MERCY LIFECARE SYSTEMS, INC., )
v. ) Appeals Number 01-74001 and 01-74002
GLORIA GOURLEY, ASSESSOR, )
NEWTON COUNTY, MISSOURI, )
DECISION AND ORDER
Each tax exemption case is peculiarly one which must be decided upon its own facts. Complainant presented sufficient evidence to establish a prima facie case in support of entitlement to an exemption on 98.6% of the subject property. That portion of the subject property is entitled to a property tax exemption.
Complainant filed appeals with the Commission on two properties identified in the attached bills as parcel number 016-7.0-25-003-006-001.002 and 016-7.0-35-004-001-002.002. It appears from the attachments to the Complaint that the parcels are located at 1401 Waldo Haler Drive, Neosho, Missouri and 2550 Lusk Drive, Neosho, Missouri, respectively. The decision letter from the Newton County Board of Equalization reflects that the Board heard the evidence presented by Complainant on the 2550 Lusk Drive property and later voted to affirm the assessment on that parcel. The Board’s decision letter made no reference to the 1401 Waldo Haler Drive property.
An evidentiary hearing was held on May 13, 2002, before Hearing Officer Aimee Smashey at the Newton County Courthouse in Neosho, Missouri. At hearing, Complainant (1) presented evidence in support of an exemption for the property at 2550 Lusk Drive, Neosho, Missouri, and (2) dismissed the appeal on parcel number 016-7.0-25-003-006-001.002, the property at 1401 Waldo Haler Drive, Neosho, Missouri. Complainant was represented by Jason Higdon, Attorney. Respondent was represented by R. Scott Watson, Prosecuting Attorney for Newton County.
Do Complainant’s operations at the subject medical clinic constitute charity?
FINDINGS OF FACT
1. The subject property is a lot improved with a medical clinic facility containing approximately 15,108 square feet of clinic area (Tr. 18).
2. The facility is primarily used as a medical clinic for a rural health clinic. Additional uses include an area for physical rehabilitation for the Physical Therapy Department of St. John’s Regional Health Center of Joplin, a storage area for medical supplies for the Home Health Department of St. Johns’s Regional Health Center of Joplin, and the occasional lease of exam rooms to private physicians for specialty clinics.
3. The subject property is owned by Mercy Lifecare Systems which is the Complainant in this appeal.
4. Complainant is incorporated as a general not-for-profit corporation with the State of Missouri (Complainant’s Exhibit A and B).
5. St. John’s Regional Medical Center is a not-for-profit hospital which operates out of Joplin, Missouri (Complainant’s Exhibit O, at 1, and Tr. 5, 17, 26 – 27).
6. Complainant leases the clinic facility to St. John’s Regional Medical Center which operates (1) the Rural Health Clinic, (2) the physical therapy clinic, and (3) the storage of Home Health Department medical supplies. (Complainant’s Exhibit O, at 1, and Tr. 6, 19 – 20). St. John’s Regional Medical Center also subleases exam rooms to private practitioners for specialty clinics (Tr. 6; Complainant’s Exhibit C).
7. The area available for use to the private physicians who opt to sublease exam rooms for specialty clinics represents three exam rooms — exam rooms # 106, 107, and 146 (Tr. 21 – 22; Complainant’s Exhibit E). This area appears from Complainant’s Exhibits E and F to represent approximately 732 square feet of clinic area. The accounting records show that this area was leased to private physicians 32.5% of the time in 2000 and 25.4% of the time in 2001 (Complainant’s Exhibit K). Accordingly, 732 square feet multiplied by 29% (average of 25.4% and 32.5%) = 212 square feet attributable to for-profit use (1.4% of subject property).
8. Patients are not denied service at the Rural Health Clinic based upon an inability to pay (Complainant’s Exhibit O, at 4). St. John’s Regional Medical Center utilizes income guidelines for determination of charity services (Complainant’s Exhibit M). For the whole of their operations, St. John’s Regional Medical Center provided $7,999,393 of charity care in 2000 and $8,584,828 of charity care in 2001. Id.
9. Complainant operated at a loss for years 1997, 1998, and 1999 (Complainant’s Exhibit H).
CONCLUSIONS OF LAW
Jurisdiction over this appeal is proper. Complainant timely appealed the 2001 assessment on the subject property to the State Tax Commission from the decision of the local Board of Equalization. At hearing Complainant requested a refund of the taxes paid on the subject property for 2000. Complainant’s Complaint filed with the Commission on August 21, 2001, does not extend jurisdiction to the Commission to evaluate the appropriateness of the 2000 assessment on the subject property. Complainant also requested a prospective finding that the subject property was entitled to an exemption for 2001 and future years. The Commission has no jurisdiction to issue an order in this appeal for any year other than 2001. Exempt status for property taxes is dependent on the operation and use being put to the specific property in question. Since such operation and use can change, determinations of exempt status must be revisited each assessment year.
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).
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 1994.
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. 1.4% of the subject facility that is used by private physicians for specialty clinics is not operated on a not-for-profit basis. It is taxable.
2. Complainant put forward sufficient evidence to establish that 98.6% of the subject clinic is used for charitable purposes.
3. Complainant put forward sufficient evidence to establish that the subject clinic is owned and 98.6% of the area is operated on a not-for-profit basis. There was no evidence presented to suggest that the operations at the subject clinic have been outside the corporate charter of either the owning or operating entity.
4. The fact that Newton County has charitable medical services available through a designated rural health clinic is beneficial to the Newton County community.
Exemption law requires an unconditional dedication to a charitable objective. Charity is defined as 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 clinic constitute a gift? Complainant established that it is a Missouri not-for-profit corporation and operated at a loss in years 1997, 1998, and 1999. It operates to benefit and help carry out the health care functions and purposes of its non-profit parent organization. Complainant’s Exhibit B. In furtherance of that purpose, Complainant leases the subject facility to St. John’s Regional Medical Center which utilizes 98.6% of the facility to provide non-profit medical clinic services through a Rural Health Clinic, physical therapy facilities, and storage of medical supplies for its Home Health Department. St. John’s Regional Medical Center operates the clinics such that patients are not denied service based upon an inability to pay. It uses federal poverty income guidelines for determining appropriate cases for a discounting or full subsidization of its clinical services.
The provision of medical services in a clinic setting clearly qualifies as an appropriate use under the Salvation Army definition in that medical treatment directly benefits people by relieving their bodies of disease, suffering, or constraint and health education assists to establish people for life.
Complainant put forward sufficient evidence to establish that 98.6% of the subject clinic is used for charitable purposes.
Exemption law requires ownership and operation on a non-profit basis. The subject clinic is owned by Complainant, Mercy Lifecare Systems, which is a Missouri general not-for-profit corporation (Complainant’s Exhibits A & B). Complainant leases the subject clinic to St. John’s Regional Medical Center of Joplin, Missouri, which is also not-for-profit corporation (Complainant’s Exhibit O, at 1, and Tr. 5, 17, 26 – 27). Both not-for-profit corporations are affiliated with and effectively owned by Catholic Health Initiatives (Complainant’s Exhibit O, at 1, and Tr. 26).
Complainant’s Articles of Incorporation state the corporation’s purpose to be:
(1) To operate for the benefit, to perform the health care functions, or to carry out the health care purposes, of Health System of Mercy, a Nebraska non-profit corporation of the Religious Sisters of Mercy of the Union of the United States of America, Omaha Province (Religious Sisters of Mercy), a religious order of the Roman Catholic Church, by owning, organizing, operating, supervising, supporting or managing the affairs, property, business and activities of affiliated corporations which conduct or support the health care mission of Religious Sisters of Mercy in Southwestern Missouri and surrounding areas.
(2) To engage in and conduct charitable, educational, religious, and scientific activities in furtherance of the above purposes.
(3) Incidental to the above purposes, to have and to exercise all of the rights and powers conferred upon non-profit corporations under the General Not for Profit Corporation Law of Missouri.
(Complainant’s Exhibit B, 1 – 2).
The Articles further provide that (1) no part of Complainant’s net earnings may inure to the benefit of any trustee, director, officer, or other private individual except for reasonable compensation for services rendered, and (2) that upon dissolution of the corporation, the corporate assets are to be distributed by vote of the Board of Directors to a qualified charitable organization Id, at 3.
Complainant put forward sufficient evidence to establish that the subject clinic is owned and 98.6% of the area is operated on a not-for-profit basis. There was no evidence presented to suggest that the operations at the subject clinic have been outside the corporate charter of either the owning or operating entity.
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 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 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 fact that Newton County has charitable medical services available through a designated rural health clinic is beneficial to the Newton County community.
This Hearing Officer is persuaded that Complainant presented sufficient evidence to establish a prima facie case that (1) 98.6% of the subject clinic is used for the provision of medical clinic services in a charitable manner, (2) the subject clinic is owned and 98.6% of the clinic is operated on a not-for-profit basis, and (3) the use of the subject clinic is beneficial to society in addition to those directly served by the subject clinic. Accordingly, 98.6% of the subject clinic is entitled to a property tax exemption.
The non-exempt status the subject property 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 execute an partial exemption for 98.6% of the assessment on parcel number 016-7.0-35-004-001-002.002 for the 2001 tax year. The assessment on parcel number 016-7.0-25-003-006-001.002 is affirmed.
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 Newton 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 December 20, 2002.
STATE TAX COMMISSION OF MISSOURI