Massachusetts Supreme Judicial Court, No. 11432, May 15, 2014: Nonprofit’s forest conservation land entitled to property tax exemption.
New England Forestry Foundation, Inc. (NEFF) is a nonprofit corporation, whose purposes include to “create, foster, and support conservation, habitat, water resource, open space preservation, recreational, and other activities” by “promoting, supporting, and practicing forest management policies and techniques to increase the production of timber in an ecologically and economically prudent manner.” NEFF owns a 120-acre parcel of forest land in the town of Hawley, abutted on two sides by a state forest, and operates it under a “forest management plan.”
NEFF applied to the town board of assessors (assessors) for a charitable property tax exemption on the parcel under M.G.L. c. 59, § 5, Third (“Clause Third”). Clause Third provides that the real property of a charitable organization is exempt from taxation if the land is occupied by the charitable organization or its officers for the purposes for which it was organized. The assessors denied NEFF’s application and NEFF appealed to the state appellate tax board (“board), which also denied the exemption. NEFF appealed that decision.
The board denied NEFF’s exemption because it said NEFF didn’t prove that it occupied the land for a charitable purpose within the meaning of Clause Third. The board reached that conclusion because it said (1) forest management is not a traditional charitable purpose; (2) NEFF’s efforts to promote the use of the land by the public was insufficient for the benefits of NEFF’s activities to inure to a sufficiently large and fluid class of persons; (3) NEFF’s description of “active management” of the land was “at best vague testimony,” showing only one planned educational activity to take place in the Hawley forest.
The court overturned the board and held in favor of NEFF’s exemption for this land. The court’s lengthy analysis of the Clause Third requirements provides a roadmap for other conservation organizations and Massachusetts boards of assessors to determine whether conservation land ought to qualify for a property tax exemption.
Clause Third, the court wrote, initially sets up a two pronged test, each prong of which may pose complex questions: the organization seeking the exemption must qualify as a “charitable” organization within the meaning of the statute, and the organization must “occupy” the property in furtherance of its charitable purposes. The court ruled that NEFF purposes and occupancy in this case met those tests.
To be a “charitable” organization within the meaning of the statute, the dominant purpose of the organization must be “to perform work for the public good, not merely its own members,” and the charitable programs and activities of the organization need to be “of the sort that their benefit inures to an indefinite number of people.” The court made several pronouncements to counter the notion that benefits provided by “land held as open space or in its natural state” need to come from “direct access of people to that land for such purposes as recreation, scenic views, or education.” Instead the benefit of such land may derive from, among other things, mitigating the effects of climate change, contributing to “ecosystem resilience,” absorbing and dissipating stormwater runoff, cleaning the air, purifying the fresh water supply, and protecting wildlife habitats. The court concluded that by providing such benefits “combined with engaging in sustainable harvests to ensure the longevity of the forest,” NEFF charitable activities benefit the general public. In addition, an organization may be charitable if it assists in lessening the burdens of government. The court found abundant evidence that conservation and environmental protection “are express obligations of the government in Massachusetts” (evidenced by the article of the Massachusetts Constitution creating a public environmental rights and the charge to a State cabinet level office to carry out State environmental protection policy) and that several State statutory schemes involve “organizations that align their missions with the conservation goals of the State … as essential partners in Statewide conservation efforts” (e.g., permitting municipalities appropriations to buy open space “community preservation” lands, the conservation easement enabling law, and allowing nonprofit conservation organization to be assigned municipalities’ right of first refusal under the special forest land tax classification (Chapter 61) discussed below).
The second prong of the Clause Third test is whether the organization “occupies” the land in furtherance of its charitable purposes. The legal precedents for this determination required “active appropriation to the immediate uses of the charitable cause for which the owner was organized,” and that the dominant use “contribute[s] immediately to the promotion of the charity and … participate[s] physically in the forwarding of its beneficent objects,” while at the same time deferring to the organization’s own determination of “the extent of property required and the specific uses of the land that will best promote those purposes” if the organization acts in good faith and not unreasonably. The balance of these approaches was characterized by the court as “seeking to ensure that the land is not being held as a private landowner would hold it but that it is being held as an entity would hold it for the public good.”
Crucially, the court held that holding the land for the public good does not require an affirmative duty to promote and facilitate public access on conservation lands. Not only did the court find that such duty “exceeds the scope of the inquiry at the core of Clause Third’s occupancy requirement” but it also wrote that “in certain circumstances, such as in the case of a particularly fragile habitat or ecosystem, a public access requirement could operate to thwart the very conservation objectives an organization is seeking to achieve.… [W]e conclude that in a case such as NEFF’s where the entry of the public onto the land is not necessary for the organization to achieve its charitable purposes, the promotion and achievement of public access is not required to demonstrate occupancy of the land in order to qualify for a Clause Third exemption. The right that is most central to the ‘bundle’ of rights enjoyed by a private property owner is not the freedom from an obligation to invite visitors, it is the affirmative right to exclude others from one’s property. [citation omitted] Consequently, the appropriate inquiry begins with whether the entity takes affirmative steps to exclude the public from the land. … the organization faces a heightened burden to show that such exclusion of the public is necessary to enable it to achieve its charitable purposes. … it may do so only by presenting compelling facts demonstrating that the exclusion of the public is necessary to achieve a public benefit through other activities carried out on, or through use of, the land….”
The Appellate Tax Board had also denied the exemption to NEFF on the theory that the Legislature, by its enactment of another statute (M.G.L. c. 61), showed it intended only to reduce the tax burden on forest land, not to eliminate it completely. The court disagreed. Chapter 61 provides for a reduced tax rate for forest land in an undeveloped state that is managed according to a forest management plan issued by a licensed State forester. It gives the municipality a right of first refusal to buy the land if the owner wants to take it out of qualifying use. The court characterized Chapter 61 as a financial incentive not to develop forest land. It is available to all private owners, whether individuals, for profit business entities or nonprofits, and in prior years NEFF had received forest-land classification for the Hawley forest under chapter 61. The court held that Chapter 61 and Clause Third serve distinct purposes. While Chapter 61 creates incentives to encourage conservation by any and all private landowners, Clause Third is a property tax exemption based on the theory that property held for philanthropic, charitable, religious, or other quasi-public purposes in fact helps to relieve the burdens of government.
The court also rejected the theory put forward by the board that the legislative charter creating The Trustees of Reservations (the first land conservation entity of its kind in the United States) included a property tax exemption that by implication meant that Clause Third did not apply to land privately held for conservation purposes by any other charitable organization.