Can a nonprofit economic development corporation claim a North Carolina property tax exemption on raw, unimproved land it owns for future redevelopment?

Plain-English summary

The Charlotte/Mecklenburg Development Corporation (CMDC) owned a parcel known as the Wilkinson property. CMDC asked Hamlin Wade for an opinion on whether the property qualified for ad valorem tax exemption under G.S. § 105-278.7, the statute that exempts buildings and adjacent land used by qualifying nonprofit, educational, scientific, literary, or charitable organizations. The property had no buildings, or what remained was scheduled for demolition.

Senior Deputy AG Reginald Watkins and Assistant AG Alexandra Hightower said no. They did not even reach the question whether CMDC itself qualified as a charitable organization, because the property failed two other independent requirements.

First, the use test. G.S. § 105-278.7 exempts property only when it is "wholly and exclusively used" by the qualifying owner for the exempt purpose. Odd Fellows v. Swain (1940) established that the exemption rationale is to keep property out of the competitive commercial field. Rockingham County v. Elon College (1941) refused exemption for a college's downtown office building even though rents were used for educational purposes, because the building competed with other rental properties. Town of Warrenton v. Warren County (1939) reached the same conclusion for a town-owned hotel operated at a loss. The taxing authority does not turn on profit; it turns on the use. Unimproved property held for redevelopment was not in active charitable use.

Second, the building-or-adjacent-land test. The statute exempts only "buildings, the land they actually occupy, and additional adjacent land necessary for the convenient use of any such building." The 1969 AG opinion at 40 N.C.A.G. 787 (concerning the Forestry Foundation) had emphasized this point: the statute's "clear insistence" is to exempt only buildings, the land buildings occupy, and adjacent convenient land. In re Forestry Foundation (1979) had denied exemption to forest land outside the Foundation's physical-plant locations. Southview Presbyterian Church (1983) granted exemption for 15 acres of a 20-acre tract used for neighborhood recreation contiguous to the church's buildings, but expressly distinguished cases where the property had no related buildings. CMDC's Wilkinson property had no buildings, so it could not satisfy this geometric requirement.

The AG also reaffirmed the background canons: the general rule is liability to taxation (United Brethren v. Commissioners), exemptions are strictly construed (State v. Whitehurst), and the property owner has the affirmative burden of proving eligibility (In re Appeal of Church of the Creator; G.S. § 105-282.1).

Currency note

This opinion was issued in 2002. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. The charitable property tax exemption framework in Article 12 of Chapter 105 has been amended periodically, and economic-development-corporation jurisprudence has continued to develop. Anyone currently evaluating whether a redevelopment parcel qualifies for property tax exemption should consult current G.S. § 105-278.7 and recent Property Tax Commission and appellate decisions.

Background and statutory framework

The statute's structure. G.S. § 105-278.7(a) lists requirements: wholly owned by a qualifying agency under subsection (c), wholly and exclusively used for an exempt purpose. Subsection (c) lists qualifying agencies, including charitable associations and nonprofit community organizations. Subsection (e) permits incidental public use of a building or facility without losing exemption.

The two-stage test. Cases interpreting the statute generally separate the analysis into (1) whether the owner is a qualifying entity, and (2) whether the property itself meets the use and location requirements. The 2002 opinion took the unusual step of skipping the first question and ruling on the second alone, because the property could not satisfy the second test under any reading.

Strict construction canon. United Brethren v. Commissioners (1894) is the foundational North Carolina decision that property tax exemption statutes get strict construction. State v. Whitehurst (1937) tempered the rule to mean exemptions cover whatever clearly falls within the statute's language but no more. The taxpayer bears the affirmative burden of fitting within that scope.

Why use, not profit, controls. Odd Fellows v. Swain (1940) framed the rationale as taking property out of the "competitive field of commercial activity." Rockingham County v. Elon College (1941) sharpened it: even when an exempt entity owns income property and dedicates the income to exempt purposes, the property competes with other rental property in the same business. Town of Warrenton (1939) and Board of Financial Control v. Henderson County (1935) applied the same logic to government-owned property.

The unimproved-land question. Unimproved tracts held for future development are functionally similar to the Forestry Foundation's forest land in In re Forestry Foundation. They sit outside the building-or-adjacent-land test. Southview Presbyterian Church (1983) is the leading authority for exempting unimproved land, but that case required physical contiguity to the church's actual buildings and an active use furthering the church's mission. A vacant redevelopment parcel does not fit either condition.

In re Appeal of Mecklenburg County (1984) distinguished. The taxpayer in CMDC's situation had cited Mecklenburg County for the proposition that property used by an agent of the owner could still be in "exclusive use" by the owner. The AG distinguished that case as involving personal property used by a contractor doing research the nonprofit was organized to perform, where the owner retained control. Real property held for future redevelopment was not analogous.

Common questions

Q: Could CMDC have qualified if it built something on the property?

A: That would have shifted the analysis. The statute exempts buildings, the land they occupy, and convenient adjacent land. If CMDC had constructed a building used wholly and exclusively for its charitable purposes (assuming CMDC was charitable for statutory purposes), the building and necessary adjacent land could have qualified. The 2002 opinion did not opine on what new construction would have been enough.

Q: What about land being held during a renovation or rebuild?

A: The opinion did not address transitional uses. A property that lost exempt status because buildings were demolished pending replacement might have a stronger claim than one acquired purely for future development. Resolution would depend on the facts and current case law.

Q: Does this opinion mean economic development corporations can never get property tax exemption?

A: No. The opinion addressed one specific property of one specific corporation. An economic development corporation that owned a building used wholly and exclusively for its work could qualify if it also met the charitable-organization test under subsection (c). The 2002 opinion did not reach that question.

Q: Who has the burden of proof in an exemption dispute?

A: The property owner claiming exemption. G.S. § 105-282.1 and In re Appeal of Church of the Creator put the burden on the taxpayer. The county tax office's denial stands unless the taxpayer affirmatively establishes eligibility.

Citations

Statutes:
- N.C.G.S. § 105-278.7 (property tax exemption for educational, charitable, scientific, literary, and similar purposes)
- N.C.G.S. § 105-282.1 (procedures for claiming exemption; burden of proof)

Cases:
- In re Appeal of Church of the Creator, 102 N.C. App. 507, 402 S.E.2d 874 (1991) (burden on taxpayer to establish eligibility)
- United Brethren v. Commissioners, 115 N.C. 489, 20 S.E. 626 (1894) (strict construction of tax exemptions; liability is the general rule)
- State v. Whitehurst, 212 N.C. 300, 193 S.E. 657 (1937) (strict construction does not mean narrow construction; only excludes what does not clearly fit)
- Odd Fellows v. Swain, 217 N.C. 632, 9 S.E.2d 365 (1940) (exemption rationale is withdrawal from competitive commercial activity)
- Rockingham County v. Elon College, 219 N.C. 342, 13 S.E.2d 618 (1941) (income-producing office building not exempt even when rents fund educational purposes)
- Town of Warrenton v. Warren County, 215 N.C. 342, 2 S.E.2d 463 (1939) (town-owned hotel competes with private hotels and is not exempt)
- Board of Financial Control v. Henderson County, 208 N.C. 569, 181 S.E. 636 (1935) (same principle)
- In re Forestry Foundation, 296 N.C. 330, 250 S.E.2d 236 (1979) (forest land outside organizational facilities not exclusively used)
- In re Appeal of Southview Presbyterian Church, 62 N.C. App. 45, 302 S.E.2d 298 (1983) (unimproved land contiguous to and used in furtherance of church purpose is exempt)
- Cemetery, Inc. v. Rockingham County, 273 N.C. 467, 160 S.E.2d 293 (1968)
- In re Appeal of Mecklenburg County, 69 N.C. App. 133, 316 S.E.2d 330 (1984) (personal property in exclusive use by owner through contractor)
- 40 N.C.A.G. 787 (1969) (AG opinion: statute exempts only buildings, land they occupy, and convenient adjacent land)

Source

• Landing page: https://ncdoj.gov/opinions/ad-valorem-tax-exemption-eligibility-charlotte-mecklenburg-development-corporation/

Original opinion text

(a) Buildings, the land they actually occupy, and additional adjacent land necessary for the convenient use of any such building shall be exempted from taxation if wholly owned by an agency listed in subsection (c), below, and if: (1) Wholly and exclusively used by its owner for nonprofit educational, scientific, literary or charitable purposes …

(c) The following agencies, when the other requirements of this section are met, may obtain property tax exemption under this section:

(1) A charitable association or institution …

Hamlin L. Wade
February 5, 2002
Page 2

(7) A nonprofit community or neighborhood organization. . . .

(e) The fact that a building or facility is incidentally available to and patronized by the general public, so long as there is no material amount of business or patronage with the general public, shall not defeat the exemption granted by this section.

A property owner claiming exemption or exclusion has the affirmative burden of establishing the eligibility of his property. G.S. § 105-282.1; In re Appeal of Church of the Creator, 102 N.C. App. 507, 402 S.E.2d 874 (1991).

The general rule is liability to taxation, and that all property shall contribute its share to the support of the government which protects it. Exemption from taxation is exceptional. It needs no citation from reiterated precedents that such exemptions should be strictly construed, and that if we had any doubts (which we have not) they should be resolved in favor of liability to taxation.

United Brethren v. Commissioners, 115 N.C. 489, 497, 20 S.E. 626, 627 (1894).

"By the rule of strict construction, however, is not meant that the statute shall be stintingly or evenly narrowly construed … but it means that everything shall be excluded from its operation which does not clearly come within the scope of the language used." State v. Whitehurst, 212 N.C. 300, 303, 193 S.E. 657, 659 (1937) (internal citations omitted).

It appears that it is not necessary to address the issue of whether CMDC will qualify as a charitable organization under G.S. § 105-278.7 because the property itself fails to qualify on two other grounds.

First, the statute only exempts property "used" wholly and exclusively for charitable purposes. As explained in Odd Fellows v. Swain, 217 N.C. 632, 638, 9 S.E.2d 365, 368 (1940):

Property held for any of these purposes is supposed to be withdrawn from the competitive field of commercial activity, and hence it was not thought violative of the rule of equality or uniformity, to permit its exemption from taxation while occupying this favored position. But when it is thrust into the business life of the community, it loses its sheltered place, regardless of the character of the owner, for it is then held for profit or gain.

In Rockingham County v. Elon College, 219 N.C. 342, 13 S.E.2d 618 (1941) the Supreme Court elaborated on this idea. The college was claiming exemption for a three story office building because the rents from the building were used exclusively for educational purposes. Denying the exemption, the court noted:

[i]t is the use of property other than in private competitive business that justifies its exemption from taxation. This is the rationale of all the decisions on the subject. Those who are required to pay taxes on their property are deserving of equal consideration. Their burden is made heavier whenever property of any kind is withdrawn from the field of taxation. It is difficult for the owners of other rental properties to understand why their buildings should be taxed and the office building of their neighbor granted an exemption. They are competitors in the same kind of business, and they look to the same government for protection. They pay their share of the public cost incurred for fire protection, police protection, streets and sidewalks, health and sanitation and for the various facilities and instrumentalities of government which are maintained by the community for the common good. The Constitution declares that those in the same class shall be treated alike.

Id. at 346.

Although the language of Odd Fellows v. Swain seems to indicate the exemption will turn on whether the property is susceptible of showing a profit, the courts have not analyzed the cases in that way. In Town of Warrenton v. Warren County, 215 N.C. 342, 2 S.E.2d 463 (1939) the Town of Warrenton had purchased a hotel, not for gain, but to protect its investment in the property. The Town actually incurred a loss on the operation of the hotel. The court (citing Board of Financial Control v. Henderson County, 208 N.C. 569, 181 S.E. 636 (1935)) said: "If a municipal corporation can go into a rental business and escape taxation, it would have a special privilege not accorded to others who are in a like business."

Second, the property of CMDC is not exempt because the statute contemplates that the only property which will be exempt is the buildings and land they occupy used by the charity for its purposes. All of the reported cases which were presented with the question apply the statute or its predecessors to property in physical proximity to the buildings in which the charitable, educational or religious entity actually carries out its mission. In re Forestry Foundation, 296 N.C. 330, 250 S.E.2d 236 (1979) denied exemption to forest land in Jones and Onslow County on the basis that it was not exclusively used for the foundation's purpose. While the court did not undertake to determine whether it fit within the location requirement, the Attorney General's opinion rendered in that matter (40 N.C.A.G. 787 (1969)) did note that "[f]urther difficulty in sustaining the exemption of the Foundation's land in Jones County arises because of the clear insistence of the statute to exempt only buildings, land occupied by buildings and adjacent land necessary for the convenient use of buildings." (emphasis in the original). CMDC has specified that the property in question has no buildings on it or that any remaining buildings are scheduled to be demolished.

There are several cases dealing with unimproved property; however, in these cases the property is contiguous to the buildings actually used by the charity. In In re Appeal of Southview Presbyterian Church, 62 N.C. App. 45, 302 S.E.2d 298 (1983), the Court of Appeals found that roughly 15 acres of a 20 acre tract were exempt where the property was used for neighborhood recreation and Boy Scout and Girl Scout activities such as campouts which could reasonably be viewed as furthering the beliefs of the church and therefore reasonably necessary for the convenient use of the church. The court also distinguished this case from In re Forestry Foundation and Cemetery, Inc. v. Rockingham County, (273 N.C. 467, 160 S.E.2d 293 (1968)) in that the property in this case was not being put to a commercial use.

That the statute is intended only to apply to the offices or physical plant of a charity is confirmed by subsection (e) of the statute which allows incidental use of a building or facility by the public.

In re Appeal of Mecklenburg County, 69 N.C. App. 133, 316 S.E.2d 330 (1984) cited by the taxpayer in support of exemption, is distinguishable. The property at issue there was personal property owned by the nonprofit corporation, used by a contractor hired by the corporation to do research of the type that the nonprofit was organized to pursue. The case turned on the issue of what constituted "exclusive use" of the personal property by the owner. The court there held that property could still be in exclusive use by an owner where it was actually used on a day to day basis by the owner's agent since the owner still controlled the purpose of its use and its disposition.

In light of the above, our opinion is that the Wilkinson property owned by CMDC is not entitled to an exemption pursuant to G.S. § 105-278.7. We hope the foregoing is helpful.

Sincerely,

Reginald L. Watkins
Senior Deputy Attorney General

Alexandra M. Hightower
Assistant Attorney General

RLW/AMH/sg:5816