Opinion
No. 5-396 / 04-1355
Filed August 17, 2005
Appeal from the Iowa District Court for Iowa County, Patrick R. Grady, Judge.
A county board of review appeals from a district court ruling that found a property owner was entitled to a property tax exemption. AFFIRMED.
Lewis McMeen, County Attorney, Marengo, and Bruce B. Green of Willson Pechacek, P.L.C., Council Bluffs, for appellant.
Dennis P. Ogden of Belin Lamson McCormick Zumbach Flynn, P.C., Des Moines, for appellee.
Heard by Vogel, P.J., and Miller and Hecht, JJ.
The Board of Review of Iowa County appeals from a district court ruling that concluded the Victor Health Center was entitled to a property tax exemption. We affirm the district court.
I. Background Facts and Proceedings.
In response to a growing concern about the availability of health care in the rural community of Victor, Iowa, a group of local citizens organized and in August 2001 incorporated Victor Health Center (VHC), a non-profit corporation established under Iowa Code chapter 504A (2001). The purpose of VHC is to receive contributions sufficient to build a facility in Victor, which it would then lease to Grinnell Regional Medical Center (Grinnell), a non-profit corporation, for the operation of a medical clinic. VHC's articles of incorporation provide that VHC is organized exclusively for "charitable . . . purposes," and that no part of any net earning of VHC shall inure to benefit of any individual. Part of Grinnell's stated mission is to provide medical services closer to people's homes.
The articles do allow VHC to pay reasonable compensation for services rendered, but no board member has ever received such compensation.
VHC applied for and received an advance ruling letter from the Internal Revenue Service (IRS), granting VHC a federal income tax exemption through December 31, 2005. Although the IRS application narrative mistakenly stated the medical facility would be leased to Grinnell on a long-term basis, "(possibly 99-year[s]) . . . for a nominal rent of $1.00 per year," the attached two-year proposed budget clearly indicated that VHC would be receiving $20,000 in rental revenue during the two year period. The proposed budget further indicated that the rental revenue, when combined with anticipated interest revenue, would be adequate to cover the expense of real estate taxes, insurance, repairs, maintenance and improvements, and allow VHC to hold $2,000 in reserve to cover any needed replacements.
In fact it is the City of Victor that has entered into a long-term lease with VHC, under which VHC leases the land upon which the facility was built for $1.00 per year.
VHC received approximately $300,000 in donations from local residents and concerned citizens which, in light of donated goods and services, was sufficient to cover the costs to construct the building, furnish the offices, and provide some medical equipment. VHC entered into a five-year lease with Grinnell, whereby Grinnell agreed to operate a medical clinic on the premises, and provide all necessary staff, equipment, and supplies. Under the lease Grinnell pays VHC the fair market value rent of $818.42 per month, which will be reduced to $616.67 per month if VHC's building becomes tax exempt. As lessor VHC remains responsible to maintain the premises, pay real estate taxes and any taxes on personal property located on the premises, and carry insurance coverage for the building and all building contents owned by VHC.
The medical clinic opened in April 2003. Grinnell staffs the clinic with its own medical and support personnel, which it pays on an hourly or salaried basis. Payment for services rendered by these individuals is made to Grinnell. For patients unable to pay for part or all of the services they receive, Grinnell offers a charity care program. Under the program qualifying individuals are eligible to receive care for free or at a reduced cost. Although only six patients have benefited from the program thus far, to date no individual who applied for the program has been turned down.
Single patients with liquid assets over $1,000, and married patients with liquid assets over $2,000, do not qualify.
In an effort to provide specialized care not otherwise available in the area, Grinnell has also contracted with a for-profit internal medicine specialist. The internist sees patients at the clinic one half-day per month, and pays Grinnell $100 per month for use of an exam room and any staffing support that might be needed. Patients pay the internist directly for any services he renders.
VHC has used the rental payments from Grinnell to meet expenses for maintenance, insurance, and other obligations under the lease. VHC also relies heavily on volunteers to perform maintenance tasks. According to VHC incorporator Orville Bloethe, VHC has not yet taken in revenue in excess of what is required to meet expenses. Bloethe further testified that, if VHC received funds in excess of expenses, it would use those funds to reinvest in the facility, for expansion, improvement, or accommodation of new medical technology.
VHC filed a claim for a property tax exemption for its building for the assessment year beginning January 1, 2003. The county assessor denied VHC's claim, and VHC petitioned to the Board of Review of Iowa County (Board). The Board adjourned without granting VHC's request. VHC then filed an appeal with the district court. Following a contested hearing, the district court concluded that VHC was entitled to a property tax exemption for the medical facility under Iowa Code section 427.1(8) (2003), which provides exemptions for buildings "used . . . by . . . charitable . . . institutions and societies solely for their appropriate objects, . . . and not leased or otherwise used . . . with a view to pecuniary profit. . . ."
The Board appeals. It asserts that (1) VHC is not a charitable institution or society, (2) VHC does not itself use the building to perform charity, and (3) neither Grinnell nor the internist are putting the building to a charitable use.
II. Scope and Standards of Review.
The district court hears property tax appeals in equity. Iowa Code § 441.39. Our review, therefore, is de novo. Iowa R. App. P. 6.4. While we are not bound by the district court's fact findings, we give them weight. Iowa R. App. P. 6.14(6)( g).
Statutes exempting property from taxation are strictly construed, Atrium Village, Inc. v. Board of Review, 417 N.W.2d 70, 72 (Iowa 1987), and doubts are resolved against exemption and in favor of taxation, Southside Church of Christ v. Board of Review, 243 N.W.2d 650, 654 (Iowa 1976). Although taxation is the rule, and exemption the exception, decisions in this area rest largely on the unique facts of each case. Partnership for Affordable Hous., Ltd. P'ship Gamma v. Board of Review, 550 N.W.2d 161, 164 (Iowa 1996).
III. Discussion.
In order to prove it is entitled to a property tax exemption under section 427.1(8), VHC must demonstrate (1) it was a charitable institution at the time it claimed the exemption, (2) the actual use of the medical clinic facility is solely for the appropriate objects of the charitable institution, and (3) the facility is not used with a view toward pecuniary profit. See Partnership for Affordable Hous., 550 N.W.2d at 164. The Board asserts VHC failed to demonstrate it meets any of the foregoing requirements. We cannot agree.
A. VHC's Charitable Status.
In determining whether an institution is charitable we look to a number of factors, including whether the institution received a federal tax exemption based on charitable status, and whether the institution's articles of incorporation reveal charitable purposes. Bethesda Found. v. Board of Review, 453 N.W.2d 224, 227 (Iowa Ct.App. 1990). The extent to which contributions of money, goods, and services played a part in the establishment and operation of the institution, including the participation of volunteers, is also an important consideration. Id. Here, all these factors appear to favor a conclusion that VHC is a charitable institution.
The Board claims VHC is not a charitable institution because, contrary to the statement in the IRS application narrative, VHC is leasing the facility to Grinnell for fair market value. The Board's argument is premised upon the assumption that, but for VHC's alleged misrepresentation, the IRS would not have granted VHC tax-exempt status. The problem with the Board's position is two-fold. First, while federal tax-exempt status is one factor for our consideration, it is not the only factor. Second, despite the misstatement, the IRS application clearly indicated VHC's intent to charge rent far in excess of $1.00 per year, and there is no suggestion in the record that the IRS relied on the misstatement when granting VHC tax exempt status.
When asked about this statement, Orville Bloethe testified it was incorrect, and noted it was VHC, rather than Grinnell, which was paying $1.00 in rent per year.
Within the context of the property tax exemption statute, Iowa is committed to a broad definition of charity. See Carroll Area Child Care Ctr., Inc. v. Carroll County Bd. of Review, 613 N.W.2d 252, 255 (Iowa 2000). Based upon the record, we conclude VHC meets the definition of a charitable institution. However, "[i]t is the character of the use, rather than the identity of the owner, which determines whether an organization's property is exempt from taxation." Holy Spirit Ret. Home, Inc. v. Board of Review, 543 N.W.2d 907, 910 (Iowa Ct.App. 1995). We therefore turn to the interrelated questions of whether the facility is being used solely for charitable objects and without a view toward pecuniary profit.
B. Actual Use/Pecuniary Profit.
The Board first contends that, even if VHC is a bona fide charitable institution, its passive leasing of property at fair market value is not a charitable use. Once again, we cannot agree.
As we have previously noted, Iowa is committed to a broad definition of charity. Carroll Area Child Care Ctr., Inc., 613 N.W.2d at 255. In determining whether the medical facility is being used solely for the appropriate objects of the charitable institution, we look to whether the property is actually being used for the charitable purpose. Id. Charity, in the form of gratuitous or partly gratuitous care, can be provided in two ways. An institution can subsidize the care of those who are unable to pay, or it can "use charitable contributions to cover the costs of establishing the facility and some portion of the ongoing operating expenses, thereby subsidizing the cost of the facility for all persons who use it, regardless of their ability to pay." Id. at 257.
Based upon the record, we conclude VHC meets the latter definition. VHC was organized with the sole purpose of bringing health care to a rural community. It then constructed a facility to house such care, relying entirely on community support, and monetary and in-kind donations. Moreover, volunteers continue to make a significant contribution to VHC's maintenance of the facility.
The Board makes much of the fact that VHC charges Grinnell fair market rent, and points this court to numerous cases it asserts support its claim that, as a result, the tax exemption must be denied. We have reviewed those cases, and find them distinguishable. Several cases involved facilities that were not being put to charitable use, as the institutions seeking a tax exemption had failed to offer gratuitous services to those unable to pay. See, e.g., Atrium Village, Inc., 417 N.W.2d at 73; Iowa Lakes Found. v. Board of Review, 387 N.W.2d 377, 379 (Iowa Ct. App. 1986). Others involved property that was being used with a view toward pecuniary profit. See, e.g., Iowa W. Racing Ass'n v. Iowa Dep't of Revenue, 421 N.W.2d 880, 882 (Iowa 1988); Friendship Ctr. W., Inc. v. Harman, 464 N.W.2d 455, 458 (Iowa Ct. App. 1990).
We have already determined VHC is using the facility for charitable objects. We similarly conclude that it is not renting the facility to Grinnell with a view toward pecuniary profit.
"Pecuniary profit" refers to monetary gain which inures to the benefit of private individuals and is not simply an excess of income over expenses. It is clear a charitable organization is not required to "run in the red"; its income may exceed expenses as long as the excess is not used for anything but charitable purposes.
Bethesda Found., 453 N.W.2d at 228. Here, the record reveals that no profits from rent and interest have inured to the benefit of any private individual, that income is being used by VHC to meet expenses, and that to date revenue has not exceeded expenses. Moreover, it is the clear intent of VHC to use any excess funds for the betterment of the facility. Under these facts, VHC has convincingly demonstrated that they are not renting the facility with a view to pecuniary profit.
However, our inquiry does not end here. When considering the use to which a property is put we must consider the actions of not only the owner-lessor, but also those of the lessee. See Warden Plaza v. Board of Review, 379 N.W.2d 362, 365 (Iowa 1986). The Board asserts Grinnell's use is fatal to the exemption claim, as the gratuitous services provided through its charity care program are de minimis. The Board admits there is no particular amount of subsidy which must be provided by an institution in order for that institution's use to be deemed charitable, but points us to a number of cases where a property tax exemption was denied to an institution that allegedly provided greater subsidies than Grinnell.
When we review those cases, we conclude the denials of an exemption did not turn upon the number or amount of subsidies. The institutions in those cases required individuals to meet certain financial requirements, granted exemptions only to individuals with close ties to the institution, or were unable to convincingly demonstrate financial assistance funds and policies existed or were utilized. See, e.g., Holy Spirit Ret. Home, Inc., 543 N.W.2d at 911; Partnership for Affordable Hous., 550 N.W.2d at 165-66; Mayflower Homes, Inc. v. Wapello County Bd. of Review, 472 N.W.2d 632, 634 (Iowa Ct.App. 1991).
Here, in contrast, the record demonstrates that a Grinnell employee determined, before services were rendered, whether an individual would be able to pay for the services. If patients did not have insurance, or indicated that they would be unable to pay part or all of the fees, they were given an opportunity to apply for assistance through the charity care program. The program was also offered to people who had difficulty paying their bill after services were rendered. All qualified applicants received some form of assistance, and to date no one who has applied for the program has been denied assistance. The foregoing establishes partially gratuitous services were provided by Grinnell.
Moreover, as Grinnell charges less for the services than the services cost to provide, and as it has operated the clinic at a loss from its opening, we conclude Grinnell is not operating the clinic with a view toward pecuniary profit. This fact does not change simply because Grinnell is receiving minimal rental income from the medical specialist. The evidence demonstrates that Grinnell brought in the internist to enhance patient service, rather than for private gain.
The Board asserts the mere fact the for-profit internist uses part of the clinic should serve to defeat VHC's property tax exemption. It relies upon our case of Friendship Center West, Inc. v. Harman, 464 N.W.2d 455, 458 (Iowa Ct.App. 1990), as standing for the proposition that if any part of the property is used for something other than charitable objects, the exemption must be denied. In that case a retirement center leased part of its property to a for-profit beauty shop, in exchange for twenty percent of the shop's income. Friendship Ctr. W., Inc., 464 N.W.2d. at 457-58. We rejected the center's claim that it was merely providing enhanced services for its residents, concluding the beauty shop was not a use for a charitable purpose. Id. at 458. Contrary to the Board's assertions, we do not find Friendship Center West to be controlling.
There are pertinent distinctions between Friendship Center West and the case at hand. Although not dispositive, we note that Grinnell's effort to provide enhanced medical services not available elsewhere in the community is something quite different in nature and kind than an on-site beauty shop in a retirement community. More importantly, however, there is no evidence that any part of the medical clinic is dedicated solely to use by the internist. Rather, he visits the clinic once per month, at which time he is given access to an exam room and support staff. Thus, the record indicates the internist's use of a small part of the facility is non-exclusive, infrequent, and in furtherance of the underlying purposes of both VHC and Grinnell.
The theory behind tax exemption statutes is that the benefits received by the community from the facility outweigh the inequality caused by exemption of the property from taxation. See Richards v. Iowa Dep't of Revenue, 414 N.W.2d 344, 351 (Iowa 1987) (exemption statutes are legislative recognition of benefits received by society and of the lessened burden on government). The record convincingly indicates that the medical facility has worked a significant benefit to Victor and the surrounding area, a benefit that is not negated by the fact a very small portion of the facility is made available one-half day per month for a for-profit physician to provide medical services not otherwise available in the community.
IV. Conclusion.
The district court properly determined that VHC qualified for a property-tax exemption under Iowa Code section 427.1(8). The court's decision is affirmed.