Morse Healthcare v. Board of Assessors

• Decision Date: 27 July 2009
• Docket Number: No. 08-P-1717.,08-P-1717.
• Citation: 74 Mass. App. Ct. 701,910 N.E.2d 394
• Parties: MARY ANN MORSE HEALTHCARE CORP. v. BOARD OF ASSESSORS OF FRAMINGHAM.
• Court: Appeals Court of Massachusetts

910 N.E.2d 394

74 Mass. App. Ct. 701

MARY ANN MORSE HEALTHCARE CORP. v. BOARD OF ASSESSORS OF FRAMINGHAM.

No. 08-P-1717.

Appeals Court of Massachusetts, Suffolk.

Argued May 7, 2009.

Decided July 27, 2009.

George A. Balko, III, Worcester (Donna M. Truex with him) for the taxpayer.

Present: GRAINGER, BROWN, & RUBIN, JJ.

GRAINGER, J.

In this appeal from a decision of the Appellate Tax Board (board) we are called upon to review the denial of an exemption from real estate taxation pursuant to G.L. c. 59, § 5, Third. Mary Ann Morse Healthcare Corp. (Morse) operates an assisted living facility known as Heritage of Framingham (Heritage) on real property located in the town of Framingham (town). After the town's board of assessors denied Morse's application for an abatement of real estate taxes, Morse filed a timely but unsuccessful appeal to the board. Specifically, Morse asserts error in the board's failure to find that: (a) Morse operates as a traditional public charity relieving its residents from the hardships and constraints that afflict them; (b) Morse serves a sufficiently large and fluid segment of the population to qualify for real estate tax exemption under G.L. c. 59, § 5, Third; (c) Morse's charitable purpose and use of the property advance the public good, and thereby lessen the burdens of government; (d) Morse owns and occupies the Alzheimer/dementia portion of the property for its charitable purpose; and (e) seventy-one percent of the property (consisting of the Alzheimer's/dementia portion of the property and those portions of the common areas that service Alzheimer's and dementia residents) is exempt from real estate taxation under G.L. c. 59, § 5, Third.

The facts appear undisputed.¹ Morse is exempt from Federal income taxation under § 501(c)(3) of the Internal Revenue Code and has no shareholders or capital stock. No part of its income is utilized for anything other than its charitable purposes.² At all relevant times, Morse operated Heritage as an assisted living facility at the property. Heritage consists of two buildings: Building A which contains common areas and forty-eight assisted living apartments, and Building B which contains forty assisted living apartments (known as the Homestead apartments) intended for use by individuals with Alzheimer's disease, dementia, and memory impairment. Morse contends that all parts of Heritage used by the Homestead residents are exempt from taxation, including all of Building B and the common areas of Building A, which also serve the Homestead residents.

Discussion. We review the board's decision for errors of law. See South St. Nominee Trust v. Assessors of Carlisle, 70 Mass.App.Ct. 853, 855-856, 878 N.E.2d 931 (2007), and cases cited. The board's findings of fact must be supported by substantial evidence. The board determined that Morse met neither part of the twofold test for determining whether an organization qualifies for property tax exemption pursuant to G.L. c. 59, § 5, Third, and we consider each part in turn.

The community benefit test. The board's decision relies in large part on the Supreme Judicial Court's discussion in Western Mass. Lifecare Corp. v. Assessors of Springfield, 434 Mass. 96, 747 N.E.2d 97 (2001), and cases cited therein. Western Mass. Lifecare provides detailed guidance on the factors relevant to a determination that an organization provides a public benefit sufficiently broad to justify the public support that tax exemption represents. "An organization `operated primarily for the benefit of a limited class of persons,' such that `the public at large benefit[s] only incidentally from [its] activities,' is not charitable." Id. at 104, 747 N.E.2d 97, quoting from Cummington Sch. of the Arts, Inc. v. Assessors of Cummington, 373 Mass. 597, 600, 369 N.E.2d 457 (1977). "While there is no `precise number' of persons who must be served in order for an organization to claim charitable status, and `at any given moment an organization may service only a relatively small number of persons,' membership in the class served must be `fluid' and must be `drawn from a large segment of society or all walks of life.'" Western Mass. Lifecare, supra at 104, 747 N.E.2d 97, quoting from New England Legal Foundation v. Boston, 423 Mass. 602, 612, 670 N.E.2d 152 (1996). "[S]election requirements, financial or otherwise, that limit the potential beneficiaries of a purported charity will defeat the claim for exemption." Western Mass. Lifecare, supra at 104, 747 N.E.2d 97.

The board's decision issued in September, 2007, and Morse requested a report with findings of fact. See G.L. c. 58A, § 13. Although the board's report was promulgated on August 19, 2008, some five weeks after the Supreme Judicial Court issued its decision in the case of New Habitat, Inc. v. Tax Collector of Cambridge, 451 Mass. 729, 889 N.E.2d 414 (2008), the board's findings and report make no reference to that case. New Habitat provides an interpretive lens through which we now view Western Mass. Lifecare and its predecessors. Specifically, New Habitat emphatically conditions the importance of previously established factors on the extent to which "the dominant purposes and methods of the organization" are traditionally charitable. Id. at 733, 889 N.E.2d 414. The number of individuals receiving services, whether they are from diverse walks of life, the fees charged to those individuals, and the relationship between the service fees and the cost of those services to the provider— all these are factors that inform a decision under the community benefit test; where however an organization is found to be traditionally charitable in nature, these factors play "a less significant role in our determination of its charitable status" for purposes of property tax exemption. Id. at 737, 889 N.E.2d 414. Applying this approach in New Habitat, the Supreme Judicial Court vacated the summary judgment entered below for the tax collector and ordered summary judgment to be entered instead for the taxpayer. Id. at 739, 889 N.E.2d 414.

In this context we examine the board's determination that Morse does not qualify as a public charity under the community benefit test. The board found that the fees charged by Morse, combined with the fact that Medicaid is unavailable to cover those fees, placed Morse "beyond the reach of a sufficiently broad cross-section of the elderly population."³ We note, however, that in comparison to the facts analyzed in New Habitat, Morse charges much lower fees and provides services to a much larger group of residents. While the dramatic disparity in these cases⁴ might theoretically be reconciled by an equally dramatic difference in the extent to which the taxpayer in each case performed traditionally charitable functions, the record does not support such a justification. See, e.g., H-C Health Servs., Inc. v. Assessors of S. Hadley, 42 Mass.App.Ct. 596, 599, 678 N.E.2d 1339 (1997) ("[O]peration of a nursing home for the elderly and the infirm is the work of a charitable corporation"); William B. Rice Eventide Home, Inc. v. Assessors of Quincy, 69 Mass.App. Ct. 867, 872 N.E.2d 772 (2007) (discussion of proper method and deadline for nursing home to appeal loss of exemption after many years of recognition as a charitable institution under G.L. c. 59, § 5, Third). Moreover, the board has not referred to this consideration in its decision.

Considering Morse's indisputable performance of a traditional public charitable function, the record before us, and the guidance of New Habitat, we conclude that the board's determination that Morse is not a public charity under the provisions of G.L. c. 59, § 5, Third, was error.

The occupancy test. The board also concluded that the individual residents of Homestead occupied the premises, and that therefore Morse could not be an occupant for purposes of an exemption analysis under G.L. c. 59, § 5, Third. In so concluding the board relied heavily on G.L. c. 19D, which it characterized as providing Homestead residents the "legal status as tenants."⁵ Charlesbank Homes v. Boston, 218 Mass. 14, 105 N.E. 459 (1914) (Residents in low rent apartments owned by charitable corporation are strictly tenants, and are occupants thereof). Additionally, the board pointed to various provisions in the residency agreement, specifically the privacy rights conferred on the residents, the expectation that residents would carry their own insurance, and the residents' entitlement to have their recommendations and grievances addressed by Morse.

As stated above, we review the board's decision, including its application of G.L. c. 19D, for errors of law. In interpreting c. 19D, the board is deriving a tax implication from a statute covering an unrelated area and empowering a separate agency with regulatory authority.⁶ While we give "deference to the expertise of the board in tax matters involving interpretation of the laws of the Commonwealth," Northeast Petroleum Corp. v. Commissioner of Rev., 395 Mass. 207, 213, 479 N.E.2d 163 (1985), we give no deference to an incorrect interpretation. See Kszepka's Case, 408 Mass. 843, 847, 563 N.E.2d 1357 (1990).

We concur that there is a rational nexus between the residents' right to privacy and the question of occupancy; however, unlike the board we do not consider it to be a persuasive indication that Morse does not occupy the property. There are several reasons why the two factors are less than congruent. We note, first, that occupancy need not be exclusive, and that the occupancy test for property tax exemption is nowhere so described. While exclusive possession of a tenant has been held to defeat occupancy by another, see Charlesbank Homes, supra at 16-17, 105 N.E. 459, that is not the case presented by this record, which establishes without dispute shared rights to the premises.⁷ Nor are occupancy and residence identical concepts under the law.⁸ We...