FREEMAN COMMUNITY v. Hutchinson County
| Citation | 2001 SD 112,633 N.W.2d 179 |
| Decision Date | 22 August 2001 |
| Docket Number | No. 21656.,21656. |
| Parties | FREEMAN COMMUNITY HOSPITAL AND NURSING HOME, Appellant, v. HUTCHINSON COUNTY; Jerome Hoff, Auditor; Donna Zeeb, Director of Equalization; Scott Schleske, Commissioner; Gillas Stern, Commissioner, Russell A. Leonard, Commissioner, et al., Appellees. |
| Court | Supreme Court of South Dakota |
Jeremiah D. Murphy, Jeffrey C. Clapper of Boyce, Murphy, McDowell & Greenfield, Sioux Falls, SD; Don A. Bierle of Bierle & Michels, Yankton, SD, Attorneys for appellant.
Timothy R. Whalen, Lake Andes, SD, Attorneys for appellees.
Lisa Z. Rothschadl, Hutchinson County State's Attorney, Tyndall, SD, Attorney pro tem.
[¶ 1.] In this appeal we hold that a congregate living facility owned and operated by a community hospital is entitled to tax-exempt status.
[¶ 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.
[¶ 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 N.W.2d 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 N.W.2d 875, 877; National Food Corp. v. Aurora Cty. Bd. of Comm'rs, 537 N.W.2d 564, 566 (S.D. 1995); Thermoset Plastics, Inc. v. Department of Revenue, 473 N.W.2d 136, 138-39 (S.D.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 N.W.2d 223, 225 (S.D.1990) (quoting Midcontinent Broad. Co. v. Revenue Dep't, 424 N.W.2d 153, 154 (S.D. 1988)).
[¶ 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.
SDCL 10-4-9.3 (emphasis added). County stipulated that WSV meets all the statutory requirements except: (1) the ability to provide healthcare; (2) a food service which provides a balanced nutritional program; and (3) Hospital assets are not available to private interests. It is important to remember that a congregate living facility is intended to provide an independent living environment for elderly citizens with some assistance. SDCL 10-4-9.3.
[¶ 7.] a. Health care
[¶ 8.] Under SDCL 10-4-9.3, a congregate living facility must have "the ability to provide healthcare" in order to qualify for tax-exempt status. The burden is on the Hospital to show that it has the ability to provide healthcare. Interestingly, the parties stipulated to the following facts:
The stipulated facts provide ample support for Hospital's assertion that it has the ability to provide health care to WSV occupants. In fact, we find it curious that County would stipulate to these facts and then argue that Hospital is not able to provide health care.
[¶ 9.] County argues that the services offered to WSV occupants are no different than health care services available in the community at large. Hospital agrees that this is true, but it correctly points out that the statute does not require it to offer unique or exclusive healthcare. We agree. The statute requires that Hospital have the ability to provide healthcare. County stipulated to facts indicating Hospital has such ability. Thus, giving the words in the statute a reasonable, natural and practical meaning, Hospital has sustained its burden of showing it has the ability to provide healthcare.1
[¶ 10.] b. Food service
[¶ 11.] In 1988, two years after it adopted SDCL 10-4-9.3, the legislature amended the statute. Originally, it required congregate living facilities to provide a "full" food service; however, the 1988 amendment, among other changes, removed the word "full." The legislature's removal of the word "full" as it modifies food service indicates its desire to ease compliance with this requirement by not requiring a full food service be provided.
[¶ 12.] The parties do not dispute the facts concerning food service. WSV occupants have available to them, every day of the year, a breakfast prepared under the supervision of dietary management to comply with federal guidelines. The breakfast is included in the monthly rent. Two more daily meals are also available to residents through Meals-on-Wheels or through Hospital's dietary department. Additionally, WSV has the ability to provide for special needs diets and has done so on at least one occasion. Through its daily breakfast and the availability of lunch and dinner everyday, we conclude that Hospital's food service provides a balanced nutrition program to occupants, as contemplated by the statute.
[¶ 13.] County, once again, argues that the balanced nutrition program available to WSV occupants is available in the community at large. Hospital contends that this is irrelevant under the statute. We agree. The statute does not require that the food service be unique or different from what is available in the community.
[¶ 14.] c. Assets
[¶ 15.] County's final argument concerning fulfillment of the statutory requirements asserts that Hospital's financing of WSV permits private interests in Hospital's assets. County bases this argument on the language prohibiting private interests in any of Hospital's assets. As Hospital notes, the language is merely a reflection of one of the requirements in the Internal Revenue Code for qualifying as an exempt organization under 501(c)(3). 26 USC § 501(c)(3).
[¶ 16.] Although County stipulated that Hospital is a 501(c)(3) exempt organization as required under the statute, it attempts to parlay the language concerning private interest into a prohibition against the Hospital leasing the WSV units to the occupants. Given the statutory language defining qualified congregate housing as that "which offers residential accommodations," we find the County's argument lacks merit. SDCL 10-4-9.3. Hospital asserts that its articles of incorporation were amended in 1966 to provide for the distribution of assets upon dissolution to: (1) one or more exempt purposes; (2) a similar exempt organization; or (3) the Federal or State...
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