Fredericka Home for the Aged v. San Diego County

• Decision Date: 18 August 1950
• Citation: 221 P.2d 68,35 Cal.2d 789
• Court: California Supreme Court
• Parties: FREDERICKA HOME FOR THE AGED v. SAN DIEGO COUNTY. L. A. 20634.

Page 68

221 P.2d 68

35 Cal.2d 789

FREDERICKA HOME FOR THE AGED v. SAN DIEGO COUNTY.

L. A. 20634.

Supreme Court of California, in Bank.

Aug. 18, 1950.

Fred N. Howser, Attorney General, E. G. Benard, Deputy Attorney General, James Don Keller, District Attorney, and Carroll H. Smith, Chief Trial Deputy District Attorney, San Diego, for appellant.

Gray, Cary, Ames & Driscoll and John M. Cranston, all of San Diego, for respondent.

SPENCE, Justice.

Plaintiff, a nonprofit corporation operating a home for elderly people on a 'life care contract' basis, brought this action to recover taxes paid under protest for the tax year 1946-1947. It claimed that it was a charitable organization devoting its property exclusively to charitable purposes and so entitled to the benefit of the recently adopted welfare exemption. Cal.Const. art. XIII, § 1c; Rev. & Tax. Code, § 214. With certain exceptions a parcel of vacant land, some acreage leased for commercial purposes, and a small item of solvent credits the trial court adjudciated the exemption claim in plaintiff's favor and entered judgment accordingly for a tax refund. From such judgment defendant county has appealed, contending that the record does not sustain the conclusion that plaintiff was functioning as a charitable institution within the meaning of the welfare tax exemption law. Upon the undisputed facts, we have conclued that defendant's contention cannot be sustained.

At the trial the only evidence introduced was that offered by plaintiff. It appears that plaintiff was incorporated in 1908 and received as a gift certain land in Chula Vista some 15 acres and the buildings then on it. Subsequent buildings were donated, and in 1916 a trust fund of $200,000 was created. It is conceded that plaintiff is a nonprofit corporation organized for the purpose of providing a home for aged people at its site in Chula Vista, and that the property in dispute, with the exception of the portion hereinafter mentioned, is used exclusively for such purpose and is irrevocably dedicated thereto; that all of its income whether from charges to inmates, investments, gifts or donations is used entirely in the maintenance and operation of the home; that the members of its board of directors serve without compensation, and that the compensation paid to its employees is 'fair and reasonable.' But regardless of these qualifying factors, defendant cites plaintiff's 'manner of operation' as determinative of its ineligibility for the tax benefit applicable to a 'charitable institution' within the meaning of the welfare exemption law.

Applicants for admission to the home must have attained the age of 69 years, be in good health, and meet the approval of the board of directors including consideration over a three months' probationary period. Prior to November 1, 1944 each applicant, in addition to paying a fixed fee for maintenance at the home, was required to execute a trust agreement whereby three-fifths of the applicant's estate would go to the home upon death of the applicant. A new policy was adopted after said date eliminating the trust agreement as an entry requirement, and at the same time the minimum fee for admission to the home was fixed at $5,500. By the terms of the life care contract made with the applicant, the home agreed to furnish room, board, and other services.

As documentary evidence in its behalf and representing the 'last figures available at the time (the exemption) claim was filed', Code Civ.Proc. § 1963, subds. 28-32, plaintiff introduced a financial report for the fiscal year ending June 30, 1945. According to that accounting reocrd, 21 new residents were admitted during the period covered, 16 of them under the policy of charging a minimum fee of $5,500 as established in November, 1944, the average fee being $6,264.04. The exact amount of the admission fee of each applicant was computed actuarily and also depended on the applicant's choice of accommodations. According to one of plaintiff's directors, the division as to the source of plaintiff's income was fixed at 35 per cent from interest on the endowment fund and donations and 65 per cent from admission fees. Certain other schedules introduced in evidence clearly showed that over 25 per cent of plaintiff's gross cash income, as well as its land and buildings, came from sources other than the residents of the home. The trial court found that the total amounts received by plaintiff from its inmates and from the endowment fund have always been insufficient to pay operating expenses of the home, and that the deficit has been met through voluntary gifts and contributions from persons not inmates of the home. The same director, a certified public accountant who prepared all of plaintiff's tax reports, also testified that plaintiff had been exempted from payment of all federal social security and income taxes, as well as from state unemployment insurance taxes, and a finding was so made. The court further found that the recited facts attesting to plaintiff's method of operation prevailed during the taxable year in question, 1946-1947, and 'were true when plaintiff's claim for exemption was filed and (denied) by the county officials.' Such finding was in accord with the testimony of plaintiff's director attesting to the continued level of service and 'policy' of operation maintained at the home 'from the inception of the institution as I know it' to 'the present (time)' (date of trial, January, 1948).

As discussed in the opinion filed by this court in certain consolidated hospital cases, Cedars of Lebanon Hospital v. County of Los Angeles, Cal.Sup., 221 P.2d 31 the problem of determining whether or not plaintiff is entitled as a charitable organization to the welfare tax exemption must be resolved upon the basis of a 'strict but reasonable construction' of the exempting language, and the claimant of such benefit has the burden of showing that it clearly comes within the terms thereof. It is not sufficient that the institution shall have originated through a charitable gift or bequest, but 'it must actually dispense charity' if it is to satisfy the requirement that its property be 'used exclusively for * * * charitable purposes.' 51 Am.Jur. § 601, p. 584. (Emphasis added.) However, due regard must be had for the ordinary acceptation of the exempting language and its purport in effecting the object of the lawmakers. In the light of such guiding principles, the particular facts establishing plaintiff's method of operation and function in the community must be considered.

The concept of charity is not confined to the relief of the needy and destitute, for 'aged people require care and attention apart from financial assistance, and the supply of this care and attention is as much a charitable and benevolent purpose as the relief of their financial wants.' In re Estate of Henderson, 17 Cal.2d 853, 857, 112 P.2d 605, 607. So the charge of fees by such an institution as a home for the aged will not necessarily prevent its classification as charitable if such sums 'go to pay the expenses of operation and not to the profit of the founders or shareholders,' for all persons may 'under certain conditions be proper objects of charity.' Scripps Memorial Hospital, Inc., v. California...