Catholic Health v. City of Pueblo

• Decision Date: 30 March 2009
• Docket Number: No. 07SC905.,07SC905.
• Citation: 207 P.3d 812
• Parties: CATHOLIC HEALTH INITIATIVES COLORADO, d/b/a Villa Pueblo Towers, Petitioner/Cross-Respondent v. CITY OF PUEBLO, Colorado, DEPARTMENT OF FINANCE; and Lara Barett as Director, Respondents/Cross-Petitioners.
• Court: Colorado Supreme Court

207 P.3d 812

CATHOLIC HEALTH INITIATIVES COLORADO, d/b/a Villa Pueblo Towers, Petitioner/Cross-Respondent v. CITY OF PUEBLO, Colorado, DEPARTMENT OF FINANCE; and Lara Barett as Director, Respondents/Cross-Petitioners.

No. 07SC905.

Supreme Court of Colorado, En Banc.

March 30, 2009.

As Modified on Denial of Rehearing June 1, 2009.^*

Mark L. Sabey, Kutak Rock LLP, Denver, Colorado, Attorney for Petitioner/Cross-Respondent.

Thomas E. Jagger, Robert P. Jagger, Pueblo, Colorado, Attorneys for Respondent/Cross-Petitioner.

Hale Friesen LLP, Peter J. Krumholz, Richard A. Westfall, Denver, Colorado, Attorneys for Amicus Curiae The Catholic Health Association of the United States.

Holme Roberts & Owen LLP, Stuart J. Lark, Colorado Springs, Colorado, Attorneys for the Amici Curiae Association of Christian Schools International, Azusa Pacific University, Bethesda Ministries, Christian Camp and Conference Association, Colorado Christian University, Compassion International, Cook Communications Ministries, Denver Rescue Mission, Focus on the Family, HCJB Global, International Students, Inc., The Catholic Foundation for the Roman Catholic Church in Northern Colorado, The Christian and Missionary Alliance, The Navigators, World Vision, Youth for Christ and YMCA of the Rockies.

Justice MARTINEZ delivered the Opinion of the Court.

I. Introduction

Catholic Health Initiatives Colorado ("Catholic Health"), a non-profit organization affiliated with the Roman Catholic Church, operates Villa Pueblo Towers ("Villa Pueblo"), a facility providing care and housing for the elderly in Pueblo, Colorado. The City of Pueblo audited Villa Pueblo and ultimately issued a Notice of Assessment for $22,587.68 in unpaid sales and use taxes. Catholic Health challenged this assessment, arguing Villa Pueblo is exempt from all sales and use taxes by virtue of section 14-4-76, Pueblo, Colo., Mun.Code (2008), which provides an exemption for certain charitable organizations.

Catholic Health appealed the assessment to the Department of Revenue, which upheld it. Catholic Health then appealed to the Arapahoe County District Court, which also found Villa Pueblo was not exempt from taxation. The court of appeals reversed the trial court, holding the operation of Villa Pueblo was a religious activity and, thus, exempt from sales and use taxes. Catholic Health Initiatives Colo. v. City of Pueblo, 183 P.3d 612 (Colo.App.2007).

We granted certiorari and now reverse the judgment of the court of appeals. Applying the plain language of the City of Pueblo tax code, we find Villa Pueblo, although a religious organization, is not entitled to a tax exemption under our interpretation of the code. Our interpretation is based on the plain meaning of the code, but supported by the obligation to interpret it in a way that does not cause unnecessary constitutional conflicts. Utilizing this understanding of the code, we find Catholic Health's Establishment Clause and Free Exercise Clause arguments to be without merit. We therefore reverse the judgment of the court of appeals, but remand to give the parties an additional opportunity to raise issues that were not addressed under the previous, incorrect interpretation of the code, and to present evidence in support of those issues.

II. Stipulated Facts and Procedural History

Catholic Health is a not-for-profit organization affiliated with the Roman Catholic Church and exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code. To Catholic Health, providing housing and care for the elderly is a religious activity motivated by religious belief. Catholic Health provides services and advocates for the elderly in accordance with its mission, and provides care and housing for the elderly as part of the religious mission of the Catholic Church.

To this end, Catholic Health owns and operates Villa Pueblo, a facility providing care and housing to the elderly. Residents at Villa Pueblo have an average age of eighty seven. Villa Pueblo is a full service elderly care community consisting of independent living units, assisted living units, and a nursing facility. Villa Pueblo holds itself out to the general public as a religious organization. Villa Pueblo employees are required to respect and uphold the religious mission of Villa Pueblo and adhere to Catholic Church directives.

Villa Pueblo's facilities include a chapel for use by residents. Services are conducted at the chapel on a bi-weekly basis. Villa Pueblo pays for an on-site chaplain who is available twenty-four hours a day, seven days a week. The chaplain interviews and completes spiritual assessments of, and spiritual care plans for, all residents.

Residents at Villa Pueblo must pay an "entrance endowment," as well as a monthly fee. The entrance endowment consists of an individually specified amount of money in consideration for the life occupancy privilege of an apartment. The independent living units range in size from 476 to 1,092 square feet. Monthly fees for the independent living facilities range from $1,130 to $2,347, depending on the desirability of the unit and the number of residents in the unit. Monthly rates for assisted living and nursing care facilities are higher. From mid-1997 through mid-2000, approximately half of Villa Pueblo's residents were on life-care contracts, paying below market rates for their accommodations. Villa Pueblo is losing money on its life-care contract program. Villa Pueblo accepts some residents who are unable to pay normal and customary charges.

Catholic Health's occupancy agreement states:

Occupant further agrees to pay said monthly charge at the time and in the manner specified by the Home and upon failure to do so, the Home shall have the right to terminate and cancel this Agreement if any such payment shall be in default more than ninety (90) days without obligation to make refunds of money heretofore paid pursuant thereto. However, so long as the Home is financially able to assume the cost, no Occupant's residency shall be terminated because of the inability of the Occupant to pay this monthly care and service charge or any other payments provided for in this Agreement.

Villa Pueblo is open to the general public, but its advertisements target individuals who have sufficient income and assets to bear the monthly fee. Marketing brochures describe Villa Pueblo as "everything you want in a retirement lifestyle," and "affordable," with many residents finding the cost to be "less than the cost of owning and maintaining" their former single family home.

The City of Pueblo conducted a tax audit of Villa Pueblo for the period of June 1, 1997 through May 31, 2000. As a result of that audit, the City issued a Notice of Assessment in the amount of $106,931.33 in unpaid taxes. Catholic Health protested the assessment and provided documentation to the City that resulted in a reduction in the assessment.¹ Upon review, the City maintained Catholic Health owed $22,587.68 in taxes.² Catholic Health challenges the imposition of any assessment, believing Villa Pueblo to be entirely exempt from sales and use tax under section 14-4-76 of the City of Pueblo tax code, which exempts "charitable organizations" from sales or use taxes incurred "in the conduct of their regular religious or charitable functions and activities." § 14-4-76, Pueblo, Colo., Mun.Code (2008). The Pueblo municipal code defines "charitable organization":

Charitable organization means any entity which:

a. Has been certified as a not-for-profit organization under Section 501(c)(3) of the Internal Revenue Code; and

b. Is a religious or charitable organization.

As used in this definition, a charitable organization is an organization which exclusively, and in a manner consistent with existing laws and for the benefit of an indefinite number of persons, freely and voluntarily ministers to the physical, mental or spiritual needs of persons, and which thereby lessens the burdens of government.

§ 14-4-21(5) Pueblo, Colo., Mun.Code (italics in original).

In a letter dated May 1, 2001, Catholic Health outlined its argument for eligibility under the exemption for the City of Pueblo Finance Director. Catholic Health claimed the third part of this definition, which begins "[a]s used in this definition" applied only to charitable organizations, thereby exempting religious organizations from its many requirements. Under this interpretation, Catholic Health claimed it was entitled to a sales and use tax exemption for all aspects of the operation of Villa Pueblo because: (1) Catholic Health has a 501(c)(3) tax status, (2) Catholic Health is a religious organization, and (3) the operation of Villa Pueblo is in Catholic Health's regular religious functions or activities.

The City of Pueblo Director of Finance replied, rejecting Catholic Health's request for the exemption. The City explained the operation of Villa Pueblo had several characteristics of a for-profit enterprise, suggesting that it did not meet the third paragraph of the "charitable organization" definition because it did not offer its services "freely and voluntarily," in a manner consistent with charity. However, the City went on to state that "[t]angible personal property or taxable services sold or used in the charitable activities of Villa Pueblo are exempt from City of Pueblo sales and use tax," implying Catholic Health received some partial exemption, presumably on the basis of their satisfaction of the "charitable organization" definition. Thus, the City of Pueblo seemed to suggest that although Catholic Health failed to meet the definition of a charitable organization, it was still entitled to at least a partial sales and use tax exemption.

Catholic Health appealed the City's assessment to the Executive Director of the Department of Revenue of the State of Colorado, as provided for in section 29-2-106.1(3), C.R.S. (2008). The Department of Revenue held Catholic Health did not operate...