Goodrum et. al. v. State of Vermont, No. 440-7-12 Wrcv (Teachout, J. Feb. 19, 2014).
[The text of this Vermont trial court opinion is unofficial. It has been reformatted from the original. The accuracy of the text and the
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                                                STATE OF VERMONT

SUPERIOR COURT                                                                             CIVIL DIVISION
Windsor Unit                                                                               Docket No. 440-7-12 Wrcv

GARFIELD GOODRUM and LUCILLE
GOODRUM,

          Appellants

v.

STATE OF VERMONT, DEPARTMENT
OF TAXES, PROPERTY VALUATION
AND REVIEW DIVISION,

          Appellee

                                     DECISION
                           MOTION FOR SUMMARY JUDGMENT
                      AND CROSS MOTION FOR SUMMARY JUDGMENT

        This matter is before the court on the State of Vermont, Department of Taxes,
Property Valuation and Review Division’s (“Appellee’s” or the “Department’s”) Motion
for Summary Judgment, filed July 18, 2013, and Garfield and Lucille Goodrum’s
(collectively, “Appellants’” or the “Goodrums’”) Cross Motion for Summary Judgment,
filed October 4, 2013.

        Appellants own property at 631 Town Hill Road, Reading, Vermont that includes
several buildings and undeveloped forest land. Their forest land is enrolled in the UVA
program. They lease four barns and two sheds (the “Farm Buildings”) on non-forest land
on their property to Turtle Hill Farm of Vermont Sanctuary, Inc. (“THF”), a nonprofit
corporation they formed in 2008.

        THF rescues, rehabilitates, and adopts out animals such as guinea pigs, horses,
rabbits, and chickens. THF uses the Farm Buildings to house, feed, manage, and
otherwise care for the animals.

        THF obtains its animals from individuals and shelters that can no longer care for
them. Many of the animals THF receives into its care are in states of neglect that require
significant medical care and labor. THF also participates in emergency rescues. For
example, in 2011, THF cared for 30 rabbits seized from an animal hoarder.

        THF adopts out an average of 25 animals a year, mostly guinea pigs and rabbits.
If an animal is sick or otherwise unsuitable for adoption, he or she receives permanent
sanctuary at THF.
       Lucille Goodrum is the executive director of THF. She has two decades of
experience in the field of animal protection and rehabilitation.

       THF received $15,020 in donations in 2009-2010 and $18,869 in donations in
2011 and 2012 to cover its operations including hay, feed, medical treatment, and
building maintenance. Most of the donations are from the Goodrums.

        In August 2010, Appellants attempted to enroll the Farm Buildings in Vermont’s
Use Value Appraisal (“UVA”) Program.1 Property qualified for the UVA Program is
taxed at a lower rate than ordinary land. In this case, the Farm Buildings would be
exempt from any taxes if they qualified for the UVA Program. The Department of Taxes
determined that the Farm Buildings did not qualify for the UVA Program because they
are not leased to or operated by a farmer as defined by 32 V.S.A. § 3752.

       Appellants appealed to the Director of the Division of Property Valuation and
Review (PVR) who issued a Determination on June 21, 2012 that the Farm Buildings do
not qualify for the UVA Program.

        Appellants appealed to this Court. The Vermont Department of Taxes, on behalf
of PVR, moved for summary judgment on July 17, 2013, arguing that the undisputed
facts support the Director’s conclusion that the Farm Buildings should not be enrolled in
the UVA Program. Appellants opposed this motion on October 4, 2013, and cross-
moved for summary judgment, countering that THF’s activities constitute farming and,
therefore, the Farm Buildings should qualify for the UVA Program.

        On October 11, 2013, Appellee opposed Appellants’ cross motion, reasserting
that THF does not satisfy the statutory definition of “farmer.” Appellants replied on
November 8, 2013 that Appellee had misinterpreted the relevant statutes and evidence
and that a similar farm near Appellants’ property has qualified for the UVA Program. By
Reply dated November 14, 2013, Appellee argued that the similar farm identified by
Appellants may no longer qualify for the UVA Program and that, therefore, its previous
enrollment should be irrelevant here.

       Oral argument was heard on the summary judgment motions on January 16, 2014.
Appellants represented themselves, and the Department was represented by Attorney
Barbara G. Ripley.

       After the hearing, on February 7, 2014, Attorney Ripley filed a letter with the
Court that appears to provide factual information. It has not been read or considered by
the Court for two reasons: it is not appropriate to present either facts or legal argument in
the form of a letter, and summary judgment motions are to be decided based on
undisputed facts in the record provided pursuant to the procedures in V.R.C.P. 56.


1
  This dispute involves only the Farm Buildings. Other parts of Appellants’ property are already enrolled
in the UVA Program, and Appellee does not dispute that those areas qualify for the program.

                                                     2
                                             ANALYSIS

        To prevail on a motion for summary judgment, a movant must demonstrate “that
there is no genuine dispute as to any material fact and the movant is entitled to judgment
as a matter of law.” V.R.C.P. 56(a). In ruling on a motion for summary judgment, the
court will take “all allegations made by the nonmoving party as true.” Richart v.
Jackson, 171 Vt. 94, 97 (2000). Here, the material facts are not disputed. The issue is
the legal one of whether THF qualifies as a “farmer” under the applicable statutory
definition. Resolution of this issue determines whether the Farm Buildings qualify for
enrollment in the UVA Program.

        The UVA Program “is designed to provide a tax incentive for landowners to
maintain their agricultural or forest land by taxing it at its current use value rather than at
the higher ‘best use’ value.” Jones v. Dep’t of Forests, Parks and Recreation, 2004 VT
49, ¶ 2, 177 Vt. 81. One of its specific goals is “to encourage and assist the maintenance
of Vermont’s productive agricultural and forest land.” 32 V.S.A. § 3751.

        If an individual or entity satisfies the definition of “farmer” in 32 V.S.A. §
3752(7), “all farm buildings and other farm improvements which are actively used by
[the] farmer as part of a farming operation, are owned by [the] farmer or leased to [the]
farmer under a written lease for a term of three years or more,” 32 V.S.A. § 3752(14), can
qualify for the UVA Program. 32 V.S.A. § 3755. Whether THF qualifies as a “farmer”
is the central dispute in this matter. Appellants lease the Farm Buildings to THF, and
thus claim eligibility for enrollment of the buildings in the UVA.2

        32 V.S.A. § 3752(7) defines a farmer as

        a person:

        (A) who earns at least one-half of the farmer’s annual gross income from
        the business of farming as that term is defined in Regulation 1.175-3
        issued under the Internal Revenue Code of 1986; or

        (B)(i) who produces farm crops that are processed in a farm facility
        situated on land enrolled by the farmer in a use value appraisal program or
        on a housesite adjoining the enrolled land;

        (ii) whose gross income from the sale of the processed farm products
        pursuant to subdivision (i) of this sub-division (B), when added to other
        gross income from the business of farming as used in subdivision (A) of
        this subdivision (7), equals at least one-half of the farmer's annual gross
        income; and


2
 Appellants themselves do not need to meet the statutory definition of “farmer.” Their Farm Buildings
qualify for enrollment if they are leased to a farmer.

                                                   3
        (iii) who produces on the farm a minimum of 75 percent of the farm crops
        processed in the farm facility

32 V.S.A. § 3752(7).

        Generally, courts defer to administrative agencies when agencies are interpreting
statutes within their area of expertise. Town of Killington v. Dep’t of Taxes, 2003 VT 88,
¶ 5, 176 Vt. 70. However, “the legislatively established [UVA Program] is a remedial
statute designed for the express purpose of alleviating the tax burden on landowners who
promise to maintain their land in agricultural or forest use.” Mollica v. Div. of Prop.
Valuation and Review, 2008 VT 60, ¶ 10, 184 Vt. 83. Because of the program’s remedial
purpose, the Court’s “deference is tempered by [its] paramount concern of construing the
statute consistently with its explicitly stated purposes.” Id. ¶ 11. Therefore, it is the role
of the Court to construe the legal definition of “farmer” as it pertains to THF.

        The Department argues that THF does not qualify as a farmer because THF does
not earn “at least half of its income from the business of farming.” The Department
asserts that the plain language of 32 V.S.A. § 3752(7)(A) says that the “business of
farming” “is defined in Regulation 1.175-3 issued under the Internal Revenue Code of
1986,” (32 V.S.A. § 3752(7)(A)), and that only that specific regulation applies. That
regulation states that “[a] taxpayer is engaged in the business of farming if he cultivates,
operates, or manages a farm for gain or profit, either as owner or tenant.” 26 C.F.R. §
1.175–3 (emphasis added). According to Appellee, THF cannot be considered a “farmer”
because it has no gain or profit whatsoever.

        Appellants argue that THF actually receives all of its income from the business of
farming because its only income is donations that support its rescue and rehabilitation of
animals. They further assert that focusing on only 26 C.F.R. § 1.175–3 is improper, and
that the Court should also consider 26 C.F.R. § 1.183–2, which identifies nine factors for
determining “whether an activity is engaged in for profit.” 26 C.F.R. § 1.183–2(b).
Appellants claim that five of these nine factors support their position that THF operates
“a farm for gain or profit.” 26 C.F.R. § 1.175–3.3

         Although 32 V.S.A. § 3752(7) does not specifically state that the factors from 26
C.F.R. § 1.183–2(b) are relevant for determining if a person qualifies as a “farmer,” the
Court will nonetheless consider them, keeping in mind that the purpose of C.F.R. § 1.183
is to distinguish between activities for profit and not for profit for purposes of qualifying
expenses as allowable deductions from income for purposes of income taxation.

      First, “[t]he fact that the taxpayer carries on the activity in a businesslike manner
and maintains complete and accurate books and records may indicate that the activity is

3
  Appellants also argued that the Farm Buildings should qualify for the UVA Program because a horse farm
near Appellants’ property is a part of the program and the operation of a horse farm is similar to THF’s
rescue and rehabilitation of animals. This argument is unsuccessful. The specifics of how the horse farm
identified by Appellants qualified for the UVA Program and whether it should still be a part of the program
are not relevant here.

                                                    4
engaged in for profit.” 26 C.F.R. § 1.183–2(b)(1). Here, THF has been incorporated as a
nonprofit entity since 2008. It maintains thorough records, which include surrender
papers for the animals it acquires and detailed accounts of income and expenditures.
THF is run in a businesslike manner.

        Second, “[p]reparation for the activity by extensive study of its accepted business,
economic, and scientific practices, or consultation with those who are expert therein, may
indicate that the taxpayer has a profit motive where the taxpayer carries on the activity in
accordance with such practices.” 26 C.F.R. § 1.183–2(b)(2). It is undisputed that Lucille
Goodrum has extensive experience caring for and rehabilitating animals. The facts do
not show, however, that THF “has a profit motive.” The Goodrums’ motivation is for the
benefit of the animals rather than to generate income. The expenses of THF are paid by
the Goodrums’ own donations to it, and not from the generation of income.

        Third, “[t]he fact that the taxpayer devotes much of his personal time and effort to
carrying on an activity, particularly if the activity does not have substantial personal or
recreational aspects, may indicate an intention to derive a profit.” 26 C.F.R. § 1.183–
2(b)(3). While considerable time and effort are spent on the mission of THF, it is not out
of an “intention to derive a profit” in the traditional sense of generating income.

        Fourth, whether a taxpayer expects “that assets used in [the] activity may
appreciate in value” is also relevant for determining if the taxpayer is attempting to make
a profit. 26 C.F.R. § 1.183–2(b)(4). Appellants assert that THF attempts to rehabilitate
injured or unhealthy animals, thus making them more valuable. They further claim that,
under its lease agreement with Appellants, THF is expected to maintain and repair the
Farm Buildings, increasing their value as well. While there is value to promoting the
health and adoptability of animals, and use of buildings may help them to maintain
property value, neither of these effects produce economic “gain or profit” to THF, the
entity at issue.

        Fifth, “[t]he fact that the taxpayer has engaged in similar activities in the past and
converted them from unprofitable to profitable enterprises may indicate that he is
engaged in the present activity for profit, even though the activity is presently
unprofitable.” 26 C.F.R. § 1.183–2(b)(5). There are no facts on this point, but the factor
is based on an assumption of an intent to create a profit, which is not shown on the part of
THF.

        Sixth, “where losses continue to be sustained beyond the period which
customarily is necessary to bring the operation to profitable status such continued losses,
if not explainable, as due to customary business risks or reverses, may be indicative that
the activity is not being engaged in for profit.” 26 C.F.R. § 1.183–2(b)(6). Here,
Appellants have made no suggestion that THF is profitable, nor that THF will someday
become profitable

         Seventh, “[t]he amount of profits in relation to the amount of losses incurred, and
in relation to the amount of the taxpayer’s investment and the value of the assets used in

                                              5
the activity, may provide useful criteria in determining the taxpayer’s intent.” 26 C.F.R.
§ 1.183–2(b)(7). THF does not have any profits, yet pays for food and supplies to
rehabilitate its animals. It meets these expenses with donations primarily from the
Goodrums. While, as the Goodrums argue, there is “gain” involved, it is gain to the
health and wellbeing of the animals, and not to the economic productivity of the entity
THF.

       Eighth, “[t]he fact that the taxpayer does not have substantial income or capital
from sources other than the activity may indicate that an activity is engaged in for profit.”
26 C.F.R. § 1.183–2(b)(8). Here, THF receives donations to support its rehabilitation of
animals. It does not receive any income from other sources.

         Ninth, “[t]he presence of personal motives in carrying on of an activity may
indicate that the activity is not engaged in for profit, especially where there are
recreational or personal elements involved.” 26 C.F.R. § 1.183–2(b)(9). In this case,
although all of THF’s activities may not be enjoyable, especially decisions to have
unhealthy animals put down, the evidence indicates that Appellants operate THF because
of their love of animals. Indeed, at the January 16, 2014 hearing, Appellants specifically
explained how running THF is an extension of their personal feelings regarding animals.
Therefore, for Appellants, operating THF is largely a personal endeavor, despite the
reality that some of the activities inherent in that operation are not particularly
recreational.

        Finally, 26 C.F.R. § 1.183–2(b) explains that “[i]n determining whether an
activity is engaged in for profit, all facts and circumstances with respect to the activity are
to be taken into account. No one factor is determinative in making this determination.”
26 C.F.R. § 1.183–2(b).

        In this case, the fact that almost all of THF’s donations have been made by
Appellants, the creators of THF, weighs heavily against THF being considered an entity
operating for gain or profit. These donations are reallocations of Appellants’ money into
a nonprofit organization that they wholly control. They are not gain or profit in the
traditional sense of either generation of money or increase in capital value. 26 C.F.R. §
1.183–2(a) explains that “[i]n determining whether an activity is engaged in for profit,
greater weight is given to objective facts than to the taxpayer’s mere statement of his
intent.” 26 C.F.R. § 1.183–2(a). Here, those objective facts indicate that THF, a
nonprofit organization that derives nearly all of its income from donations made by its
creators, is not operating for gain or profit.

        Appellants argue that the purpose of the UVA is to promote a working landscape
and that the activities of THF fulfill this goal. Many owners use their land and buildings
in similar ways. The Legislature has defined a specific category of landowners who
qualify for the UVA according to defined criteria. Upon consideration of the undisputed
facts and legal arguments, the Court concludes that THF does not meet the standard of
managing its activities “for gain or profit.” Therefore, it does not qualify as a “farmer”



                                              6
under 32 V.S.A. § 3752(7), and Appellants are not eligible for enrollment of their Farm
Buildings in the UVA.

       Accordingly, the Department’s summary judgment motion must be granted, and
Appellants’ cross motion must be denied.



                                        ORDER

      Appellee’s Motion for Summary Judgment is hereby granted. Appellants’ Cross
Motion for Summary Judgment is hereby denied.



       Dated at Woodstock, Vermont, this 13th day of February, 2014.



                                            Honorable Mary Miles Teachout
                                            Superior Court Judge




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