Big Springs Medical Association v. Parker (Reynolds)

 

BIG SPRINGS MEDICAL ASSOCIATION, INC., )

)

Complainant, )

)

v. ) Appeal Number 01-82500

)

RICK PARKER, ASSESSOR, )

REYNOLDS COUNTY, MISSOURI, )

)

Respondent. )

 DECISION AND ORDER

SUMMARY

Complainant appeals the tax status of its personal property for tax year 2001, and alleges entitlement to an exemption.

On April 26, 2002, an evidentiary hearing was held before State Tax Commission Hearing Officer, Aimee Smashey, at the Reynolds County Courthouse in Centerville, Missouri. Complainant was represented by Michael Hackworth. Respondent was represented by Robert Johnson, Reynolds County Prosecuting Attorney.

ISSUE

Does Complainant’s operations of its medical equipment and other listed personal property constitute a charitable operation and use?

HOLDING

Each tax exemption case must be decided upon its own facts. Complainant has the burden to establish entitlement to a property tax exemption. Complainant presented evidence to establish that the machinery and equipment in question in this assessment appeal is actually and regularly used exclusively for charitable purposes, is owned and operated on a not-for-profit basis, and that its use is beneficial to society in addition to those directly served by the subject property. Accordingly, this Hearing Officer finds that the subject personal property should be exempt from property taxes.

FINDINGS OF FACT

1. The subject personal property consists of machinery and equipment used in the operations of a medical clinic.

2. The subject personal property is owned and operated by Big Springs Medical Association (Complainant). Complainant is organized as a not-for-profit corporation with the Missouri Secretary of State. Complainant’s Exhibit C; Tr. 24.

3. Complainant is organized for the purpose of providing “…comprehensive health care for the total person, through the medium of managing and operating coordinated health facilities and programs” in Carter, Shannon, Reynolds, and Iron counties. Complainant’s Exhibit B, at 1 and Complainant’s Exhibit AA at 1. In furtherance of this purpose, Complainant operates four primary care clinics. Tr. 55.

4. Complainant is exempt from federal income taxes. Complainant’s Exhibit D.

5. Complainant submitted its Form 990, Return of Organization Exempt for Income Tax from 1996 through 2001. Complainant operated at a loss for four of the five years of returns submitted.

Excess or [Deficit] for the Year

Complainant’s Exhibits E – I.

6. 35.5% to 52.4.% of Complainant’s revenues came from government contributions in the form of grants. Complainant’s Exhibits E – I.

7. Complainant’s clinics provide medical services to patients without regard to their ability to pay for such services. Complainant’s Exhibit AA, at 3.

8. In setting the charges for its services, Complainant “…attempts to determine what the usual and customary charges for the medical services are in [the] operating area and then the rates charged are set somewhat below those usual and customary charges in most instances.” Complainant’s Exhibit AA, at 3. The ultimate rates set for the medical services are highly subsidized rates. Id.

9. No part of Complainant’s net earnings may inure to the benefit of any of the staff doctors. Complainant’s Exhibit AA at 4.

10. The funds to purchase the subject machinery and equipment used in Complainant’s clinic in Ellington (Reynolds County) originated from the Department of Health and Human Services through a Community Health Center Grant. Id., at 3 – 4.

11. Complainant receives some governmental funding for its medical operations. Two of Complainant’s clinics have been funded through the state of Missouri as a “330 project.” Of the grants received by Complainant, at least 45 – 50% of those funds must be used for nonreimbursable care. Tr. 30 – 31.

12. As a consequence of the governmental funding through grants, Complainant’s clinics have frequent audits. They have audits from the Office of Inspector General, Medicare audits, Medicaid audits, PCER audits, and are required to have an annual audit from an outside auditor. Tr. 45.

CONCLUSIONS OF LAW

Jurisdiction

Jurisdiction over this appeal is proper. Complainant timely appealed to the State Tax Commission from the decision of the Reynolds County Board of Equalization.

Burden of Proof

Although a taxing statute is construed strictly against the state, an exemption statute is strictly construed against the one claiming the exemption. State ex rel. Union Electric Co. v. Goldberg, 578 S.W.2d 921, 923 (Mo. banc 1979). “The law disfavors claims for exemption from taxation. The substantial burden of establishing the property falls within the exempted class is on the person claiming exemptions under the referenced constitutional and statutory provisions. To prevent the curtailing of the purpose and intended scope of a tax exemption, the tax exemption statute is to be strictly but reasonably construed.” Twitty v. State Tax Commission of Missouri, 896 S.W.2d 680, 684 (Mo. App. S.D. 1995) (citations omitted). Accordingly, in order to prevail, Complainant must demonstrate by substantial and persuasive evidence, that it is entitled to an exemption.

Substantial evidence is that evidence which, if true, has probative force upon the issues, i.e., evidence favoring facts which are such that reasonable men may differ as to whether it established them, and from which the Commission can reasonably decide an appeal on the factual issues. Cupples-Hesse Corporation v. State Tax Commission, 329 S.W.2d 696, 702 (Mo. 1959).

Persuasive evidence is that evidence which has sufficient weight and probative value to convince the trier of fact. The persuasiveness of evidence does not depend on the quantity or amount thereof but on its effect in inducing belief. Brooks v. General Motors Assembly Division, 527 S.W.2d 50, 53 (Mo. App. 1975).

Statutory Exemptions

Properties which can be exempted from taxation are set out within our Constitution and the statutes enacted to enforce that Constitution, to wit:

. . .all property, real and personal, not held for private or corporate profit and used exclusively for religious worship, for schools and colleges, for purposes purely charitable, . . .may be exempt from taxation by general law but any such law may provide for approximate restitution to the respective political subdivisions of revenues lost by reason of the exemption. All laws exempting from taxation property other than the property enumerated in this article, shall be void.

 

 

Article X, Section 6, Mo. Const. of 1945.

In support of this Constitutional provision, the Legislature has enacted Section 137.110, RSMo 1994, which provides in relevant part:

The following property shall be exempt from taxation:

(5) All property, real and personal, actually and regularly used exclusively for religious worship, for schools and colleges, or for purposes purely charitable and not held for private or corporate profit, except that the exemption herein granted does not include real property not actually used or occupied for the purpose of the organization but held or used as investment even though the income or rentals received therefrom is used wholly for religious, education or charitable purposes;

Section 137.110, RSMo.

Case Law on Charitable Use

In order for a property to be exempt from taxation for state, county or local purposes, the following tests must be met:

1. The property must be actually and regularly used exclusively for a charitable purpose, as charity is defined by Salvation Army v. Hoehn, 188 S.W.2d 826 (Mo. banc 1945). “Charity” is therein defined as “. . .a gift, to be applied consistently with existing laws, for the benefit of an indefinite number of persons, either by bringing their hearts under the influence of education or religion, by relieving their bodies of disease, suffering or constraint, by assisting them to establish themselves for life, or by erecting or maintaining the public buildings or works or otherwise lessening the burdens of government.” Salvation Army at 830.

2. The property must be owned and operated on a not-for-profit basis. The property “must be dedicated unconditionally to the charitable activity in such a way that there will be no profit, presently or prospectively, to individuals or corporations. Any gain achieved in use of the building must be devoted to achievement of the charitable objectives of the project.” Franciscan Tertiary Province v. State Tax Commission, 566 S.W.2d 213, at 224 (Mo. banc 1978).

3. The dominant use of the property must be for the benefit of an indefinite number of persons and must directly or indirectly benefit society generally. “It is required that there be the element of direct or indirect benefit to society in addition to and as a result of the benefit conferred on the persons directly served by the humanitarian activity”. Franciscan at 224. See also, Barnes Hospital v. Leggett, 589 S.W.2d 241 (Mo. banc 1979).

Subject Property Operations

1. The provision of medical services to the public at cost or less constitutes a gift.

2. Medical treatment and administrative services that enable medical treatment directly benefit people by relieving their bodies of disease, suffering, or constraint. Health-related education assists to establish people for life.

3. The performance history of the Complainant’s operations evidences an intent to provide medical and health-related educational services on a non-profit basis.

4. The availability of subsidized medical services at the Ellington clinic accessible to rich and poor alike is beneficial to the Reynolds County community.

DECISION

1. Use

Exemption law requires an unconditional dedication to a charitable objective. Charity is defined as “. . .a gift, to be applied consistently with existing laws, for the benefit of an indefinite number of persons, either by bringing their hearts under the influence of education or religion, by relieving their bodies of disease, suffering or constraint, by assisting them to establish themselves for life, or by erecting or maintaining the public buildings or works or otherwise lessening the burdens of government.” Salvation Army at 830. Does Complainant’s operation of the subject machinery and equipment at the subject clinic constitute a gift? The provision of medical services to the public at cost or less constitutes a gift. Complainant is organized as a not-for-profit corporation. Complainant operated at a loss for four of the five years preceding the tax date.

Excess or [Deficit] for the Year

Complainant’s Exhibits E – I. This was true despite 35.5 to 52.4% of its revenues coming from government contributions in the form of grants.

Tax Year		Revenue from Operations		Revenue from Government Contributions		Misc. Revenue		Total Revenues
1996		$503,198		$461,467 (47.7%)		$1,369		$966,034
1997		$444,379		$495,314 (52.4%)		$5,912		$945,605
1998		$636,269		$702,493 (52.2%)		$6,139		$1,344,901
1999		$775,796		$831,611 (51.5%)		$4,946		$1,612,353
2000		$1,279,805		$708,647 (35.5%)		$4,479		$1,992,931

Complainant’s Exhibits E – I.

Complainant annually sets the charges for its services after reviewing the usual and customary rates for medical services in the operating area and considering the ability of the community to pay for such services. Complainant’s Exhibit AA, at 3; Tr. 60. The charges set by Complainant have been significantly below the cost incurred to provide such services. Complainant’s Exhibits E – I; Tr. 60 – 61. Complainant’s performance history evidences an intent to provide medical and health-related educational services at cost or less.

The provision of medical services in a clinic setting and the provision of administrative support to such a medical clinic clearly qualify as appropriate uses under the Salvation Army definition in that the medical treatment directly benefits people by relieving their bodies of disease, suffering, or constraint and health education assists to establish people for life.

2. Operation

Exemption law requires ownership and operation on a non-profit basis. Complainant has machinery and equipment that is owns and some that it leases in use at the subject clinic. Only the machinery and equipment that Complainant owns and operates can qualify for exempt status. Complainant Corporation was established as a Missouri Nonprofit Corporation in February of 1975. Complainant’s Bylaws state the corporation’s objectives to be:

A. To serve as a primary resource in all health facility education activities relating to rendering care to the sick and injured, or to the promotion of health that, in the opinion of the BOARD OF DIRECTORS, may be justified by the facilities, personnel, funds, and other requirements that are, or can be, made available.

B. To participate, so far as circumstances may warrant, in any activity designed and carried on to promote the general health of the community.

C. To care for the sick and afflicted without regard to race, sex, color, political or religious beliefs.

D. To assist in the development of project plans, progress reports, and renewals, representing the views of the community and individuals most knowledgeable about health problems and the means available for alleviating those problems.

E. To offer suggestions, amendments, and revisions to the health projects, such as:

1. Selection and elimination of health care services;

2. Hours and locations of services;

3. Priorities for allocation of project funds;

4. Methods of evaluating health programs.

F. To determine health program policies.

G. To see that proper professional standards are maintained.

H. To direct the Executive Director of the health program in carrying out policies.

I. To provide adequate financing and control of expenditures.

Complainant’s Exhibit A at 2. No part of Complainant’s net earnings may inure to the benefit of any of the staff doctors. Complainant’s Exhibit AA at 4.

As referenced in the use discussion above, Complainant presented evidence which established that its performance history shows an intent to provide medical and educational services on a non-profit basis.

3. Public Benefit

Exemption law further requires “…that there be the element of direct or indirect benefit to society in addition to and as a result of the benefit conferred on the persons directly served by the humanitarian activity.” Franciscan Tertiary Province v. State Tax Commission, 566 S.W.2d 213, at 224 (Mo. banc 1978). The patients seen and treated at the Ellington clinic are the persons directly served by the clinic operations. The families of those patients are also directly served by the clinic. Under this analysis, the court requires us to go further and consider whether the rendering of the charitable activity inherently confers a benefit to society in general. Is the operation of the subject clinic beneficial to that community in general, even if similar medical services are available elsewhere in the community? In developing this test, the court reasoned as follows:

Another prerequisite for charitable exemption is that the dominant use of the property must be for the benefit of an indefinite number of people, for the purpose, as expressed in Salvation Army, of “bringing their hearts under the influence of education or religion, by relieving their bodies from disease, suffering, or constraint, by assisting them to establish themselves for life, or by erecting or maintaining public buildings or works or otherwise lessening the burdens of government.” 188 S.W.2d at 830. The court at that same point included “humanitarian activities, * * * rendered at cost or less, which are intended to improve the physical, mental and moral condition of the recipients and make it less likely that they will become burdens on society and make it more likely that they will become useful citizens.” Thus, it is required that there be the element of direct or indirect benefit to society in addition to and as a result of the benefit conferred on the persons directly served by the humanitarian activity.

Examples of such humanitarian activities previously held to be exempt as charitable include the operation of hospitals which are open and available to rich and poor (Community Memorial and Jackson County ); a facility operated to provide employment and training for handicapped persons (Goodwill ); operating a YMCA building housing boys and young men, preferably of low income, as a part of a program intended *225 to foster good citizenship and Christian ideals in those boys and young men (YMCA No. 4 ); providing housing at less than cost to girls and young women, including the needy, intended to promote the welfare of such persons (Salvation Army ); providing good low cost housing for low income people to replace old, dilapidated properties in a slum area which was cleared (Bader Realty ). All of these, while benefitting the individuals served, also were considered to benefit society generally.

 

 

Franciscan Tertiary Province v. State Tax Commission, 566 S.W.2d 213, 224-225 (Mo. banc 1978) (emphasis supplied).

The evidence on the record establishes that the medical services provided by the subject clinic are provided on a subsidized basis and that patients are not denied service at the Ellington clinic based upon an inability to pay. Complainant’s Exhibit AA, at 3. The fact that Reynolds County has subsidized medical services at the subject clinic available to rich and poor alike is beneficial to the Reynolds County community.

Conclusion

The evidence persuasively supports a conclusion that the machinery and equipment in question in this assessment appeal is actually and regularly used exclusively for a charitable purposes, is owned and operated on a not-for-profit basis, and that its use is beneficial to society in addition to those directly served by the subject property. Accordingly, Complainant is entitled to an exemption on the machinery and equipment that it owns and uses at its Ellington primary care clinic and administrative offices. Any equipment not owned by Complainant but leased and used at the subject clinic and administrative offices should continue to be reported by and taxed to the appropriate owner.

ORDER

The non-exempt status the subject machinery and equipment for tax year 2001, as determined by the Assessor and approved by the Board of Equalization, is SET ASIDE. The Clerk is HEREBY ORDERED to show this personal property as exempt for tax year 2001.

A party may file with the Commission an application for review of a hearing officer decision within thirty (30) days of the mailing of such decision. The application shall contain specific detailed grounds upon which it is claimed the decision is erroneous.

If an application for review of a hearing officer decision is made to the Commission, any protested taxes presently in an escrow account in accordance with this appeal shall be held pending the final decision of the Commission. If no application for review is received by the Commission within thirty (30) days, this decision and order is deemed final and the Collector of Reynolds County as well as the collectors of all affected political subdivisions therein, shall disburse the protested taxes presently in an escrow account in accord with the decision on the underlying assessment in this appeal. If any protested taxes have been disbursed pursuant to Section 139.031(8), RSMo, either party may apply to the circuit court having jurisdiction of the cause for disposition of the protested taxes held by the taxing authority.

Any Finding of Fact which is a Conclusion of Law or Decision shall be so deemed. Any Decision which is a Finding of Fact or Conclusion of Law shall be so deemed.

SO ORDERED August 5, 2002.

STATE TAX COMMISSION OF MISSOURI

Aimee Smashey

Hearing Officer