housing, substance abuse counseling, day treatment and vocational rehabilitative services.  The population served by CHD consisted of individuals with histories of mental illness, substance abuse, and trauma.  
	In conjunction with its goal of providing vocational rehabilitation, CHD developed a curriculum which used furniture-making as a modality to deliver therapeutic and vocational rehabilitative services to persons with severe mental disabilities.  In 1983, using that curriculum, CHD launched a program known as Riverbend Furniture ("Riverbend").    Marketing materials entered into evidence stated that the mission of the Riverbend program was "to provide meaningful work to individuals with mental illnesses by training them to produce high quality furniture."  
   James Goodwin, the President of CHD, and Audrey Lee Highbee, the Director of Riverbend and Vice President for Mental Health Services for CHD, testified at the hearing of this appeal.  The Board found their testimony to be credible.  Mr. Goodwin and Ms. Highbee described the day-to-day operations of the Riverbend program, as well as its typical clientele and overall mission.
	At the time of its inception, Riverbend served primarily people who had formerly resided at Northampton State Hospital.  As Mr. Goodwin testified, these individuals had severe mental illnesses and it was optimal from a clinical perspective to keep them busy and occupied during the day.  They began by building simple items, such as birdhouses or paper towel dispensers, but CHD soon recognized that they could benefit by taking on more complex projects, including furniture building.  The program was successful, and therefore, it grew and expanded to four separate locations, two of which were focused on woodworking and two of which were focused on upholstery.  In 2006, in an effort to streamline its operations and reduce expenses, CHD purchased the subject property, and consolidated all of the Riverbend operations at that location.  
	During the fiscal year at issue, CHD provided services to 75 individuals at Riverbend, all of whom were referred by the Massachusetts Department of Mental Health ("DMH").  CHD ran the Riverbend program in conjunction with DMH, and DMH contributed $622,436 to Riverbend's budget, which was approximately 36% of the total budget.  Many of the clients served at Riverbend lived in group residential homes or in their own apartments with support services provided by DMH or other non-profit agencies.  The diagnoses of Riverbend clients included bi-polar disorder, schizophrenia, and post-traumatic stress disorder, among others.  Each client had an individual service plan ("ISP") coordinated by DMH which involved a spectrum of social services, and the Riverbend program provided the vocational rehabilitation component of each client's ISP.  
 CHD employed staff to supervise clients at the Riverbend program.  CHD employees working at Riverbend typically possessed knowledge of carpentry or furniture making, but some also had human services and psychology backgrounds.  They received training in psycho-social rehabilitative skills, including special training about mental illness, medications for mental illness, and effective methodologies for supervising individuals with mental illness.   Staff were required to make a vocational assessment of each client and develop vocational treatment plans to compliment the treatment plans received by each client in other support programs.  
	Clients at Riverbend worked in small teams.  Typically, there were four to six clients per team, supervised by one Riverbend staff member.  Clients worked approximately five hours each day, with a lunch break and other breaks as needed.  Activities performed by clients at Riverbend included milling, machine work, assembly, finishing, and upholstery work.  Ms. Highbee, who is a nurse by training and has worked at CHD for nearly 30 years, testified to the therapeutic benefits received by clients treated at Riverbend.  Ms. Highbee testified that the sense of pride and accomplishment that the clients achieved while working on projects was extremely beneficial to their mental health and stability.  Moreover, Ms. Highbee testified that the mental focus required to work on projects helped to reduce clients' stress and overall symptoms.  
  Substance abuse counselors, social workers, and occupational therapists also frequented Riverbend.  Duties assigned to clients were modified in the event that they were experiencing a flare in symptoms. Almost all of the clients required psychotropic and other medications.  Although CHD staff working at Riverbend were trained in dispensing medications, clients typically took their medications at home or at another of the therapy programs which they attended.  CHD provided transportation to and from Riverbend for its clients.  
	Riverbend clients were paid modest wages for their efforts.  The wages were determined under Department of Labor standards and based on prevailing industry wages, which were then prorated to correspond to each person's functional capacity.  Because of their reduced functional capacities, the majority of Riverbend clients were paid less than minimum wage.  Ms. Highbee testified that many of the clients used their wages to patronize area businesses during lunch break.  According to Ms. Highbee, the receipt of the wages greatly boosted the self-esteem of clients as well as their ability to function independently in the community, which was one of CHD's principal goals.  
	Because of their mental disabilities, many of the clients served at Riverbend received various forms of government assistance, including social security benefits, housing subsidies, fuel assistance, and/or food stamps.  The wages received by the clients were used to offset these various other benefit payments.  During the fiscal year at issue, wages paid to Riverbend clients offset a total of $18,657 of social security payments.  
	Clients at Riverbend produced office and lounge furniture, as well as dormitory dressers and beds.  The furniture produced at Riverbend was primarily sold to other non-profit organizations or large institutions.  Marketing materials introduced into evidence described Riverbend furniture as "quality products with a social purpose."  
In fiscal year 2007, Riverbend produced 7,000 pieces of furniture and had a total sales revenue of $956,000.  However, even with the contributions made by DMH, Riverbend had an operating loss of $121,480.  As explained by Mr. Goodwin, operating inefficiencies were the necessary result of the fact that the Riverbend program was focused on the delivery of therapeutic vocational training rather than the production of furniture.  In fact, Mr. Goodwin testified that Riverbend used outdated tools and methods to produce its furniture, rather than the more advanced technology currently used at for-profit furniture businesses.  Riverbend used such tools and methods because they facilitated the delivery of therapeutic benefits.  The use of these more primitive methods not only taught Riverbend clients useful manual skills, but also required increased focus, which, in turn, was beneficial to the mental health of the clients. The evidence established that 75 clients were engaged in furniture-making at Riverbend in fiscal year 2007, yet Riverbend generated under $1,000,000 in sales revenue in that same period, a staff-to-sales volume ratio which Mr. Goodwin testified would be untenable in the for-profit world.  Further, Ms. Highbee testified that Riverbend did not lay off or otherwise reduce the number of clients participating in the Riverbend program in the event of a downturn in furniture sales.   As Mr. Goodwin stated, CHD was "in the mental health business, not in the furniture business."  
Based on these subsidiary findings, the Board made the following, ultimate findings of fact.  The Board found that at all times relevant to this appeal, the subject property was owned by CHD, which was a charitable organization.  The Board found that during the fiscal year at issue, CHD occupied the subject property by housing Riverbend, its vocational rehabilitation program, there.  The Board found that this use of the subject property furthered CHD's charitable purposes.  The Board therefore found and ruled that that subject property was exempt under Clause Third for the fiscal year at issue, and, accordingly, issued a decision for the appellant in this appeal and granted a full abatement in the amount of $26,316.18.  

				     OPINION
	Clause Third provides an exemption for "real estate owned by or held in trust for a charitable organization and occupied by it or its officers for the purposes for which it is organized or by another charitable organization or organizations or its or their officers for the purposes of such other charitable organization or organizations."  Thus, a taxpayer claiming exemption under Clause Third must prove that the property is owned by a charitable organization and that it is used for charitable purposes.  See Jewish Geriatric Services, Inc. v. Longmeadow, Mass. ATB Findings of Fact and Reports 2002-337, 351, aff'd, 61 Mass. App. Ct. 73 (2004) (citing Assessors of Hamilton v. Iron Rail Fund of Girls Club of America, 367 Mass. 301, 306 (1975)). 
In the present appeal, the parties did not dispute that the subject property was owned by CHD, or that CHD was a charitable corporation within the meaning of Clause Third.  The only dispute between the parties was whether CHD occupied the subject property for charitable purposes.  Occupancy for purposes of Clause Third means use for the purpose for which the charity is organized.  Babcock v. Leopold Morse Home for Infirm Hebrews and Orphanage, 225 Mass. 418, 421 (1917).  ("Occupancy means . . . appropriation to the immediate uses of the charitable cause for which the owner was organized.")  
	CHD's charitable mission was the provision of social services to individuals with histories of mental illness, substance abuse, and trauma.  CHD provided clinical and outreach therapeutic services, crisis assessment and stabilization, shelter and supported housing, substance abuse counseling, day treatment and vocational rehabilitative services to over 4,000 individuals through approximately 45 different programs.  The Board found and ruled that Riverbend was but one of CHD's many programs, and the use of the subject property to house Riverbend constituted the occupation of the subject property for CHD's charitable purposes.  
	The assessors contended that the subject property was used purely for the production of furniture, which was a commercial, not charitable, activity.  This argument was plainly contradicted by the evidence, which established that Riverbend was operated not as a commercial venture, but as a therapeutic vocational program.  
Riverbend furniture was produced exclusively by individuals referred by DMH, each of whom had an ISP managed by DMH.  No clients worked full-time, and the vast majority were paid considerably less than minimum wage.  During the course of the working day, Riverbend clients were closely supervised by CHD staff.  In addition, clients interacted with substance abuse counselors, social workers, and occupational therapists while at Riverbend.  Duties assigned to clients were modified in the event that they were experiencing a flare in symptoms.  CHD provided transportation to and from Riverbend for its clients.  The tools and methods used at Riverbend to produce furniture were not geared towards the efficient or maximum production of furniture, but instead towards teaching vocational skills and providing other therapeutic benefits to Riverbend's clients, such as increased concentration and self-esteem.  In fact, Ms. Highbee testified that Riverbend did not lay off or otherwise reduce the number of clients participating in the Riverbend program in the event of a downturn in furniture sales.  Despite the fact that a significant portion of its budget was provided by DMH, Riverbend operated at a loss.  In sum, the Board found that Riverbend had none of the hallmarks of a commercial operation, but was clearly and unequivocally a vehicle for the delivery of CHD's charitable services.  
The cases cited by the assessors in support of their argument are distinguishable from the present appeal.  In The Salvation Army v. Dept. of Revenue, the taxpayer was a charitable organization which operated adult rehabilitation centers ("ARCs") and thrift stores.  The Salvation Army v. Dept. of Revenue, 170 Ill. App. 3d 336 (1988).  The issue in that case was whether the real estate at which the thrift stores were operated was exempt under a provision similar to Clause Third.  The thrift stores employed some of the individuals receiving services at the ARCs, and their employment at the stores was regarded as vocational rehabilitation.  Id. at 341.  Nevertheless, the Court held that the real estate was not exempt, because it found that the primary purpose of the retail stores was to generate income to fund the ARCs, and the other charitable activities carried out at the stores, including the provision of rehabilitative opportunities, were incidental to the main purpose of generating revenue. Id.  at 344.  
In the present appeal, the Board found and ruled that the inverse was true.  The primary purpose of the Riverbend program was the provision of vocational rehabilitation to its clients, and the generation of income through furniture sales was incidental to this primary purpose.  "The distinction is between activities primarily commercial in character carried on to obtain revenue to be used for charitable purposes and activities carried on to accomplish directly the charitable purposes of the corporation, incidentally yielding income."  McKay v. Morgan Memorial Co-Op Industries and Stores, 272 Mass. 121, 124 (1930).  See also Hairenek Association, Inc. v. City of Boston, 313 Mass. 274, 279-80 (1943); Harvard Student Agencies, Inc. v. Assessors of Cambridge, Mass. ATB Findings of Fact and Reports 2000-925, 933.  The activities carried on at Riverbend directly accomplished the charitable purposes of CHD and were not merely a means of generating income to fund CHD's charitable operations.  The Board thus found and ruled that these activities constituted an "appropriation to the immediate uses of the charitable cause for which [CHD] was organized."  Babcock, 225 Mass. at 421.   
			   
CONCLUSION
The Board found and ruled that the subject property was owned by a charitable organization and occupied by that organization for its charitable purposes during the fiscal year at issue.  The Board therefore found and ruled that the subject property was exempt under Clause Third, and, accordingly, issued a decision for the appellant in this appeal and granted a full abatement in the amount of $26,316.18. 
					   THE APPELLATE TAX BOARD



				  By: ___________________________________
					  Thomas W. Hammond, Jr., Chairman
A true copy,

Attest: ____________________________
	               Clerk of the Board

 Pursuant to G.L. c. 58A, § 6, an application for abatement is deemed denied when a board of assessors fails to act on the application within three months of its filing. Three months "means three calendar months." G.L. c. 4, § 7, Nineteenth; see also Berkshire Gas Company v. Assessors of Williamstown, 361 Mass. 873 (1972). Therefore, the appellant's application for abatement was deemed denied on April 30, 2007. See also The Merry Hill Corp., Inc. v. Assessors of Concord, Mass. ATB Findings of Fact and Reports 2007-1232, 1233 (ruling that a calendar month means "'the time from any day of such a month to the corresponding day (if any; if not to the last day) of the next month.'") (citation omitted). 
 The corporation was organized under the name of Center for Study of Institutional Alternatives, Inc., but later changed its name to Center for Human Development.  

ATB 2010-501