Opinion
Hearing Granted March 30, 1960.
Opinion vacated 6 Cal.Rptr. 775.
Joel E. Ogle, County Counsel, Stephen K. Tamura, Santa Ana, and John H. Dawson, Asst. County Counsel, Fullerton, for appellant.
Clock, Waestman & Clock, and Henry H. Clock, Long Beach, Holbrook, Tarr & O'Neill, and W. Sumner Holbrook, Jr., Los Angeles, for respondents.
COUGHLIN, Justice.
This is an appeal from a judgment granting plaintiff a refund of ad valorem taxes, levied and collected by the County of Orange, on certain real and personal property owned by plaintiff and used in connection with the operation of a private cemetery. Judgment was against the defendant County of Orange alone, but all defendants have appealed.
The matter was submitted to the trial court for decision upon stipulated facts. The plaintiff contends that its property is exempt from taxation under Article XIII, Section 1b of the California Constitution which provides: 'All property used or held exclusively for the burial or other permanent deposit of the human dead or for the care, maintenance or upkeep of such property or such dead, except as used or held for profit, shall be free from taxation and local assessment'. (Italics by this Court). It is conceded that the property in question, consisting generally of unsold grave sites, unsold mausoleum crypts, an office building, equipment and furnishings, is used and held exclusively for burial purposes. However, the defendants claim that the property comes within the exception Plaintiff is a non-profit cemetery corporation. It has no stock or stockholders. All of its income is spent in the operation, maintenance and upkeep of the cemetery. Upon dissolution its assets will be distributed to the trustees of an Endowment Care Fund. Within the meaning of the constitutional provision, its operation would not constitute a use or holding for its own profit. San Gabriel Cemetery Ass'n v. County of L. A., 49 Cal.App.2d 624, 122 P.2d 330. However, the defendants contend that the plaintiff holds the property for the profit of another party and, for this reason, may not claim the exemption.
The plaintiff non-profit corporation, on February 24, 1954 obtained the property from a profit corporation by the same name which, in turn, on March 19, 1952, had obtained the property from a family by the name of McWhinney under a transaction referred to as a percentage sales price contract. The nature and existence of this contract is the basis for defendants' contention.
As a part of the consideration for the transfer to it the plaintiff agreed to assume the obligations of the private corporation. Included were the obligations under the percentage sales price contract, which did not state a fixed price but provided that the buyers, the profit corporation, agreed to develop the property as a cemetery; to 'diligently develop and sell graves and interment space'; to pay sellers twenty-five per cent of the sales price of all graves or interment space sold, at a minimum price of $40 net, after allocations to the Endowment Care Fund, for each such grave or interment space, with a minimum payment of $4,000 a year, together with a percentage of the sales price of mausoleum space sold, in accord with a detailed formula; to use the property only for cemetery purposes; to develop the property in accord with specified use restrictions; and to pay the taxes on the property. The agreement was to remain in force until all of the grave sites or interment spaces had been sold. A preliminary recital in this agreement stated:
'Whereas, * * * Sellers are willing to receive payment for the property over a period of years provided they are protected in the money they receive in future years against depreciation in the value of the dollar by inflation.'
An amendment to the agreement provided:
'In the event at any time Buyer fails to use reasonable diligence or fails to use its best efforts to develop the premises and to sell graves or other interment space as rapidly as reasonably possible, or if Buyer fails in any manner to maintain and operate the cemetery and mausoleum in a good, high class manner in such a way as to promote and expedite sales in the cemetery, then in any such event Sellers shall have the right to terminate and rescind this agreement as to any remaining land unused and undeveloped, and to forthwith repossess and retake it, in which event title to same shall automatically revert to and vest in Sellers, their heirs, successors or assigns.'
The McWhinneys were the sole stockholder of the private corporation. All of their stock was sold to the plaintiff non-profit corporation as an incident to the transaction whereby the plaintiff acquired the assets of the profit corporation. In the stock sales agreement it was recited that the McWhinneys were the owners of certain property sold to the profit corporation under a contract of sale. However, under that contract, being the percentage sales price contract in question, they had agreed to execute to the buyer a grant deed of the property forthwith. It is conceded that the record title to the property has been transferred out of the McWhinneys and is now in the plaintiff. Nevertheless, it was stipulated that this ownership is subject to the terms and conditions set forth in the
'Whereas, it is to the best interests of Sellers that they sell their stock in Westminster Memorial Park, a corporation, to Buyer and that Buyer operate, manage and run the cemetery now operated by Westminster Memorial Park, and it is further to the best interests of Sellers that the operations be expanded, enlarged and developed in the course of which it will be necessary for the operator to employ all available funds and capital in the cemetery activities, particularly in opening up additional ground for grave sites, construction of mausoleums and parks, landscape development and construction of office space.' (Italics by this court).
Since the transfer of the property from the private corporation to the plaintiff, which occurred on March 1, 1954, the plaintiff has paid to the McWhinneys the stipulated percentage of the sales price of each grave site or interment space sold pursuant to the percentage sales price contract.
The defendants expressly make no contention that the relationship between the McWhinney family and the plaintiff calls for an application of the principles of joint venture, partnership, trust or 'alter ego'.
The sole issues presented to this court for determination are whether the property is being used and held by the plaintiff for the profit of the McWhinneys and, if so, whether the property is being 'used or held for profit' within the meaning of the exception stated in the constitutional exemption.
The property sold by the McWhinneys to the profit corporation was unimproved land. Since that time, pursuant to the agreement of sale, it has been developed into a cemetery; has been dedicated as such; has become burial sites and mausoleum crypts.
Pursuant to the agreement, in legal effect, the land has been transmuted to burial rights. Pomona Cemetery Ass'n v. Bd. of Sup'rs, 49 Cal.App.2d 626, 122 P.2d 327. Under that agreement the McWhinneys are entitled to a percentage of the price paid for such burial rights. 'The price charged for burial space represents not only its actual cost, but includes expenses of many kinds incident to making the place saleable for the purpose intended, including in many instances an obligation of perpetual care, proper supervision, beautification of grounds, clerical services, equipment of various kinds, etc.' San Gabriel Cemetery Ass'n v. County of L. A., 49 Cal.App.2d 624, 625, 122 P.2d 330, 331.
When the constitutional amendment granting the tax exemption in question was enacted, Section 611 of the Civil Code authorized cemetery corporations to acquire land pursuant to percentage sales price contracts. In the State of New Jersey where statutory authority for the use of this type of contract is not authorized, the courts have held such contracts contrary to public policy and void. East Ridgelawn Cemetery Company v. Frank, 77 N.J.Eq. 36, 75 A. 1006, 1008; George Washington Memorial Park Cemetery Ass'n v. Memorial Dev. Co., 139 N.J.Eq. 280, 51 A.2d 221, 225; East Ridgelawn Cemetery v. Winne, 11 N.J. 459, 94 A.2d 833. The profit nature of such a transaction is demonstrated by the language of the Supreme Court of New Jersey in East Ridgelawn Cemetery Company v. Frank, supra, 75 A. 1006, 1008-1009, where the court said:
'By the scheme under review no purchase price is fixed. The certificate holder receives either the whole or a part of the proceeds of the sale of the burial lots up to the time that the last lot is sold. He thus gets the benefit of the sums expended for improvement and embellishment, whether those sums be derived from donations or from the proceeds of the sales of lots. He makes a profit out of their exemption from taxation and levy, and even from the possible exercise of the power of eminent domain * * *; third, Although other reasons were advanced by the court for holding invalid the certificates issued pursuant to the percentage sales price contract there under consideration, the foregoing language was pertinent to the decision and applicable to the matter at hand.
It must be concluded that the value of the property sold by the McWhinney family to the corporation increased since the date of sale because of the improvements thereto and the inflationary trend of the times. Both of these factors were contemplated by the parties, as evidenced by their agreement. The use and holding of the property required by the terms of the agreement contemplated this increase in value. To the extent that the McWhinneys shared in this increase in value, they received a profit from the use and holding of the property in the manner designated by the agreement.
'Profit is defined as 'acquisition beyond expenditure', or 'excess of value received over cost'.' Prince v. Lamb, 128 Cal. 120, 128, 60 P. 689, 691; see also In re Estate of Gartenlaub's Estate, 185 Cal. 375, 383, 197 P. 90, 24 A.L.R. 1. A gain from capital investment constitutes profit under the federal income tax law. MacLaughlin v. Alliance Ins. Co. of Philadelphia, 286 U.S. 244, 249, 52 S.Ct. 538, 76 L.Ed. 1083.
If the McWhinneys, as owners, had held and used their land in the same manner as it was held and used by the cemetery corporation, and had paid themselves 25% of the sales price of each burial site sold, to the extent that this share of the sales price represented an increase over the cost of that land they would have received a profit.
In support of the judgment, plaintiff cites the case of San Gabriel Cemetery Ass'n v. County of L. A., 49 Cal.App.2d 624, 626, 122 P.2d 330, which holds that a non-profit corporation selling burial lots for a price in excess of their cost is not using or holding the same for profit, as the term 'profit' is used in the constitutional provision. However, this definition is limited to a situation 'where such gain is used for the upkeep of the cemetery property' (San Gabriel Cemetery Ass'n v. County of L. A., 49 Cal.App.2d 624, 626, 122 P.2d 330). Moreover, as pointed out in Cedars of Lebanon Hosp. v. County of L. A., 35 Cal.2d 729, 746, 221 P.2d 31, 42, 15 A.L.R.2d 1045, the cited case considered only a profit or gain which 'arose from 'the sale of burial space at a price in excess of its cost'--the very activity constituting the basis of the cemetery exemption and so not regarded as an operation for 'profit' within the meaning of the exemption qualification.' Such is not the case at bar.
The plaintiff contends that there are no facts before the court from which it can be determined that a profit has been made; that the value of the property at the time of the agreement or the sale price of the burial lots is not disclosed by the record. If the conclusions heretofore drawn, respecting the increase in the value of the property through the use and holding in question, are subject to contradiction, it is the duty of the plaintiff to show such fact. The burden of proof is upon the owner of property to show that it comes within the provisions of a tax exemption law. Cedars of Lebanon Hosp. v. County of L. A., 35 Cal.2d 729, 734, 221 P.2d 31. Moreover, whether there is an actual profit received during any stated period is not determinative of the question The next question for determination is whether the exception to the tax exemption under consideration disqualifies property held or used for the profit of someone other than the owner. Stated more concretely, the issue for decision is whether the cemetery property involved in this case is used or held for profit within the meaning of the applicable constitutional provision. That provision frees from taxation 'property used or held exclusively for the burial * * * of the human dead * * * except as used or held for profit.' (Article XIII, Sec. 1b, Calif.Const.)
At the outset it should be noted that the exemption provision applies to property and not to the owner of property; that property used or held exclusively for burial purposes is exempt and not the owner of such property. Whether that property is held or used by an individual, a profit making corporation, or a non-profit corporation is not the determining factor.
The interpretation of a constitutional provision granting a general property tax exemption must be strict but reasonable. Cedars of Lebanon Hosp. v. County of L. A., 35 Cal.2d 729, 221 P.2d 31, 34. The interpretation is strict to the end that the exemption 'will be neither enlarged nor extended beyond the plain meaning of the language employed'. Cedars of Lebanon Hosp. v. County of L. A., 35 Cal.2d 729, 734, 221 P.2d 31, 35; Cypress Lawn Cemetery Ass'n v. City and County of San Francisco, 211 Cal. 387, 390, 295 P. 813. On the other hand, 'the rule of strict construction does not require that the narrowest possible meaning be given to words descriptive of the exemption, for a fair and reasonable interpretation must be made of all laws, with due regard for the ordinary acceptance of the language employed and the object sought to be accomplished thereby'. Cedars of Lebanon Hosp. v. County of L. A., 35 Cal.2d 729, 735, 221 P.2d 31.
The plain meaning of the language employed in expressing the exception to the constitutional exemption under consideration disqualifies cemetery land used or held for profit without limitation as to the recipient of such profit. If this court should hold that the exception referred only to land used or held for profit of the owner it would be adding to the language used in the constitution. This it may not do. 'In the construction of a statute or instrument, the office of the Judge is simply to ascertain and declare what is in terms or in substance contained therein, not to insert what has been omitted, or to omit what has been inserted.' Code of Civ.Proc. § 1858.
A construction of the constitutional exemption which would except land used or held for profit without limitation, although strict is reasonable. It has 'due regard for the ordinary acceptation of the language employed and the object sought to be accomplished thereby.' Cedars of Lebanon Hosp. v. County of L. A., 35 Cal.2d 729, 735, 221 P.2d 31, 35. The fundamental object of the constitutional provision exempting cemetery property from taxation is to effect 'the common wish of mankind that the places where the dead are buried should be protected and preserved against interference of possible sales for unpaid taxes, and be kept free from molestation or desecration'. Cypress Lawn Cemetery Ass'n v. City and County of San Francisco, 211 Cal. 387, 391, 295 P. 813, 814. The apparent purpose of the exception to the exemption is to require property used or held for profit to bear its share of the tax burden, even though it be dedicated to cemetery purposes and thus within the classification of property used or held exclusively for burial of the human dead.
The plaintiff contends that property held for burial purposes under a percentage sales price agreement is entitled to tax exemption because this type of agreement was approved by statute, and in wide use, at the time the constitutional amendment In the case of the Appeal of Ivy Hill Cemetery Co., 120 Pa.Super. 340, 183 A. 84, 86, a non-profit cemetery corporation contracted with a mausoleum company to construct a mausoleum under an agreement whereby the company had the right to sell crypts for profit; the cemetery corporation had full control of the mausoleum and owned the land upon which it was built; the mausoleum company possessed only the right to sell crypts; Pennsylvania law authorized an exemption for 'places of burial not used or held for private or corporate profit'. There was no profit to the cemetery company and such sums as it received from the sale of lots, the endowment fund or for its services in opening the crypts were devoted exclusively to the maintenance of the cemetery. The mausoleum was assessed to the cemetery corporation which claimed the exemption upon the ground that it derived no profit from the mausoleum operation. This contention was rejected by the court which said:
"* * * The Legislature did not intend that its governmental subdivisions should be put to the trouble and expense of looking behind the record to ascertain who is liable for taxes. When a deed showing title in a given person, is duly registered under the act of 1865 and subsequent acts in relation thereto, the taxing authorities need not search beyond this public record to determine if there is some other person against whom it shall levy tax.' Pennsylvania Co., for Insurances on Lives and Granting Annuities v. Bergson, 307 Pa. 44, 51, 159 A. 32, 34. It follows that under the state of this record we are not concerned with a question as to whether the cemetery grounds were used for profit by the cemetery company, but are bound to consider whether such land was in fact used or held by any one for private or corporate profit. * * *
'We are prhnarily concerned here with the expression 'not used or held for private or corporate profit'. The facts are not in dispute, and the inference is irresistible that the mausoleum company constructed this mausoleum and is still engaged in selling crypts therein with the primary object in view of making a profit. 'If a real estate company purchased land, kept it in good condition, and later sold it at an advanced price, every one would admit it had made a 'corporate profit". Harrisburg v. Harrisburg Cem. Ass'n, 293 Pa. 390, 393, 143 A. 111, 112. We will advance a step further and suggest that it is equally apparent that if an '* * * the right of exemption ceases when the enterprise is conducted for private profit even though it may be a business that is primarily concerned with the burial of bodies. The law applicable to cemeteries is not materially different than that applied to religious, educational, and charitable undertakings. In such cases property otherwise exempt may not be rented for the conduct of business by others for private profit without affecting the right to exemption, and it is the use to which the land is put rather than the compensation received which determines the status. City of Philadelphia v. Barber, 160 Pa. 123, 128, 28 A. 644; American Sunday School Union v. City of Philadelphia, 161 Pa. 307, 29 A. 26, 23 L.R.A. 695'.
In Crown Hill Cemetery Ass'n v. Evatt, 143 Ohio St. 399, 55 N.E.2d 660, 662, the plaintiff, a non-profit cemetery association, had sold a substantial number of burial lots to individuals on a wholesale basis, without restriction as to resale; all of the cemetery property was assessed to the non-profit corporation which claimed an exemption under a statute which provided that 'lands used exclusively as graveyards, or grounds for burying the dead, except such as are held by a person, company or corporation with a view to profit, or for the purpose of speculation in the sale thereof, shall be exempt from taxation', the court upheld the assessment and interpreted the law to mean (55 N.E.2d at page 662) 'that if cemetery lands are held by anyone for profit or for speculation, they are taxable.' It was there stated:
(At page 662) 'The fact that the cemetery lots which have been sold may not be owned by the purchasers in fee simple is not controlling. They represent an integral part of the cemetery lands, and if held 'with a view to profit, or for the purpose of speculating in the sale thereof,' the right to exemption does not exist.
'Where the use of property or the purpose for which it is held is made the test of exemption from taxation, it is immaterial in whose name the title stands. (Citing authorities) * * *
'Upon the evidence presented, we are unable to say that the Board of Tax Appeals was unwarranted in finding that a considerable number of the lots in the Crown Hill Cemetery were acquired and are held not for utilization in burying the dead, but with the end in view of reselling them at a profit. And since the appellant herein, seeking exemption, failed to produce evidence by which its land held for speculative purposes and the part thereof which might fairly be subject to exemption could be separated, we cannot say that the decision of the Board of Tax Appeals denying exemption was unreasonable or unlawful, and such decision is therefore affirmed.'
It must be kept in mind that the taxes in question were not levied against any profit or interest of the McWhinney family, but against the property owned by the plaintiff which is not subject to exemption therefrom because it was used or held for profit. This court is not called upon to determine whether the McWhinneys are the beneficial owners of or have any interest in the property subject to taxation, or whether they are only general creditors of the plaintiff company. The arguments in the briefs respecting this matter are not material to an interpretation of the constitutional provision involved. It is noteworthy, The plaintiff relies on two California cases, claiming that these control the decision in the instant case, but which are not in point. One of these cases is San Gabriel Cemetery Ass'n v. County of L. A., 49 Cal.App.2d 624, 626, 122 P.2d 330, heretofore referred to in this opinion, wherein the court held that the sale of grave sites by a non-profit corporation for a price in excess of their cost did not foreclose a claim of exemption where the gain thus received was used for the upkeep of the cemetery property. In that case the court was considering the term 'profit' in relation to the gain received by the non-profit corporation, which gain was devoted to the upkeep of the cemetery property, and its language must be so confined. The other California case relied upon is Pomona Cemetery Ass'n v. Bd. of Sup'rs, 49 Cal.App.2d 626, 122 P.2d 327, in which the court held that the property owned by the cemetery corporation and dedicated to burial purposes was 'held' exclusively for burial purposes, within the meaning of the constitutional provision, even though the corporation intended to sell the same for interment purposes rather than to use it for such purposes. The appeal in the cited case was upon the judgment roll alone, upon a finding by the trial court that none of the corporation's properties ever had been used or held for profit, and the court said (49 Cal.App.2d at page 630, 122 P.2d at page 329), 'The provision in the constitutional amendment 'except as used or held for profit' * * * may be eliminated from consideration in this case.' The very point at issue in the case at bar, therefore, was 'eliminated from consideration' in the cited case.
The plaintiff also cites four cases from foreign jurisdictions in support of its position. Washelli Cemetery Ass'n v. King County, 158 Wash. 599, 292 P. 101, considered the effect of a percentage sales price contract upon an exemption statute which provided that a non-profit corporation might purchase land for cemetery purposes 'which shall be exempt from taxation if intended to be used exclusively for burial purposes, and in no wise with a view to profit of the members of such association' (292 P. at page 103) (Italics by this court). The California exemption excepts property 'used or held for profit' without reference to the person to whom the profit might accrue. The vital distinction between these two exemption provisions is apparent. Forest Lawn Memorial Association Inc. (T. C. Memo. Dec. 699. P-H 1946) is a tax court case, involving a determination respecting the non-profit character of a cemetery corporation which purchased cemetery lands under a percentage sales price contract. An interpretation of the California cemetery exemption provisions was not involved. There is no contention in the instant case that the plaintiff is not a non-profit corporation, or that its purchase of lands under a percentage sales price contract affected that non-profit classification. Commissioner of Internal Revenue v. Kensico Cemetery, 2 Cir., 96 F.2d 594, is another income tax exemption case which did not involve the interpretation of a property Evergreen Memorial Park Ass'n v. Evatt,
Crown Hill Cemetery Ass'n v. Evatt, Eisley v. Mohan, Pullman Co. v. Industrial Acc. Comm.,The sales agreement between the plaintiff and the McWhinneys, covering the land in question, not only requires it to pay them a percentage of the sales price of each burial or interment site sold, but also requires it to use and hold that land for burial and interment purposes; to develop the land as a cemetery and sell the burial and interment sites thereon. As a result of this use and holding the McWhinneys will receive a profit. The constitutional cemetery exemption provisions contemplate a situation where property used or held exclusively for burial purposes, at the same time, may be used or held for profit, and expressly except such property from the exemption prescribed. It is our opinion that the case at bar involves one of these situations; that plaintiff's property is being used and held for profit within the meaning of the constitution; and that it is not exempt from taxation.
Although three defendants are named in the complaint herein, and all of these defendants joined issue by answer, The judgment in favor of the plaintiff and against the County of Orange is reversed. The attempted appeal by the remaining defendants is dismissed.
GRIFFIN, P.J., and SHEPARD, J., concur.