Lutheran Home, Inc. v. Board of County Com'rs of Dickinson County, 46502

• Citation: 211 Kan. 270,505 P.2d 1118
• Decision Date: 05 February 1973
• Docket Number: No. 46502,46502
• Parties: LUTHERAN HOME, INC., a corporation, Plaintiff-Appellee, v. BOARD OF COUNTY COMMISSIONERS OF DICKINSON COUNTY, Kansas, et al., Defendants-Appellants.
• Court: United States State Supreme Court of Kansas

Page 1118

505 P.2d 1118

211 Kan. 270

LUTHERAN HOME, INC., a corporation, Plaintiff-Appellee,

v.

BOARD OF COUNTY COMMISSIONERS OF DICKINSON COUNTY, Kansas,

et al., Defendants-Appellants.

No. 46502.

Supreme Court of Kansas.

Feb. 5, 1973.

Rehearing Denied March 7, 1973.

Syllabus by the Court

1. Constitutional and statutory provisions exempting property from taxation are to be strictly construed.

2. The burden of establishing exemption from taxation is on the one claiming it.

3. The exemption from taxation depends solely upon the exclusive use made of the property and not upon the ownership or the character, charitable or otherwise, of the owner.

4. The test of whether an enterprise is charitable for ad valorem tax purposes is whether its property is used exclusively to carry out a purpose recognized in law as charitable.

5. The question is not whether the property is used partly or even largely for the purposes stated in the exemption provisions, but whether it is used exclusively for those purposes.

6. The term 'benevolent' as used in article 11, section 1, of the Kansas Constitution and in K.S.A. 79-201 is entirely synonymous with 'charitable.'

7. 'Charitable', as used in such constitutional and statutory provisions, denotes gifts to the poor or positive steps taken to relieve distress and suffering of those unable to help themselves.

8. The characteristics of an organized charity are that whatever it does for others it does free of charge, or, at least, so nearly free of charge as to make the charges nominal or negligible, and that those to whom it renders help or services are those who are unable to provide themselves with what the institution provides for them, that is, they are legitimate subjects of charity.

Max M. Hinkle, Abilene, argued the cause, and William L. Winkley, Abilene, was with him on the brief for appellants.

John F. Christner, Abilene, argued the cause, and W. H. Alward, Herington, was with him on the brief for appellee.

PRAGER, Justice:

This is an action brought by Lutheran Home, Inc. pursuant to K.S.A. 79-2005 to recover ad valorem real property taxes paid under protest. The basis of the claim is that plaintiff's property is used exclusively for charitable and benevolent purposes and therefore is exempt from taxation. Plaintiff's property consits of a tract of land on which is situated a nursing home owned and operated by the plaintiff corporation. The defendants are the board of county commissioners of Dickinson County, other county officials and the director of property valuation of the State of Kansas. In addition to the recovery of taxes plaintiff sought a judgment of the district court determining that the property in question is used exclusively for charitable and benevolent purposes and directing that the property be removed from the tax rolls of Dickinson County and that no future assessments or levies be made or taxes collected on the property as long as the property is used for such purpose. The district court granted judgment in favor of the plaintiff, holding that the plaintiff was entitled to the exemption claimed. The defendants have appealed to this court.

The facts in this case are not in dispute. Lutheran Home is a nonprofit corporation, organized and chartered under the laws of Kansas. although its name may indicate otherwise, Lutheran Home is not affiliated with nor supported nor regulated by any religious body. The corporation was formed in January 1967 by Ervin E. Biehler, his wife Lillian, and Fred M. Thompson, who were the three incorporators.

In 1964 when the nursing home opened it was owned and operated by another corporation, Lutheran United Home for the Aged, Inc. The construction of the nursing home was made possible through the issuance of first mortgage bonds in an amount in excess of $300,000. These bonds were sold to interested persons and banks in the community, who with Mr. Biehler and Mr. Thompson provided the necessary financing to construct the nursing facility. The operators of the nursing home found difficulty in meeting their financial obligations. The predecessor corporation Lutheran United Home for the Aged, Inc. became insolvent. Mr. Biehler and Mr. Thompson were holders of about $45,000 in bonds of the predecessor corporation; they were also the holders of notes of that corporation in excess of $42,000. In order to keep the nursing home open and to protect the holders of the bonds Mr. Biehler and Mr. Thompson took steps to reorganize the operation. Mr. Biehler entered into a contract with Lutheran United Home for the Aged, Inc. whereby Mr. Biehler agreed to receive and take title to all of the property of the nursing home in consideration for which he assumed and agreed to pay all of the obligations of the predecessor corporation. Mr. and Mrs. Biehler and Mr. Thompson then proceeded to incorporate the plaintiff Lutheran Home, Inc. as a nonprofit, nonstock corporation. Lutheran Home, Inc. immediately entered into a contract with Mr. Biehler under the terms of wich Mr. Biehler conveyed to Lutheran Home, Inc. all of the real estate and personal property in consideration of which Lutheran Home, Inc. assumed and agreed to pay all of the outstanding obligations of the predecessor corporation which had been assumed by Mr. Biehler. There was no other consideration for the agreement. The stated purpose of the new corporation Lutheran Home, Inc. was principally to own, lease, operate, maintain and administer nursing homes on a nonsectarian basis and to provide elderly persons on a nonprofit basis with housing facilities and services specially designed to meet the physical, social and psychological needs of the aged, and contribute to their health, security, happiness and usefulness in longer living. The articles of incorporation provide that the incorporators shall constitute the Board of Trustees who are vested with complete control of the corporation's affairs. The articles further provide that the trustees shall serve for life or until their death, resignation or removal from the community. Successor trustees are to be appointed from the community either by the remaining trustees or in the event of their inability to act, by the senior judge of the district court of Dickinson County.

At the trial of the case in March of 1971 Mr. Biehler held $40,000 of the original first mortgage bonds and Mr. Thompson owned bonds in the amount of approximately $5,000. In addition to being a bondholder Mr. Thompson held a second mortgage on the nursing home property which secured a loan by Mr. Thompson to the corporation in the sum of $30,000. In the period from January 1, 1967, to June 30, 1970, Lutheran Home, Inc. repaid Mr. Thompson $20,000 on this loan with interest at 6%. Lutheran Home, Inc. owed Mr. Biehler in addition to the bond obligation the sum of $12,529 on a loan which the corporation contracted when it purchased the nursing home from Mr. biehler. Between 1967 and 1970 the corporation made payments with interest to Mr. Biehler so that this loan was reduced to $10,000.

The articles of incorporation of Lutheran Home, Inc. provide that on dissolution of the corporation after the payment of all bills and accounts the remainder of the property shall be converted to cash which shall be paid over to such charitable and educational organizations as shall be designated by a vote of the trustees. The articles provide that they may be amended by a 2/3 vote of the trustees at any annual or special meeting. The articles fruther provide for the adoption of bylaws by the trustees who may change them at their pleasure so long as they do not conflict with the articles. Article XII declares that no part of the net earnings of this corporation shall inure to the benefit of any private individual. Article XII of the corporation bylaws provides as follows:

'It is the intent and purpose of this corporation and its Trustees that all services rendered and functions performed by the corporation except those rendered and performed for the United States or for any of its agencies, shall, at all times be handled on a cost of doing basis and without income or profit to the corporation or to its members as such, in order that any and all amounts received by the corporation from or in connection with, such services or functions, over and above the cost thereof to the corporation, shall at all times, belong to and be the exclusive property of the corporation.'

Since the nursing home opened in 1964, Frances B. Kandt has been the only manager. The facility is similar to most nursing homes in its services and operations. It is classified by the State of Kansas as a skilled nursing home and is qualified to receive recipients of welfare. There are no eligibility requirements for residents except that a physician must give a care referral to the corporation. The nursing home operates on a nonsectarian basis. Regular weekly religious services are conducted in a small chapel by visiting clergymen of all faiths. The facility accommodates 49 residents of whom the average age is about 80 years. About half of the residents are bed patients and the other half are able to dress and attend meals in the dining room.

During 1969 and 1970 the corporation charged a monthly rate of $230 for each ambulatory resident; nonambulatory residents were assessed an additional $30 per month. At the time of the trial in March 1971 there had been an increase in the monthly rate to $260 per month for ambulatory residents and $290 per month for nonambulatory residents. Residents who are on welfare are charged $300 per month which is paid by welfare funds. All residents of the facility are required to pay the monthly charge for services which is paid either from their own or family funds or by welfare. About half of the residents pay their own way and the other half receive welfare assistance. At the trial Mrs. Kandt testified that no patient had been evicted or asked to leave because he...