ST. JOHN’S HEALTH SYSTEMS, )
)
Complainant, )
)
v. ) Appeals Number 00-89501 and 00-89502
)
JAMES STRAHAN, ASSESSOR, )
TANEY COUNTY, MISSOURI, )
)
Respondent. )
DECISION AND ORDER
SUMMARY
Complainant filed appeals challenging the non-exempt status for tax year 2000 of two of its Taney County properties — a tract of land on State HWY 248 identified as parcel number 8-9-0-29-0-0-33.006, and a clinic property located at 151 Birch in Hollister, Missouri identified as parcel number 17-3-8-4-5-3.0.
On May 23, 2001, an evidentiary hearing was held before Tax Commission Hearing Officer, Aimee Smashey, at the Taney County Courthouse in Forsyth, Missouri. Complainant was represented by Michael Merrigan. Respondent was represented by William McCullah.
RULING ON MOTION TO AMEND COMPLAINT
Upon identification of the properties under appeal, Complainant indicated that the parcel number and Board decision letter on Appeal Number 00-89501 was submitted in error and Complainant’s intention was to appeal the assessment on parcel no. 18-6.0-14-003-001-010.003, which is improved with the Branson Medical Center. Accordingly, Complainant made motion that the Complaint be amended to reflect the intended parcel. Respondent objected to any such amendment arguing that the Commission has no jurisdiction to allow an amendment on a material issue like the identification of the property at issue. The statutes do not provide the Commission with discretion to extend its jurisdiction to a wholly different property in lieu of the specific parcel appealed. Complainant’s motion is denied.
Complainant indicated its intention to dismiss Appeal Number 00-89501 if the amendment was not permitted. Appeal Number 00-89501 is voluntarily dismissed.
ISSUE
Do Complainant’s operations at the subject medical clinic constitute charity?
HOLDING
Each tax exemption case is peculiarly one which must be decided upon its own facts. The persuasive impact of the evidence presented indicates that the subject clinic is actually and regularly used exclusively for a charitable purpose, is owned and operated on a not-for-profit basis, and that the use of the subject clinic is beneficial to society in addition to those directly served by the subject clinic. Accordingly, the subject clinic is entitled to a property tax exemption.
FINDINGS OF FACT
1. The subject property is a 6.92 acre lot improved with a clinic building built in 1996 containing approximately 3,825 square feet. It is located at 151 Birch in Hollister, Missouri (Parcel Id No. 17-3-8-4-5-3.0).
2. The subject clinic houses a one-physician family medicine clinic. Complainants Exhibits B at 4.
3. The subject clinic is owned and operated by St. John’s Regional Medicine of the Ozarks (SJRMO), a Missouri Nonprofit Corporation. SJRMO is a subsidiary of Complainant.
4. SJRMO’s Articles of Incorporation state the corporation’s purpose to be:
…to establish and maintain one or more medical clinics as institutions with permanent health service facilities for the diagnosis and treatment of patients and to provide such medical services as may be required by patients; to conduct educational activities related to care of the sick and injured or to the promotion of health; to develop efficient and practical arrangements for providing health services; to foster teaching and research functions at its facilities in cooperation with other health services and educational institutions; to provide in service training programs to personnel employed at its facilities in order to maintain their skills and to make them aware of developments in the health services field; and for any and all other lawful purpose or purposes for which a nonprofit corporation may be organized in the State of Missouri….
Complainant’s Exhibit E, at 1. The Articles further provide that no part of SJRMO=s net earnings or property may inure to the benefit of any private shareholder or individual and that upon dissolution of the corporation, the corporate assets are to be distributed to the Sisters of Mercy Health System, St. Louis, Inc. or affiliated nonprofits or, alternatively, to a charitable organization as determined by the court. Id, at 2 and 4.
5. The subject clinic operated at a $182,983 loss for the fiscal year ending June 30, 2000, and operations for the six months ending December 31, 2000, also indicated a $108,220 loss. The subject clinic has operated at a loss since 1996 and the losses are covered by Complainant. Complainant’s Exhibit R at 8.
7. The mix of payment sources are: 46.79%- Medicare, 18.23%-Medicaid, 5.88%-Self Pay and 29.10%-Insurance.
8. The salary and benefits for the physician at the subject clinic is consistent with the nationally surveyed range of salaries for family practice practitioners. Complainant’s Exhibit R, at 9.
9. The other clinic staff persons are paid market level salaries. Complainant’s Exhibit R, at 8.
10. Clinic physicians can receive additional compensation if his or her production exceeds the production levels established in their compensation plan. Complainant’s Exhibit R at 9, Complainant’s Exhibit N, Appendix at 2. The physician’s supplemental compensation is not driven by or contingent upon the profitability of the clinic.
11. Patients are not denied service at the subject clinic based upon an inability to pay. Complainant’s Exhibit R at 11.
CONCLUSIONS OF LAW
Jurisdiction
Jurisdiction over this appeal is proper. Complainant timely appealed to the State Tax Commission from the decision of the Taney 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 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. The provision of products or services to the public at cost or less constitutes a gift.
2. Medical treatment directly benefits people by relieving their bodies of disease, suffering, or constraint and health education assists to establish people for life.
3. The performance history of the subject clinic evidences an intent to provide medical and educational services on a non-profit basis.
4. The availability of cost-based or subsidized medical services at the subject clinic accessible to rich and poor alike is beneficial to the Taney 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 clinic constitute a gift? The provision of products or services to the public at cost or less constitutes a gift. Complainant is organized as a non-profit corporation. Complainant through its subsidiary St. John’s Regional Medicine of the Ozarks (SJRMO) operates a one-physician family practice clinic at the subject property. Complainant presented evidence that the subject clinic operated at a $182,983 loss for the fiscal year ending June 30, 2000, and operations for the six months ending December 31, 2000, also indicated a $108,220 loss. While there is not evidence to show or explain the decision making involved in setting the charges or fees for the services at the clinics, the performance history evidences an intent to provide medical and educational services at cost or less.
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.
2. Operation
Exemption law requires ownership and operation on a non-profit basis. The subject clinic is owned and operated by St. John’s Regional Medicine of the Ozarks (SJRMO), a Missouri Nonprofit Corporation. SJRMO was established as a Missouri Nonprofit Corporation in September of 1999. Since that time they have continuously owned and operated the subject clinic in Hollister, Missouri. Complainant’s Exhibit R at 4. SJRMO’s Articles of Incorporation state the corporation’s purpose to be:
…to establish and maintain one or more medical clinics as institutions with permanent health service facilities for the diagnosis and treatment of patients and to provide such medical services as may be required by patients; to conduct educational activities related to care of the sick and injured or to the promotion of health; to develop efficient and practical arrangements for providing health services; to foster teaching and research functions at its facilities in cooperation with other health services and educational institutions; to provide in service training programs to personnel employed at its facilities in order to maintain their skills and to make them aware of developments in the health services field; and for any and all other lawful purpose or purposes for which a nonprofit corporation may be organized in the State of Missouri….
Complainant’s Exhibit E, at 1. The Articles further provide that no part of SJRMO’s net earnings or property may inure to the benefit of any private shareholder or individual and that upon dissolution of the corporation, the corporate assets are to be distributed to the Sisters of Mercy Health System, St. Louis, Inc. or affiliated nonprofits or, alternatively, to a charitable organization as determined by the court. Id, at 2 and 4.
As referenced in the “use” discussion above, Complainant presented evidence that the subject clinic operated at a $182,983 loss for the fiscal year ending June 30, 2000, and operations for the six months ending December 31, 2000, also indicated a $108,220 loss. The mix of payment sources are: 46.79%- Medicare, 18.23%-Medicaid, 5.88% – Self Pay and 29.10% – Insurance. Elysa Fabian, C.O.O. for SJRMO testified:
…the payor mix is weighted heavily toward Medicare, Medicaid and self-pay patients which compose approximately 70% of patients seen in the clinic. Both Medicare and Medicaid reimburse for physician services pursuant to a fee schedule. For example, on a Level III office visit for an established patient, the St. John’s charge is $65.00. Medicare pays $44.97 dollars and Medicaid pays $24.00 for the service. From a cost accounting standpoint the amount paid by Medicaid does not cover the cost incurred by St. John’s in the provision of these services.
Complainant’s Exhibit R at 8. She further testified that the subject clinic has operated at a loss since 1996 and that the losses are covered by St. John’s Health System, Inc., the parent corporation. Id.
The Medical Group Management Association annually publishes a national survey reporting salary, benefit, and retirement benefit ranges for physicians practicing a number of different specialties. The salary and benefits for the physician at the subject clinic are consistent with the nationally surveyed range of salaries for family practice practitioners. Complainant’s Exhibit R, at 9.
The salary structure for physicians is a two-tiered system. The physicians receive a bi-weekly draw payment that is based upon their historical productivity and can receive additional compensation if his or her production exceeds the production levels established in their compensation plan. Complainant’s Exhibit R at 9, Complainant’s Exhibit N, Appendix at 2. The additional compensation is tied to increased patient management as measured by net professional and ancillary revenues and not any resulting profit of the clinic. Complainant’s Exhibit N, Appendix at 2 -3. While this may be a thin line, it appears that there are no profits paid to the physicians.
While there is not evidence to show or explain St. John’s Health System Inc.’s decision- making in setting the charges or fees for the services at the clinic, the performance history evidences an intent to provide medical and educational services on a non-profit basis.
Twitty v. State Tax Commission
In the Twitty v. State Tax Commission case, the Court of Appeals in the Southern District found a medical clinic in Greene County owned and operated by a corporate entity of St. John’s Regional Health Center to be taxable. 896 S.W.2d 680 (Mo. App. S.D. 1995). The Court found that the clinic failed to qualify for property tax exemption because (1) the use of the subject clinic was not consistent with its corporate purposes of supplying medical care in under served areas; and (2) the role of the subject clinic was to generate income or profit to enhance the network. Id., at 687 and 688.
The operations of the subject clinic in this appeal are distinguishable from the clinic reviewed in the Twitty case in a number of ways. First, St. John’s Health System, Inc., and its subsidiaries have re-organized. As of 1999, the regional clinics are now owned and operated by a subsidiary entitled St. John’s Regional Medicine of the Ozarks which, according to its Articles of Incorporation, operates for the purpose of establishing and maintaining “…medical clinics as institutions with permanent health care facilities for the diagnosis and treatment of patients…” and providing certain health education functions on a not-for-profit basis. Complainant’s Exhibit E at 1. The owning and operating entity is no longer organized for the express corporate purpose of providing medical care in medically under served areas. The corporate purpose of establishing medical clinics in under served areas was important in the Twitty case because the clinic under review was established in Greene County which was not listed as a medically under served area, and therefore, was an operation beyond the scope of the corporate purpose and was taxable. In this case, the owning entity does not have the express corporate purpose of establishing medical clinics in medically under served areas, rather, they have the purpose of establishing and operating medical clinics. Taney County is not currently designated as a medically under served area, but had been in the past. Complainant’s Exhibit R at 11. A St. John’s corporate entity first established a medical clinic in Hollister in 1996. Taney County was considered a medically under served area as recently as 1998. Id, at 11. Elysa Fabian, C.O.O. of SJRMO, testified that Taney County would become under served again if the St. John’s clinics would close. Id., at 11. Second, unlike the clinic in the Twitty case, there are no exhibits or testimony which suggest that profit was the primary goal of the clinic for the benefit of the clinic network, thereby, undermining a necessary determination that the clinic is dedicated unconditionally to a charitable objective. The Court’s analysis in the Twitty case as applied to the subject property’s operation lends support for a positive determination of exempt status.
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 clinic are the persons directly served by the clinic operations. The families of those patients are also directly served by the clinic. The clinic staff also provides general education and health promotions in the city and county, such as flu clinics and sports clinics. Complainant’s Exhibit R at 4. It is difficult to objectively measure a direct or indirect benefit to society. 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).
Patients are not denied service at the subject clinic based upon an inability to pay. Ms. Fabian clarified Complainant’s policies regarding indigent patients as follows:
Q: Are patients denied service due to their inability to pay?
A: No. Our policy is to work with patients to determine an acceptable payment arrangement. If they are unable to make payments, their account is written off to charity care.
Q: Do you write off patient accounts as bad debts?
A: We write off accounts to charity for those patients who work with us. Those patients who do not accept responsibility for the payment of their bills and do not respond to any of the billing statements are often written off as bad debt and referred to a collection agency.
Q: Are these patients given the opportunity to work with the clinic regarding payment arrangements?
A: As previously stated, our staff is very willing to work with those patients who accept responsibility for payment of their bills, communicate with us, and show follow through to their commitments.
Q: Are patients terminated from the clinic because of their payments?
A: No, they are not. As stated earlier, we try and work with those patients who do not have insurance to determine an acceptable payment schedule. We also have a very significant Medicare and Medicaid payor mix and we participate in a number of managed care insurance contracts.
Q: Are the patients denied appointments with the clinic?
A: Appointments are made pursuant to scheduling availability. There will be times when physicians are on vacation or ill and we are unable to accommodate patient requests for appointments. Individuals who have shown a lack of responsibility on their accounts, have been non-compliance [sic], or for other reasons, may have their patient-physician relationship terminated and if this was to occur we would not schedule their appointment. However, we provide the patient thirty (30) days notice of any type of termination and remain available to provide emergency care should they need it.
Complainant’s Exhibit R, at 11-12.
The fact that Taney County has cost-based or subsidized medical services at the subject clinic (and perhaps other locations) available to rich and poor alike is beneficial to the Taney County community.
Conclusion
The evidence persuasively supports a conclusion that the subject clinic is actually and regularly used exclusively for a charitable purpose, is owned and operated on a not-for-profit basis, and that the use of the subject clinic is beneficial to society in addition to those directly served by the subject clinic. The subject clinic is entitled to a property tax exemption.
ORDER
Appeal Number 00-89501 is voluntarily dismissed, so the current assessment stands. The non-exempt status of the subject property in Appeal Number 00-89502 for tax year 2000, as determined by the Assessor and approved by the Board of Equalization, is SET ASIDE. The Clerk is HEREBY ORDERED to show this parcel as exempt for tax year 2000.
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 these appeals 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 Taney 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 these appeals. 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 October 4, 2001.
STATE TAX COMMISSION OF MISSOURI
Aimee Smashey, Hearing Officer