Care Initiatives v. Board of Review of Union County, Iowa, 91-1627

• Decision Date: 19 May 1993
• Docket Number: No. 91-1627,91-1627
• Citation: 500 N.W.2d 14
• Parties: CARE INITIATIVES f/k/a Mercy Health Initiatives, Appellant, v. BOARD OF REVIEW OF UNION COUNTY, IOWA, William Ray, Chairperson, Appellee.
• Court: Iowa Supreme Court

Page 14

500 N.W.2d 14

CARE INITIATIVES f/k/a Mercy Health Initiatives, Appellant, v. BOARD OF REVIEW OF UNION COUNTY, IOWA, William Ray, Chairperson, Appellee.

No. 91-1627.

Supreme Court of Iowa.

May 19, 1993.

Terry L. Monson, David Swinton and Andrew J. Bracken of Ahlers, Cooney, Dorweiler, Haynie, Smith & Allbee, P.C., Des Moines, for appellant.

Frank W. Pechacek, Jr. and Randy R. Ewing of Smith, Peterson, Beckman & Willson, Council Bluffs, for appellee.

Considered by McGIVERIN, C.J., and HARRIS, CARTER, LAVORATO, and ANDREASEN, JJ.

ANDREASEN, Justice.

Appellant Care Initiatives (Care) is a nonprofit corporation which owns or leases forty-one nursing homes including its Creston, Iowa, nursing home facility, Creston Manor Care Center (Creston Manor). The question raised in this appeal is whether Care is entitled to a charitable exemption from property taxes as provided in Iowa Code section 427.1(9) (1989) on Creston Manor. ¹ The county assessor, the county board of review, and the district court in turn have denied the exemption. We agree.

I. Background.

Creston Manor, along with forty-four other Iowa facilities, was previously owned by Beverly Enterprises (Beverly), a for-profit corporation and one of the largest nursing home operators in the United States. In 1988, Beverly, who was facing financial difficulties, sought to divest its nursing homes in Iowa, South Dakota, Nebraska and Arkansas. Beverly contacted Bruce H. Whitehead. Whitehead had prior experience in the acquisition and development of nursing homes. He was the founder, sole stockholder and president of Britwill Company, a Texas for-profit corporation organized in 1985 as a health care--real estate management company. Britwill and the Bruce H. Whitehead Irrevocable Trust I formed a limited partnership in Texas called Ventana Investments (Ventana). Britwill was the managing partner of Ventana.

On May 24, 1989, Ventana entered into an agreement with Beverly to purchase forty-five Iowa nursing home facilities. ² To obtain 100% leveraged financing to purchase the Iowa facilities, Whitehead used a nonprofit corporation funded by tax exempt revenue bonds. Care was one of several inactive Internal Revenue Code section 501(c)(3) corporations, exempt from federal income tax, awaiting use as vehicles to obtain tax exempt bond financing to fund acquisition transactions. Care was incorporated in Texas in May 1988 as a nonprofit corporation. ³ The initial board of directors were Richard Young, an investment banker, Terry Colip, an investment banker, and Terry Colip's brother, Greg Colip. Prior to the acquisition of the Iowa nursing homes, Care had no assets and had conducted no business.

Care acquired the Iowa facilities in a two-step transaction. Ventana purchased the forty-five Iowa nursing home facilities from Beverly for $57,000,000. Ventana then agreed on June 19, 1989, to sell forty-one of the forty-five facilities to Care for $63,500,000. Earlier that day, the initial board of directors stepped down and elected Duncan Graham, an insurance salesman and former pastor, Hulon Walker, part owner of a nursing home management company and former nursing home administrator, and Ronald Harmon, an engineer and corporate officer, as their replacements. Care's newly elected board then adopted resolutions approving the purchase transaction and executed necessary transaction documents. The actual transfer of ownership of the Iowa facilities to Care was completed on August 1, 1989.

On June 19, 1989, Care also contracted with Britwill to manage and operate the nursing facilities it had agreed to purchase. Upon completion of the purchase, Britwill assumed the actual operation of the Iowa facilities. Britwill hired virtually all of the 3100 Beverly employees who had been operating the Iowa facilities. Care's only employee is its President and CEO, Graham, who was hired in April of 1990.

Under the management contract, Care pays Britwill to manage the day-to-day operations of all Care facilities. The management agreement provides, in part: Britwill cannot be terminated during the first three years of the contract except "for cause"; Britwill keeps all Care's books; Britwill maintains all accounts receivable and disbursements, no Care board member can expend Care funds; Britwill has a "right of first refusal" on all Care facilities; and the Care board is not permitted to have a formal board meeting without providing Britwill an opportunity to attend. By separate agreement, Britwill performs all of Care's data processing services.

Care is obligated under the contract with Britwill to pay an annual management fee of $196,000 per month with an additional amount to be paid on a percentage of gross operating revenues. The fee paid Britwill for management services in 1990 was $2,665,000. In addition, Care paid Britwill $600,000 for data processing services.

Care filed a claim for tax exemption of the Creston Manor property with the Union County assessor in January, 1990. The application stated the property is used for charitable and benevolent purposes as a nonprofit nursing home. It is not operated for pecuniary profit and is exempt from taxation. A petition for review was filed after the assessor denied the application. When notified that the board of review had upheld the assessor's decision, Care appealed to the district court. The appeal was heard in district court beginning July 9, 1991, through July 17. The district court filed its findings of fact, conclusions of law, and judgment on September 13, 1991. The court concluded Care was not entitled to a property tax exemption. Care appeals.

II. Standard of review.

Tax exemption appeals are equitable in nature, South Side Church of Christ v. Des Moines Board of Review, 243 N.W.2d 650, 651-52 (Iowa 1976), therefore, our review is de novo. Iowa R.App.P. 4. While we are not bound by the trial court's findings of fact, we give them weight. See Iowa R.App.P. 14(f)(7).

Care asks that we give little weight, if any, to the findings and conclusions of the trial court because the court adopted verbatim the twenty-one page proposed findings of fact, conclusions of law, and judgment submitted by the board of review. We have criticized the trial court's ex parte request of counsel to submit proposed findings. See Production Credit Ass'n v. Shirley, 485 N.W.2d 469, 475 (Iowa 1992); Kroblin v. RDR Motels, Inc., 347 N.W.2d 430, 436 (Iowa 1984). Here, however, the court requested both parties to submit proposed findings, conclusions and judgment following trial. Although we have not encouraged courts to adopt findings and conclusions prepared by counsel, we do not apply a separate standard of review when the court does so. Shirley, 485 N.W.2d at 471.

III. Property tax exemption.

Iowa Code section 427.1 describes a number of classes of property which are exempt from taxation and provides in part:

The following classes of property shall not be taxed:

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

The rules of construction for tax exemption statutes are well settled.

We strictly construe the statutes exempting property from taxation. Any doubt concerning an exemption must be resolved in favor of taxation. The burden is upon the party claiming the exemption to show the property should not be taxed.

Atrium Village v. Board of Review, 417 N.W.2d 70, 72 (Iowa 1987) (citations omitted). In our analysis, the actual use of the property is the paramount consideration. Id.

We give the term "charitable" in the tax exemption statute a broad definition. Richards v. Iowa Dep't of Revenue, 414 N.W.2d 344, 351 (Iowa 1987). The term "pecuniary profit" refers to monetary gain which inures to the benefit of private individuals. Bethesda Found. v. Board of Review, 453 N.W.2d 224, 228 (Iowa App.1990).

IV. Charitable use.

The present appeal is the second property tax exemption case involving Care to reach Iowa's appellate courts. Care's Ridgewood Care Center facility in Ottumwa, Iowa, has previously been denied a property tax exemption. Care Initiatives v. Board of Review, 488 N.W.2d 460, 463 (Iowa App.1992). The court of appeals concluded that Care had not shown by a preponderance of the evidence that the facilities were not used with a view to pecuniary profit. Id. However, in determining whether Creston Manor satisfies the statutory requirements for tax exemption, we make an independent evaluation of the use of the property by Care.

Here, we must determine if the owner has established a charitable use of the property, not a use for monetary gain which inures to the benefit of private individuals. Among the factors we consider significant are the establishment and operation of the institution, the policies and practices relating to admission and retention of residents, the community support, and the benefits provided to the community.

A. Establishment and Operation of Creston Manor.

Care is a nonprofit corporation with a temporary federal income tax exemption. Its stated purposes are charitable. Although the incorporator of Care was Greg Colip, two of the three initial directors, Terry Colip and Richard Young, were investment bankers. The initial...