Court: Michigan Supreme Court; March 9, 2018; Michigan; State Supreme Court
On January 11, 2018, the Court denied the application for leave to appeal the October 13, 2016 judgment of the Court of Appeals, stating that the issues presented did not warrant review. Chief Justice Markman concurred, noting that the petitioner inadequately briefed the specific issue regarding whether previous cases, Ladies Literary Club v. Grand Rapids and David Walcott Kendall Memorial School v. Grand Rapids, still define "nonprofit educational institution" under MCL 211.7n. He expressed that the Court's interpretation of "educational institution" is a strained construction that diverges from legislative intent, suggesting that a more straightforward definition should be adopted in the future.
The General Property Tax Act (GPTA) mandates that all property not expressly exempt is subject to taxation, but provides exemptions for properties used by nonprofit educational institutions incorporated in Michigan. Such exemptions apply if the property is used solely for the institution's intended purposes. The Court's precedent in Detroit v. Detroit Commercial College established that a tax exemption for educational institutions requires alignment with the state's general education framework, and specialized institutions are not entitled to this exemption. Similarly, the Court of Appeals in the Kendall case stated that only "general educational institutions," not specialized schools, qualify for tax exemptions.
The Court of Appeals recognized the evolving educational landscape since a 1948 decision and noted the public demand for specialized education, suggesting that such institutions could qualify for tax exemptions. It established a test for determining if a higher education institution qualifies as an "educational institution" for exemption purposes: if the institution did not exist, would a significant portion of its students attend a state-supported college for the same major? This test was adopted in Ladies Literary Club and further clarified in Detroit Commercial College, which emphasized that an institution must align with the state's educational framework and contribute to easing governmental burdens. However, the Ladies Literary Club's contributions were deemed insufficient to warrant a tax exemption, as its programs did not significantly alleviate the state's educational responsibilities.
The Court held that an entity qualifies for a tax exemption as an "educational institution" if it (1) is part of the state's educational framework and (2) significantly relieves the government's burden. The critic contended that this standard is not supported by statutory text, arguing that MCL 211.7n does not stipulate a necessity for institutions to relieve government burdens, but solely requires them to be "educational." The respondent argued that tax exemptions should be interpreted strictly in favor of tax authorities, asserting that exempted institutions should demonstrate a relief of governmental responsibilities as a condition for tax relief, suggesting a quid pro quo relationship between educational institutions and government tax burdens.
The statutory language does not impose a requirement that an institution must relieve the government's burden to qualify for a tax exemption as an "educational institution." Courts must interpret statutes based on their plain language rather than inferred purposes, as established in Perkovic v. Zurich American Ins. Co. When construing tax exemptions, the intent of the Legislature should be discerned from the words used, considering their meaning and context. Tax exemptions must be construed strictly in favor of the government, but not to the extent that it contradicts legislative intent. The notion that an institution must provide a governmental benefit to qualify for tax exemption is deemed a strained interpretation. The Legislature's intent may simply be to promote educational institutions by alleviating their financial burdens, recognizing the societal benefits of such institutions since historical ordinances have emphasized the importance of education. The U.S. Supreme Court has similarly acknowledged that tax exemptions can foster the development of educational institutions, and the provision of tax exemptions under MCL 211.7n extends to nonprofit theaters, which do not relieve governmental burdens. Therefore, the Legislature's purpose for tax exemptions should not be limited to a quid pro quo relationship. There is no statutory basis to limit the definition of an "educational institution" to those entities fitting within the state's educational framework supported by public taxation.
The document highlights the longstanding traditions of both publicly funded and private educational institutions in Michigan and the U.S., emphasizing that tax exemptions for private educational entities date back to colonial times. It argues that there is no statutory requirement for an "educational institution" to be part of the state's educational framework. The author suggests that the court should reconsider the definition of "educational institution" under MCL 211.7n, proposing that a broad interpretation could lead to inconsistencies within the statutory scheme. The text asserts that while MCL 211.7n encompasses various types of institutions (theaters, libraries, scientific institutions), these should not be classified as "educational institutions" in the traditional sense.
The author delineates traditional educational institutions, such as public schools and colleges, as those focused on intellectual and employment-related skill development, contrasting them with entities like zoos and dance academies, which, despite offering educational experiences, do not fit the conventional definition of "educational institutions." Citing the Supreme Court of New Hampshire, the text acknowledges the complexity of establishing a clear definition and stresses that each case must be evaluated based on its specific facts. The author calls for the court to create a framework to determine eligibility for property tax exemptions for educational institutions.
The current legal framework imposes an undue requirement on institutions seeking tax exemptions by demanding proof of a quasi-governmental function, which is inconsistent with statutory language. There is an opportunity to establish a new standard for defining "educational institution" that aligns more closely with its plain meaning and American educational traditions. The Court has not clarified whether exemption eligibility requires meeting one or both criteria, but several Court of Appeals decisions have interpreted the law to mean both must be satisfied. The definition of "educate" includes providing formal schooling, training, and moral or aesthetic development, which encompasses public school academies (charter schools) as well as parochial schools that combine secular education with religious instruction. Historical context shows that vocational education has deep roots in the U.S., evolving from early apprenticeships to contemporary training in various educational settings, reflecting the ongoing importance of vocational training.
