LEVIN, J.
The University Cellar, Inc., was incorporated at the direction of the Board of Regents of the University of Michigan to maintain and operate a nonprofit book store at the University.
The issue is whether the Cellar is exempt from property taxation by the City of Ann Arbor because its inventories of textbooks, other books and supplies, household appliances and sundries, fixtures and other personal property are "public property belonging to the state" or are the "personal property of charitable, educational, and scientific institutions, incorporated under the laws of this state".
MCLA 211.7; MSA 7.7.
MCLA 211.9; MSA 7.9.
The State Tax Commission, finding that the University "is not in control" of the Cellar, rejected the Cellar's claim that its inventories "belong to" and are the "property of" the University. The Commission reasoned that whether the University controls the Cellar depends on whether the Regents have voting control of the Cellar's board of directors and, through its board, its officers. Finding that the Regents do not control the Cellar's board and hence do not control its management, the Commission concluded that the Cellar's property is not the property of the University.
The Court of Appeals reversed; it concluded that "the University retains sufficient ownership and control" over the Cellar "so that its property can be said, as a matter of law, to be the property of the University of Michigan".
Ann Arbor v The University Cellar, Inc, 65 Mich. App. 512, 519; 237 N.W.2d 535 (1975).
My colleague, emphasizing the relationship between the Cellar's purpose and the University's educational mission, the Regents' sponsorship of the Cellar and their power to inhibit its successful operation by withdrawing funding and other support and to terminate its corporate existence, concludes that it would not be consistent with the purpose or the policy of the exemption to deny it in this case, and that, in substance, the property of the Cellar is the property of the University.
We reverse the Court of Appeals and affirm the State Tax Commission's determination that the Cellar's property is not University property.
There is no need to reach the question implicitly decided by the Court of Appeals and in my colleague's opinion of whether a tax exempt organization may extend its exemption to a separate corporation, albeit one organized to carry out the exempt purpose. The predicate of any such extension must, as my colleague states, be that the property of the corporation not itself exempt is, in substance, the property of the exempt organization.
The relationship between the Cellar's purpose and the University's educational mission indicates that exemption of the Cellar's stock-in-trade is consistent with the purpose of the exemption but does not touch the question whether the Cellar's property is, in substance, the property of the University.
The question whether the property of the Cellar is, in substance, University property depends essentially on whether the Regents or persons acting for and responsible to them so dominate the management and operation of the Cellar that its separate corporate identity should be ignored. The substance of the matter is thus more a question of fact than of law.
The State Tax Commission found that the University is not in control of the Cellar. That factual determination is evidentially supported and, indeed, there is no evidence that would support any other finding.
I
The Regents authorized the incorporation of the Cellar, contributed $100,000 from the Student Vehicle Fund to its capital and imposed a mandatory, refundable $5 deposit on the students.
The Regents retained the power to terminate the Cellar's corporate existence and, upon termination, any assets remaining after the payment of liabilities reverts to the Regents. The Regents could also eliminate the $5 student deposit.
Six of the ten directors are selected by the Student Government Council, three by the Faculty Assembly, and one by the University president. It does not appear whether there are members or stockholders of the Cellar and who they may be. It therefore does not appear whether the Regents or anyone acting for them is a member or stockholder of this corporation.
Corporations are controlled by their directors and those who, under the articles of incorporation, have the right to select them. The students, who select a majority of the directors, control the Cellar's board of directors. That control is shared with three faculty members.
2 Fletcher, Cyclopedia Corporations, § 505, pp 527-542; Detroit Canada Tunnel Corp v Martin, 353 Mich. 219, 233; 91 N.W.2d 525 (1958); Ayres v Hadaway, 303 Mich. 589, 594; 6 N.W.2d 905 (1942); Union Trust Co v Parker, 251 Mich. 630, 639; 232 N.W. 360 (1930).
While the Student Government Council and Faculty Assembly are part of the overall University community, both organizations are independent of and not in any sense subservient to the Regents or to the administration of the University. It cannot be seriously contended that the student-designated directors represent the Regents.
The Court of Appeals erred in equating the "administration, faculty and students" with the "University", and in "conclud[ing] that the University of Michigan does, in fact, own and control the defendant corporation".
Ann Arbor v The University Cellar, supra, pp 520-521.
Id, p 520.
The Cellar is not the University or controlled by the Regents even though "its board is selected only by institutional bodies officially recognized by the Regents as integral parts of the University".
There is no evidence that the Cellar is required to make any report to the Regents or someone designated by them. Nor is there any evidence that the Regents or the administration are informed about the course or results of operations or influence operations or management, let alone attempt to exercise control, directly or indirectly.
The Regent's power to deny the Cellar space in University buildings, withdraw financial support and terminate its corporate existence provides no assurance that the Regents exercise any supervision or control or, indeed, that operations have been conducted in a manner consistent with the purpose for which the Cellar was organized.
The University sought to divorce itself from any responsibility for the results of operations; a stated reason for organizing a separate corporation was to insulate the Regents from responsibility and the University from liability to creditors of the Cellar. The Regents have made it abundantly clear that they do not wish to hazard any responsibility or accountability for the success or failure of this enterprise.
It was the Cellar's burden to establish entitlement to exemption from taxation. Although a purpose of organizing the Cellar was to provide the students with books and supplies at a reduced cost and it was intended that the Cellar would operate on a nonprofit basis, there is no evidence whatsoever whether and to what extent these goals have in fact been achieved.
There is no record support for the Court of Appeals statement that the Cellar operates on a "break-even" basis. The Cellar offered no history of operations or financial information. It does not appear, for example, how the prices of its textbooks and supplies compare with those sold by privately operated stores. The Cellar has a substantial inventory of phonograph records, household appliances, and other articles; there is no indication of the percentage of its total dollar volume represented by sales of textbooks and supplies. Nor is there any information regarding salaries or other compensation paid to the managers and other executive employees of this enterprise or the services performed or time devoted by them to its business.
II
We are in agreement that in deciding whether the Cellar's personal property is the property of the University within the meaning of the statute our duty is to ascertain and give effect to the Legislature's intent. As aptly stated by my colleague, "strict construction, does not mean strained construction adverse to the Legislature's intent".
"Exemptions from taxation are not to be enlarged by implication if doubts are nicely balanced. Chicago Theological Seminary v Illinois, 188 U.S. 662, 674; 23 S Ct 386; 47 L Ed 641 (1902). On the other hand, they are not to be read so grudgingly as to thwart the purpose of the lawmakers." Trotter v Tennessee, 290 U.S. 354, 356; 54 S Ct 138; 78 L Ed 358 (1933).
Sometimes it is helpful to describe what a case is not about. This case is not about education or student welfare, but personal property taxes. The issue is not whether the Cellar is a good idea, beneficial to students and a laudable, well-operated store, or even whether it operates on a break-even basis. The issue is whether its inventories and other personal property are University property.
It has been stressed that many colleges and universities have a school-sponsored book store. It does not appear, however, whether such book stores are operated through separate corporations controlled by students without ongoing supervision by the school. Nor does it even appear whether the personal property of such book stores is exempt from property taxation and, if so, whether under a general or special exemption.
The corporation deemed to be a part of Catholic University in District of Columbia v Catholic Education Press, Inc, 91 US App DC 126; 199 F.2d 176 (1952), was directed, controlled and managed by a board of trustees consisting of the same persons comprising the university's board of trustees. The corporation in State ex rel Wisconsin University Building Corp v Bareis, 257 Wis. 497; 44 N.W.2d 259 (1950), was organized to acquire real estate for the exclusive use and benefit of the university. The court concluded that property so acquired was beneficially owned by the state and exempt from taxation. The inventory of goods in this case is not held for the exclusive benefit of the University. The association operating a book store in Stanford University Book Store v Helvering, 65 US App DC 364; 83 F.2d 710 (1936), was denied tax-exempt status. There, officers and directors of the association were selected from its membership, which was restricted to faculty members.
The instant case is also distinguishable from Ann Arbor v State Tax Commission, 393 Mich. 52; 223 N.W.2d 1 (1974), where the issue was whether properties of the University of Michigan Union, University of Michigan Lawyers Club and the Board In Control of Intercollegiate Athletics were tax-exempt. Records in the office of the Register of Deeds showed the land and buildings used by the Union, the Lawyers Club and the Board In Control were owned by the Regents.
III
One can acknowledge the desirability, or even urgency, of establishing a university-sponsored book store without agreeing that the inventories and other personal property of the Cellar are tax-exempt.
The University had a choice in the creation of this book store. It might have been established as a University project with a high degree of student involvement but with retention by the Regents, either through dominance of a separate operating corporation or otherwise, of a substantial measure of managerial control over operations and with a corresponding exposure to persons who deal with the book store — suppliers for unpaid bills and customers for injuries on the premises and product liability.
The original proposals considered by the Regents would have established the book store on that basis, but it was finally decided to separate the University from operations both to satisfy student insistence on a high degree of control tantamount to total control and to reassure Regents who were concerned that the University might otherwise be subject to liability.
The original proposals provided for retention by the Regents of substantial control of operations but the students insisted on student control. At the time the Regents faced massive student discontent reflected in various forms of civil disobedience.
It is clear that the issue of control was resolved in favor of the students and that it was not intended that the Regents would have any effective control over the management of the Cellar.
It is significant that the University is not seeking an exemption for the Cellar. Its counsel declined to enter an appearance or participate in these proceedings although invited to do so by the State Tax Commission. One can understand that the Regents would be reluctant to increase the University's exposure by arguing in effect that the Cellar is the alter ego of the University when a precondition to the Cellar's establishment was that the University not have any exposure beyond the contributed capital.
If the inventories of unsold goods which Ann Arbor seeks to tax are the property of the University, then the University must perforce be responsible for defective goods. It was, at least in part, to avoid such responsibility that the University established a separate corporation and divorced itself from ongoing responsibility for the management and financial affairs of this enterprise.
To disregard the corporate entity and treat the Cellar as the alter ego of the University for tax exemption purposes, and yet regard it as a separate entity for purposes of determining whether the University is subject to liability to unpaid suppliers or to customers who are injured on the premises or by defective products would be to run with the hare and hunt with the hounds.
When the Cellar was established without retention of managerial control, it was effectually determined that the tax and other advantages of association with the University were outweighed by the disadvantages or that the savings resulting from such association did not justify the resulting exposure and high degree of managerial responsibility.
A decision to hazard the tax disadvantages is entirely understandable in light of the relatively small amount of taxes in comparison to the supervisory costs and tension between administration and students that might result if the University had insisted on a different form of organization.
A textbook retailing for $10 may cost the book store $7. Assuming a relatively low turnover of 3-1/2 times a year and assessment at 50% as required by the constitution, the assessment on a book selling at $10 would be $1. If the tax rate is 50 mills, the tax would be 5 cents, or 1/2 of 1% of the sales price. This means that if a student spends $50 a year at the Cellar on textbooks he would, unless the Cellar can absorb the tax through sales of other articles, contribute 25 cents to the cost of local government.
IV
My colleague's opinion refers to Webb Academy v Grand Rapids, 209 Mich. 523, 540-541; 177 N.W. 290 (1920), where the following language is quoted approvingly:
Bishop Chapter of the Cathedral of St John the Evangelist v Arapahoe County Treasurer, 29 Colo. 143, 145-146; 68 P. 272 (1901).
"`In providing for these exemptions, the object was to foster educational institutions by relieving their property, within prescribed limits, from the burden of taxation.'"
Denying tax exemption in this case will not burden either the University or the taxpayers of this state; neither will be assessed, directly or indirectly, to pay the personal property taxes assessed against the Cellar's inventory and other personal property. Nor will it unduly burden the Cellar. It may reduce any surplus from operations or result in a small increase in the cost of books, supplies and other articles sold at the Cellar, thereby burdening students, faculty and members of the general public who patronize the Cellar.
It is entirely true that if the University itself were to go into the book and school supply business its inventories would be exempt. The Regents have, however, exercised restraint in utilizing their exemption.
A decision approving exemption in this case could engender proposals for the creation of other student-controlled enterprises under the umbrella of the University's tax exemption.
Students have many needs besides textbooks, supplies, phonograph records, cosmetics, appliances and other artifacts of the kind sold at the Cellar. Housing, food, shelter, transportation, even recreation, are necessary and related to the educational process. One can visualize that enterprising students might seek to establish other student-controlled organizations for the purpose of supplying fast food, clothing, recreation and housing on a "break-even", "nonprofit" basis. Surely the Legislature did not intend that such enterprises would obtain tax exemptions merely because the University sets in motion the organization and assists in the initial financing, and retains the power to terminate and, on termination, to recover any assets remaining after payment of the liabilities without regard to whether the University retains any meaningful managerial control and supervision of the enterprise.
If we may pierce the corporate veil and treat the property of the Cellar as belonging to someone other than the corporate entity of the Cellar, there is more reason to characterize its property as belonging to the Student Government Council, which controls the Cellar's board, than to characterize it as University property.
We conclude, assuming, again, that the Legislature intended to permit an exempt organization to extend its exemption to a nonexempt organization, that it did not intend to permit such extension without retention of managerial and operational control of the nonexempt organization, and that absent such control, the property of the nonexempt organization is not the property of the exempt organization within the meaning of the statutory exemption for personal property belonging to the state and for personal property belonging to incorporated charitable, educational and scientific institutions.
We reverse the Court of Appeals and remand the cause to the State Tax Tribunal for consideration of the issue of valuation as of December 31, 1970 and December 31, 1971 according to evidence presented by the parties.
KAVANAGH, C.J., and FITZGERALD and RYAN, JJ., concurred with LEVIN, J.