Pursuant to notice, the Division of Administrative Hearings by its duly designated Administrative Law Judge, Mary Clark, held a formal hearing in the above-styled case on March 10, 1997, in Tallahassee, Florida.
For Petitioner: Robert S. Cohen, Esquire
Pennington Culpepper Moore Wilkinson Dunbar and Dunlap PA Post Office Box 10095 Tallahassee, Florida 32302-0095
For Respondent: Kevin J. O’Donnell, Esquire
The issue for determination is whether Petitioner is eligible for a consumer certificate of exemption as a charitable institution pursuant to subsection 212.08(7)(o), Florida Statutes.
On September 22, 1996, Respondent issued its notice of intent to deny Petitioner’s application for renewal of its consumer’s certificate of exemption. Petitioner challenged that denial with a timely request for hearing and this proceeding resulted.
At the hearing the parties presented a joint prehearing stipulation and joint exhibits, received in evidence as joint exhibits # 1-5. Petitioner presented the testimony of its treasurer, Haim Bar-Navon.
The transcript of hearing was filed on March 25, 1997 and the parties filed their proposed recommended orders on April 14 and 15, 1997.
Petitioner, Jewish Federation of Brevard, Inc. (Federation) is an umbrella organization comprised of numerous Jewish organizations from Brevard County, the purpose of which is to benefit the total Jewish population in the county and to
assist the Jewish population worldwide. Its local programs also benefit the non-Jewish community to a certain degree.
There are approximately 200 similar organizations all over the country. They collect contributions which benefit local programs and which are also passed on to the United Jewish Appeal, a separate worldwide organization which funds Jewish social welfare programs and the resettlement of Jewish people.
The United Jewish Appeal is the single largest recipient of the Federation’s contributions. The United Jewish Appeal holds a Department of Revenue Consumer’s Certificate of Exemption.
The Federation is exempt from federal income tax under section 509(a)(1) of the Internal Revenue Code, and has been so exempt since 1975.
Internal Revenue Service Forms 990 (Return of Organization Exempt from Income Tax) for the years 1989-1995 accurately reflect the expenditures of the Federation for those years. At hearing, the Federation’s treasurer, Haim Bar-Navon, further explained the three categories of expenditures: administration of the organization, contributions to United Jewish Appeal and contributions or expenditures for local programs.
The Federation’s administrative expenses include basic costs of operating the organization and raising funds: salaries, rent, office supplies, printing costs and the like. Without question, in all but two years of its operation the Federation spent less than 50 percent of its annual expenditures on administration.
For two years, 1995 and 1996, administrative expenditures were higher than 50 percent. The Federation hoped that by hiring an executive director, rather than depending on its volunteers, it could generate more contributions to disburse to the United Jewish Appeal and to local programs. The hoped-for result was not attained, and after hiring one individual, then another, the Federation has given up that paid position. The resulting excessive administrative costs for 1995 and 1996 were wholly unintended and will not likely reoccur, as the Federation now hires only a single staff person, an office manager, for
$18,300 annually.
The adopted operating budget for 1997 more accurately reflects the past and future break-out of expenditures. This budget reflects total expenditures of $160,000, allocated as follows:
EXPENSES
National Programs
UJA 50,000
Allocations (local [sic] & national) 5,000
Local Programs |
|
Community Relations |
| 8,000 |
Cultural |
| 8,000 |
Educational |
| 2,000 |
Newsletter |
| 14,000 |
Social Services (including | Elderly) | 5,000 |
Scholarships (youth) |
| 10,000 |
Bar/Bat Mitzvah |
| 3,000 |
Youth |
| 2,000 |
Fund Raising |
|
5,000 |
President’s Discretionary | Fund | 2,000 |
Contingency |
| 1,100 |
Administrative |
|
|
|
Accountant |
| 1,100 |
Federation Dues & Fees |
| 1,500 |
Office Employees & Payroll | Taxes | 18,300 |
Office Expenses |
| 14,000 |
Replenish Working Capital |
| 10,000 |
TOTAL EXPENSES 160,000
(Joint exhibit no. 5)
Even if “Fund Raising”, “President’s Discretionary Fund” and “Contingency” are all considered administrative costs, the total is still less than 50 percent of total expenditures, leaving the majority of the funds for “national programs” and “local programs”.
The exact figures for 1996 were not available at the time of hearing and the Federation’s representative could only candidly estimate that administrative costs for that year, when
compiled, would exceed 50 percent. Other accurate data from 1989-1995 are available from the Federation’s forms 900:
Total Revenue | Other UJA Contributions | Local Programs | Adm. Costs | Fund- Raising Costs |
1995 159,504 | 50,000 4,750 | 41,962 | 90,295 | 2,822 |
1994 297,700 | 140,009 8,000 | 40,314 | 77,813 | 13,734 |
1993 213,827 | 108,770 8,000 | 42,765 | 39,601 | - |
1992 173,269 | 90,429 11,650 | 21,971 | 30,530 | - |
1991 209,548 | 118,781 29,960 | 19,375 | 31,970 | - |
1990 152,023 | 81,400 10,065 | 18,261 | 22,127 | - |
1989 128,393 | 70,000 15,363 | 21,512 | 20,380 | - |
(Joint exhibit no. 4)
From this data it is evident that, prior to 1995, administrative costs, including a separate item for “fund raising costs” never approached or exceeded 50 percent of the Federations revenue. More significantly, it is evident that allocations to the United Jewish Appeal (UJA) did approach or exceed 50 percent of the Federation’s revenue prior to 1995. This is significant because, as found in paragraph 3, above, the United Jewish Appeal itself holds a certificate of exemption.
In 1995, and thereafter, allocations to the United Jewish Appeal are substantially less than 50 percent of total revenue. This would not be a problem if the “other” allocations and expenditures for local programs could be determined eligible as “charitable” pursuant to statute and rule. However, they cannot be determined eligible.
Organizations which received the contributions reflected in the “other” category above, and on forms 900, vary from year to year. These are primarily organizations like the United Appeal. Recipients in 1995 included Hillel of Florida, for maintenance of a site for Jewish students at universities in Florida; Hebrew Union College; the Holocaust Memorial Museum in Maitland, Florida; the U.S. Holocaust Museum; Yeshiva University; Sharing Centers of Brevard (North, Central and South); Serene Harbour; Space Coast Early Intervention Center; Ventures in Living; and the Women’s Center. No evidence was provided to establish that these organizations qualify as “charitable” pursuant to section 212.08, Florida Statutes.
“Local programs” also benefit substantially from the Federation each year. The amounts and recipients vary according to the annual budgets, but the 1997 budget total of $52,000.00 is broken out as follows:
Community relations - air time paid to a radio station to broadcast a program, “The World from the Jewish Perspective”;
Cultural - a Holocaust memorial event, a Jewish community festival, a Jewish film festival and occasional lectures;
Educational - workshops for teachers, convention expenses for teachers, and books and materials for a teachers’ resource center;
Newsletter - a publication of news and events to everyone on the Federation’s mailing list, Jewish and non-Jewish;
Social Services - includes services to the elderly;
Scholarships - expenses for Jewish youngsters to attend Jewish camps based on financial statements of need provided by the parents, or for trips to Israel, not based on need;
Bar/Bat Mitzvah - when youths reach age 13 and make their Bar or Bat Mitzvah, $500 each is set aside that they can use towards a trip to Israel;
Youth - two or three social get-togethers per year for students from all of the various temples or congregations in the local area.
There is no evidence that these activities or programs are services described as “charitable” in section 212.08(7), Florida Statutes.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction in this proceeding pursuant to section 120.57(1), Florida Statutes.
The Department of Revenue is authorized pursuant to section 212.084, Florida Statutes, to review and reissue or deny reissuance of sales tax exemptions. Review includes insuring that the individual, institution or organization possessing the certificate is actively engaged in an exempt endeavor described in Chapter 212, Florida Statutes.
The Federation claims that it continues to be entitled to its certificate as a “charitable organization”, pursuant to sub-section 212.08(7)(o), Florida Statutes:
(o) Religious, charitable, scientific, educational, and veteran’s institutions and organizations.—
There are exempt from the tax imposed by this part transactions involving:
...
b. Sales or leases to nonprofit religious, nonprofit charitable, nonprofit scientific, or nonprofit educational institutions when used in carrying on their customary nonprofit religious, nonprofit charitable, nonprofit scientific, or nonprofit educational activities, including church cemeteries;
...
The provisions of this section authorizing exemptions from tax shall be strictly defined, limited, and applied in each category 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:
Medical aid for the relief of disease,
injury, or disability;
Regular provision of physical necessities such as food, clothing, or shelter;
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;
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 hardship;
Medical research for the relief of disease, injury, or disability;
Legal services; or
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, coordinating, 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 this sub-subparagraph.... (emphasis added)
The Federation has the burden of proving its entitlement to the exemption, which exemption is strictly construed. Department of Revenue v. Skop, 383 So.2d 678 (Fla. 5th DCA 1980); Department of Revenue v. Consumer Credit Counseling Service of Florida Gulf Coast, Inc., DOAH case no. 95- 1728 (Final order entered July 31, 1996).
Strictly construing subsection 212.08(7)(o)2.b., the charitable exemption is available to the Federation if it can satisfy two requirements: (1) it is a designated Section
501(c)(3) nonprofit organization by the U.S. Internal Revenue Service, or other nonprofit organization; and (2) its sole or primary function is to provide, or raise funds for organizations which provide at least one of the seven specifically designated services, if 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.
Subsection 212.08(7)(o) does not describe “sole or primary function”; however, the Department of Revenue has provided a definition in rule 12A-1.001(3)(g)3.e., Florida Administrative Code:
“Sole or primary function” means that a charitable institutions, 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 institution’s expenditures towards [referenced charitable concerns], within the charitable institution’s most recent fiscal year.
In order for the Federation to fall within the definition of ”sole or primary function”, it must show that, within its most recent fiscal year, at least 50 percent of its expenditures provided at least one of the seven specifically designated services, or went to organizations which provide at least one of the seven specifically designated services.
The Federation satisfies the first requirement for a charitable organization and it is not disputed that it has the required federal tax status. However, the Federation fails to satisfy the second requirement. Respondent failed to show that over 50 percent of its expenditures in its most recent fiscal year were for providing, or for the raising of funds for organizations which provide, at least one of the seven designated services in subsection 212.08(7)(o)2.b., Florida Statutes.
The programs and organizations supported by the Federation are undeniably worthy; however, those programs for which it expends over 50 percent of its funds do not fall within the strict statutory definition of “charitable” service or organization. Nor does the evidence in this proceeding establish that the Federation is entitled to another type of exemption in section 212.08(7), Florida Statutes, for example, as a religious or educational institution.
That the Department of Revenue enter its final order denying a consumer certificate of exemption to the Jewish Federation of Brevard, Inc.
DONE and ENTERED this 30th day of April, 1997 in Tallahassee, Leon County, Florida.
Filed with the Clerk of the Division of Administrative Hearings this 30th day of April 1997.
Robert S. Cohen, Esquire Pennington Culpepper Moore
Wilkinson Dunbar and Dunlap PA Post Office Box 10095 Tallahassee, Florida 32302-0095
Kevin J. O’Donnell, Esquire Department of Revenue
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 must be filed with the agency that will issue the final order in this case.
