STATE TAX COMMISSION OF MISSOURI
|SAINT LUKE’S HEALTH SYSTEM,||)||Appeal No. 19-30340|
|Complainants(s),||)||Parcel/locator No: 36-800-01-03-03-0-00-000|
|GAIL MCCANN-BEATTY, ASSESSOR,||)|
|JACKSON COUNTY, MISSOURI||)|
DECISION AND ORDER
Saint Luke’s Health System, Inc. (Complainant) appeals the Jackson County Board of Equalization’s (BOE) decision finding the appraised value of the subject commercial property on January 1, 2019, was $5,210,000. Complainant asserts the subject property is exempt from taxation. The BOE decision is set aside. The subject property is 95.19% exempt from taxation.
Complainant was represented by counsels Chris Mattix and Kevin Mason. Respondent was represented by counsel, Elizabeth Judy. The evidentiary hearing was conducted on November 9, 2021, via WebEx. Each party submitted post hearing briefs which are incorporated into the record.
FINDINGS OF FACT
- Subject Property. The subject property is located at 600 NE Adams Dairy Pkwy, Blue Springs, in Jackson County, Missouri. The parcel/locator number is 36-800-01-03-03-0-00-000. The subject property consists of an approximately 38,053-square-foot medical office building. The subject property is owned by Saint Luke’s Health System Inc., a Kansas non-profit corporation authorized to do business in the State of Missouri. Saint Luke’s Health System, Inc. provides healthcare services at the subject property through its wholly owned single member limited liability company, Saint Luke’s Neighborhood Clinics, LLC. As a single-member LLC, such entity is disregarded for tax purposes and is treated as part of the exempt operations of its sole member, Saint Luke’s Health System, Inc. Saint Luke’s Health System, Inc. operates the property as a multispecialty clinic which houses seven specialties including primary care, cardiology, gastroenterology, general surgery, orthopedics, pulmonology, and urology, as well as laboratory and imaging services. It is leased to nine affiliates of Saint Luke’s Health Systems, including Advanced Urologic Associates, Rockhill Orthopaedic Specialists, Saint Luke’s Hospital of Kansas City, and Saint Luke’s Physician Group which each are also non-profit entities or wholly owned subsidiaries or departments of non-profit entities. A portion of the facility is leased to non-Saint Luke’s affiliates.
- Respondent and BOE. Respondent classified the subject property as commercial and determined on January 1, 2019, the property was not exempt for charitable purpose. The BOE classified the subject property as commercial and independently determined the subject property was non-exempt and valued the property on January 1, 2019, at $5,210,000.
- Complainant’s Evidence. Complainant submitted Exhibits A – JJ, including the WDT of Matthew Hanson, Van White and Cindy Christensen, which are admitted into evidence. Complainant submitted the following exhibits:
|A||Blue Springs Trustee’s Deed||Admitted|
|B||Blue Spring AIA Contract||Admitted|
|C||Blue Springs 2017 and 2018 Rent Roll||Admitted|
|D||Blue Springs AUA Space Lease 7-13-17||Admitted|
|E||Blue Springs SLPG II Rotating Space Lease 7-13-17||Admitted|
|F||Blue Springs Summit GI License Agreement 9-6-17||Admitted|
|G||St Luke’s Cardiovascular Consultants (SLPG I License Agreement) 7-13-17||Admitted|
|H||Blue Springs SLH EAP Space Lease 7-13-17||Admitted|
|I||Blue Springs Rockhill Ortho Space Lease 7-13-17||Admitted|
|J||Blue Springs SLPG II Mammography Space Lease 7-13-17||Admitted|
|K||Blue Springs SLPG Primary Care Space Lease 7-13-17||Admitted|
|L||Blue Springs Pulmonary Space Lease 7-13-17||Admitted|
|M||Blue Springs Pulmonary License Agreement 7-18-17||Admitted|
|N||Blue Springs Metro Pulmonary Amended License Agreement 1-11-18||Admitted|
|O||Saint Luke’s 2017 Jackson County Exemption Application||Admitted|
|P||Saint Luke’s Missouri Registration||Admitted|
|Q||Saint Luke’s Health System, Inc. Articles (Fourth Amended and Restated as amended by First Amended)||Admitted|
|R||Saint Luke’s Health System, Inc Bylaws (Eighth Amended and Restated)||Admitted|
|S||IRS Tax Exempt Determination Letters||Admitted|
|T||Saint Luke’s 2017 Form 990||Admitted|
|U||Saint Luke’s 2018 Form 990||Admitted|
|V||Advanced Urologic Associates Articles||Admitted|
|W||Saint Luke’s Physician Group II – Articles of Merger||Admitted|
|X||Saint Luke’s Physician Group Missouri Registration||Admitted|
|Y||Digestive Health Specialists (Summit GI) Articles (Non-SLH Affiliate)||Admitted|
|Z||Saint Luke’s Cardiovascular Consultants (fictitious name)||Admitted|
|AA||Saint Luke’s Hospital of Kansas City Articles||Admitted|
|BB||Rockhill Orthopaedic Specialists Articles||Admitted|
|CC||Metropolitan Pulmonary and Sleep Medicine Articles||Admitted|
|DD||Saint Luke’s 2017 & 2018 Audited Financial Statements||Admitted|
|EE||Saint Luke’s Financial Assistance Policy for Medically Indigent Patients||Admitted|
|FF||2017 & 2018 Blue Springs Cost Center Report||Admitted|
|GG||Blue Springs Multispecialty Transaction Code Adjustments||Admitted|
|HH||Matt Hanson Written Direct Testimony||Admitted|
|II||Van White Written Direct Testimony||Admitted|
|JJ||Cindy Christensen Written Direct Testimony||Admitted|
Complainant witness Van White, the director of tax for Saint Luke’s, testified the subject property on January 1, 2019, was a 501c3 non-profit operating as a multispecialty clinic. White testified the Saint Luke’s lessees are nonprofit corporations wholly owned and controlled by Complainant and its subsidiaries. White testified that of Summit GI and Metropolitan Pulmonary are non-affiliates of Saint Luke’s with licenses to use the property. White testified the tax status of Summit GI and Metropolitan Pulmonary, being either non-profit or for profit, does not affect Saint Luke’s charitable exemption status under Federal law exceptions. (Exhibit II). White testified the corporation is organized and operated exclusively for the benefit of, to perform the function of, and to carry out the purposes of the following nonprofit corporations exempt from federal taxation under Section 501(c)(3) of the Internal Revenue Code: Saint Luke’s Hospital of Kansas City, Saint Luke’s East Hospital, Saint Luke’s Physician Group, Inc., Advanced Urologic Associates, Inc., Rockhill Orthopaedic Specialists, Inc., and other organizations that become part of the Saint Luke’s Health System integrated health care delivery system. (Exhibit II).
Matt Hanson, the Director of Real Estate for Saint Luke’s, testified the property was 95.19% exempt due to non-profit status of the lessees wholly owned and controlled by Complainant and its subsidiaries. Hanson testified to the various medical services provided by the tenants. Hanson testified that 1,832-square-foot area is licensed to Summit GI and Metropolitan Pulmonary as two non-affiliates to Saint Luke’s, which makes up 4.81% of the total square footage. Hanson testified the license agreement gives the tenant the non-exclusive right to use space during particular times. (See Exhibits M, N, G, F and HH). Hanson testified the lease agreements for Saint Luke subsidiaries were executed to comply with the physician referral limitations in the Stark Law. (See Exhibits D, E, H, I, J, K, L, and HH).
Cindy Christensen, the Vice President and Corporate Controller for Saint Luke’s, testified to the collections of payment from patients and as the non-profit policies for medically indigent patients for those who cannot pay their medical bills. (Exhibit JJ, EE and DD). Christensen testified she did not know the tax status of the non-affiliated tenants.
- Respondent’s Evidence. Respondent submitted Exhibit 1, 2 and 3 and the Written Direct Testimony (WDT) of Christina Drews. Exhibit 1 is the Respondent’s copy of St. Luke’s Health System, Inc. Application for Real Property Tax Exemption. Exhibit 2 is the Supplement to St. Luke’s Health System, Inc. Application via email from Cynthia Harris, dated October 19, 2020. Exhibit 3 is a May 6, 2019, letter to St. Luke’s Health Systems, Inc. from Christina Drews denying 2019 exemption. Ms. Drews is an employee of Jackson County, in the Assessor’s exemption department. Ms. Drews testified the rent rolls shows a portion of the subject property was not used for nonprofit, charitable purposes because the leases show the tenants are paying rent to Saint Luke’s.
- Exemption. The subject property is 95.19% tax-exempt.
CONCLUSIONS OF LAW
- Assessment and Valuation
Pursuant to Article X, Sections 4(a) and 4(b), Mo. Const. of 1945 real property and tangible personal property is assessed at its value or such percentage of its value as may be fixed by law for each class and for each subclass. Article X, Sections 4(a) and 4(b), Mo. Const. of 1945. Commercial real property is assessed at 32% of its TVM as of January 1 of each odd-numbered year. Section 137.115.5(1)(c).
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). The finder of fact in an administrative hearing determines the credibility and weight of expert testimony. Hornbeck v. Spectra Painting, Inc., 370 S.W.3d 624, 632 (Mo. banc 2012). “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 Exemption
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 routinely affirm decisions extending charitable exemptions to nonprofit healthcare facilities. Additionally, lease agreements with other nonprofit corporations do 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.” Id. at 801. 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 Saint Luke’s and used as an outpatient care facility. The relevant facts demonstrate that outpatient services provided by the Clinic are the same as those provided at Saint Luke’s other hospital facilities which are tax-exempt. Services provided at the Clinic also are covered by Saint Luke’s “Financial Assistance for Medically Indigent Patients” policy. 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 lease required Complainant’s wholly-owned, nonprofit subsidiaries to make rent payments. 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 lease agreements between Complainant and its affiliated, wholly-owned, nonprofit subsidiaries are designed to satisfy an exception to a federal statute that in certain circumstances prohibits a physician from making a referral to an entity 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 leases merely serve to facilitate Complainant’s charitable mission. The facts demonstrate that these leases make up 95.19% of the subject property’s actual use. The charitable purpose of the Complainant and its leased subsidiaries meet the actual usage test for 95.19% of the subject property.
Exemption will not apply to 4.81% of the building’s square footage. The exemption does not apply to this percentage as the Complainant failed to produce any evidence that the two unaffiliated entities licensed to use the property are operating for purposes purely charitable. See SEBA, LLC at 313–14. Therefore, 4.81% of the subject property is not exempt.
The Subject Property is Owned and Operated on a Not-for-Profit Basis
The substantial and persuasive evidence in the record shows Complainant is a nonprofit corporation. Saint Luke’s is organized exclusively for charitable purposes. The subject property is not put to any commercial, for-profit use.
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 (quoting In re Rahn’s Est., 291 S.W. 120, 128 (Mo.1926)).
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 regarding exemption is 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 95.19% exempt from taxation pursuant to Section 137.100(5).
Application for Review
A party may file with the Commission 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, 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 Jackson County, as well as 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 said taxes have been disbursed pursuant to a court order under the provisions of section 139.031.
SO ORDERED August 26, 2022.
STATE TAX COMMISSION OF MISSOURI
Erica M. Gage
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.
 Complainant timely filed a complaint for review of assessment. The State Tax Commission (STC) has authority to hear and decide Complainant’s appeal. Mo. Const. art. X, § 14; section 138.430.1, RSMo 2000. All statutory citations are to RSMo 2000, as amended.
 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).