STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

AFFORDABLE HOME OWNERSHIP ) CORPORATION, )

)

Petitioner, )

)

vs. ) Case No. 97-0335

) STATE OF FLORIDA, DEPARTMENT ) OF REVENUE, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to Notice, a formal hearing was held in this case before Larry J. Sartin, a duly designated Administrative Law Judge of the Division of Administrative Hearings, on April 1, 1997, in

Lake City, Florida.

APPEARANCES

For Petitioner: Rufus L. Smith

Executive Director

Affordable Home Ownership Corporation Post Office Box 7347

Lake City, Florida 32055

For Respondent: Kevin J. Odonnell

Assistant General Counsel Department of Revenue Post Office Box 6668

Tallahassee, Florida 32314-6668 STATEMENT OF THE ISSUE

The issue in this case is whether Petitioner, Affordable Home Ownership Corporation, is eligible for a consumer certificate of

exemption as a charitable institution pursuant to Section 212.08(7)(o), Florida Statutes.

PRELIMINARY STATEMENT

Petitioner, Affordable Home Ownership Corporation, filed an application for a consumer certificate of exemption as a charitable institution pursuant to Section 212.08(7), Florida Statutes, with Respondent, the Department of Revenue. On or about December 16, 1996, Respondent entered a Notice of Intent to Deny informing Petitioner that the application for exemption had been denied.

On or about January 9, 1997, Petitioner filed a pleading titled "Taxpayer Opposing Denial" requesting a formal administrative hearing to contest Respondent's decision. The request for hearing was filed with the Division of Administrative Hearings on January 21, 1997. The matter was assigned to the undersigned.

At the formal hearing, Petitioner presented the testimony of Rufus Smith, Executive Director of Petitioner, and Selvin McGahee, Program Director of Florida Non-Profit Housing, Inc. Petitioner offered seven exhibits, which were accepted into evidence.

Petitioner was to file a copy of Petitioner's exhibit 5 with Petitioner's proposed recommended order, but failed to do so. Respondent called no witnesses. One exhibit was offered by Respondent. The exhibit was accepted into evidence.

No transcript of the hearing was filed. Proposed orders were to be filed on or before April 21, 1997. Both parties filed proposed orders on or before April 21, 1997. Those proposed orders have been fully considered.

FINDINGS OF FACT

1. Petitioner, Affordable Home Ownership Corporation (hereinafter referred to as "AHO"), is a Florida nonprofit corporation.

2. Respondent, the Department of Revenue (hereinafter referred to as the "Department"), is an agency of the State of Florida. Among other things, the Department is charged with responsibility for implementing and administering Florida tax laws, including Chapter 212, Florida Statutes.

3. During 1996, AHO submitted an application for an exemption under Chapter 212, Florida Statutes, as a charitable organization.

4. According to the Articles of Corporation of AHO, its purpose is:

   
   

   1. To raise the economic, educational and social levels of the underprivileged residents of Lake City (Columbia County), Florida, and its trade area, who are substantially underemployed and have low income, by fostering and promoting community-wide interest and concern for the problems of such residents, and to that end;

      
      

      1. Racial tension, prejudice, and discrimination of economic and otherwise may be eliminated;

         
         

      2. Sickness, poverty and crime may be lessened

         and;

         
         

      3. Educational and economic opportunities may

         be expanded among the residents of Lake City (Columbia County), Florida, and its trade area.

         
         

   2. To expand the opportunities available to

      said residents to own, manage, and operate business enterprises in economically underprivileged or depressed areas; to assist said residents and groups in developing management skills necessary for the successful operation of business enterprises; to provide financial support for the successful operation of business enterprises by said residents and to assist said residents in obtaining such financial support from other sources.

      
      

   3. To aid, support and assist by gifts, contributions or otherwise, other corporations, community chests, funds and foundations organized and operated exclusively for charitable, religious, scientific, literary or educational purposes, no part of the net earnings of which inures to the benefit of any private shareholders or individuals, and no substantial part of the activities of which is carrying on propaganda, or otherwise attempting to influence legislation.

      
      

   4. To do any and all lawful activities which may be necessary, useful or desirable for the furtherance, accomplishment, fostering or attainment of the foregoing purposes, either directly or indirectly, and either along or in conjunction or cooperation with others, whether such others be persons or organizations of any kind or nature such as corporations, firms, associations, trust, institutions, foundations, or governmental bureaus, departments or agencies.

      
      

5. The Department conceded in its proposed recommended order that AHO meets the requirement for exemption in this matter that it be designated a Section 501(c)(3) charitable organization by the United States Internal Revenue Service.

6. The services provided by AHO are provided without charge to its clients. Those services include recruiting families who are qualified for federal home loans who are committed and able to provide their time and labor to construct their own housing. AHO

   brings several such families together to share the labor and effort necessary to build housing for each family. Each family shares in the labor of constructing the home of each other family in the group.

7. AHO assists the families prepare mortgage applications necessary to receive federally subsidized loans and provides credit counseling necessary for families to qualify for such loans.

8. Once a family qualifies for a loan, AHO assists in the selection of house plans, the selection of construction materials, the organization of the family groups, teaches general construction techniques and assists with all aspects of completing construction of housing. AHO also assists in bookkeeping necessary to administer mortgage loans.

9. AHO does not act as a general contractor. Nor does AHO provide construction labor or materials, or the funds necessary for construction.

10. AHO receives administrative grants through the state's Housing Finance Agency as a Community Housing Development Organization. AHO's expenses in providing its services are entirely expenses of the organization. AHO's total expenditures are for its day-to-day operations. No funds are expended directly for clients.

    CONCLUSIONS OF LAW

    
    

11. The Division of Administrative Hearings has jurisdiction of the parties to, and the subject matter of, this proceeding. Section 120,57, Florida Statutes (1996 Supp.).

12. Section 212.084, Florida Statutes, authorizes the Department to issue tax exemption certificates valid for five years to qualified institutions, organizations, and individuals.

13. A tax exemption certificate may be issued by the Department to any institution, organization or individual that constitutes a religious, charitable, scientific, educational, or veterans' institution or organization. Section 212.08(7)(o), Florida Statutes.

14. In this matter, AHO is seeking a tax exemption certificate as a "charitable institution." A "charitable institution" is defined in Section 212.08(7)(o)2.b., Florida Statutes, in pertinent part, as follows:

    b. "Charitable institutions" means only nonprofit corporations qualified as nonprofit pursuant to s. 501(c)(3), United States Internal Revenue Code of 1954, as amended, and other nonprofit entities, the sole or primary function of which is to provide, or to raise funds for organizations which provide, one or more of the following services if a reasonable percentage of such service is provided free of charge, or at a substantially reduced cost, to persons, animals, or organizations that are unable to pay for such service:

    
    

    1. Medical aid for the relief of disease, injury, or disability;

       
       

    2. Regular provision of physical necessities such as food, clothing, or shelter;

       
       

    3. Services for the prevention of or rehabilitation of persons from alcoholism or drug abuse; the prevention of suicide; or the alleviation of mental, physical, or sensory health problems;

       
       

    4. Social welfare services including adoption placement, child care, community care for the elderly, and other social welfare services which clearly and substantially benefit a client population which is disadvantaged or suffers a handicap;

       
       

    5. Medical research for the relief of disease, injury, or disability;

       
       

    6. Legal services; or

       
       

    7. Food, shelter, or medical care for animals or adoption services, cruelty investigations, or education programs concerning animals;

    and the term includes groups providing volunteer staff to organizations designated as charitable institutions under this

    sub-subparagraph; nonprofit organizations the sole or primary purpose of which is to coordinate, network, or link other institutions designated as charitable institutions under this sub-subparagraph with those persons, animals, or organizations in need of their services; and nonprofit national, state, district, or other governing, coordination, or administrative organizations the sole or primary purpose of which is to represent or regulate the customary activities of other institutions designated as charitable institutions under subsubparagraph. . . .

    
    

15. Exemptions under Section 212.08(7)(o), Florida Statutes, are to be strictly construed against a taxpayer seeking such an exemption. See Capital City Country Club v. Tucker, 613 So.2d 448,

    (Flat 1993); Szabo Food Services, Inc. v. Dickenson, 286 So.2d 529 (Flat 1973); and Asphalt Pavers. Inc. v. Department of Revenue, 584 So.2d 55 (Flat 1.t DCA 1991).

16. AHO had the burden of proving in this case that it comes within the definition of a "charitable institution" as defined in Section 212.08(7)(o)2.b., Florida Statutes. See Department of Banking and Finance v. Osborne Stern and Company, 670 So.2d 932,

    934 (Flat 1996).

    
    

17. In order to qualify for an exemption under Section 212.08(7)(o)2.b., Florida Statutes, AHO was required to prove at hearing:

    1. It is either a Section 501(c)(3) charitable organization or other nonprofit organization; and

    2. It's sole or primary function is to provide, or raise funds for organizations which provide at least one of the seven services specifically designated in Section 212.08(7)(o)2.b., Florida Statutes, and a reasonable percentage of the service is provided free of charge, or at a substantially reduced cost to the recipients of the service who are unable to pay for the service.

    
    

18. The Department conceded that AHO meets the first requirement for exemption. AHO did not prove, however, that it meets the second requirement.

19. Rule 12A-1.001(3)(g)3.e., Florida Administrative Code, provides the following definition of "sole or primary function":

    "Sole or primary function" means that a charitable organization, excluding hospitals, must establish and support its function as providing or raising funds for services as outlined in subparagraphs 1. and 2. above, by expending in excess of 50.0 percent of the charitable organization's operational expen- ditures towards qualified charitable services', as defined in subparagraph 2.a. - g., within the chari- table institution's most recent fiscal year.

    
    

20. Petitioner failed to offer proof that, during the most recent fiscal year, in excess of 50.0 percent of its expenditures were made to provide one of the seven services designated in Section 212.08(7)(o)2.b., Florida Statutes, or toward raising funds for organizations which provide at least one of the seven services.

21. The evidence in this case proved that 100 percent of AHO's expenditures have been made solely for its administrative costs. It did not expend any of its funds directly to provide shelter or any of the other seven designated services. Nor did it

    pay any of its funds to any other organization providing shelter or any of the other seven designated services.

22. The services provided by AHO to its clients, while meritorious, do not constitute the specific services specified in Section 212.08(7)(o)2.b., Florida Statutes. AHO has not, therefore, proved that it's "sole or primary function" is the provision of

charitable service.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of Law, it is

RECOMMENDED that a Final Order be entered by the Department of Revenue denying the certificate of exemption sough by Affordable Home Ownership Corporation.

DONE AND ORDERED this 2nd day of June, 1997, in Tallahassee, Leon County, Florida.

LARRY J. SARTIN

Administrative Law Judge

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

(904) 488-9675 SUNCOM 278-9675

Fax Filing (904) 921-6847

Filed with the Clerk of the Division of Administrative Hearings this this 2nd day of June, 1997.

COPIES FURNISHED:

Rufus L. Smith

Executive Director, A.H.O.C.

Affordable Home Ownership Corporation Post Office Box 7347

Lake City, Florida 32055

Kevin J. ODonnell Assistant General Counsel Department of Revenue Post Office Box 6668

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within 15 days from the date of this recommended order. Any exceptions to this recommended order should be filed with the agency that will issue the final order in this case.

Docket for Case No: 97-000335

Orders for Case No: 97-000335