Opinion
(Filed 29 March, 1939.)
Taxation § 19 — Property owned by a municipal corporation and used for business purposes is not exempt from taxation. Defendant municipality acquired a hotel within its corporate limits by purchase at the foreclosure sale of a deed of trust on the property in order to protect its investment which it had made in the hotel corporation, which investment had been ratified by a majority of its qualified voters. After acquiring the property the municipality rented it for use as a hotel at a stipulated monthly rental. Held: The provision of Art. V, sec. 5, of the State Constitution, exempting from taxation property belonging to the State or to municipal corporations, applies to property so owned which is used for governmental or public purposes, and the property of defendant municipality used for business purposes is not exempt from taxation by the county in which it is situated.
APPEAL by plaintiff from Parker, J., at September Term, 1938, of WARREN. Affirmed.
Frank H. Gibbs for plaintiff, appellant.
Banzet Banzet for defendant, appellee.
STACY, C. J., concurring.
BARNHILL and WINBORNE, JJ., concur in this concurring opinion.
CLARKSON, J., concurring, agreeing with STACY, C. J.
DEVIN, J., dissenting.
SEAWELL, J., dissenting.
This is a controversy submitted without action under the provisions of C. S., 626, et seq. The facts upon which the controversy depends are substantially as follows:
The town of Warrenton is a municipal corporation located in Warren County; Warren County is a body politic under the statutes of North Carolina; the board of town commissioners is the governing body of said town; the charter of said town (ch. 201, Private Laws 1915) confers upon said town the power to "own and purchase stock in any corporation or enterprise or industry for the purpose of its welfare, government and improvement, or for the comfort and convenience of its citizenship"; on 10 July, 1919, the Warren Hotel Company was incorporated with an authorized capital stock of $60,000, of which $10,000 was subscribed and paid in by citizens of said town, and at said time the only hotel in said town was a two-story wooden residence, built prior to the Civil War, and used as a combination hotel and boarding house, and the population of said town at said time was 927; on 16 June, 1919, at an election duly held an ordinance duly passed by said board of commissioners authorizing the issuance of bonds in the sum of $20,000 to acquire stock in an equal amount in said hotel company was ratified by a vote of the majority of the qualified voters of said town, and on 1 October, 1919, bonds in the sum of $20,000 were issued and subsequently sold, and with the funds raised from the sale thereof $20,000 of the capital stock in said hotel company was purchased; that the total capital stock of said hotel company then issued and outstanding was $35,360; on 19 December, 1919, the Warren Hotel Company purchased a lot in the town of Warrenton for the purpose of erecting and furnishing a modern hotel thereon, and the erection of such hotel was commenced in the spring of 1920, but due to lack of funds work thereon ceased in the summer of said year; on 3 August, 1920, said board of commissioners passed an ordinance authorizing the purchase of preferred stock in said hotel company in the sum of $75,000 in order that the hotel building might be completed, "which will materially promote the comfort and convenience of the citizenship of said town"; on 7 September, 1920, another election was held and the ordinance of the board of commissioners authorizing the issuance of bonds in the sum of $75,000, to raise funds to be used in the purchase of a similar amount of preferred stock of said hotel company, was ratified by a majority of the qualified voters of said town; bonds in the sum of $74,000 were issued on 1 October, 1920, and subsequently sold and from the funds derived from such sale preferred stock in said hotel company was purchased to the amount of $74,000; work on the hotel building was resumed in the spring of 1921, and the building was completed in 1922; on 1 April, 1923, bonds were issued by the Warren Hotel Company in the sum of $30,000 to procure funds to build an annex to the hotel, which bonds were secured by a deed of trust upon the real and personal property of said hotel company; in March, 1927, in order to protect its investment, the town of Warrenton purchased bonds of the Warren Hotel Company which were in default, in the sum of $4,000; that subsequently all of the bonds of the Warren Hotel Company were in default and the hotel property was sold under the deed of trust securing them on 29 January, 1934, at which sale the town of Warrenton became the last and highest bidder, and the purchaser of the hotel property for $16,500; and since 10 February, 1934, the date on which deed was delivered to it, the town of Warrenton has been the owner in fee simple of the hotel property; at the time of the foreclosure sale the entire property of the Warren Hotel Company consisted of the hotel and its furnishings, and a small amount of cash which was levied upon and taken by judgment creditors, and the liabilities of said company aggregated $148,860, in addition to past-due interest and taxes, that no dividends were ever paid on the common or preferred stock of the Warren Hotel Company and no officers of said company received any remuneration from said company; since 10 February, 1934, the town of Warrenton has received $10,521.41 in rentals from the hotel, and has expended $10,885.21 in repairs, replacements, insurance and county taxes, and the hotel is being rented for $200 per month, plus a small amount from a certain per cent of the rental received from rooms; the rental contract provides that the town of Warrenton may cancel the lease if the hotel is not operated in a manner satisfactory to it; all taxes on the hotel property were paid at the time the town of Warrenton took title to the same, and since then the town of Warrenton has paid Warren County taxes for the years 1934, 1935 and 1936; the town of Warrenton is the county seat of Warren County and the hotel built by the Warren Hotel Company is the only hotel in said town; Warren County has assessed said hotel property for taxation for the year 1937, and has levied a tax against the same of $312.50, which the town of Warrenton refuses to pay, and the tax collector of said county has advertised said property to be sold for said tax; the plaintiff, town of Warrenton, denies that the defendant, Warren County, is permitted to tax said hotel property while it remains vested in it, a municipal corporation.
The question presented by the agreed facts is whether the tax levied and assessed for the year 1937 against the property held and used by the town of Warrenton as a hotel is a valid and collectible tax. The judge below held that such tax was valid and collectible and so adjudged, and from this judgment the plaintiff appealed, assigning as error the signing of the judgment. We are of the opinion, and so hold, that the judgment of the Superior Court should be affirmed.
The case is governed by R. R. v. Commissioners, 75 N.C. 474; Board of Financial Control v. Henderson County, 208 N.C. 569; and Benson v. Johnston County, 209 N.C. 751. The agreed facts divulge that the town of Warrenton owns hotel property and that it leases such property for $200 per month, plus a certain other contingent amount, to be used as a hotel. The property is neither held for nor used for governmental or necessary public purposes, but merely for business purposes, and in competition with any other hotel that may be established in the town of Warrenton or vicinity. "If a municipal corporation can go into a rental business and escape taxation, it would have a special privilege not accorded to others who are in a like business." Board of Financial Control v. Henderson County, supra. The words "Property belonging to the State or to municipal corporations, shall be exempt from taxation," used in sec. 5, Art. V, of the State Constitution, have been interpreted in this jurisdiction since 1876 as meaning property used for governmental or public purposes, and not including property used for business purposes for the benefit of certain individuals or communities. After stating that the Capitol and other property used for public purposes are exempt from taxation by the quoted section of the Constitution, this Court, in R. R. v. Commissioners, supra, states: "But when the State steps down from her sovereignty and embarks with individuals in business enterprises, the same conditions do not prevail. The State does not engage in such enterprises for the benefit of the State as a State, but for the benefit of individuals or communities, . . ." This case was followed in Board of Financial Control v. Henderson County, supra, and in Benson v. Johnston County, supra, and in our opinion supports the holding of the judge of the Superior Court in the instant case.
The instant case is distinguishable from Andrews v. Clay County, 200 N.C. 280, and Weaverville v. Hobbs, Comr., 212 N.C. 684, relied upon by the appellant, in that in both of these cases the property sought to be taxed was owned and used for governmental or public purposes, in the former case for the erection of a power plant to generate electricity to light, and otherwise serve the owner, a municipality, and in the latter case for the purpose of assisting World War veterans in the acquisition of homes. Hinton v. State Treasurer, 193 N.C. 496.
The judgment of the Superior Court is
Affirmed.