Indianapolis Osteopathic Hosp., Inc. v. DLGF

• Decision Date: 09 December 2004
• Docket Number: No. 49T10-0012-TA-127.,49T10-0012-TA-127.
• Citation: 818 N.E.2d 1009
• Parties: INDIANAPOLIS OSTEOPATHIC HOSPITAL, INC., d/b/a Westview Hospital and Health Institute of Indiana, Inc., Petitioners, v. DEPARTMENT OF LOCAL GOVERNMENT FINANCE, Respondent.
• Court: Indiana Tax Court

818 N.E.2d 1009

INDIANAPOLIS OSTEOPATHIC HOSPITAL, INC., d/b/a Westview Hospital and Health Institute of Indiana, Inc., Petitioners, v. DEPARTMENT OF LOCAL GOVERNMENT FINANCE,¹ Respondent.

No. 49T10-0012-TA-127.

Tax Court of Indiana.

December 9, 2004.

Robert A. Hicks, Hall, Render, Killian, Heath & Lyman, P.S.C., Indianapolis, IN, Attorney for Petitioners.

Steve Carter, Attorney General of Indiana, Andrew W. Swain, Deputy Attorney General, Indianapolis, IN, Attorneys for Respondent.

FISHER, J.

Indianapolis Osteopathic Hospital, Inc., d/b/a Westview Hospital (Westview), and Health Institute of Indiana, Inc. (HII) (collectively, the Petitioners) appeal the final determinations of the State Board of Tax Commissioners (State Board) assessing their real and personal property for the 1999 and 2000 tax years (the years at issue). The issue for the Court to decide is whether the Petitioners' property qualifies for the charitable purposes exemption as provided in Indiana Code § 6-1.1-10-16.²

FACTS

Westview is an Indiana not-for-profit corporation that owns and operates Westview Hospital in Indianapolis, Indiana. It is recognized by the Internal Revenue Service as a 501(c)(3) organization.³ HII, also an Indiana not-for-profit corporation with 501(c)(3) status, owns and operates a 158,000 square foot sports club and medical pavilion (facility) on Westview's campus. During the years at issue, Westview owned a 70% share of HII, as well as the land on which HII's improvement is constructed.⁴

The Facility

Of the facility's 158,000 square feet, 74% is devoted to use as a sports club (Healthplex). The other 26% is devoted to use as the medical pavilion (MP).

1. The Healthplex

The Healthplex is approximately 117,000 square feet in size. It contains: six tennis courts; racquetball and squash courts; one basketball court; a therapy pool; a one-eighth mile running track; a six lane, 25-yard lap pool; two aerobics rooms; a cardiovascular training/conditioning area (complete with treadmills and exercise bicycles); a strength training/conditioning area (complete with weight and strength machines); a children's gym; a childcare area; locker rooms; a health food deli; a pro shop and an administrative area.

The Petitioners state that the Healthplex is used 59% of the time as a community-oriented fitness facility. (See Pet'rs Br. at 9.) Accordingly, the Healthplex offers memberships to the public: for an initial, one-time fee of $209.00, plus a monthly fee of $69.50, individuals have unlimited access to the Healthplex's facilities.⁵

As part of its membership program, the Healthplex requires a member to receive a comprehensive health risk assessment, similar to a "mini-physical."⁶ The member then meets with an on-staff exercise physiologist to develop and implement an exercise program consistent with the member's goals and health risk assessment results.⁷

The Petitioners state that the Healthplex is used the remaining 41% of the time to provide outpatient rehabilitation services, research, and community education. (Pet'rs Br. at 9.) More specifically, Westview's outpatients use the Healthplex for cardiac rehabilitation, physical and occupational therapy, arthritis therapy, and medically-supervised obesity reduction.⁸ With respect to community education, the Healthplex typically offers to the public at least one free program per week. The programs cover various health and wellness topics such as cholesterol education, first aid, stress management, and healthy cooking.

2. The MP

The MP portion of the facility is approximately 41,000 square feet in size. During the years at issue, an average⁹ of approximately 11% of the MP was leased to physicians on staff at Westview, 37% of the space was used by various Westview Hospital departments (physical and occupational therapy, MRI, mammography, integrated medicine, and patient registration), and 44% of the facility was vacant.

In addition, approximately 7% of the MP served as a public/community education meeting room for use by HII and various other nonprofit community groups. Finally, approximately 1% of the MP was devoted to use as a boardroom. The boardroom was used 1%-2% of the time by the private physicians/tenants of the MP, and 98% of the time by Westview and another hospital for administrative purposes, as well as other various nonprofit community groups. Both the public meeting room and the boardroom were available for use free of charge.

PROCEDURAL HISTORY

1. The 1999 Appeal

HII timely applied for a charitable purposes exemption, pursuant to Indiana Code § 6-1.1-10-16, for the 1999 tax year. More specifically, HII requested that the Healthplex portion of the improvement receive a 100% exemption; the MP portion of the improvement receive a 91% exemption; and all personal property receive a 100% exemption. The Marion County Property Tax Assessment Board of Appeals (PTABOA), however, only allowed a 9% exemption on the entire improvement.¹⁰ The PTABOA did not address the personal property exemption sought by HII.

HII subsequently filed an appeal with the State Board of Tax Commissioners (State Board). The State Board held a hearing on the matter on February 17 and March 2, 2000. In a final determination dated October 11, 2000, the State Board upheld the PTABOA's determination. The State Board also determined that HII's personal property was entitled to a 9% exemption.

On October 26, 2000, HII sought a rehearing with the State Board. On November 21, 2000, the State Board issued a second final determination in which it removed the 9% exemption entirely. On December 20, 2000, HII initiated an original tax appeal.

2. The 2000 Appeals

On May 15, 2000, HII applied for the charitable purposes exemption for its improvement and personal property for the 2000 tax year. That same day, Westview also requested that 100% of its land (on which the HII improvement sat) receive the charitable purposes exemption for the 2000 tax year.

On June 26, 2000, the PTABOA allowed HII a 9% exemption on its improvement. The PTABOA denied the exemption for HII's personal property and Westview's land.

Both HII and Westview filed appeals with the State Board. The State Board held a hearing on the two appeals on February 5, 2001. In a final determination dated September 17, 2001, the State Board denied both HII and Westview's requests for exemptions. HII and Westview initiated an original tax appeal on October 31, 2001.

This Court consolidated the 1999 and 2000 appeals on December 31, 2001. The Court heard the parties' oral arguments on July 28, 2003. Additional facts will be supplied as necessary.

STANDARD OF REVIEW

This Court gives great deference to the final determinations of the State Board when it acts within the scope of its authority. Hamstra Builders, Inc. v. Dep't of Local Gov't Fin., 783 N.E.2d 387, 390 (Ind. Tax Ct.2003). Thus, this Court will reverse a final determination of the State Board only when its findings are unsupported by substantial evidence, arbitrary, capricious, constitute an abuse of discretion, or exceed statutory authority. Id.

An exemption releases property from the obligation of bearing its fair share of the cost of government and serves to disturb the equality and distribution of the common burden of government upon all property. See St. Mary's Med. Ctr. of Evansville, Inc. v. State Bd. of Tax Comm'rs, 534 N.E.2d 277, 280 (Ind. Tax Ct.1989),

aff'd,

571 N.E.2d 1247 (Ind.1991). Consequently, an exemption is strictly construed against the taxpayer and in favor of the State. Id.

DISCUSSION AND ANALYSIS

In Indiana, all tangible property is subject to taxation. See Ind.Code Ann. § 6-1.1-2-1 (West 2004). Nevertheless, the Indiana Constitution provides that the legislature may exempt certain categories of property. See Ind. Const. art. X, § 1. The legislature exercised that constitutional power by enacting Indiana Code § 6-1.1-10-16(a), which provides that "[a]ll or part of a building is exempt from property taxation if it is owned, occupied, and used [ ] for... charitable purposes." See Ind.Code Ann. § 6-1.1-10-16(a) (West 2004). This exemption also generally extends to the land on which the exempt building is situated, as well as personal property that is contained therein. See A.I.C. § 6-1.1-10-16(c), (e).

The taxpayer bears the burden of proof in showing that it is entitled to the exemption it seeks. See State Bd. of Tax Comm'rs v. New Castle Lodge # 147, Loyal Order of the Moose, Inc., 765 N.E.2d 1257, 1259 (Ind.2002)

. Thus, when seeking a charitable purposes exemption, the taxpayer must not only demonstrate that it owns, occupies, and uses its property for a charitable purpose, but also that the charitable purpose is the property's predominant use. See State Bd. of Tax Comm'rs v. Fort Wayne Sports Club, Inc., 147 Ind.App. 129, 258 N.E.2d 874, 881 (1970) (stating that "it is the `dominant use' of the property which determines whether such property is tax exempt").

What constitutes a charitable purpose?

A charitable purposes exemption is granted when there is an expectation of a benefit that will inure to the public by reason of the exemption. "The rationale justifying a tax exemption is that there is a present benefit to the general public from the operation of the charitable institution sufficient to justify the loss of tax revenue." Foursquare Tabernacle Church of God in Christ v. State Bd. of Tax Comm'rs, 550 N.E.2d 850, 854 (Ind. Tax Ct.1990) (internal citation omitted).

"Charity," as used in Indiana's property tax exemption statutes, is favored with the broadest constitutional definition allowable. See Indianapolis Elks Bldg. Corp. v. State Bd. of Tax Comm'rs, 145 Ind.App. 522, 251 N.E.2d 673, 682 (1969). Indeed:

charity such as will justify an exemption is more than a seal, a charter, and social activities common to all of society. There must be evidence of relief of human want, and although the relief of such human want may alone be confined

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