Bethesda Foundation v. Board of Review of Madison County

• Decision Date: 25 January 1990
• Docket Number: No. 88-900,88-900
• Citation: 453 N.W.2d 224
• Parties: BETHESDA FOUNDATION, Appellee, v. BOARD OF REVIEW OF MADISON COUNTY, Iowa; Lowell Olson, Chairman of the Board of Review of Madison County, Iowa; Catherine A. Weltha, Madison County Assessor; and County of Madison, State of Iowa, Appellants.
• Court: Iowa Court of Appeals

Page 224

453 N.W.2d 224

BETHESDA FOUNDATION, Appellee, v. BOARD OF REVIEW OF MADISON COUNTY, Iowa; Lowell Olson, Chairman of the Board of Review of Madison County, Iowa; Catherine A. Weltha, Madison County Assessor; and County of Madison, State of Iowa, Appellants.

No. 88-900.

Court of Appeals of Iowa.

Jan. 25, 1990.

As Corrected April 26, 1990.

A. Zane Blessum, County Atty., for respondents-appellants.

John D. Lloyd of Reynoldson, Van Werden, Kimes, Reynoldson, Lloyd & Wieck, Osceola, for petitioner-appellee, and Stephen T. McGill and Robert L. Lepp of McGill, Parsonage & Lanphier, P.C., Omaha, Nebraska.

Heard by OXBERGER, C.J., and DONIELSON and SCHLEGEL, JJ.

DONIELSON, Judge.

Bethesda Foundation (Bethesda) is a nonprofit organization incorporated in Nebraska. The Bethesda Care Center in Winterset, Iowa, is owned by Bethesda and it includes intermediate (ICF) and residential (RCF) care facilities and apartments for the elderly. The Winterset facility employs ninety people and utilizes the services of fifty-six volunteers. As of the date of the trial court proceedings, Bethesda owned thirty health care facilities in seven states and operated two others under lease and management agreements. Bethesda claims it runs all of its facilities as nonprofit operations.

Pursuant to Iowa Code sections 427.1(9) and (10), Bethesda applied for a property tax exemption for 1986 and 1987 for the ICF and RCF portions of its Winterset facilities. It did not seek exempt status for its apartments. The Madison County Assessor denied the exemption. The Board of Review for Madison County (Board) also denied the exemption. Bethesda then filed this suit in district court, claiming the property should be exempt from property taxes because it was owned and used for religious and charitable purposes. The court concluded the ICF portion of the center was exempt from taxation in 1986 and 1987; the RCF was not exempt because it provided no gratuitous or partly gratuitous care to its residents. The court remanded the case to the county assessor to allow the assessor to prorate the property assessment between the ICF and the RCF.

The Board appeals the district court's decision. It contends the court did not have the power to remand the case to the county assessor. The Board asserts under section 441.43 the court must either approve or modify the board's decision and remand is not an option.

The Board agrees the gratuitous or partly gratuitous care of elderly persons is a charitable purpose. The Board argues, however, that the Bethesda Care Center does not provide sufficient gratuitous care to qualify as a charitable institution. The Board points to the fact the care center does not use donations to pay for ongoing expenses and it uses no more volunteers than other for-profit nursing home facilities.

The Board also claims the care center is actually run with a view to pecuniary profit. Bethesda has plans to sell the care center and will receive a gain from the sale when it does so. Bethesda commingles the funds it receives from the Winterset care center with those of its entire operation. The Board argues employees of Bethesda receive extensive bonuses and excessive salaries.

By a supreme court order of May 10, 1989, the Board's motion to assess certain costs to Bethesda involving the appendix is to be submitted with the appeal.

I. Scope of Review. Our review is de novo. Atrium Village v. Board of Review, 417 N.W.2d 70, 72 (Iowa 1987). We strictly construe the statutes exempting property from taxation. Id. "[T]axation is the rule and exemption the exception." Congregation B'Nai Jeshurun v. Board of Review, 301 N.W.2d 755, 756 (Iowa 1981), (quoting Trustees of Griswold College v. State, 46 Iowa 275, 278 (1877)). The current trend is to curb and restrict property tax exemptions. Id.

Any doubt concerning an exemption must be resolved in favor of taxation. Atrium Village, 417 N.W.2d at 72. The burden is upon the party claiming the exemption to show the property should not be taxed. Id.

Exemption statutes are premised on the theory that the benefits received by the community from the facility outweigh the inequality caused by exemption of the property from taxation. Id. See also Richards v. Iowa Dept. 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 relevant portions of the exemption statute at issue in this case provide:

The following classes of property shall not be taxed:

Property of religious, literary, and charitable societies. All grounds and buildings used or under construction by ... charitable, benevolent, ... and religious institutions and societies solely for their appropriate objects, ... and not leased or otherwise used or under construction with a view to pecuniary profit.

Iowa Code § 427.1(9) (1987).

II. "Charitable" Institution. The general trend of authority in cases determining the charitable character of institutions for tax exemption purposes, veers away from the old concept that charity is confined to the "free" care of the indigent, and toward the idea of charity as comprehending all humanitarian activities. Richards, 414 N.W.2d at 351, quoting Annotation, Receipt of Pay From Beneficiaries as Affecting Tax Exemption of Charitable Institutions, 37 A.L.R.3rd 1191, 1197 (1971). "Our case law makes it clear that the gratuitous or partly gratuitous care of the elderly is a charitable purpose." Twilight Acres Inc. v. Board of Review, 346 N.W.2d 40, 41 (Iowa App.1984). See also South Iowa Methodist Homes, Inc. v. Board of Review, 173 N.W.2d 526, 532 (Iowa 1970); Evangelical Lutheran Good Samaritan Society v. Board of Review, 267 N.W.2d 413, 415 (Iowa App.1978).

Factors relevant to proving an institution is charitable include whether it received a federal tax exemption based on charitable status and whether the institution's articles of incorporation reveal charitable purposes. Richards, 414 N.W.2d at 351. It is conceded the Bethesda Foundation meets both of these requirements. However, when determining the charitable status of an institution, the actual use of a facility is more important than its stated purpose. Id. The mere fact that an institution is a nonprofit corporation does not make it a charitable institution under section 427.1(9). Dow City Senior Citizens Housing, Inc. v. Board of Review, 230 N.W.2d 497, 499 (Iowa 1975). In challenging Bethesda's status as a charitable institution, the Board points to the fact that 1) donations and gifts did not play a crucial role in the acquisition of the Winterset facility nor in its continuing operations; 2) services provided by its volunteers are no different than found in for-profit facilities; and 3) approximately fifty percent of its patients' care is paid for by government entitlements (Title XIX).

Our supreme court has held there is no necessity under the law that charitable contributions form a certain threshold percentage of an institution's budget before the institution can be considered charitable. Richards, 414 N.W.2d at 353. However, it is important that contributions of money, goods, and services played some part in the establishment and operation of a charitable institution. Id. The record reveals Bethesda purchased the Winterset facility in 1981 for $1,276,500 from a for-profit organization. While the purchase of the Winterset care center was not the result of local fund raising and donations, it was purchased by an organization which traces its beginnings to 1960 when the personal contributions of a minister produced a nursing home in Bassett, Nebraska. As the need for similar homes grew, so did Bethesda's ability to build and purchase the facilities. We cannot find the circumstances of Bethesda Care Center's acquisition lessens its status as a charitable institution. The record reveals the Winterset facility accepts and has received gifts and donations. While these contributions add only minimally to Bethesda's income, they do enable the Winterset facility to be less "institutional" in appearance and provide a more welcoming and comfortable atmosphere for its residents.

Related to the issue of donations is the contribution of services numerous volunteers provide the Bethesda Care Center. Their generous donations of time and resources provide numerous benefits to the residents. It is without question these contributed services play an important part in the operation of the care center. The fact that volunteers similarly assist for-profit nursing homes does not diminish the effect these services have in determining Bethesda's charitable status.

The Board argues the receipt of Title XIX payments by the care center contradicts a finding that it is a charitable organization. The record reveals the care center does not discriminate in its ICF between private-pay and Title XIX patients and Medicaid payments do not cover the full per-diem costs of care for each patient. Furthermore, no Bethesda patient has been denied continued care because of inability to pay, and the costs of some services not covered by Title XIX are absorbed by the center. A similar factual scenario existed in Twilight Acres, Inc., and it apparently had no bearing on finding that nursing home was used for charitable purposes. Twilight Acres, Inc., 346 N.W.2d at 41-42. As the trial judge aptly noted, the present-day realities of nursing home financing present the situation of double subsidization by taxpayers. Many nursing homes will receive Title XIX payments at taxpayer expense, and they will also be exempted from property taxes on their facilities. As the trial judge recognized, the issue of whether the costs of double subsidization is outweighed by the benefits generated is best left to resolution by our legislature.

From our review of the record, it is apparent Bethesda Care Center provides its residents with medical and nursing care, meals,...