National Collegiate Realty Corp. v. Board of County Commissioners

Citations: 690 P.2d 1366; 236 Kan. 394; 1984 Kan. LEXIS 418Docket: 56,683

Court: Supreme Court of Kansas; November 30, 1984; Kansas; State Supreme Court

SummaryOriginalCytator Case TreatmentBackward CitatorAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

National Collegiate Realty Corporation sought a tax exemption for 1980, 1981, 1982, and future years regarding property used as the National Collegiate Athletic Association's (NCAA) headquarters in Johnson County, Kansas. The exemption claim was based on K.S.A. 1983 Supp. 79-201 Second and the Kansas Constitution, asserting the property is utilized exclusively for educational purposes. The Kansas Board of Tax Appeals (BTA) denied the exemption, concluding the property was not used exclusively for educational purposes. Upon appeal, the district court overturned the BTA's decision, finding it arbitrary and unsupported by substantial evidence, ruling that the property was indeed used exclusively for educational purposes, thus qualifying for the exemption. The Board of County Commissioners of Johnson County appealed this decision, seeking to uphold the BTA's ruling. Key findings adopted by the district court included the BTA's jurisdiction, the specific location and description of the property, its use as an administrative office for the NCAA, and the nature of the National Collegiate Realty Corporation, which is a for-profit entity owned by the NCAA, established to manage the property and finances for the NCAA, which itself is recognized as a tax-exempt entity under federal law. The central issue remains whether the property meets the statutory definition of use for educational purposes.

The National Collegiate Realty Corporation is exempt from federal income tax under Section 501(c)(2) of the Internal Revenue Code and has also received Kansas income tax exemption consistent with its federal status. Prior to August 1, 1979, part of its property was rented to a non-NCAA entity, during which time the corporation did not seek tax exemption; since then, the property has been solely occupied by the NCAA.

The NCAA, comprising 780 educational institutions, was established to govern inter-collegiate sports, addressing issues such as rule enforcement, championships, and educational standards. Initially formed to address violence in football, its mission has expanded significantly, with broadcasting now generating substantial revenue. Although the NCAA emphasizes education, it remains unclear if it qualifies strictly as an educational organization under Kansas law.

The NCAA has around 93 employees, with various roles in enforcement, legislative activities, championships, media communications, publishing, and general administration, and an annual payroll of about $2 million. Its budget exceeded $20 million in 1980 and $23 million in 1981, with detailed expenditures for enforcement, championships, communications, publications, and administration.

Kansas' Department of Revenue exempted the NCAA's building contract from sales tax in 1972, affirming that the property was exempt under specific state statutes. The NCAA financially supports the National Collegiate Realty Corporation for building maintenance, which has no employees and is managed by NCAA staff, generating no profit.

The National Collegiate Realty Association, wholly owned by the NCAA, owns the property used exclusively as the NCAA's national headquarters. Both parties agree that ownership does not affect the litigation's outcome, which focuses on whether the NCAA's property use qualifies as educational under Kansas law. Article 11, Section 1, of the Kansas Constitution, along with K.S.A. 1983 Supp. 79-201, exempts property used solely for educational, charitable, or similar purposes from property taxation. The law consistently requires that properties be actively used for these purposes to qualify for exemptions. The court has addressed similar cases, with the parties in the current case acknowledging the relevant law while disputing its application to their facts. The case of Lutheran Home, Inc. v. Board of County Commissioners serves as a precedent, illustrating that property used for charitable purposes can be exempt from taxation if its use aligns with statutory and constitutional criteria. Key principles from Lutheran Home emphasize strict construction of exemption laws, the burden of proof on the claimant, and the necessity for exclusive use for the claimed purpose to qualify for tax exemption.

The phrase 'used exclusively' in Section 1, Article 11, of the Kansas Constitution mandates that property exempt from taxation must be utilized solely for the specified constitutional purposes, without engaging in any other uses. Courts have consistently addressed whether a property's use qualifies as charitable or benevolent. In the context of this case, the legal principles established in *Lutheran Home* are applied, indicating that the operation of a nursing home did not meet charitable criteria. By substituting "educational" for "charitable," the same legal framework is relevant here. 

Utilization of property for administrative purposes does not inherently disqualify it from tax exemption as long as it serves educational goals, as supported by *Trustees of The United Methodist Church v. Cogswell*. The key question is whether the NCAA's use of property is exclusively for educational purposes, without a need to define "educational purposes" broadly across various legal contexts. Past cases, such as *Kansas State Teachers Ass'n v. Cushman*, illustrate that if property benefits individuals beyond educational objectives, it fails to meet the exclusivity requirement. 

The NCAA focuses on regulating intercollegiate athletics, which is generally accepted as educational. Courts have recognized that "education" encompasses not only academic achievements but also physical education and extracurricular activities, reinforcing that the purpose of tax exemptions is to promote education rather than solely academic credentials.

Senate Report No. 2375 recognizes that school athletic activities are fundamentally tied to educational functions. Education is broadly defined to encompass mental, moral, and physical development, extending beyond formal instruction to include comprehensive training. An educational institution is characterized as one that teaches and enhances its students’ abilities. The Board of Tax Appeals (BTA) concluded that the NCAA does not qualify for a tax exemption, as its functions are not exclusively educational; while it educates, it also entertains and coordinates revenue-generating activities, functioning as a major business that profits significantly from broadcasting. The U.S. District Court noted the NCAA operates as a "classic cartel" in controlling college football. The Supreme Court addressed this in National Collegiate Athletic Association v. Board of Regents of the University of Oklahoma, ruling that the NCAA's restrictions on televising games unreasonably restrained trade but acknowledged its critical role in regulating intercollegiate sports. The NCAA's governance creates a competitive environment by establishing rules that define college football, distinguishing it from professional sports and preserving its academic integrity. This role enhances consumer choice for sports fans and athletes alike, promoting competition while maintaining amateurism in college athletics, which aligns with the objectives of the Sherman Act.

The NCAA's role, as interpreted in relation to the Sherman Act, is to preserve intercollegiate athletics, yet its rules limiting output contradict this purpose. The court supports the District Court's finding that the NCAA's restrictions have hindered rather than promoted intercollegiate athletics. The Court of Appeals' judgment is affirmed. The dissenting opinion and the district court highlighted that the NCAA's exemption denial is based on its size and financial activities. While the NCAA could potentially pay ad valorem taxes, the current legal question does not address this. Collegiate sports are integral to education, and whether they have become overly commercial is a philosophical issue outside the scope of this case. No precedent has been found for taxing university sports facilities based on their commercial nature. The NCAA’s size stems from the popularity of collegiate football and basketball, which creates challenges like improper recruiting practices that it is tasked with managing. The BTA's reasoning suggests a threshold where collegiate sports could be deemed entertainment rather than educational, but this logic is questioned. The NCAA is unique, with no direct counterparts, though the Kansas State High School Activities Association (KSHSAA) serves a similar function in high school sports. The KSHSAA, a non-profit governing body for interscholastic activities, has been exempt from ad valorem taxes for its educational purposes.

K.S.A. 79-201 Second and Article 11, Section 1 of the Kansas Constitution allow for property exemptions used for educational purposes. The Kansas State High School Activities Association (KSHSAA) is exempt from ad valorem taxes, similar to the NCAA’s previous exemption for personal property, which was rescinded. The matter at hand is a legal question due to undisputed facts. The standard of judicial review outlines that a district court cannot substitute its judgment for an administrative tribunal’s decision but can determine if the tribunal acted fraudulently, arbitrarily, capriciously, or outside its authority. The interpretation of statutes is a legal question for the courts, which may not adhere to erroneous administrative rulings. The case focuses on the interpretation of K.S.A. 79-3603(p), which falls within the trial court's and appellate court's jurisdiction. The district court concluded that the NCAA's activities, which include rule-making and promoting events, are integrated and serve educational purposes, thus qualifying for the exemption. The district court's reversal of the Board of Tax Appeals' order is affirmed. Chief Justice Schroeder dissents, arguing that the NCAA's revenue-generating activities, such as televising games, indicate the property is not exclusively used for educational purposes, suggesting that it should be subject to ad valorem taxes.