Freeman Community Hospital vs. Hutchinson County
Annotate this CaseFreeman Community Hospital and Nursing Home
Appellants
v.
Hutchinson County; Jerome Hoff, Auditor;
Donna Zeeb, Director of Equalization; Scott Schleske, Commissioner;
Gillas Stern, Commissioner, Russell A. Leonard, Commissioner, et al.,
Appellees
[2001 SD 112]
South Dakota Supreme Court
Appeal from the Circuit Court of
The First Judicial Circuit
Hutchinson County, South Dakota
Hon. Kathleen K. Caldwell, Judge
Jeremiah D. Murphy
Jeffery C. Clapper of
Boyce, Murphy, McDowell & Greenfield
Sioux Falls, South Dakota
Don A. Bierle of Bierle & Michels
Yankton, South Dakota
Attorneys for appellant.
Timothy R. Whalen
Lake Andes, South Dakota
Attorneys for appellees.
Lisa Z. Rothschadl Hutchinson
County State's Attorney
Tyndall, South Dakota
Attorneys pro tem.
Argued on May 30, 2001
Opinion Filed 8/22/2001
MILLER, Chief Justice
[¶1.] In this appeal we hold that a congregate living facility owned and operated by a community hospital is entitled to tax-exempt status.
FACTS[¶2.] In 1996, Freeman Community Hospital and Nursing Home (Hospital), a 501(c)(3) non-profit organization which is licensed under SDCL 34-12, built a ten-unit living facility in Freeman, South Dakota. The facility, known as Walnut Street Village (WSV), is located one-half block from the hospital. It intended the property to qualify for tax- exempt status as a congregate living facility under South Dakota law. WSV houses ten elderly people whose ages mostly range in the eighties. Under a residency agreement, occupants lease the living quarters, which include a full kitchen and two wheelchair accessible bathrooms. WSV also provides breakfast everyday at no additional charge and residents have access to two more meals for a nominal fee through either Hospital or Meals-on-Wheels. Occupants’ phones are connected by speed dial to Hospital’s nurse station for use in case of medical emergency or maintenance needs.
[¶3.] In 1997, Hospital applied to the Hutchinson County Board of Equalization for tax-exempt status for WSV. The Board denied tax-exempt status in April 1998 and Hospital appealed. On appeal, the circuit court affirmed. We reverse.
STANDARD OF REVIEW[¶4.] Whether a taxing statute creates an exemption under a given set of facts is a question of law. See Robinson & Muenster Assoc., Inc. v. South Dakota Dep’t of Revenue, 1999 SD 132, ¶7, 601 NW2d 610, 612. In effecting the purpose of a statute, we give the words in the statutes their “'reasonable, natural, and practical meaning.’” Id. (citing Matter of Sales & Use Tax Refund Request of Media One, Inc., 1997 SD 17, ¶9, 559 NW2d 875, 877; National Food Corp. v. Aurora Cty. Bd. of Comm'rs, 537 NW2d 564, 566 (SD 1995); Thermoset Plastics, Inc. v. Department of Revenue, 473 NW2d 136, 138-39 (SD 1991)). We construe statutes granting tax exemptions in favor of the taxing power and we give no deference to the conclusions of the taxing authority or the circuit court when reviewing a question of law. Department of Revenue v. Sanborn Tel. Coop., 455 NW2d 223, 225 (SD 1990) (quoting Midcontinent Broad. Co. v. Revenue Dep’t, 424 NW2d 153, 154 (SD 1988)).
DECISION[¶5.] 1. WSV qualifies for tax-exempt status.
[¶6.] The parties dispute whether Hospital has shown that WSV satisfies the requirements for tax-exempt status under SDCL 10-4-9.3. The statute provides:
Property owned by any corporation, organization or society and used primarily for human health care and health care related purposes is exempt from taxation. Such corporation, organization or society must be nonprofit and recognized as an exempt organization under section 501(c)(3) of the United States Internal Revenue Code of 1954, as amended, and in effect on January 1, 1986, and may not have any of its assets available to any private interest. Such property may be a hospital, sanitarium, orphanage, mental health center or adjustment training center regulated under chapter 27A-5, asylum, home, resort, congregate housing or camp. Congregate housing is health care related if it is an assisted, independent group-living environment operated by a health care facility licensed under chapter 34-12 which offers residential accommodations and supporting services primarily for persons at least sixty-two years of age or disabled as defined under chapter 10-6A. Supporting services must include the ability to provide health care and must include a food service which provides a balanced nutrition program. Such health care facility must admit all persons for treatment consistent with the facility's ability to provide medical services required by the patient until such facility is filled to its ordinary capacity and must conform to all regulations of and permit inspections by the South Dakota Department of Health.
[¶19.] First, before 1986, SDCL 10-4-9 provided a broad tax exemption for “'property belonging to any charitable, benevolent, or religious society . . . .’” Lutherans Outdoors in South Dakota, Inc. v. South Dakota State Bd. of Equalization, 475 NW2d 140, 141 (SD 1991). In 1986, the legislature amended SDCL 10-4-9 limiting its application to only property owned a religious society. At the same session, the legislature created 10-4-9.1, 10-4-9.2 and 10-4-9.3. Section 9.1 governs tax-exempt status for public charities and section 9.2 governs tax-exempt status for benevolent organizations. Each requires its subject entity to relieve a governmental burden as one condition to qualify for the property tax exemption. Section 9.3 governs tax-exempt status for nonprofit corporations, such as Hospital. Importantly, section 9.3 does not require a nonprofit corporation to relieve a governmental burden. Had the legislature intended to place that requirement on nonprofit corporations it would have done so, but it did not.
[¶20.] Second, when the legislature amended section 9.3 in 1988, it did not add the requirement that nonprofit corporations relieve a governmental burden. This is reflective of its intent.
[¶21.] County’s argument lacks merit and we hold that Hospital need not relieve a governmental burden to qualify for property tax exemption under the present statutory scheme.
SABERS, Justice (dissenting).
[¶25.] I agree that it is not necessary for this congregate living facility (CLF) to show it relieves a governmental burden, but I do not agree that it has shown that it has the ability to provide the necessary supporting services of:
1) health care, and
2) “food service which provides a balanced nutritional program.”
Quite simply, it has only shown that its parent (Hospital) has those abilities. It is not enough to merely make these required services available part-time to the residents of the CLF to qualify for tax-exempt status. The requirements of SDCL 10-4-9.3 are mandatory and unforgiving and there is no tax exemption for almost complying or complying in part.
[¶26.] The majority opinion gives lip service to the rule that we will strictly construe “laws exempting property from taxation in favor of the taxing power” and then violates the rule by “contriv[ing] a strained construction.” Application of Veith, 261 NW2d at 426. The “supporting services” required by SDCL 10-4-9.3 include the ability to provide health care and also a balanced nutritional food program. This means that CFL must be able to provide health care and a balanced nutritional food program all the time, even if all these services are not always used by all residents all the time. It certainly does not mean mere availability within the community at large.
[¶27.] The majority opinion determines that County has stipulated itself out of court. Nonsense. The stipulated facts do not satisfy CLF’s burden, instead, they provide an overview of the uncontroverted services CLF makes “available” and then the courts determine if they are sufficient for tax exemption. They are not. Neither the evidence presented, nor the stipulation, satisfies these statutory requirements.
[¶28.] The health care services offered at CLF are unremarkable at best. The “health screening” provided by CLF consists of a form listing whom to contact in case of an emergency, a physician’s name, and whether the resident requires a cane, walker, etc. County offered expert testimony that indicated this is not the typical health screening process, generally a health screening would include such things as blood pressure checks, cholesterol and blood sugar screens. The “household services” referenced in the stipulation includes such things as snow removal, window washing and general yard work. None of which help establish CLF’s claim to gain tax-exempt status.
[¶29.] The “emergency call system” provided by CLF includes nothing more than a programmed telephone set for the hospital. This system puts a resident in contact with an on-call nurse who then determines if 911 should be called. This emergency call system can also be used to summon maintenance for nonemergency repairs, this may be convenient but it is not enough to satisfy the statute. Is this really what the legislature envisioned when it attempted to attract safe, caring and responsive facilities for our older citizens through the tax-exempt scheme? The stipulation acknowledges only that the parent (Hospital) makes available the types of services required to satisfy the requirements of SDCL 10-4-9.3. The majority opinion misreads Hospital’s availability as the equivalent of CLF’s ability.
[¶30.] Additionally, the stipulation provides that the CLF offers “special diets.” What this really means is that CLF tenants are provided one meal, breakfast. All other meals can only be obtained through the meals-on-wheels service or at Hospital. Obviously, these same services are available at local cafes or restaurants. Once again, Hospital, not CLF, makes available the services that CLF claims it has the ability to provide. The statute clearly requires that CLF have the ability to provide “a balanced nutritional program.” Even the CLF expert testified that a balanced breakfast is not a balanced nutritional program. Basically, CLF has the ability to provide less than one-third of its requirement. The majority opinion determines this is sufficient under the statute. I do not. Because CLF has not met the stringent requirements, the general rule in SDCL 10-4-1 requiring property to be subject to taxation should control.
[¶31.] Therefore, I dissent.
[¶32.] We should affirm the circuit court in all respects.* Furthermore, congregate living facilities are the only property to which the tax exemption is available that are not subject to state licensing. A congregate living facility would be subject to licensure if it had a doctor or nurse as a full time staff member.
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