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Vanderbilt University v. Tennessee State Board of Equalization

Court of Appeals of Tennessee, Nashville

April 22, 2015

VANDERBILT UNIVERSITY
v.
TENNESSEE STATE BOARD OF EQUALIZATION, ET AL.

Session Date: February 27, 2015

Appeal from the Chancery Court for Davidson County No. 1346IV Russell T. Perkins, Chancellor

Herbert H. Slatery, III, Attorney General and Reporter; Joseph F. Whalen, Associate Solicitor General; and Brad H. Buchanan, Senior Counsel, Nashville, Tennessee, for the appellants, State of Tennessee Board of Equalization, Tennessee Assessment Appeals Commission, and Attorney General and Reporter, Herbert H. Slatery, III.

J. Brooks Fox and Catherine J. Dundon, Nashville, Tennessee, for the appellant Metropolitan Government of Nashville and Davidson County. William L. Harbison and Carolyn W. Schott, Nashville, Tennessee, for the appellee, Vanderbilt University.

Andy D. Bennett, J., delivered the opinion of the court, in which Richard H. Dinkins, and W. Neal McBrayer, JJ., joined.

OPINION

ANDY D. BENNETT, JUDGE

In this case we are asked whether eleven fraternity houses owned by Vanderbilt University (the "Fraternity Houses") are entitled to a 100% exemption from the property tax laws either because of their educational purpose or because of their use as dormitories. The Fraternity Houses were granted a 50% exemption decades prior to the instant litigation, and their entitlement to that 50% exemption is not now at issue. Today we are only concerned with determining whether their property tax exemption should be increased from 50% to 100%.

Factual and Procedural Background

Beginning in the 1960s, Vanderbilt built houses for the fraternities and sororities on its campus and leased the houses to the fraternities and sororities. Vanderbilt sought an exemption from having to pay property taxes on those houses, which the local tax assessor denied. Vanderbilt contested the denial, and in 1968, the chancery court entered a consent order granting Vanderbilt a 50% tax exemption.[1] One of the fraternities was discontinued in 1985. When it was reinstated in 1988, Vanderbilt filed an application with the State Board of Equalization ("SBOE") seeking to reinstate the 50% exemption for that fraternity's house. The SBOE denied Vanderbilt's request. Following administrative appeals, the chancery court granted Vanderbilt the 50% exemption it sought in a Memorandum and Order entered on July 7, 1992 ("1992 Chancery Court Order"). Citing George Peabody College for Teachers v. State Board of Equalization, 407 S.W.2d 443 (Tenn. 1966), the court found that the fraternity's activities were "directly incidental to and an integral party of Vanderbilt's educational program." The court found that, "[i]n addition to living and eating in the houses, students study therein, have tutoring and study sessions, dances, and parties. On occasions, professors and visiting speakers at the University conduct informal discussion groups in the houses."

At the time of the 1968 consent order and the 1992 Chancery Court Order, Vanderbilt was leasing the Fraternity Houses to the national fraternities, which then leased the properties to housing corporations for the local chapters. Under this arrangement, the fraternities set the room and board rates, prescribed residential policies, and made routine repairs. Starting in the early 2000s, Vanderbilt changed its relationship with the Fraternity Houses pursuant to a Greek Facility Management Program that Vanderbilt put into place. Leases with the national organizations were renegotiated as licenses, and Vanderbilt took control over the use and maintenance of the Fraternity Houses. Vanderbilt began to bill the students who lived in the Fraternity Houses directly and became responsible for managing the properties.

In May 2007, Vanderbilt submitted property tax exemption applications to the SBOE seeking a 100% exemption for the Fraternity Houses based on its new license arrangement with the national fraternities. Vanderbilt claimed it was entitled to the exemption pursuant to Tenn. Code Ann. § 67-5-212(a)(1), which exempts from taxation real and personal property used "purely and exclusively" for educational purposes.[2]Alternatively, Vanderbilt claimed it was entitled to the exemption pursuant to Tenn. Code Ann. § 67-5-213(a), which exempts dormitories from property tax.[3] On July 28, 2009, the SBOE issued an initial determination denying the application. Vanderbilt appealed this determination, and a hearing was held before an administrative law judge ("ALJ") on January 25, 2011.

The ALJ issued an Initial Decision and Order dated July 22, 2011, affirming the initial determination and holding that the Fraternity Houses were entitled to no more than the 50% exemption they currently enjoyed. The ALJ concluded that the use of the Fraternity Houses had not changed since the 1992 Chancery Court Order was issued and that "the chapter houses are not used purely and exclusively by Vanderbilt for educational purposes." The ALJ also concluded that that the Fraternity Houses did not qualify as "dormitories."

Assessment Appeals Commission Decision

Vanderbilt petitioned the Assessment Appeals Commission (the "Commission") for a review of the ALJ's Initial Decision and Order. A hearing was held on May 24, 2012, during which Stephen Caldwell, Associate Dean of Students, testified about the educational programs offered at the Fraternity Houses. He conceded that there is no formal system of tutoring or lectures that goes on in the Fraternity Houses. He testified, however, that the chapters sponsor at least four educational programs each year and that 65% of the membership must be present at each program. He explained:

One program must be related to risk management, drugs, alcohol, hazing, sexual assault. One program must be related to members' health and wellness, healthy lifestyles, eating disorders, mental health, drug and alcohol abuse. . . . One program must be related to diversity, cultural, religious, political, racial. One program has to be the chapter's choice. And each chapter must plan at least one program to be a positive relationship with the faculty members each year. [Specific examples include] Zeta Pi, Professor Goodyear presented ethical and business practices; Alpha Tau Omega, professor appreciation dinner with professors from economics, engineering and math; Beta Theta Pi, presentation from criminal defense attorney; Kappa Alpha, professor sent out presentation on international diversity in business.

The evidence showed that membership in each fraternity fluctuates somewhere between forty and eighty, depending on whether freshmen have been admitted for the year yet, but only up to six members actually reside in a Fraternity House, all of whom must be officers of the fraternity. Dean Caldwell testified that Vanderbilt charges a fee to members who live in the Fraternity Houses just as Vanderbilt charges students who live in dormitories on campus. Nonresident members of the fraternities are charged a fee to live in campus dormitories as well as a Greek facility maintenance fee that allows them access to the Fraternity Houses. Dean Caldwell testified that the Fraternity Houses host, on average, three parties each month where alcohol is permitted, and that third-party security is provided by Vanderbilt for these parties.

Dean Caldwell also testified about students' access to dormitories and to the Fraternity Houses. Generally, a student does not have access to a dormitory unless he or she is a resident there. For a Fraternity House, by contrast, resident members as well as nonresident members have a key granting them access to the Fraternity House. Thus, whereas the common areas of dormitories are limited to the students who live there, the common areas of the Fraternity Houses are open to all members of the fraternity.

The Assessment Appeals Commission entered its Final Decision and Order on August 30, 2012, in which it affirmed the ALJ's decision. The Commission began by addressing Vanderbilt's contention that the Fraternity Houses are used no differently than the typical dormitory. Disagreeing with Vanderbilt's position, the Commission wrote:

Most dormitories serve far more students.... The fraternity houses at issue here typically house at most six student fraternity members chosen by the fraternity, usually its officers. Vanderbilt in modern times has constructed a range of living facilities for its students that now include . . . a collection of twenty ten-person lodges. Other specialty living facilities have been built in recent years for smaller resident groups, and there, like all dormitories, contain common areas where residents dine, relax, or study, but the area devoted to student-rented rooms predominates. Dormitories, but not fraternity houses, have information desks and continuous presence of university faculty, staff or other representatives.
Unlike the dormitories, the properties at issue here were built as fraternity club houses, and the nonresident members of the fraternities defray the cost of maintaining and improving these club houses. The national fraternities, with whom the local chapters must be affiliated, have accumulated debt owed to Vanderbilt, and the university charges fraternity members and facilitates fundraising among fraternity alumnae, to pay down these debts and fund continuing improvements to the fraternity houses. Speakers from the university and elsewhere in government and academia are featured in the fraternities, but at the invitation of the fraternity, not as part of the educational program of the university.
The university is solely responsible for placement of dorm residents. The dormitories are focused on living facilities for students assigned by the university, with university assigned dorm counselors. Social events in the dorms share nothing of the quantity and scope of their fraternity house counterparts. They are seldom if ever "registered" with the university, but fraternity social events are routinely registered, and third party security presence is required for registered social events in the fraternities.

The Commission next addressed, and rejected, Vanderbilt's argument that the Fraternity Houses serve an educational purpose. It stated:

There are distinctly educational activities carried out at the fraternities, but they do not appreciably differ from those that supported the award of a fifty percent exemption in the past. They are merely coincidental to the primarily social purposes served by the fraternities. These social purposes contrast sharply with the primarily student housing uses of the dormitories, which are directly incidental to Vanderbilt's educational purposes. Fraternities afford their members a unique life experience that is valuable to their members, but these worthwhile ...

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