Opinion
Docket No. 013740-2011 Docket No. 014244-2012
05-28-2013
Re: South Jersey Eye Center, Inc. v. City of Camden
Jeffrey S. Beenstock, Esq. Tracy A. Siebold, Esq. Ballard Spahr, LLP Michelle Banks-Spearman Assistant City Attorney City of Camden Office of the City Attorney
NOT FOR PUBLICATION WITHOUT APPROVAL OF
THE TAX COURT COMMITTEE ON OPINIONS
Patrick DeAlmeida
Presiding Judge
Jeffrey S. Beenstock, Esq.
Tracy A. Siebold, Esq.
Ballard Spahr, LLP
Michelle Banks-Spearman
Assistant City Attorney
City of Camden
Office of the City Attorney
Dear Counsel:
This letter constitutes the court's opinion with respect to plaintiff's motion for summary judgment. The central issue before the court is whether real property owned by plaintiff in the City of Camden is exempt from local property taxes pursuant to N.J.S.A. 54:4-3.6 for tax years 2011 and 2012. For the reasons explained more fully below, the court concludes that the subject property is exempt from local property taxes for tax years 2011 and 2012 because it was used for charitable, non-profit purposes. Plaintiff's motion for summary judgment is therefore granted and Judgments of the county board of taxation denying exemption for the property are reversed.
I. Findings of Fact and Procedural History
The following findings of fact are based on the certifications and exhibits submitted by the parties with respect to plaintiff's motion. R. 1:7-4.
Plaintiff South Jersey Eye Center, Inc. ("SJEC") was formed by six health care professionals in 1960 as the Camden Optometric Eye Clinic. The organization, incorporated under New Jersey's non-profit corporations law, later changed its name to Camden Eye Center and thereafter to SJEC. Plaintiff's certificate of incorporation states, in pertinent part, as follows:
The purpose for which this corporation is formed is to perform eye examinations and supply glasses to all these indigent persons, residing in the counties of Camden, Gloucester, and Burlington, who are referred by various welfare agencies and philanthropic groups to the Camden Optometric Eye Clinic. It is the intent and purpose that the said corporation shall be organized and operated exclusively for scientific and charitable purposes, and no part of any profits, which the said corporation may acquire, shall inure to the benefit of any private shareholder or individual, and no part of the activities of such corporation, or any recipient of its funds, shall be to carry on propaganda or otherwise to attempt to influence legislation.
The purpose of SJEC is also stated in amended and restated bylaws as follows:
The purposes of the Corporation shall be to provide comprehensive eye and vision care to indigent, needy and underserved residents of Camden County, New Jersey and surrounding areas on a charitable, non-profit tax-exempt basis.Plaintiff's bylaws permit the agency's board to authorize the sale, lease, exchange or other disposition of all, or substantially all, of plaintiff's assets. The bylaws do not contain a provision expressly requiring that profits from the disposition of plaintiff's assets be distributed to other charitable entities should plaintiff be dissolved.
Plaintiff purchased the subject property, which is designated in the records of the City as Block 1406, Lot 32, on December 27, 2000. Commonly known as 400-402 Chambers Avenue, the property has been used continuously since that time as plaintiff's headquarters and to provide eye care services to plaintiff's clients. The property is conveniently located for Camden City residents, many of whom are poor and unable to pay market rate for eye care. Plaintiff provides eye exams and other eye-care medical services at the property during approximately 10,000 patient visits per year. The facility is the only freestanding, non-profit clinic in New Jersey dedicated to providing free and low-cost eye care to poor, low- and moderate-income, uninsured, underinsured and homeless patients.
Additionally, through the use if its mobile vision clinic, plaintiff makes visits to neighborhoods, schools, senior housing and federally-funded, income-restricted housing throughout Camden to provide eye care services to its targeted population.
SJEC's clinic at the subject property is staffed by six optometrists who work various hours on a monthly basis. The doctors, who are compensated for their work at the clinic, also have private practices. One ophthalmologist who operates a private practice volunteers at the clinic once a month for six or seven hours. He is not compensated for his work but submits claims for reimbursement to the insurance carriers of patients with insurance.
Plaintiff's revenue is derived from charitable contributions and from fees collected in exchange for patient services. SJEC's income is derived as follows:
38% Patient Fees (Including Insurance Reimbursements)
25% Private Contributions
15% Corporate Contributions
13% Foundation Grants
8% Public Contributions
1% Unclassified
Plaintiff imposes no income-based criteria for the acceptance of patients. Anyone who appears at the facility is provided care. Plaintiff has adopted a fee schedule for its services, as detailed below. It does not, however, collect the full amount of its charges from most patients.
Indigent patients without insurance are provided free services. SJEC uses income guidelines promulgated by the federal Department of Housing and Urban Development to determine if patients without insurance are indigent and entitled to free care. Between 26% and 35% of plaintiff's patients fall into this category.
Services are provided to patients with insurance, including Medicaid and Medicare, for whatever amount is reimbursed by the insurance carrier. Approximately 65% of plaintiff's patients have some type of insurance. The amounts collected by plaintiff for its services can be summarized as follows:
+-----------------------------------------------------------------------------+ ¦ ¦ ¦Payment ¦Medicaid ¦Medicare ¦ ¦ ¦ ¦SJEC Fee¦by ¦ ¦ ¦Private Insurance ¦ ¦Service ¦ ¦ ¦(No cost to ¦(No cost ¦ ¦ ¦ ¦Schedule¦Indigent ¦ ¦to ¦(No cost to ¦ ¦ ¦ ¦ ¦patients) ¦ ¦patients) ¦ ¦ ¦ ¦Patients ¦ ¦patients)¦ ¦ +-------------+--------+---------+---------------+---------+------------------¦ ¦Comprehensive¦ ¦ ¦ ¦ ¦Whatever amount ¦ ¦ ¦$75 ¦$0 ¦$22 ¦$75 ¦ ¦ ¦Eye Exam ¦ ¦ ¦ ¦ ¦reimbursed ¦ +-------------+--------+---------+---------------+---------+------------------¦ ¦Standard ¦ ¦ ¦ ¦ ¦Whatever amount ¦ ¦ ¦$75 ¦$0 ¦$15 ¦$0 ¦ ¦ ¦Bifocal ¦ ¦ ¦ ¦ ¦reimbursed ¦ +-------------+--------+---------+---------------+---------+------------------¦ ¦Progressive ¦ ¦ ¦ ¦ ¦Whatever amount ¦ ¦ ¦$160 ¦$0 ¦$0 ¦$0 ¦ ¦ ¦Bifocal ¦ ¦ ¦ ¦ ¦reimbursed ¦ +-------------+--------+---------+---------------+---------+------------------¦ ¦Single Vision¦ ¦ ¦ ¦ ¦Whatever amount ¦ ¦ ¦$40 ¦$0 ¦$15 ¦$0 ¦ ¦ ¦Lenses ¦ ¦ ¦ ¦ ¦reimbursed ¦ +-------------+--------+---------+---------------+---------+------------------¦ ¦Frames ¦ ¦ ¦ ¦ ¦Whatever amount ¦ ¦(Range) ¦$25-$85 ¦$0 ¦Lab cost only ¦$0 ¦ ¦ ¦ ¦ ¦ ¦ ¦ ¦reimbursed ¦ +-------------+--------+---------+---------------+---------+------------------¦ ¦Visual Fields¦ ¦ ¦Only with ¦ ¦Whatever amount ¦ ¦ ¦$40 ¦$0 ¦approval ¦$35 ¦ ¦ ¦and Studies ¦ ¦ ¦ ¦ ¦reimbursed ¦ +-------------+--------+---------+---------------+---------+------------------¦ ¦Follow up ¦ ¦ ¦ ¦ ¦Whatever amount ¦ ¦ ¦$35 ¦$0 ¦$0 ¦$35 ¦ ¦ ¦examination ¦ ¦ ¦ ¦ ¦reimbursed ¦ +-----------------------------------------------------------------------------+
Plaintiff produced evidence suggesting that its fee schedule reflects below market rates for the Camden area. Two of the optometrists who volunteer time at the clinic and an optometrist who serves as a Trustee of plaintiff charge between 28.6% to 68.8% more for identical services at their local private practices.
Defendant countered this information with advertisements obtained from the Internet. One advertisement offers free eye exams and two pairs of glasses for $69.95. If accurate, these rates are below those charged by plaintiff. Another advertisement for Sears offers single vision lenses for $69.99, an amount above what is charged by plaintiff. An advertisement of Eye Drx offers a $59 eye exam, slightly below the rate charged by plaintiff and two pairs of glasses, with or without bifocals, for $99, which is more than plaintiff charges for two pairs of glasses without bifocals and less than plaintiff charges for two pairs of glasses with bifocals. Notably, all of the advertisements state that the offers are not valid with insurance plans, suggesting that the rates advertised are charged to patients without insurance. If this is correct, then each of the service providers in the advertisements charge patients without insurance more than does plaintiff.
According to the February 7, 2012, Certification of SJEC's founder and president, the advertisements cited by the City are misleading. He contends that advertisements for low-cost eye care are used to lure in clients who are then told that the discounted merchandise is not available and are ultimately charged higher amounts for eye care. In support of these allegations, plaintiff submitted numerous written consumer complaints relating to the entities offering services in the advertisements submitted by the City. The court makes no findings with respect to plaintiff's allegations regarding eye care services of any entity other than SJEC.
In 2010, SJEC paid a total of $525,463 in salaries and 1099 wages. Dr. Lawrence Ragone, SJEC's founder and president, received $96,587.50 in compensation. This included a salary of $72,032.50, and $24,555.00 in 1099 wages for hours that he manned the agency's mobile vision van. Dr. Ragone's daughter, MaryAnn Ragone, is the Chief Operating Officer of SJEC. In 2010, she received a salary of $80,377.23. Dr. Ragone's grandson, Lawrence Ragone, III, is employed as SJEC's Director of Development. In 2010, he received a salary of $39,844.48. Kevin Ragone, another grandson of Dr. Ragone, was employed in 2010 as a part-time, temporary office assistant. He received a salary of $6,335.
In 2011, plaintiff paid a total of $494,019.18 in salaries and 1099 income. Dr. Ragone was paid $54,235.04 for a partial year as President and CEO of SJEC and for a partial year as Director of Patient Care at the agency. He was also scheduled to be paid $17,655 in 1099 wages for his work as a staff doctor. His total compensation for 2011 was $71,900.04. MaryAnn Ragone was paid $78,517.47 for her position as Chief Operating Officer. Lawrence Ragone III received $44,509.20 for his position as Director of Development. Kevin Ragone worked as a temporary office assistant at the clinic, earning $17,665. SJEC's Board of Trustees set salaries at the clinic through the agency's budget process. Salaries at SJEC are not reviewed by an independent commission or experts.
The doctors who contribute their time to the clinic are paid $175 for a three-and-one-half-hour shift. This amounts to $50.00 per hour. Plaintiff contends that this rate of compensation is half their ordinary hourly rates. Defendant contends that, based on information obtained from the Internet, the median salary for an optometrist in the United States is $100,000 and the median salary for an optometrist in New Jersey is $111,201. Assuming a 40-hour work week, this results in a median hourly rate in New Jersey of $53.46. Plaintiff introduced credible evidence that optometrists in New Jersey who are members of the American Optometric Association ("AOA") earn on average $154,739 per year, while non-members earn an average of $132,000. All SJEC optometrists are members of the AOA. Assuming a 40-hour work week, this results in an hourly rate of $74.40.
The ophthalmologist who volunteers at the clinic once a month receives no compensation. According the AOA, ophthalmologists in New Jersey earn between $100,000 and $500,000 per year, with approximately 45% of all ophthalmologists earning between $200,000 and $500,000. The ophthalmologist provides free care to patients without insurance and bills through his office patients with insurance.
All of the funds collected by SJEC are used to pay salaries of staff members and provide eye care to plaintiff's patients. Profits and dividends are not distributed to any person.
SJEC instituted a profit-sharing plan for its employees. Plaintiff made a single payment of $7,000 to the plan in 2008. No further contributions were made and the plan was subsequently terminated. Given that plaintiff's contribution to the plan took place three years prior to the first tax year at issue, the court considers the plan to be immaterial.
SJEC's expenses are categorized as follows:
69% Patient Care
24% Administration
3% Development
2% Building
2% Other
Beginning with its purchase by plaintiff in 2000, the subject property was treated as exempt from local property taxes. On February 1, 2011, the City's tax assessor sent plaintiff a letter stating that the "Camden County Tax Administrator has made a determination that your facility is not eligible for exemption of real estate taxes. As a consequence, she has ordered me to notify your organization that your building will be taxed beginning January 1, 2011."
As a result of the assessor's determination, an assessment was placed on the property for tax year 2011 as follows:
Land $ 65,400
Improvements $197,300
Total $262,700
On February 11, 2011, plaintiff filed a petition of appeal with the Camden County Board of Taxation challenging the revocation of its exemption. The board held a hearing on June 21, 2011 in connection with plaintiff's appeal.
On July 25, 2011, the board issued a Judgment affirming the assessment on the property.
On August 2, 2011, plaintiff filed a Complaint in this court challenging the Judgment of the county board.
On September 23, 2011, plaintiff moved for summary judgment. Defendant opposed the motion.
After hearing oral argument from counsel on November 4, 2011, the court requested supplemental evidentiary submissions and argument from counsel. Over the next several months the parties filed extensive supplemental materials, including a deposition transcript, plaintiff's tax returns, additional documentary evidence, and further briefing.
On March 1, 2012, the court signed a Consent Order in which the City agreed not to proceed with the issuance or sale of any tax liens with respect to any alleged tax deficiency associated with the subject property until final adjudication by the court. A second round of oral arguments was presented to the court thereafter.
During the course of the parties' supplemental submissions, plaintiff filed a challenge before the county board to the assessor's denial of exempt status for the property for tax year 2012. The board upheld the denial and, on August 20, 2012, plaintiff filed a Complaint in this court challenging the board's Judgment with respect to tax year 2012.
On November 8, 2012, the court consolidated the tax year 2011 and tax year 2012 Complaints for all purposes. The parties agree that the parties' submissions with respect to 2011 apply equally to 2012 and plaintiff's use of the property was consistent during those two years.
II. Conclusions of Law
Summary judgment should be granted where the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact challenged and that the moving party is entitled to a judgment or order as a matter of law. R. 4:46-2 (c). In Brill v. Guardian Life Ins. Co. of Amer., 142 N.J. 520, 523 (1995), our Supreme Court established the standard for summary judgment as follows:
[W]hen deciding a motion for summary judgment under Rule 4:46-2, the determination whether there exists a genuine issue with respect to a material fact challenged requires the motion judge to consider whether the competent evidential materials presented, when viewed in the light most favorable to the non-moving party in consideration of the applicable evidentiary standard, are sufficient to permit a rational factfinder to resolve the alleged disputed issue in favor of the non-moving party."The express import of the Brill decision was to 'encourage trial courts not to refrain from granting summary judgment when the proper circumstances present themselves.'" Township of Howell v. Monmouth County Bd. of Taxation, 18 N.J. Tax 149, 153 (Tax 1999)(quoting Brill, supra, 142 N.J. at 541). The court concludes that no genuine issues of material fact exist relevant to plaintiff's claim for an exemption for the subject property for the relevant tax years.
The Legislature has provided an exemption from local property taxes for:
all buildings actually used in the work of associations and corporations organized exclusively for . . . charitable purposes . . . .The exemption applies only if the use of the building is "not conducted for profit" and the entity seeking the exemption is a non-profit entity that "owns the property in question and is incorporated or organized under the laws of this State and authorized to carry out the purposes on account of which the exemption is claimed . . . ." Ibid.
[including] cases where the charitable . . . work therein carried on is supported partly by fees and charges received from or on behalf of beneficiaries using or occupying the buildings; provided the building is wholly controlled by and the entire income therefrom is used for said charitable . . . purposes.
[N.J.S.A. 54:4-3.6.]
If a building is found to be exempt, "the lands whereon any of the buildings . . . are erected, and which may be necessary for the fair enjoyment thereof, and which is devoted to the purposes above mentioned and to no other purpose and does not exceed five acres" is also exempt. Ibid. The parties do not dispute that in the event plaintiff establishes that its building is exempt, the land on which the building sits, which does not exceed five acres, would also be exempt.
Because they represent a departure from the fundamental approach that all property owners bear their fair share of the local property tax burden "[t]ax exemption statutes are strictly construed, and the burden of proving entitlement to an exemption is on the party seeking it." Abunda Life Church of Body, Mind & Spirit v. City of Asbury Park, 18 N.J. Tax 483, 485 (App. Div. 1999)(citing New Jersey Carpenters Apprentice Training and Educ. Fund v. Borough of Kenilworth, 147 N.J. 171, 177-78 (1996), cert. denied, 520 U.S. 1241, 117 S. Ct. 1845, 137 L. Ed. 2d 1048 (1997); Princeton Univ. Press v. Borough of Princeton, 35 N.J. 209, 214 (1961)). "'[A]ll doubts are resolved against those seeking the benefit of a statutory exemption . . . .'" Chester Borough v. World Challenge, Inc., 14 N.J. Tax 20, 27 (Tax 1994)(quoting Township of Teaneck v. Lutheran Bible Inst., 20 N.J. 86, 90 (1955)). These standards, however, do "not justify distorting the language or the legislative intent" of the exemption statute. Boys' Club of Clifton, Inc. v. Township of Jefferson, 72 N.J. 389, 398 (1977). "[W]hile the construction of the applicable statute must be strict, it must also be reasonable." Phillipsburg Riverview Org., Inc. v. Town of Phillipsburg, 26 N.J. Tax 167, 175 (Tax 2011)(citing International School Serv., Inc. v. Township of West Windsor, 412 N.J. Super. 511, 524 (App. Div.), aff'd, 207 N.J. 3 (2011)), aff'd, 2013 N.J. Tax Lexis 9 (App. Div. 2013). "The rule of strict construction must not defeat the evident legislative design." Ibid.
The statutory criteria for a charitable exemption are properly summarized as follows. A claimant must demonstrate that: (1) it owns the property; (2) it is organized exclusively for charitable purposes and is authorized to conduct the activities for which the property is used; (3) the property was actually used for the tax exempt purpose; and (4) the operation and use of the property was not conducted for profit, although fees may be collected from or on behalf of beneficiaries of the charitable services, provided revenue from the fees is used to further the organization's charitable purposes. See Essex Properties Urban Renewal Assocs. v. City of Newark, 20 N.J. Tax 360, 364 (Tax 2002).
N.J.S.A. 54:4-3.6 previously required actual and exclusive use of the building for charitable purposes. L. 2001,c. 18 removed the exclusive-use element of the statute for the charitable use exemption. In its submissions to the court, defendant initially argued that the exempt status of the subject property was correctly revoked because plaintiff did not use the property exclusively for charitable purposes. In light of the 2001 revision of N.J.S.A. 54:4-3.6, the City abandoned this argument.
(1) Ownership of the subject property.
It is undisputed that plaintiff owns the subject property. This factor of the charitable exemption test is satisfied.
(2) Organized exclusively for charitable purposes and plaintiff is authorized to carry out the purposes for which the property is used.
Whether an entity is organized for exclusively charitable purposes must be determined from the property owner's organizational documents. See Black United Fund v. City of East Orange, 17 N.J. Tax 446, 455 (Tax 1998), aff'd, 339 N.J. Super. 462 (App. Div. 2001); 1711 Third Avenue, Inc. v. City of Asbury Park, 16 N.J. Tax 174, 182 (Tax 1996); Planned Parenthood v. City of Hackensack, 12 N.J. Tax 598, 610 n. 6 (Tax 1992), aff'd, 14 N.J. Tax 171 (App. Div. 1993).
The Supreme Court, when examining this issue, explained:
We have not previously had occasion to define "charitable purposes" as used in N.J.S.A. 54:4-3.6. Courts of other states with similar statutes have defined "charitable purposes" as:Adopting this definition, the Court held that "the term 'charity' in a legal sense is a matter of description rather than a precise definition." Id. at 285. "Therefore, the determination of whether property is devoted to a charitable purpose depends upon the facts or circumstances of each case. As a guide, however, it should be borne in mind that a sometimes stated justification for charitable tax exemptions is that if the charitable work were not being done by a private party, it would have to be undertaken at public expense." Ibid.
[A]n application of property 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 from disease, suffering and constraint, by assisting them to establish themselves for life, or by erecting or maintaining public buildings or works, or otherwise lessening the burdens on government.[The Presbyterian Homes of the Synod of New Jersey v. Division of Tax Appeals, 55 N.J. 275, 284 (1970)(quoting Coyne Electrical School v. Paschen, 146 N.E.2d 73, 79 (Ill. 1957)(footnote and emphasis omitted).]
The court is convinced that plaintiff is established exclusively for charitable purposes. Plaintiff's purpose is to provide free or affordable eye care to indigent, uninsured, underinsured and homeless patients. There is no doubt that the services provided by plaintiff relieve the human body of disease, a criterion expressly stated by the Court in Presbyterian Homes. To the extent that plaintiff provides medical care to patients without the resources to pay for that care, the government is relieved of what would otherwise be a public burden. The SJEC clinic on the subject property is the only freestanding facility of its type in New Jersey. Without services from plaintiff these patients likely would either seek government subsidized care in hospitals or would go without eye care, creating the undesirable condition of having citizens with untreated medical conditions. It is likely that the government would bear at least some burden were plaintiff not to provide its services.
This conclusion applies equally to SJEC patients with insurance. Plaintiff accepts from insured patients whatever reimbursement is provided by the insurance carrier. This practice has the effect of encouraging insured and underinsured patients to seek medical care because the patients will not be personally liable for uncovered services or the difference between SJEC's fee and the reimbursed amount. The court concludes that some insured and underinsured patients would, without plaintiff's services, elect to forego eye care to avoid personal financial liabilities.
The fact that plaintiff's certificate of incorporation mentions both a "scientific" and a "charitable" purpose does not change the result. There are three reasons for this conclusion. First, plaintiff's purpose is most specifically defined in the certificate of incorporation thusly: "to perform eye examinations and supply glasses to all these indigent person . . . who are referred by various welfare agencies and philanthropic groups . . . ." The reference to a scientific purpose must be understood in the context of this more specific statement.
Second, plaintiff's purpose is clarified in its amended and restated bylaws:
to provide comprehensive eye and vision care to indigent, needy and underserved residents of Camden County, New Jersey and surrounding areas on a charitable, non-profit tax-exempt basis.The amended and restated bylaws do not specify an additional, independent scientific purpose.
Third, the services plaintiff provides - eye care - are scientific in nature. It is through the medical sciences that plaintiff provides its charitable services to its patients. This explains the reference in plaintiff's incorporating document to a scientific purpose. Plaintiff is not authorized to conduct any scientific endeavor other than the provision of eye care services to its patients. Unlike the taxpayer in Planned Parenthood, supra, SJEC's organizational documents do not authorize purposes independent of the organization's overall charitable purpose. Although described in the certificate of incorporation as both scientific and charitable, plaintiff's authorized purpose is one and the same - the charitable purpose of providing medical care on a non-profit basis to needy patients.
The court concludes the second factor of the statutory test is satisfied. Plaintiff is exclusively authorized for charitable purposes and is authorized to carry out the purposes for which the subject property is used.
(3) The subject property must actually be used for the tax exempt purpose.
No factual issue exists with respect to how SJEC uses the subject property. It is not disputed that the property serves as plaintiff's headquarters and houses the clinic at which SJEC provides medical care to its patients.
The City argues that plaintiff's use of the subject property is not for a charitable purpose because: (1) SJEC employs no income-based criteria for eligibility for service and charges some of its patients for medical care; and (2) SJEC does not charge below-market rates for its service. The inquiry into whether the property is used for charitable purposes is the "essential consideration in matters of tax exemption." Church Contribution Trust v. Borough of Mendham, 9 N.J. Tax 299, 307 (Tax 1987), aff'd as modified, 224 N.J. Super. 643 (App. Div. 1988). The City's arguments are addressed in turn below.
SJEC's provision of eye care services to patients who are not in financial distress does not negate the agency's charitable use of the subject property. There is no statutory requirement that every beneficiary of a charity be indigent, needy or unable to pay market rate for services. In fact, the Legislature recognized that a charitable organization may, as a practical matter, charge fees to those beneficiaries who are able to pay for services in order to subsidize services that the charity provides for free. N.J.S.A. 54:4-3.6 provides that "the exemption of the buildings and lands used for charitable, benevolent or religious purposes shall extend to cases where the charitable, benevolent or religious work therein carried on is supported partly by fees and charges received from or on behalf of beneficiaries using or occupying the buildings . . . ." The motion record demonstrates how SJEC's collection of fees from patients who can afford to pay for medical care and who have insurance supports and advances plaintiff's charitable purpose. The fees that SJEC collects from non-indigent, insured patients are used to subsidize eye care for indigent patients and patients with insurance carriers that reimburse SJEC less than its stated fees.
Moreover, although there is no evidence directly on point in the motion record, both parties recognized that given the location of plaintiff's clinic and its targeted patient population, it is rare for a financially secure, fully-insured patient to appear at the subject property for treatment. The court will, however, assume, for the sake of defendant's argument, that on occasion SJEC treats patients with insurance that will reimburse 100% of SJEC's charges or who have the personal financial means to pay the stated rate for SJEC's service. In those circumstances, all profits that SJEC realizes from the provision of services are used by SJEC to subsidize medical care for patients who are unable to pay SJEC's full fees. By using the revenue generated by financially able patients to provide treatment to needier patients SJEC furthers its charitable purpose and relieves the State of the obligation of providing medical care to plaintiff's financially challenged clients. See Southern Jersey Family Medical Centers, Inc. v. City of Pleasantville, 351 N.J. Super. 262, 267 (App. Div. 2002)(holding that entity that provides health and dental care irrespective of a patient's ability to pay entitled to exemption even though thirteen percent of entity's patients had private insurance), aff'd o.b., 176 N.J. 184 (2003).
The same conclusion is true with respect to plaintiff's practices as they relate to uninsured and underinsured patients, who may not qualify as indigent under federal guidelines, but who might not have the means to pay for services not covered by insurance. The fact that a patient has health insurances does not necessarily equate to a conclusion that the patient can readily afford to pay for medical services not fully covered by insurance. SJEC accepts from the insurance carriers for those patients whatever reimbursement is offered. Again, this revenue is used by SJEC to subsidize care to its patients.
Nor is there any support for the City's contention that all fees charged by a charitable organization for its services must be below market rates for the property to be exempt. No provision of N.J.S.A. 54:4-3.6 expressly provides that a charitable entity provide services to all of its beneficiaries at rates below market. Nor can such a requirement be gleaned as an implied provision of the statute. It is certainly true that a charitable entity's below-market charges for services are a relevant factor in the court's determination of whether an exemption applies. See Salt & Light Co. v. Township of Mount Holly, 15 N.J. Tax 274 (Tax 1995), aff'd o.b., 15 N.J. Tax 40 (App. Div. 1996), certif. denied, 148 N.J. 458 (1997). It is sufficient, as is the case here, for a charitable entity to provide services to the majority of its beneficiaries at no cost or a reduced cost (i.e., at rates below the charity's fee schedule) and to subsidize those services with fees charged to other customers at market or above market rates, provided that no profits inure to the benefit of any individuals.
Here, it is undisputed that 26% to 35% of SJEC's patients receive free eye care because they are indigent and lack insurance. For these patients it is clear that SJEC does not receive market rates for its services, whatever market rates may be. This finding alone is sufficient to satisfy the statutory criterion for charitable use of the property. Plaintiff qualifies for the exemption whether its free services are funded by donations, grants or revenue from the 65% of its patients with health insurance. The relevant inquiry is not whether plaintiff provides all of its services at below market rates, but whether plaintiff provides charitable works without generating a profit to any individuals.
In addition, 65% of plaintiff's patients have some insurance coverage, including Medicare and Medicaid. SJEC accepts from the insurance carriers whatever reimbursement is provided with no cost to the patients. Medicaid reimbursements are well below SJEC's fee schedule. Thus, even if the court were to assume that SJEC charges market rates, it does not recover those rates for its Medicaid patients. For patients covered by Medicare, SJEC receives nearly full reimbursement for eye examinations, visual field studies and follow up examinations, but no reimbursement for standard bifocals, progressive bifocals, single vision lenses or frames. Viewed in the best light for defendant, SJEC recovers less than market rates for many of the services that it provides to its Medicare patients and uses the revenue from its rates to subsidize services for all of its patients, including indigent patients who are not charged for medical care. Compare Church Contribution Trust, supra, 224 N.J. Super. at 647 (exemption denied where counseling entity collected full fees from 60% of clients and no clients provided free services).
These observations do not equate to a finding that plaintiff charges market rates for its services. Quite to the contrary, the motion record strongly suggests that it does not. The best evidence in the record of market rates is the certification from two of the optometrists who volunteer time at the clinic and an optometrist who serves as a Trustee of plaintiff. Those professionals charge between 28.6% to 68.8% more than does SJEC for identical services at their local private practices. The advertisements produced by defendant are insufficient to establish that plaintiff charges market rates for its services. Those advertisements are hearsay and each indicates that the advertised rates do not apply with insurance plans, which suggests that the rates are applicable to uninsured patients, who are not charged for services by plaintiff.
(4) The operation and use of the property was not conducted for profit.
As the Supreme Court explained in Paper Mill Playhouse v. Township of Millburn, 95 N.J. 503, 521-22 (1984)(footnote omitted),
Our cases require a pragmatic inquiry into profitability. The decisions reveal a realistic common sense analysis of the actual operation of the taxpayer; mechanical centering on income and expense figures is to be avoided. As Chief Justice Vanderbilt stated in The Kimberly School v. Montclair, 2 N.J. 28, 37-38 (1949); "It is our conception that the test imposed by the statue is simply, in the words of Mr. Justice Swayze, whether or not the school is 'conducted for the purpose of making a profit.'"The Court continued, "[a] crucial factor is where the profit goes." Id. at 522. "'Who gets the money?' If we can trace it into someone's pocket" the exemption does not apply. Ibid. (quoting City of Trenton v. Division of Tax Appeals, 65 N.J. Super. 1, 12 (App. Div. 1960)). "As long as salaries are not excessive, the mere payment of them is not sufficient grounds for denying the exemption." Ibid.
[I]f surplus insures to the benefit of individuals in the form of dividends and other similar distributions, the corporate purpose is to turn a profit. If, on the other hand, money is placed into an endowment fund or used to pay moderately priced salaries, the fact that the corporation may operate at a surplus is not relevant to obtaining an exemption under N.J.S.A. 54:4-3.6.
[Job Haines Home for the Aged v. Township of Bloomfield, 19 N.J. Tax 408, 416 (Tax 2001), aff'd, 20 N.J. Tax 137 (App. Div. 2002).]
Here, profits from SJEC's operations cannot be traced to anyone's pocket. The entity pays dividends to no one. No distributions of profits are made to any persons. The salaries paid by plaintiff to its staff strike the court as entirely reasonable, particularly in light of the services that SJEC provides.
A 1963 letter from the Internal Revenue Service admitted into evidence states that plaintiff is exempt from federal income tax under Section 501(c)(3) of the Internal Revenue Code. However, "[i]t is well established that the standards under § 501(c)(3) 'have no relation to state law governing property tax exemption.'" Black United Fund, supra, 339 N.J. Super. at 466 (quoting Presbyterian Homes, supra, 55 N.J. at 286 n. 3). The fact that plaintiff satisfies the federal statutory criteria for exemption from federal income tax does not mean that SJEC meets the requirements of N.J.S.A. 54:4-3.6. The IRS determined, however, "does support a finding that it is not operated for a profit." Paper Mill, supra, 95 N.J. at 523 n.7.
Because of the nature of the plaintiff's activities, it is necessary for SJEC to staff its facility with licensed medical professionals. It would be unreasonable to interpret N.J.S.A. 54:4-3.6 to predicate an exemption on plaintiff paying its professional medical staff less than what they could reasonably expect as compensation in their profession. While an entirely volunteer medical staff would be an ideal circumstance, N.J.S.A. 54:4-3.6 does not impose such a requirement. Medical professionals who provide eye care are highly trained, must maintain their competency and licensing, and have valuable skills for which compensation is rightly expected. In addition, although not detailed in the record, it is commonly understood that medical professionals must maintain malpractice insurance, an expensive proposition. Like the tax-exempt theater in Paper Mill, supra, 95 N.J. at 518-19, which hired professional Broadway actors at standard wages for its productions, SJEC cannot be denied an exemption because it hires professional medical care providers at standard rates to treat its patients. It is SJEC's obligation to "assure[] a high standard of quality for" its patients. See City of New Brunswick v. George St. Playhouse, Inc., 2 N.J. Tax 407, 409 (1981). Indigent, uninsured, underinsured and homeless patients are no less deserving of competent medical care than those who are fortunate enough to have the means or insurance to pay fully for their treatment. Undisputed evidence establishes that the medical professionals who work at SJEC's clinic are paid at market rates for their fields.
In addition, members of SJEC management are compensated at reasonable rates. The SJEC clinic is a large operation, accomodating approximately 10,000 patient visits per year. The record contains evidence which has not been refuted detailing significant responsibilities for Dr. Ragone and MaryAnn Ragone, SJEC's Chief Operating Officer. Both are involved in managing the operation of the clinic and in raising funds from contributors, government agencies and foundations. Both are expected to attend functions after work hours in order to raise funds for the organization, adding to their responsibilities at SJEC.
Defendant introduced no evidence suggesting that the salaries paid to the management of SJEC are excessive or represent the diversion of profits to any individual. Indeed, the SJEC salary structure for 2011 and 2012 is in line with the salaries found to be reasonable by the Appellate Division in South Jersey Family Medical, supra, for the staff operating a medical clinic in 1999. 351 N.J. Super. at 267. Nor is the court persuaded by defendant's argument that the familial relationship between the senior management staff at SJEC negates the property's exemption. It does not strike the court as unusual or inappropriate for several members of the same family to be involved in the operation of a charitable organization founded by a family patriarch. Dr. Ragone is one of the founders of SJEC and serves as its President. His daughter is the agency's Chief Operating Officer. Two of Dr. Ragone's grandsons work at the agency, one in a part-time position. Nothing in the record suggests that the Ragone family members do not provide services in exchange for their salaries or that they are compensated excessively. Several members of the Ragone family are involved in providing charitable services and receive compensation for their efforts. This arrangement does not run afoul of N.J.S.A. 54:4-3.6.
Defendant argues that an exemption is not warranted because plaintiff's organizational documents do not contain a provision requiring that, upon dissolution, proceeds from the sale of SJEC's assets be given to a charitable entity. See Paper Mill, 95 N.J. at 511. Plaintiff argues that dissolution of SJEC's assets would be covered by the provision of the articles of incorporation mandating that no profit from SJEC's operations shall inure to the benefit of any individual. N.J.S.A. 15A:12-8 requires that an entity organized under the State's non-profit corporation statutes, as was SJEC, provide for a plan for disposition of assets upon dissolution. In the absence of a provision in the originating documents requiring distribution of assets to members of the corporation, the dissolved entity's assets will be distributed to entities engaged in charitable activities similar to those carried out by the dissolved entity. N.J.S.A. 15A:12-8(b).
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The court concludes that the subject property is used for charitable purposes. No for-profit medical services operation would follow SJEC policies. A for-profit enterprise would not regularly provide free services to patients, would not target an uninsured, underinsured and homeless patient population, and would not accept whatever amounts are reimbursed by insurance companies without attempting to collect the balance from patients. In addition, a for-profit organization would not use all of its revenue, after the payment of salaries and expenses, to underwrite free patient services. See Paper Mill, supra, 95 N.J. at 514-515. The court concludes that the fourth factor of the charitable-exemption inquiry is satisfied.
Having determined that plaintiff meets all of the statutory criteria for an exemption, the court will enter Judgments designating the subject property as exempt from local property taxes for 2011 and 2012 pursuant to N.J.S.A. 54:4-3.6 as property used for charitable purposes.
Very truly yours,
__________________________
Patrick DeAlmeida, P.J.T.C.