vs. ) CASE NO. 81-1143
Respondent. )
Pursuant to notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, R. L. Caleen, Jr., conducted a formal hearing in this case in July 10, 1981, in Ocala, Florida.
For Petitioner: Glenn A. Shuman, Esquire, and
James M. Chapin, Esquire
For Respondent: G. P. Waldbart, Esquire
Whether petitioner is a "charitable institution" within the meaning of Section 212.08(7)(c)3., Florida Statutes (1979), and thereby entitled to a certificate exempting it from state sales tax.
By application dated March 23, 1981, petitioner Withlacoochee Area Legal Services, Inc. ("WALS") applied to respondent State of Florida Department of Revenue ("Department") for a Consumer Certificate of Exemption (from state sales tax) as a "charitable institution" under Section 212.08(7), Florida Statutes (1979).
By letter dated March 27, 1981, the Department gave notice of its intent to deny the application on grounds that "free legal services [such as provided by WALS] are not considered to be charitable services for the purpose of Florida sales tax exemption."
On April 9, 1981, WALS petitioned the Department to issue the requested Certificate of Exemption or, in the alternative, grant a formal hearing. The Department granted WALS's request for a hearing and forwarded this case to the Division of Administrative Hearings on April 15, 1981.
Pursuant to the parties' request, hearing was then set for July 10, 1981. WALS called Glenn A. Shuman as its witness and offered Petitioner's Exhibit 1/ Nos. 1 through 11 into evidence. The Department called David Linn as its witness and offered Respondent's Exhibit 1/ Nos. 1 through 7 into evidence.
The parties filed post-hearing proposed findings of fact by August 10, 1981. Testimony at hearing was preserved; neither party requested its transcription.
This case involves a question of law, not of fact. The type and extent of legal services provided by WALS are not in dispute the only issue is whether these services are "charitable services" within the meaning of Section 212.08(7)(c)3. and implementing Department rules.
Based on the uncontroverted evidence presented at hearing, the following facts are determined:
FINDINGS OF FACT I.
Petitioner Withlacoochee Area Legal Services, Inc. ("WALS"), is a Florida not-for-profit corporation. It was formed in March, 1980, for the purpose of providing free legal services to indigent persons within Marion, Sumter, Hernando, and Citrus Counties. 2/ It operates offices in Ocala, Brooksville, Inverness, and Bushnell. (Testimony of Shuman; P-1)
II.
Its Source of Fund
WALS is funded primarily (over 90 percent) by grants from Legal Services Corporation, a nonprofit corporation which administers a nationwide legal assistance program. The Legal Services Corporation ("Corporation") was created by federal law, 42 U.S.C. 2996, et. seq., because of, inter alia:
[A] need to provide equal access to the system of justice in our nation for individuals who seek redress of grievance;
. . . a need to provide high qual- ity legal assistance to those who would be otherwise unable to afford adequate legal counsel . . .;
42 U.S.C. 2996. Congress concluded that "providing legal assistance to those who face an economic barrier to adequate legal counsel will serve best the ends of justice and assist in improving opportunities for low-income persons "
Id. (Testimony of Shuman; P-3.)
The balance of WALS funding (less than 10 percent) is provided by court-filing fees; by separate ordinance, the four counties have designated a
portion of court-filing fees for use in providing legal assistance to indigents. WALS also receives donations consisting of cash, property, and services. (Testimony of Shuman; P-2).
III
Its Operations
WALS provides free legal assistance in civil matters to low-income persons. As a condition to receiving Legal Services Corporation funding, it must comply with regulations issued by the Corporation. These regulations, among other things, set client eligibility criteria and prohibit WALS from engaging in certain activities. 45 C.F.R. 1200, et seq. For example, to be eligible, clients cannot have annual incomes that exceed 125 percent of the poverty threshold defined by the office of Management and Budget. 45 C.F.R. 1611.3 3/ WALS may not use Corporation funds to provide assistance in criminal proceedings, 45 C.F.R. 1613.3, or to support or promote political activities. 45
C.F.R. 1608. (Testimony of Shuman; P-4)
WALS represents its low-income clients in a variety of disputes involving landlords and tenants, domestic relations, child support, public housing, food stamps, and other welfare services. The major portion of WALS legal assistance is provided for the purpose of enabling low-income clients to obtain physical necessities such as food, clothing, medical aid, and shelter. WALS does not directly provide clients with these physical necessities; rather, its legal services--when successful--provide clients with funds to purchase such necessities. (Testimony of Shuman; Prehearing Stipulation.)
Examples are numerous. WALS helps clients regain shelter when they are wrongfully ousted by eviction, foreclosure, or spouse abuse. With WALS help, the needy have received food stamps and public aid, the elderly and disabled have received social security payments. WALS has forced hospitals to comply with federal requirements that a portion of their medical services be provided-- without payment--to the needy. Although not its primary purpose, WALS frequently refers clients to other private and public agencies which can provide direct assistance such as food, shelter, clothing, and medical service. (Testimony of Shuman.)
WALS provides legal services which are often indispensable. If they were not provided, many low-income persons would be deprived of, or unable to obtain physical necessities. (Testimony of Shuman).
WALS legal services are equally available to persons meeting eligibility criteria without regard to race, color, religion, sex, national origin, age, or handicap. (Testimony of of Shuman; P-6).
IV.
Prior Practice of the Department
Since 1949, the statutory language granting exemptions from state sales tax to nonprofit charitable institutions has remained virtually unchanged. Laws of Florida, Chapter 26319, Section 8, 1949; Section 212.08(7), Florida Statutes (1979). The Department has granted Consumer Certificates of Exemption (from sales tax) to 19 legal services corporations providing services identical or
similar to those provided by WALS. Never before has it denied an application for sales tax exemption submitted by a legal service corporation. Indeed, the immediate predecessor to WALS, Marion County Legal Aid, Inc. (which provided the same services as now provided by WALS), was granted a sales tax exemption certificate by the Department. (Testimony of Shuman; P-7, P-11).
V.
Adoption of 1980 Rule Amendment
The Department justifies its abrupt departure--in this case--from its prior practice (of granting exemptions to legal services corporations) by relying on Rule 12A-1.01(4)(g), Florida Administrative Code, a rule amendment which it adopted in 1980. The publicly announced purpose of that amendment, was:
[T]o put the public on notice that certain factors . . . may be considered in deter- mining whether a nonprofit corporation with physical facilities in Florida is providing the kind of charitable services in a percentage that qualifies it for sales tax exemption under Section 212.08(7)(c)3., Florida Statutes. (R-7.)
(Testimony of Linn R-7.)
The Department's economic impact statement, which preceded the rule's adoption, estimated that the rule would have no economic impact on affected persons. The rule was described as "a technical amendment to an existing rule .
. .[which] adds clarification to the definition of 'charitable institutions.'" (R-7.) The public notices which preceded the rule's adoption portrayed it only as a clarifying technical amendment; they did not announce that its adoption would alter the Department's long established interpretation that legal services corporations were exempt charitable institutions under Section 212.08(7), Florida Statutes (1979). When the rule was adopted, neither the Governor and Cabinet, as head of the Department, nor affected persons were notified that the new rule signaled a change in Department policy; that its adoption would prevent future legal services corporations from receiving sales tax exemption certificates under Section 212.08(7). (Testimony of Shuman, Linn; R-7.)
The failure to announce the effect of the proposed rule [Section 12A- 1.01(4)(g)] on future applications by legal services corporations is explained by the circumstances which led to its adoption. The rule was enacted in response to a petition for rule-making filed with the Department by one or more public-housing tenant associations. 4/ The petitioning association(s) sought rule making to rectify several recent denial by the Department of sales tax exemptions. The association(s) sought to expand, not narrow, the category of charitable institutions which could qualify for exemptions under Section 212.08(7). (Testimony of Shuman.)
Legal services corporations, such as WALS, now provide legal services to low-income individuals residing in every county in Florida. For this reason, it is unlikely that there will be many new legal services corporations formed in the future. Since the Department concedes that it has no authority to revoke an exemption certificate, the Department's new rule can apply only prospectively. If the rule-interpretation urged by the Department is accepted (assuming no
changes in the Department's enabling legislation), most Florida legal services corporations will continue to be exempt from Florida sales tax; it will only be those few which apply (such as WALS) after the adoption of Rule 12A-1.01(4)(g) that will be denied the exemption and subjected to sales tax. (Testimony of Shuman).
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the parties and subject matter of this proceeding. Section 120.57, Florida Statutes (1979).
Section 212.08(7)(a), Florida Statutes (1979), grants "nonprofit charitable institutions" an exemption from state sales and use tax.
There shall be exempt from the tax imposed by this chapter [Chapter 212, Florida Statutes] articles of tangible personal property sold or leased . . . to . . . nonprofit charitable institutions . . . when used in carrying on their customary
. . . nonprofit charitable . . . activities
. . . . ) Emphasis supplied.) Id.
"Nonprofit charitable institutions" are defined to include: [O]nly nonprofit corporations operating
physical facilities in Florida at which are provided charitable services, a reasonable percentage of which shall be without cost
to those unable to pay. (Emphasis supplied.) Section 212.08(7)(c)3., Florida Statutes (1979).
In 1980, the Department adopted a rule amendment, enumerating six factors which may be considered in determining whether a nonprofit Florida corporation is providing the kind of charitable services that qualify it for the sales tax exemption granted by Section 212.08(7)(a). That rule, Section 12A- 1.01(4)(g), Florida Administrative Code, provides in pertinent part:
Charitable institutions shall mean only nonprofit corporations operating physical facilities in Florida at which are provided charitable services, a reasonable percentage of which shall be without cost to those unable to pay.
These factors may be considered in determining whether a nonprofit corporation with physical facilities in Florida is providing the kind of charitable services in a percentage that qualifies it for a sales tax exemption under Section 212.08 (7)(c)(3), F.S., however, no one factor shall be considered conclusive:
It has qualified as a charitable organization under IRC Section 501(c)(3), 1954.
It provides physical necessities such as food, clothing, or shelter, a reasonable percentage of which is without cost to those unable to pay.
It provides medical aid for the relief of disease, injuries, or disabili- ties, a reasonable percentage of which is without cost to those unable to pay.
Its services are not primarily limited to members of or subscribers to the nonprofit corporation but are provided
to the public, regardless of race, religion, age, sex, or natural [sic] origin.
Its primary function is charitable, not business, social, educational, civic, religious, historical, fraternal, sororal, cooperative, recreational, or political.
If its charitable services consist primarily of referral services to the poor, it may be considered to be an "institution" if it has provided those services contin- uously for at lest 3 years immediately preceding its application.
WALS contends that under the foregoing statute and rule, it is exempt from state sales tax; the Department disagrees. In interpreting tax exemption statutes, certain rules of construction apply.
One seeking exemption from a tax statute has the burden of establishing entitlement to the exemption, 31 Fla. Jur., Taxation, Section 148. All tax exemptions are in the nature of special privileges or favors; thus, although doubtful language in statutes imposing taxes is ordinarily resolved in favor of the tax payer, Maas Brothers, Inv. v. Dickinson, 195 So.2d 193 (Fla. 1967), the reverse is applicable when construing exemptions from taxation.
Miami Battlecreek v. Lummus, 192 So. 211, 216 (Fla. 1939); Department of Revenue
v. Skop, 383 So.2d 678 (Fla. 5th DCA 1980); Haines v. St. Petersburg Methodist Home, 173 So.2d (Fla. 2d DCA 1965). Tax exemption provisions are strictly construed, and doubt is resolved in favor of the taxing authority. See, 31 Fla. Jur., Section 146. However, this rule of strict construction does not require that the narrowest possible meaning be given to words descriptive of a tax exemption. Johnson v. Presbyterian Homes of Synod of Florida, Inc., 239 So.2d 256, 262 (Fla. 1970). In Johnson, supra, the Florida Supreme Court construed a tax exemption statute and held:
A fair and reasonable interpretation must be made of all laws, with due regard for the ordinary acceptation of the language employed and the object sought to be accomplished thereby.
* * *
It is fundamental that a statute should be given a reasonable interpretation. No literal interpretation should be given which leads to an unreasonable and ridiculous conclusion. Id. at 262, 263.
Rules of statutory construction apply to administrative rules, as well as statutes. See, State v. Atlantic Coast Line R. Co., 47 So. 969, 980 (Fla. 1908).
In the past, the Department has consistently found legal services corporation (such as WALS) to be "nonprofit charitable institutions" within the meaning of Section 212.08(7) and has granted them sales tax exemption certificates. It now takes an opposite position based on its adoption of Rule 12A 1.01(4)(g). It urges that the rule is "unambiguous in its description of what constitutes charitable services;" 5/ that "the thrust is directed towards provision of physical needs, whether that be food, clothing, shelter or medical aid in the relief of disease or injury;" 5/ and that WALS (admittedly) does not directly provide such physical necessities to its low income clients.
The Department's position rests on an unreasonably narrow and restrictive interpretation of what constitutes a "charitable institution" within the meaning of Section 212.08(7), Florida Statutes (1979), and Rule 12A- 1.01(4)(g). Contrary to the Department's contention, the rules does not expressly state or reasonably imply that, in order to qualify for the exemption, a corporation must provide physical necessities directly to needy recipients. The rule is not so plain and unambiguous as to fix the intent of the rule-making body; hence, resort to the rules of statutory construction is necessary. 30 Fla. Jur., Statutes, Section 79.
The purpose of the rules of construction is to ascertain the legislative intent and carry it into effect. State v. Atlantic Coast Line R. Co., supra. Here, since it is primarily the meaning of the Department's rule that is at issue, it is the intent of the Governor and Cabinet 6/ --at the time they adopted the rule--which must be ascertained. Such intent may be gleaned from the circumstances surrounding the rule's adoption. See, Rinker Materials Corp. v. North Miami, 286 So.2d 552 (Fla. 1973). Here, the circumstances which led to the rule's adoption, together with its stated purpose, do not indicate an intent by the Governor and Cabinet to reverse past Department practice and policy concerning eligibility of legal services corporations for sales tax exemptions. 7/ Neither were affected persons fairly put on notice that the rule would have such an effect.
Since neither the statute, Section 212.08(7), nor the rule, Section 12A-1.01(4)(g), provide precise definitions of "charitable institutions" or "charitable services," it is presumed that the use of these terms is in accordance with the meaning defined by the courts. See, 30 Fla. Jur., Statutes Section 95.
In Porter v. Baynard, 28 So.2d 890, 894 (Fla. 1946), the Florida Supreme Court defined "charity" as:
[A] gift, to be applied consistently with existing laws, for benefit of indefinite number of persons, either by bringing their minds or hearts under influence of education or religion, relieving their bodies from disease, suffering or constraint, assisting them to establish themselves in life, erect- ing or maintaining public buildings or works, or otherwise lessening burdens of government. (Emphasis supplied).
In Haines v. St. Petersburg Methodist Home, Inc., supra at 181, the district court of appeal defined "charitable" as devoting:
[A] gift to the poor or positive steps taken to relieve distress and suffering of those
unable to help themselves. (Emphasis supplied.) See, also, 15 Am. Jur.2d, Charities, Section 2-4.
The Department's interpretation--that "charitable services" require the direct provision of physical necessities to the needy and exclude professional services used to obtain such necessities--is incompatible with these judicial definitions. It cannot be denied that WALS services help the needy "establish themselves in life," Porter, supra, and represent "positive steps taken to relieve distress and suffering of those unable to help themselves," Haines, supra. The Department's interpretation confines charity to mere almsgiving, to the direct relief of poverty and distress; it is the "narrowest possible" interpretation, Johnson, supra, is required neither by statute nor rule, and lacks a record basis. 8/ It is a misapplication of the rules of statutory construction and must therefore be rejected.
Lastly, the rule interpretation urged by the Department is inconsistent with the sixth enumerated factor in Rule 12A 1.01(4)(g). That factor allows referral services, under specified conditions, to qualify as tax exempt charitable institutions. Referral services do not provide direct physical necessities to the needy; they are, by their nature, a service which provides necessities indirectly, i.e., by the intervention of others, to the poor. Rule 12A-1.01(4)(g)6, Florida Administrative Code.
Thus, by rule, the Department has recognized that the phrase, "charitable services," as used in Section 212.08(7)(c)3., encompasses services to the needy as well as the direct provision of physical necessities. Assuming the validity of this interpretation, the Department may not, by rule, limit or amend this statutory phrase when applied to legal services corporations. See, Department of Health v. Florida Psychiatric Society, 382 So.2d 1280 (Fla. 1st DCA 1980). If possible, an agency's rule should be construed and applied so as to conform it to statutory provisions. State v. Atlantic Coast Line R. Co., supra.
Accordingly, it is concluded that WALS is a "charitable institution" within the meaning of Section 212.08(7), Florida Statutes (1979), and Rule 12A- 1.01(4)(g), Florida Administrative Code. It is a charitable organization recognized by the Internal Revenue Service; its professional services enable the needy to obtain physical necessities such as food, clothing, shelter, and medical aid. Its services are available to the needy, regardless of race, religion, age, sex, or national origin; and its primary function is charitable. Id. The Department admits the beneficial purpose of such legal services programs:
[T]hat programs conducted by . . . [WALS] are highly regarded and encouraged in the American community. They serve to alle- viate the realistic and practical problems that confront those individuals of low income. The social problems often con- fronting the American public make us espe- cially aware of these problems and they
remain a sympathetic issue. 9/
But for the existence of such programs, the needy and disadvantaged would be denied access to the American legal system; rights conferred upon them by law would not be vindicated, and their livelihood would be subject to the whim or caprice of others.
To the extent findings of fact submitted by the parties are incorporated herein, they are adopted; otherwise they are rejected as unsupported by the evidence or irrelevant to resolution of the issues presented.
That the Department enter a final order granting WALS the requested Consumer Certificate of Exemption.
DONE AND RECOMMENDED this 17th day of September, 1981, in Tallahassee, Florida.
R. L. CALEEN, JR. Hearing Officer
Filed with the Clerk of the Division of Administrative Hearings this 17th day of September, 1981.
2/ WALS is the successor to Marion County Legal Aid, Inc., and Tri-County Legal Aid Society, Inc., the two legal aid corporations which had been serving these four counties.
3/ Other factors are also considered, such as income prospects, assets, cost of obtaining private legal representation, and the consequences if legal assistance is denied.
4/ Interestingly, one or more legal services corporations represented the petitioning tenant association(s).
5/ Respondent's Memorandum of Law and Proposed Findings, p. 5.
6/ Sitting as head of the Department of Revenue.
7/ Indeed, the rule interpretation now urged by the Department may well be an unintended result of the adoption of Rule 12A 1.01(4)(g).
8/ No evidence was offered to establish a factual or policy basis underlying the Department's unduly restrictive interpretation of its rule.
9/ Respondent's Memorandum of Law and Proposed Findings, pp. 5 6.
Glenn A. Shuman, Esquire, and James M. Chapin, Esquire
G. P. Waldbart, Esquire Department of Legal Affairs The Capitol, Room LL04 Tallahassee, Florida 32301
