ILHC OF EAGAN, LLC v. County of Dakota, No. A03-1407.

• Decision Date: 17 March 2005
• Docket Number: No. A03-1407.
• Parties: ILHC OF EAGAN, LLC, d/b/a The Commons on Marice, petitioner, Respondent, v. COUNTY OF DAKOTA, Relator.
• Court: Minnesota Supreme Court

693 N.W.2d 412

ILHC OF EAGAN, LLC, d/b/a The Commons on Marice, petitioner, Respondent, v. COUNTY OF DAKOTA, Relator.

No. A03-1407.

Supreme Court of Minnesota.

March 17, 2005.

James C. Backstrom, Dakota County Attorney, Suzanne W. Schrader, Assistant County Attorney, Hastings, MN, for Relator.

Jeffrey J. McNaught, Jonathan P. Scholl, Lindquist & Vennum P.L.L.P., Minneapolis, MN, for Respondent.

Heard, considered, and decided by the court en banc.

OPINION

ANDERSON, PAUL H., Justice.

Intergenerational Living and Health Care (ILHC) operates "The Commons on Marice" (The Commons), a senior assisted living community facility in Eagan, Minnesota. In 2001 and 2002, ILHC applied for a partial property tax exemption for The Commons under Minn.Stat. § 272.02, subd. 26 (2002) (repealed 2003). Dakota County denied ILHC's applications on the ground that The Commons was not eligible for the exemption. ILHC sought review of these denials. The Minnesota Tax Court concluded The Commons was eligible for the exemption and granted summary judgment in favor of ILHC. The county petitioned for a writ of certiorari. We reverse.

ILHC completed construction of The Commons in 1999. The county classified the property as "Apartment with Nursing Facilities." In April 2001, and again in March 2002, ILHC applied for a partial property tax exemption under Minn.Stat. § 272.02, subd. 26 (2002) (repealed 2003).¹ The county denied ILHC's applications. ILHC paid the disputed taxes and filed petitions for review of the real estate taxes due and payable in 2001 and 2002.

In June and December 2002, ILHC and the county filed cross-motions with the tax court for partial summary judgment on the interpretation of two provisions of subdivision 26 — romanette (ii) and subpart (D). The parties stipulated that The Commons met all of subdivision 26's requirements except for the two that specifically focused on a disputed interpretation of the statute: whether subpart (D) limited the exemption to housing that existed and was unassessed before the 1991 tax levy and whether romanette (ii) limited the exemption to housing for low-income residents. ILHC's position is that, to be eligible for the partial exemption, housing did not have to exist in 1991 and did not have to be for low-income elderly. The county takes a contrary position, asserting that the exemption was only for low-income housing that was in existence and unassessed before the 1991 tax levy. The county contends that the statute was intended for the narrow remedial purpose of assisting developments for low-income tenants who were faced with a sudden increase in taxes because the facilities had not been assessed prior to 1991 through no fault of the property owners.

To support its position that The Commons was ineligible for the exemption, the county submitted a newspaper article from January 1993 describing the background and tax circumstances of Central Towers, an apartment building for low-income elderly and disabled tenants in downtown Saint Paul.² It was and remains the county's contention that subdivision 26 was not applicable to The Commons because the subdivision was enacted as a specific remedy for Central Towers and other facilities faced with similar circumstances. According to the article, Central Presbyterian Church opened Central Towers in 1965 to house as many as 280 low-income elderly or mentally or physically handicapped tenants. Monthly rents included meal services and many of the residents received some type of government housing subsidy. Central Towers did not qualify for a property tax exemption as a charitable organization because its owners received the rental income.

At some point, a nonprofit corporation was formed to take over Central Towers. The newspaper article noted that the Central Towers building was not assessed real property taxes until 1991 when Ramsey County decided that it should not be exempt. This change and the resultant property taxes on the building led to the nonprofit corporation nearly depleting its cash reserve and increasing rents. In the article, the president of the corporation's board is attributed as indicating that the board would "ask the state Legislature to change the tax laws during the upcoming session to make the apartment building and others like it exempt from local property taxes."

The county also submitted a partial transcript and tape recording of an April 19, 1993 meeting of the Minnesota Senate Property Tax Subcommittee where the property tax provisions of an omnibus tax bill were presented — including what became subdivision 26. After describing the criteria for exemption, a committee staff person stated, "These properties will be exempt from the property tax henceforth[;] due to an assessor's misinterpretation, they had been treated * * * as tax exempt in the past, and they will continue to be tax exempt under this language in the future." (Brackets added.)

The tax court's own research identified two additional instances where legislators made statements concerning the provision that eventually became subdivision 26. The first statement was during an April 29, 1993 meeting of the Conference Committee on Taxes held to consider enactment of the subdivision that is now codified as Minn.Stat. § 272.02, subd. 26. The relevant excerpt is as follows:

Sen. Johnson³: Do you want to know where [the provision] comes from?

Sen. [Flynn]: As I recall, it was [Senator Pappas] who found out that there was some senior housing that had not been assessed in the past, and it was determined suddenly that it should be [taxed] * * * and, whereas this kind of housing had not been subject to property tax, nor has it been assessed in other parts of the metropolitan area * * * that we are able to identify * * *.

Q: Senator, how many properties will this apply to?

Sen. [Flynn]: Just one or two * * *.

[Voice in background]: "One * * * [in] Senator [Pappas's] district * * * St. Paul * * * Central Towers."

The second statement identified by the tax court was from a May 17, 1993, proceeding of the House of Representatives:

Q: [Representative (Perlt)]: What does this Bill do for the City of Saint Paul?

A: [a Tax Committee (member)]: This Bill has a number of provisions that were endorsed and advocated for by Saint Paul and its legislative delegations. Number one, the local option sales tax; special assessment language is there; there is a provision for Central Towers; there is a provision that will affect Ramsey County Assessor; there is Mariani's bill for housing * * *.

The county submitted three additional items that it claimed supported its interpretation of subdivision 26: the Minnesota Department of Revenue's October 2000 publication titled "Elderly Assisted Living Care Facility Bulletin" (Bulletin), and two affidavits, one by a Minnesota Department of Revenue appraisal supervisor and the other by a Minnesota Department of Revenue attorney.

The Bulletin states its purpose is to give assessors "a workable blueprint" to apply to elderly assisted living care facilities statewide. It does not specifically refer to Minn.Stat. § 272.02, subd. 26, but it explains that living facilities for the elderly will generally not be tax exempt unless they also qualify as public charities. The Bulletin specifically states:

Since elderly assisted living care facilities are not exempted by any specific statute, they can only be exempt if they meet the requirements for one of the general exemption provisions. The most probable potential for exemption for elderly assisted living facilities would be to qualify as an institution of purely public charity (Minnesota Statutes, section 272.02, subd. 7).

The Bulletin then discusses the application of factors we developed in North Star Research Inst. v. County of Hennepin, 306 Minn. 1, 236 N.W.2d 754 (1975), to determine whether an institution is one of "purely public charity."

The appraisal supervisor's affidavit primarily relates his understanding of the circumstances surrounding the enactment of the statute. These circumstances start with the discovery, in "1990 or 1991," that Central Towers was missing from the tax rolls. After this discovery, the supervisor believes Central Towers was assessed "for one or more years as omitted property pursuant to Minn.Stat. § 273.02." The supervisor's understanding is that the owners of Central Towers "protested the property tax to the legislature" and argued that the increase in rent caused by real estate taxes would force most of their tenants out of their homes. The supervisor then states that "[d]ue to the extremely unusual circumstances concerning Central Towers, legislation was drafted very narrowly to cover a property that `was not assessed and did not pay tax under chapter 273 prior to the 1991 levy, while meeting the other conditions of this subdivision.'" (emphasis in original). The supervisor adds that he has heard of only one other property that was exempted under subdivision 26 since its enactment.

The Department of Revenue attorney states in his affidavit that the department's "long-standing" interpretation of subdivision 26 is that "it requires that the particular facilities existed prior to the 1991 levy, and yet at the same time, they must not have been assessed prior to the 1991 levy." The attorney notes that since subdivision 26 was enacted, he recalls two instances where a property was denied exemption. One of these instances involved a building in Anoka County that was denied an exemption because, even though it existed prior to the 1991 levy, it did not comply with clauses (A) through (C) prior to the levy. The other instance involved a building in Crow Wing County that did not qualify for an exemption because it did not exist prior to the 1991 levy. Attached to the affidavit is a copy of the text of a July 15, 1996 letter from the department's attorney to the Crow Wing County Assessor. In this letter, the attorney explained that "one requirement" of the...