MEMORANDUM OCTOBER 11, 1988

Topic Code: E016Educational Institution          Document Reference:

MEMORANDUM OCTOBER 11, 1988

TO: JERRY HILTON, TAXPAYER SERVICES

FROM: DARWIN D. CLUPPER, TTS III, POLICY SECTION

DATE: OCTOBER 11, 1988 RE: EDUCATIONAL INSTITUTIONS, EFFECT OF EDMUNDSON ART FOUNDATION INC, YOUR POLICY REQUEST 9/23/88

FACTS: Daycare centers, baby sitters and other institutions exist which provide care for preschool children. Some daycare, preschool, and babysitters offer a "structured program" for the children who are in their charge. These "structured programs" can provide training in reading, math or other subjects.

ISSUE: Does the director's decision in the Edmundson Art Foundation, Inc. case (Dkt. No. 86-100-6A-RC) mandate the conclusion that the above described daycare, preschool and babysitters are "private nonprofit, educational institutions" and their purchase, therefore exempt from tax under subsection 422.45(8) of the Code.

STATUTES OR RULES INVOLVED: Subsection 422.45(8) of the Code.

DISCUSSION: It would be a grave error to conclude that the Edmundson Art Foundation case extends the right of exemption granted by subsection 422.45(8) to daycare centers, preschool and babysitters. I think you can eliminate most babysitters from this subsection's benefits with the observation that the exemption granted by 422.45(8) is available only to "nonprofit" educational institutions. I think we can safely conclude that almost every babysitter, however tenderhearted, babysits to make a profit.

Concerning daycare centers and preschools, the Edmundsoncase is not to be interpreted to exempt from tax the purchases of every nonprofit organization which happens to offer some instructions to some people about some thing. Yet this is what threatens to happen unless the real meaning of the case is understood. There are at least three reasons why Edmundson should not be interpreted as extending the benefits of subsection 422.45(8) to daycare centers and preschools: 1) the original, limited intent of the legislature which enacted subsection 422.45(8); 2) the strict construction (proper in the case of an exemption statute) given to 422.45(8) in the one case in which the Iowa Supreme Court interpreted the subsection, American College Testing Program, Inc. v. Forst, 182 N.W.2d 826 (Iowa 1970).; and 3) a careful reading of the Edmundson case, distinguishing its facts from the facts likely existing with regard to a daycare or preschool.

In interpreting a statute and attempting to discover the will of the legislature which enacted it, it is permissible to consider "matters of common knowledge and common report and the history of the times". Federal Land Bank of Omaha v. Arnold 426 N.W.2d 153 (Iowa 1988). It is fairly well known by those who have studied the history of this exemption that it was provided to give what would conventionally be called "private schools" some sort of parity in treatment with government-run schools, the purchases of which are exempt from tax under subsection 422.45(5) of the Code. The educational institutions for which this parity of treatment was intended were secondary schools (K-12) two year and four year colleges, there being no or almost no government-sponsored day care centers at the time this legislation was enacted. In summary, the nature of a governmental educational institution as that term is to be understood at the time subsection 422.45(8) was enacted sheds light upon the meaning of the term "private educational institution". The fact that government sponsored daycare was nonexistent or almost nonexistent at the time the subsection became law is, given the particular statutory history of the exemption, some indication that the enacting legislature did not intend the subsection's benefits to extend to daycare or preschool.

American College Testing Program, Inc. v. Forst, supra is the only case in which the Iowa Supreme Court has had occasion to interpret the meaning of subsection 422.45(8). Its comments therein provide no support for the contention that the usual daycare or preschool would be considered an "educational institution". Its comments (at p. 827) are most instructive. The court first mentions the need for strict construction of an exemption statute:

One ordinarily thinks of an educational institution as a school, college or university with students, faculty, and an established curriculum...we have broadened the concept to include libraries...and county school systems.... (Citations omitted).

ACT does not fall within either of these extensions of the meaning of an educational institution. A library is a source of knowledge. It is used by the student for study and research to increase his knowledge. ACT does not offer the student such opportunity. It only tests the student to determine how much he already knows. The county school system as it existed in 1935 was an administrative adjunct to the county schools. It was directly involved in the educational process furnishing guidance to and supervision over the local school district. No such relationship exists between ACT and any educational institution.

We cannot construe the exemption strictly and include plaintiff [ACT] within the term "educational institution".

Even a daycare with a "structured program" would not be a "school...with students, faculty and an established curriculum." When have children attending a daycare or preschool ever been thought of as "students" and when has any daycare or preschool called its workers "faculty". "Curriculum" has been defined at law as the whole body of courses offered by an educational institution or one of its branches. Burlington County College Faculty Ass'n v Board of Trustees, Burlington County College, 291 A2d 150, 119 N.J. Super. 276. I do not think that the type of course offered by the usual daycare or preschool or even by one with more structure than usual could rise to the level of a "curriculum". So a daycare or preschool does not meet the characterization of "educational institution" set out in American College Testing. It is obviously not, in any sense, an institution that resembles a library or county school system to the extent that it can be considered an "educational institution".

Finally, I think that a careful and conservative reading of Edmundson Art Foundation, Inc. does not lead to the conclusion that preschool and daycare centers are now to be considered "educational institutions".

The case can be (as one dealing with an exemption should be) construed quite narrowly. The Supreme Court in American College Testingstated that it had broadened the concept of "educational institutions" to include libraries and school systems. Edmundson can be read to further broaden the concept to include museums and classes conducted by museums in its particular field of endeavor. However, the case need not be interpreted to say anymore. Analyzing Edmundson further, however, you must remember that a determination that any one individual day care or preschool is an "educational institution" is a factualrather than a legal determination. The result could, therefore, vary from case to case. I will simply set out the factual circumstances in Edmundson which led the director to conclude that Edmundson was an "educational institution" that would differ for most daycare centers. Edmundson gave scholarships, as would the usual college. College students from two Des Moines area colleges could take courses at Edmundson's art center which qualified for college credit. I know of no course offered by any daycare center which would qualify for any sort of elementary or secondary school credit. "Some" of Edmundson's faculty had teaching certificates. It is quite often that the average day care worker does not. Edmundson's faculty were required to be either exhibiting professional artists, possess a bachelors or masters degree in art and furthermore "submit a portfolio and resume with credentials and experience in teaching". Most daycare or preschool centers would have no such corresponding requirements for their workers. Edmundson's faculty gave letter grades to various types of students taking their courses for credit. Again, when has any daycare or preschool given its charges letter grades. Edmundson offered any number of "courses". It would be very unusual for any preschool or daycare training to rise to the level of a "course". Edmundson operated a reference library which contained over 9,000 books. The library was used both by the public and by school systems. The library was staffed by an actual librarian. No daycare would have anything corresponding. There are other, more subtle differences. However, I think the above differences which I have set out are adequate to distinguish Edmundson from even a "structured" daycare program.

In closing and summary, the statutory history of subsection 422.45(8), a reading of the one Supreme Court case interpreting the subsection (American College Testing) and a conservative reading and study of Edmundson Art Foundation case compel the conclusion that a daycare or preschool would not be considered an "educational institution". Its purchases should continue to be subject to tax.