STATE TAX COMMISSION OF MISSOURI
|Complainant,||)||Appeal No. 19-34015|
|)||Parcel No. 19-4.0-18.0-0-001-015|
|ROBERT BOYER, ASSESSOR,||)|
|JEFFERSON COUNTY, MISSOURI,||)|
DECISION AND ORDER
Mercy Health (Complainant) appeals the Jefferson County Board of Equalization’s (BOE) decision finding the appraised value of the subject commercial property was $1,141,400, with an assessed value of $365,200. Complainant asserts the subject property is exempt from taxation. Respondent filed a motion to dismiss asserting the appeal should be dismissed because Complainant is not the real party in interest. Alternatively, Respondent asserts the subject property is partially exempt. Respondent’s motion to dismiss is overruled. The BOE decision is set aside. The subject property is exempt from taxation.
Complainant is represented by counsel Apollo Carey. Respondent is represented by counsel Floyd Norrick.
FINDINGS OF FACT
- The Subject Property. The subject commercial property is commonly known as the Jefferson County Cancer Center and is located at 1350 U.S. Highway 61 in Festus, Missouri. The subject property consists of a 2.33-acre lot improved with an approximately 20,370-square-foot medical office building. The record owner of subject property is Mercy Health East Communities (MHEC), a Missouri non-profit corporation.
- Complainant. Complainant is a Missouri non-profit corporation. Complainant is both the “Corporate Member” and “sole member” of MHEC. (Ex. H at 1, 4) MHEC is a wholly-owned subsidiary of Complainant. Complainant and MHEC are both organized exclusively for charitable purposes.
Complainant’s bylaws provide the “general purpose of the Corporation shall be to extend the religious apostolate and charitable services of Mercy Health Ministry.” (Ex. L at 2) The MHEC bylaws similarly provide the corporation “shall, itself, operate exclusively for charitable, religious, educational, and scientific purposes[.]” (Ex. H at 3) MHEC “shall operate … to serve the mission of [Mercy Health Ministries], in its charitable, apostolate and health services … to witness Christ’s concern for the care of the sick and injured … and … to enhance the quality of life and benefit the residents of the communities served by” Complainant. (Id. at 3)
- Assessment and Valuation. Respondent determined the subject property was not exempt. Respondent determined the subject’s appraised value as January 1, 2019, was $4,565,700, with an assessed value of $1,461,100. MHEC appealed Respondent’s assessment to the BOE.
The BOE determined the subject property was 75 percent exempt, resulting in an appraised value of $1,141,000 and an assessed value of $365,200. Complainant filed the underlying appeal to the STC.
- Complainant’s Evidence. Complainant introduced Exhibits C, D, H, L, M, O, P, Q, and R. Jill McCart, Complainant’s Vice President of Accounting and Reporting, testified regarding Complainant’s Exhibits. McCart testified MHEC is a wholly-owned subsidiary of Complainant.
Respondent objected to Exhibits C, D, L, and Q because those documents relate to Complainant, which is not the record owner of the subject property. The hearing officer admitted the exhibits into evidence. Complainant’s exhibits are summarized as follows:
|Exhibit C||Mercy Health 2016 IRS Form 990 “Return of Organization Exempt from Income Tax”|
|Exhibit D||Mercy Health 2017 IRS Form 990|
|Exhibit H||MHEC bylaws|
|Exhibit L||Mercy Health bylaws|
|Exhibit M||Intercompany Agreement (ICA) for premises consisting of “4,509 sq. ft” within the “20,372 sq. ft. medical office building” on the subject property. Mercy Hospital Jefferson is the “Landlord” and Mercy Clinic Oncology and Hematology is the “Tenant.” The lease runs from February 1, 2018, through January 1, 2023, and establishes base rents ranging from $11,084.63 per month in Year 1 to $11,997.70 per month in Year 5.|
|Exhibit O||Letter from Respondent to the Lewis Rice law firm confirming Respondent agreed the subject property was 75% tax-exempt. Respondent explained the decision to tax 25% of the subject property “was made based on the lease agreement between Mercy Hospital Jefferson and Mercy Clinic Onoclogy and Hematology.”|
|Exhibit P||Missouri Secretary of State Registration of Fictitious Name for Mercy Clinic Oncology and Hematology.|
|Exhibit Q||Missouri Secretary of State Articles of Amendment establishing “Mercy Hospital South” as the new name for St. Anthony’s Medical Center.|
|Exhibit R||42 U.S.C. section 1395nn regarding “Limitation on certain physician referrals,” referred to as the “Stark Law.” 42 U.S.C. section 1395nn(e)(1)(A) provides lease payments “shall not be considered a compensation arrangement” prohibiting referrals to a related entity when the lease is written, has a term of at least one year, is used exclusively by the lessee, and the space does not exceed reasonable needs for legitimate business.|
The ICA shows Mercy Hospital Jefferson is the “Landlord” and Mercy Clinic Oncology and Hematology is the “Tenant.” (Ex. M, Reference Page) Mercy Hospital Jefferson is a “Related Tax-Exempt Organization” for Complainant. (Ex. C at 58; Ex. D at 58) MHEC is the “direct controlling entity” of Mercy Hospital Jefferson. (Id.) Mercy Hospital Jefferson is controlled by MHEC, which is Complainant’s wholly-owned subsidiary.
Mercy Clinic Oncology and Hematology is the business name registered to Mercy Hospital South. (Ex. P) In 2018, St. Anthony’s Medical Center was renamed Mercy Hospital South. (Ex. Q) St. Anthony’s Medical Center was a tax-exempt organization controlled by MHEC. (Ex. D at 61) McCart’s testimony and Complainant’s Exhibits show MHEC controls both parties to the ICA and that MHEC, in turn, is Complainant’s wholly-owned subsidiary.
McCart testified the ICA was executed to comply with the physician referral limitations in the Stark Law. The ICA creates lease arrangements to comply with statutory prohibitions on physician referrals to entities with which the physician has a “financial relationship.” (Ex. R at 1) McCart testified the ICA does not alter the fact both Mercy Hospital Jefferson and Mercy Clinic Oncology and Hematology are nonprofit corporations wholly owned and controlled by Complainant and its subsidiaries.
- Respondent’s Evidence. Respondent introduced Exhibits 1 through 7. Complainant did not object. Respondent’s Exhibits are summarized as follows:
|Exhibit 1||Missouri Secretary of State records showing MHEC is a Missouri nonprofit corporation.|
|Exhibit 2||Missouri Secretary of State records showing Complainant is a Missouri nonprofit corporation.|
|Exhibit 3||MHEC application for tax exemption filed with Respondent.|
|Exhibit 4||BOE decision changing the appraised value of the subject property to $1,141,400 from Respondent’s value of $4,565,700; parcel information report from Respondent’ office showing the subject property consists of an approximately 2.33 acre lot improved with a building housing approximately 22,000 square feet of “medical office” space.|
|Exhibit 5||MHEC complaint for review of assessment filed with STC alleging overvaluation and religious and charitable exemption; attached letter in which Respondent notes “we have determined that twenty-five percent (25%) of the improvement will be assessed … based on the lease agreement between Mercy Hospital Jefferson and Mercy Clinic Oncology and Hematology.” Respondent asserts “[i]ncome received from the lease of the property makes this portion of the Cancer Center taxable.” The remaining 75% is exempt.|
|Exhibit 6||MHEC BOE appeal form|
|Exhibit 7||Intercompany Agreement|
Respondent testified the ICA shows a portion of the subject property was not used for nonprofit, charitable purposes because Mercy Clinic Oncology and Hematology was paying rent on 4,509 square feet. Respondent also testified approximately 25% of the building space was a gift shop.
Prior to the evidentiary hearing, Respondent filed a motion to dismiss. Respondent asserted MHEC owns the subject property and, consequently, that Complainant is not authorized to prosecute the appeal. The hearing officer denied the motion, but noted “it remains a question of fact as to whether Mercy Health (as compared to Mercy Health East Communities) has a cognizable interest regarding the ad valorem taxation of the subject parcel.” Complainant renewed the motion to dismiss at the evidentiary hearing. The hearing officer indicated the issue would be resolved in the decision and order.
- Exemption. The subject property is tax-exempt.
CONCLUSIONS OF LAW
- Respondent’s Motion to Dismiss is Overruled. Respondent filed a motion to dismiss Complainant’s appeal asserting Complainant is not the “owner of real property” authorized to appeal the assessment to the STC pursuant to Section 138.430.1. Respondent argues the dispositive issue is whether “Mercy Health East Communities or Mercy Health is the real party in interest” pursuant to Rule 52.01. (Resp. Mem. in Supp. at 2)
Complainant asserts the Rule 52.01 “real party in interest doctrine is fundamental” and that “whether Mercy Health is the legal owner of the real estate at issue … is nothing more than a red herring” employed by Respondent to avoid the merits. (Compl. Response at 1-2) Complainant analogizes this case to Herky LLC v. Holman, 277 S.W.3d 702 (Mo. App. E.D. 2008).
In Herky, two entities (Developers) sold multiple residential properties in June 2005. Developers filed STC appeals challenging the 2005 assessments against those properties. The STC concluded Developers were not real parties in interest because they no longer owned the properties and therefore lacked standing to appeal the assessments. Herky, 277 S.W.3d at 703. The STC also relied on Section 138.430.1, which authorizes appeals by the “owner” of the assessed real property. The circuit court entered a judgment affirming the STC’s decision. The court of appeals reversed the judgment. Id. at 707.
The court’s holding was premised on the proposition “Rule 52.01 requires a civil action to be prosecuted in the name of the real party in interest.” Herky, 277 S.W.3d at 704. The critical fact underlying the court’s holding was proration agreements with the new owners making Developers responsible for property taxes accrued from January 2005 through June 2005. Id. The court held Developers were real parties in interest entitled to file an STC appeal because:
Although the Developers were not the legal property owners when they filed their appeal, they were nonetheless the real parties in interest under the facts of this case because they retained an interest in the litigation by virtue of the proration agreements. Thus, they stood to enjoy the benefits of a successful appeal.
Similar to the Developers in Herky, Complainant “retained an interest in the litigation” and stands to “enjoy the benefits of a successful appeal” by obtaining a reduced tax burden on its wholly-owned subsidiary and, by extension, itself. Complainant is authorized to prosecute the underlying appeal. Respondent’ motion to dismiss is overruled.
- Evidence. The hearing officer is the finder of fact and determines the credibility and weight of the evidence. Kelly v. Mo. Dep’t of Soc. Servs., Family Support Div., 456 S.W.3d 107, 111 (Mo. App. W.D. 2015). “Although technical rules of evidence are not controlling in administrative hearings, fundamental rules of evidence are applicable.” Mo. Church of Scientology v. State Tax Comm’n, 560 S.W.2d 837, 839 (Mo. banc 1977).
- Charitable Exemptions. Article X, section 6 of the Missouri Constitution provides “all property, real and personal, not held for private or corporate profit and used exclusively . . . for purposes purely charitable . . . may be exempted from taxation by general law.” Consistent with this constitutional provision, Section 137.100(5) exempts from taxation:
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, educational or charitable purposes[.]
“Tax exemptions are construed strictly against the taxpayer, and any doubt must be resolved in favor of application of the tax.” SEBA, LLC v. Dir. of Revenue, 611 S.W.3d 303, 313–14 (Mo. banc 2020). Exemptions are “allowed only upon clear and unequivocal proof, and any doubts are resolved against the party claiming it.” Id. (internal quotation omitted).
To obtain a charitable exemption, the taxpayer must show the property: (1) is “owned and operated on a not-for-profit basis so that there can be no profit, presently or prospectively, to individuals or corporations;” (2) “dedicated unconditionally to the charitable activity” per the definition of “charity” set forth in Salvation Army v. Hoehn, 188 S.W.2d 826, 830 (Mo. banc 1945); and (3) that “the dominant use of the property must be for the benefit of an indefinite number of people” and directly or indirectly benefits society generally. Sunday School Bd. of the Southern Baptist Conv. v. Mitchell, 658 S.W.2d 1, 5 (Mo. banc 1983) (citing Franciscan Tertiary Province of Missouri. Inc. v. State Tax Comm’n, 566 S.W.2d 213 (Mo. banc 1978)).
While tax exemptions are “determined by the facts of each case.” United Cerebral Palsy Ass’n of Greater Kansas City v. Ross, 789 S.W.2d 798, 800 (Mo. banc 1990), Missouri courts have routinely affirmed decisions granting charitable exemptions to nonprofit healthcare facilities. The substantial and persuasive evidence in the record shows Complainant’s use of the subject property satisfies each prerequisite for a charitable exemption.
Actual, Regular, and Exclusive Use for Charitable Purposes
Complainant’s evidence shows the subject property is owned by MHEC and used as a cancer treatment facility. MHEC “shall operate … to serve the mission of [Mercy Health Ministries], in its charitable, apostolate and health services … to witness Christ’s concern for the care of the sick and injured … and … to enhance the quality of life and benefit the residents of the communities served by” Complainant. (Id. at 3) The substantial and persuasive evidence in the record shows the subject is actually, regularly, and exclusively used for charitable purposes.
The analysis is not changed by the fact the ICA required Complainant’s wholly-owned, nonprofit subsidiaries to make rent payments. The fact Complainant executed lease agreements with other nonprofit corporations does not necessarily preclude a charitable exemption. Instead, “the requirements of [Section 137.100(5)] are met if the property’s use is purely charitable, irrespective of the number of charities using the property, and no private or corporate profit is intended.” United Cerebral Palsy Ass’n, 789 S.W.2d at 801. When a tax-exempt entity leases property to an unaffiliated tenant and thereby interrupts the exclusive use of the property for charitable or religious purposes, the property is no longer actually, regularly, and exclusively used for charitable purposes. See St. Louis Gospel Center v. Prose, 280 S.W.2d 827, 830 (Mo. 1955) (holding a lease to a tenant unaffiliated with a religious organization was a commercial relationship interrupting exclusive use of religious purposes); Tri-State Osteopathic Hosp. Ass’n v. Blakeley, 898 S.W.2d 693, 695-96 (Mo. App. S.D. 1995) (holding a clinic owned by nonprofit was not exempt because a lease to a physician provided for the “division of profits” as “incentive compensation,” thus showing the property was leased on a “for profit basis”).
Unlike a lease to an unaffiliated tenant or an expressly for-profit, commercial lease, the ICA is an agreement between Complainant and its affiliated, wholly-owned, nonprofit subsidiaries. The leases created by the ICA are designed to satisfy an exception to a federal statute regulating physician referrals to entities with which the physician has a financial relationship. Viewed in the context of the fact Complainant and its subsidiaries are organized exclusively for charitable purposes and in fact provide those services at the subject property, the ICA serves to facilitate Complainant’s charitable mission by allowing referrals to other physicians within Complainant’s nonprofit corporate umbrella. The ICA does not interrupt Complainant’s actual, regular, and exclusive use of the subject property for charitable purposes.
The Subject Property is Owned and Operated on a Not-for-Profit Basis
The substantial and persuasive evidence in the record shows Complainant and MHEC are nonprofit corporations. Both are organized exclusively for charitable purposes. The subject property is not put to any commercial, for-profit use.
Respondent briefly testified some of the subject property was used as a gift shop. The existence of a gift shop does not necessarily negate the claimed exemption. Whether a gift shop, book store, or similar use is exempt or non-exempt is a fact-specific inquiry utilizing the three elements of the Franciscan test. Sunday Sch. Bd. of S. Baptist Convention v. Mitchell, 658 S.W.2d 1, 6-7 (Mo. banc 1983) (holding a religious bookstore was not exempt because the facts did not satisfy the Franciscan test). Aside from Respondent’s brief testimony the subject property included a gift shop, there is no evidence the gift shop was inconsistent with Complainant’s use of the property for charitable purposes. Complainant produced substantial and persuasive evidence the subject property was used for nonprofit, charitable purposes. Respondent’s brief testimony the property included a gift shop does not rebut that fact.
Dominant Use for the Benefit of an Indefinite Number of People
The requirement of showing a benefit to “an indefinite number of people” is satisfied when there is a “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, 566 S.W.2d at 224. The requirement of showing a benefit to “an indefinite number of persons … is otherwise characterized as a requirement that the humanitarian service be public.” Evangelical Ret. Homes of Greater St. Louis, Inc. v. State Tax Comm’n, 669 S.W.2d 548, 554 (Mo. banc 1984) (internal quotation omitted). A benefit may be “public” if it is not available to all and, instead, is directed at groups with specific needs or interests. Id. Thus,
[a] charity may restrict its admissions to a class of humanity, and still be public; it may be for the blind, the mute, those suffering under special diseases, for the aged, for infants, for women, for men, for different callings or trades by which humanity earns its bread, and as long as the classification is determined by some distinction which involuntarily affects or may affect any of the whole people, although only a small number may be directly benefited, it is public.
Hoehn, 188 S.W.2d at 830 (internal quotation omitted).
The substantial and persuasive evidence in the record shows the dominant use of the subject property is as a medical facility used to provide medical care to the public. There is no evidence showing these facilities are reserved to members of an exclusive, non-public group or association.
CONCLUSION AND ORDER
The BOE’s decision set aside. The substantial and persuasive evidence in the record shows Complainant’s use of the subject property satisfies each prerequisite for a charitable exemption. The subject property is exempt from taxation pursuant to Section 137.100(5).
Application for Review
A party may file an application for review of this decision within 30 days of the mailing date set forth in the certificate of service for this decision. The application “shall contain specific detailed grounds upon which it is claimed the decision is erroneous.” Section 138.432. The application must be in writing, and may be mailed to the State Tax Commission of Missouri, P.O. Box 146, Jefferson City, MO 65102-0146, or emailed to Legal@stc.mo.gov. A copy of the application must be sent to each person listed below in the certificate of service. Failure to state specific facts or law upon which the application for review is based will result in summary denial. Section 138.432.
The Collector of Jefferson County, and the collectors of all affected political subdivisions therein, shall continue to hold the disputed taxes pending the possible filing of an application for review, unless the disputed taxes have been disbursed pursuant to a court order under the provisions of section 139.031.
SO ORDERED August 26, 2022.
Eric S. Peterson
Senior Hearing Officer
State Tax Commission
Certificate of Service
I hereby certify that a copy of the foregoing has been electronically mailed and/or sent by U.S. Mail on August 26, 2022, to: Complainant(s) and/or Counsel for Complainant(s), the County Assessor and/or Counsel for Respondent and County Collector.
 The evidentiary hearing was conducted by a former STC hearing officer. The appeal was reassigned to the undersigned hearing officer for a decision and order. Section 138.431.2.
 All citations to corporate documents refer to the page number on the submitted Exhibit.
 Herky is binding precedent, but reliance on Rule 52.01 is questionable. First, the Rules of Civil Procedure “apply to administrative proceedings only when specifically authorized by statute.” State ex rel. Rosenberg v. Jarrett, 233 S.W.3d 757, 762 (Mo. App. W.D. 2007). No statute or agency regulation authorizes the application of Rule 52.01 to STC proceedings.
Second, the plain language of Rule 52.01 applies to “civil actions,” not executive branch administrative agency proceedings. “A civil action is commenced by filing a petition with the court.” Rule 53.01. Thus, courts consistently distinguish a “civil action” in court from an administrative contested case proceeding. See eg., Div. of Emp. Sec. v. Cusumano, 809 S.W.2d 113, 115 (Mo. App. E.D. 1991) (holding rules regarding personal service did not apply to an administrative proceeding because it “did not become an action pending before a circuit judge until … the Division filed its request for execution”); Morris v. Karl Bissinger, Inc., 272 S.W.3d 441, 443 n.1 (Mo. App. E.D. 2008) (holding the Rules of Civil Procedure applied because the case involved “a civil action filed in circuit court alleging violations of the Missouri Human Rights Act” rather than an “administrative proceeding” filed with an administrative agency”). Likewise, the Missouri Administrative Procedure Act repeatedly draws the same distinction. See Sections 538.025 and 536.085 (defining the term “prevails” as obtaining “a favorable order, decision, judgment or dismissal in a civil action or agency proceeding”); Section 536.070(8) (providing privilege rules apply to agency proceedings “to the same extent that they are now or may hereafter be in civil actions”); Section 536.073.1 (“[i]n any contested case before an agency created by the constitution or state statute, any party may take and use depositions in the same manner … as is or may hereafter be provided for with respect to the taking and using of depositions in civil actions in the circuit court”); Section 536.077 (providing subpoenas in agency proceedings “shall extend to all parts of the state, and shall be served and returned as in civil actions in the circuit court”); Section 587.087.1 (authorizing, in limited circumstances, attorney’s fees for a “party who prevails in an agency proceeding or civil action arising therefrom”); Section 536.095 (authorizing administrative agencies to apply to a circuit court for an order of contempt when “any person acts or refuses to act in such manner that a contempt of court would have been committed if the case were a civil action before a circuit court”).
Finally, Section 138.430.1 authorizes appeals by the “owner,” not the “owner or the real party interest.” The plain language of Section 138.430.1 should be dispositive and negate the need to import the inapplicable “real party in interest” provision in Rule 52.01 to aid statutory construction. See Goerlitz v. City of Maryville, 333 S.W.3d 450, 455 (Mo. banc 2011) (holding that when the plain language of a statute is unambiguous, there should be no “resort to any statutory construction in interpreting the statute”). To the extent the word “owner” is ambiguous, that ambiguity should be resolved with reference to legislative intent inferred from associated statutes rather than by importing an inapplicable procedural rule adopted by a separate branch of government. See S.M.H. v. Schmitt, 618 S.W.3d 531, 534 (Mo. banc 2021) (statutory ambiguity should be resolved by reference to “statutes involving similar or related subject matter when the statutes illuminate the meaning of the statute being construed.”) By its terms, Rule 52.01 does not apply to STC appeals.
 In dicta, the court further noted that although “outside the scope this appeal … the ownership timeline in this case supports the Developers contention that they are the real parties in interest. The Developers owned the property in January 2005, and also on the reassessment date.” Herky, 277 S.W.3d at 705. Here, there is no indication Complainant was the record owner as of January 1, 2019. Thus, to the extent ownership as of the valuation date is a factor, that factor does not aid Complainant’s claim it is the real party in interest.
 Respondent emphasizes the fact Complainant and MHEC are separate corporations with separate legal existence. (Resp. Mem. in Supp. at 2, 4-5) The fact Complainant and MHEC are separate corporate entities is not conclusive as to whether Complainant is a real party in interest. The real party in interest analysis presupposes the existence of distinct parties and provides a mechanism for determining which party is entitled to prosecute the appeal. Thus, the purpose of the analysis is “to enable those who are interested in the subject matter of the action and entitled to the benefits of the litigation to be those who maintain the action.” Herky, 277 S.W.3d at 704.
 See also Am. Polled Hereford Ass’n v. City of Kansas City, 626 S.W.2d 237, 240 (Mo. banc 1982)(noting the taxpayer bears the burden of establishing a property tax exemption “by unequivocal proof that such release is required by the terms of the statute….”); City of St. Louis v. State Tax Comm’n, 524 S.W.2d 839, 845 (Mo. banc 1975)(noting the taxpayer claiming a charitable exemption must make “a clear and convincing showing that the specific activity in question does fall within an accepted category found in the definition”).
 See eg., State ex rel. Alexian Bros. Hosp. v. Powers, 74 Mo. 476 (Mo. 1881) (issuing writ of mandamus ordering St. Louis City assessor to remove nonprofit hospital from assessment roll); Cmty. Mem’l Hosp. v. City of Moberly, 422 S.W.2d 290, 297 (Mo. 1967) (granting exempt status because the hospital was not used to make profit but to generate income devoted to “the charitable purpose of operating a hospital for the benefit of all who come to its doors whether as pay or indigent patients”); Jackson Cnty. v. State Tax Comm’n, 521 S.W.2d 378, 385 (Mo. banc 1975) (three nonprofit hospitals qualified for tax-exempt status).