A Hendricks County lodge that hosts both charitable and social events cannot qualify for tax exempt status because the organization that owns the lodge failed to prove it is a fraternal association or that the use of the lodge is for predominantly charitable purposes, the Indiana Tax Court has ruled.
During the 2013 and 2014 tax years, Whitelick Indiana Aerie 3207, an organization run by the Fraternal Order of Eagles, owned two parcels of land in Plainfield, the larger of which housed a lodge. The lodge was divided into three parts – a social room, banquet hall and offices/meeting rooms – as well as personal property used for the organization’s activities.
The banquet hall was used as a bingo room once a week and was also rented out for weddings, receptions and other similar events. Further, Aerie 3207 donated its facilities for use by charitable organizations.
Most of Aerie 3207’s income was generated from its restaurant, gaming, membership dues and fundraisers. Those funds were used to pay operating expenses, with any remaining money donated to charity. Additionally, a separate pot of money kept in a benefit fund was used to pay members’ funeral benefits.
During the tax years at issue, Aerie 3207 filed for property tax exemptions with the Hendricks County Property Tax Assessment Board of Appeals, asking for either a fraternal benefit association exemption or a charitable purposes exemption on its real and personal property. The board denied those exemptions for both years, as did the Indiana Board of Tax Review.
Aerie 3702 then appealed in Whitelick Indiana Aerie 3207 Fraternal Order of Eagles, Inc. v. Hendricks County Assessor, 49T10-1608-TA-21, but Indiana Tax Court Special Judge Mark E. GiaQuinta affirmed the boards’ decisions in a Friday opinion. Specifically, GiaQuinta said Aerie 3207 does not qualify as a “society” under Indiana Code 27-11-1-1, but rather is a “subordinate” to the society, which, here, is the Grand Aerie, or governing body of the lodge. Thus, because that statute defines fraternal benefits associations as societies, not subordinate lodges, it cannot qualify for a fraternal benefit association exemption under I.C. 6-1.1-10-23.
Further, GiaQuinta noted that Aerie 3207 does not issue a benefits contract to ensure payment of the death benefit to members’ beneficiaries. Without that contract, the organization’s payments cannot qualify as a “benefit” under I.C. 27-11-6-1, so it does not meet the definition of “operating for the benefit of members,” which is required to obtain an exemption, he said.
Though “safe harbor” language in I.C. 27-11-9-4 allows certain organizations to avoid any section of I.C. 27-11 they cannot meet, GiaQuinta wrote that language does not apply to Aerie 3207 because the statute “clearly anticipates transactions involving the issuance of benefits between at least two levels among the hierarchy that comprise the society.” Here, that hierarchy does not exist, because Aerie 3207 provides the death benefits solely on its own.
Further, GiaQuinta wrote Aerie 3207 does not qualify for a charitable purposes tax exemption under I.C. 6-1.1-10-16 because it failed to establish its property was predominantly used for a charitable purpose.
Pointing to the case of Fraternal Order of Eagles #3988, Inc. v. Morgan County Property Tax Assessment Board of Appeals, 5 N.E.3d 1195, 1198 (Tax Ct. 2014), which addressed the need for time usage reports, the special judge said Aerie 3207 didn’t provide the board “with any comparison of the time its property was used for exempt versus non-exempt purposes.” The organization also failed to prove the activities that it claimed were charitable “satisfied the common law definition by relieving human want.”
Finally, in footnotes to his opinion, GiaQuinta urged the General Assembly to “consider whether the purposes which gave rise to property tax exempt status to fraternal benefit associations still exist” and to “recognize the changing nature of these clubs and update the relevant statutory framework.”