Matkovich v. Univ. Healthcare Found., Inc.
| Decision Date | 11 October 2016 |
| Docket Number | No. 15–0597, No. 15–0599,15–0597 |
| Court | West Virginia Supreme Court |
| Parties | Mark W. MATKOVICH, State Tax Commissioner, and Larry A. Hess, Assessor of Berkeley County, West Virginia, Respondents Below, Petitioners v. UNIVERSITY HEALTHCARE FOUNDATION, INC. f/k/a City Hospital Foundation, Inc., Petitioner Below, Respondent Larry A. Hess, Assessor of Berkeley County, West Virginia, and Mark W. Matkovich, State Tax Commissioner, Respondents Below, Petitioners v. University Healthcare Foundation, Inc. f/k/a City Hospital Foundation, Inc., Petitioner Below, Respondent |
Patrick Morrisey, Esq., Attorney General, L. Wayne Williams, Esq., Assistant Attorney General, Charleston, West Virginia, Counsel for Petitioner Matkovich.
Norwood Bentley III, Esq., Martinsburg, West Virginia, Counsel for Petitioner Hess.
Michael E. Caryl, Esq., J. Tyler Mayhew, Esq., Bowles Rice LLP, Martinsburg, West Virginia, Counsel for Respondent.
The petitioners, the State Tax Commissioner ("Commissioner") and the Berkeley County Assessor ("Assessor"), appeal from the May 15, 2015, order of the Circuit Court of Berkeley County, the Business Court Division,1 overruling the denial by both the Assessor and the Commissioner of ad valorem property tax exemption to the respondent University Healthcare Foundation, Inc. (the "Foundation") for its Martinsburg, West Virginia, property known as the Dorothy McCormack Cancer Treatment & Rehabilitation Center ("Center").2 In reversing the denial of a property tax exemption, the circuit court reasoned that the healthcare and recreational services provided in the eighteen different suites of the Center were "primarily and immediately" related to the joint charitable purposes of the Center and the Berkeley Medical Center ("BMC").3 In view of its conclusion that only twenty-eight percent of the Center's physical space is being used for charitable purposes,4 the Commissioner asks this Court to reverse the ruling of the circuit court regarding the grant of a property tax exemption. Based on the fact that the Foundation leased suites within the Center to for-profit tenants,5 the Commissioner argues that state law inexorably prohibits an exemption from ad valorem property taxation. Upon our careful review of the record submitted in this matter in conjunction with the state constitution, applicable statutes, regulations and controlling precedent, we find that the circuit court erred in concluding that the Center was being used exclusively for charitable purposes. Based on our consequent determination that the Foundation is not entitled to an ad valorem property tax exemption, we reverse.
The Foundation first sought an exemption from ad valorem taxation of the Center for tax year 2014 from the Assessor and then, when denied such relief,6 requested a ruling from the Commissioner. Through Property Tax Ruling 14–01, issued on February 22, 2014, the Commissioner ruled against the availability of the requested tax exemption. The Foundation appealed the Commissioner's ruling and a bench trial took place before Judge Wilkes on January 9, 2015. Through a decision issued on May 15, 2015, Judge Wilkes reversed the decisions of both the Assessor and the Commissioner, granting the Foundation an exemption from ad valorem property taxation under West Virginia Code § 11–3–9(a)(12) (2013).7
At the center of the circuit court's decision to overrule the twice previously-denied tax relief is its synonymous view of the charitable purposes of the Foundation with those of the BMC: to improve the health of Eastern Panhandle residents and to promote medical care and well-being of the community as a whole. The circuit court concluded that "all of the tenants of the ... Center provide healthcare services that primarily and immediately fulfill the charitable purposes of BMC and of the Petitioner [Foundation]."8 Noting that no surplus revenue was realized for the subject tax year,9 the circuit court recognized that under federal tax law any surplus revenue has to be utilized for the provision of additional healthcare and services to the community. Continuing to conflate the identity of the BMC with the Foundation—the only Taxpayer involved in this appeal—the circuit court concluded that the Center was being used exclusively to carry out the charitable purpose of providing healthcare services and promoting the well-being of the Eastern Panhandle community as a whole.10 Subsuming the effect of the Center's for-profit tenants,11 the circuit court simply declared that the Center's leasing of suites to the three for-profit entities12 was "directly, primarily, and immediately related to the accomplishment of the common charitable purposes of the Petitioner [Foundation] and BMC." The Commissioner and the Assessor seek a reversal of the circuit court's ruling.
Because this case involves a question of law with regard to the interpretation of a statute, our review is plenary. See Syl. Pt. 1, Appalachian Power Co. v. State Tax Dep't , 195 W.Va. 573, 466 S.E.2d 424 (1995) (); accord In r e Tax Assessment Against ABPP , 208 W.Va. 250, 255, 539 S.E.2d 757, 762 (2000). We proceed to determine whether the circuit court erred in its interpretation of the applicability of West Virginia Code § 11–3–9(a)(12) and the corresponding regulations to this case.
The issue presented by this case is whether a charitable entity that leases a portion of its real property to for-profit entities is entitled to a statutory tax exemption from ad valorem property taxes for the entirety of its property.13 Rather than being an issue of first impression, the tax effect of leasing charitable property to for-profit ventures has been considered previously and squarely answered. See Central Realty Co. v. Martin , 126 W.Va. 915, 30 S.E.2d 720 (1944) ; State v. McDowell Lodge , 96 W.Va. 611, 123 S.E. 561 (1924). While the Foundation seeks to contort the holdings of this Court to support its position, a review of our constitution, our statutes, and our case law demonstrates that the tax relief sought by the Foundation, and awarded by the circuit court, is prohibited.
Barring express legislative exemption, it is the "general policy of this state ... that all property shall contribute to the expenses of the government." McDowell Lodge , 96 W.Va. at 613, 123 S.E. at 562–63 ; see Syl. Pt. 1, Reynolds Mem'l Hospital v. County Court of Marshall Cty. , 78 W.Va. 685, 90 S.E. 238 (1916) (). Our state constitution reposes authority in the Legislature to exempt "property used for educational, literary, scientific, religious or charitable purposes" from taxation. W.Va. Const. art. X, § 1. As we recognized in State v. Kittle , 87 W.Va. 526, 105 S.E. 775 (1921), the Id. at 533, 105 S.E. at 777. Through its enactment of West Virginia Code § 11–3–9 (2016), the Legislature delineated certain property classifications that are exempt from ad valorem taxation. At issue in this case is the exemption provided in subsection (a)(12) for "[p]roperty used for charitable purposes and not held or leased out for profit." W.Va. Code § 11–3–9(a)(12).
In reviewing the history of the property tax exemption in United Hospital Center, Inc. v. Romano , 233 W.Va. 313, 758 S.E.2d 240 (2014), we emphasized that the "nature of the property's usage is critical." Id. at 317, 758 S.E.2d at 244. Citing to this Court's holding in State ex rel. Farr v. Martin , 105 W.Va. 600, 143 S.E. 356 (1928), we iterated: Romano , 233 W.Va. at 317–18, 758 S.E.2d at 244–45 and syl. pt. 1.
Charitable organizations seeking an exemption from ad valorem property taxation based on property usage must demonstrate compliance with the following criteria:
In order for real property to be exempt from ad valorem property taxation, a two-prong test must be met: (1) the corporation or other entity must be deemed to be a charitable organization under 26 U.S.C. § 501(c)(3) or 501 (c)(4) as is provided in 110 C.S.R. § 3–19.1 ; and (2) the property must be used exclusively for charitable purposes and must not be held or leased out for profit as is provided in W.Va. Code § 11–3–9.
Syl. Pt. 3, Wellsburg Unity Apartments, Inc. v. County Comm'n of Brooke County , 202 W.Va. 283, 503 S.E.2d 851 (1998). Prong one of the Wellsburg Unity test is not in dispute; whether prong two has been established is the crux of this case.
In seeking the subject tax exemption, the Foundation asserted the following basis for its position:
The Foundation operates exclusively in pursuit of its charitable purpose as a supporting organization of City Hospital, Inc. (d/b/a Berkeley Medical Center) another 501(c)(3) charitable organization, which, in turn, uses the suites and common areas of the subject property, through its own operational units and the other healthcare providers occupying the same, exclusively for its charitable purpose of providing healthcare services to the general public....
To support its position that the Center is used exclusively for "its charitable purpose," the Foundation relies on this Court's decision in Appalachian Emergency Medical Services, Inc. v. State Tax Commissioner , 218 W.Va. 550, 625 S.E.2d 312 (2005). Not only is that case factually distinguishable from the instant case, but a careful...
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