Orange City Municipal Hospital v. Board of Review of Sioux County
| Decision Date | 15 October 2003 |
| Docket Number | No. 2-820/02-0114.,2-820/02-0114. |
| Parties | ORANGE CITY MUNICIPAL HOSPITAL, Plaintiff-Appellant, v. BOARD OF REVIEW OF SIOUX COUNTY, Defendant-Appellee. |
| Court | Iowa Court of Appeals |
Appeal from the Iowa District Court for Sioux County, Michael S. Walsh, Judge.
Orange City Municipal Hospital appeals from the district court ruling upholding a decision by the Board of Review denying a claim for property tax exemption on an assisted and independent living facility.
REVERSED AND REMANDED.
Ivan Webber and Randall Stefani of Ahlers, Cooney, Dorweiler, Haynie, Smith & Allbee, P.C., Des Moines, and Bradley De Jong of Klay, Veldhuizen, Bindner, De Jong & Pals, P.L.C., Orange City, for appellant.
Michael Davenport, Frank Pechacek, Jr., and Brett Ryan of Willson & Pechacek, P.L.C., Council Bluffs, and Mark Schouten, Orange City, for appellee.
Kirk Norris, Des Moines, for amicus curiae.
Heard by Vogel, P.J., and Zimmer and Hecht, JJ.
Orange City Municipal Hospital appeals from a district court ruling upholding a decision by the Sioux County Board of Review which denied the hospital's request for a property tax exemption under Iowa Code section 427.1(2) (2001) for its assisted and independent living facility, known as Landsmeer Ridge Retirement Community (Landsmeer). The district court found Landsmeer was not exempt from taxation because it was not devoted to a public use and was held for a pecuniary profit. On our review, we conclude the property was exempt from taxation. Accordingly, we reverse.
Orange City Municipal Hospital (Hospital) is an agency of the City of Orange City existing under Iowa Code chapter 392 and licensed pursuant to chapter 135B. In 1998 and 1999, the hospital built and opened Landsmeer. Landsmeer is an assisted and independent living facility administered by the hospital but not physically connected to the main hospital building. The facility has an assisted living portion with twenty-eight units and an independent living area with twenty units. The assisted living portion has been issued a license by the Iowa Department of Elder Affairs under chapter 231C. Landsmeer admits only those applicants with the ability to pay. The facility does not subsidize low-income applicants. Residents unable to meet the continuing monthly fees are not allowed to remain at Landsmeer.
This appeal arises out of two actions the Hospital commenced seeking tax-exempt status for Landsmeer. The Board of Review of Sioux County (Board) twice denied the hospital tax-exempt status for Landsmeer. The Hospital appealed to the district court. The district court consolidated the two actions for trial. Following trial, the court denied the Hospital's claims for tax exemption for Landsmeer. The Hospital appeals. It claims the disputed property is entitled to exempt status under the municipal use exemption of section 427.1(2).
Tax exemption appeals are equitable in nature and are therefore reviewed de novo. Iowa R. App. P. 6.4; see also Care Initiatives v. Bd. of Review, 500 N.W.2d 14, 16 (Iowa 1993). While we are not bound by the trial court's findings of fact, we give them weight. Iowa R. App. P. 6.14(6)(g). The burden of proving entitlement to a tax exemption rests on the party seeking it and that party must establish tax-exempt status by a preponderance of the evidence. Carroll Area Child Care Ctr. Inc. v. Carroll County Bd. of Review, 613 N.W.2d 252, 253 (Iowa 2000); City of Osceola v. Bd. of Review, 490 N.W.2d 539, 540 (Iowa 1992). Statutes exempting property from taxation are strictly construed and doubts are resolved in favor of taxation. Atrium Village, Inc. v. Bd. of Review, 417 N.W.2d 70, 72 (Iowa 1987). Our ultimate determination in each case turns on the unique facts and special circumstances presented. City of Osceola, 490 N.W.2d at 540.
The sole issue presented by this appeal is whether the Landsmeer facility should be exempt from property taxation under Iowa Code section 427.1(2). Section 427.1(2) authorizes a tax exemption for municipal property. The evaluation of whether municipal property qualifies for an exemption consists of a three-part test: (1) municipal ownership of the property, (2) proof that the property is devoted to public use, and (3) proof that the property is not held for pecuniary profit. City of Oskaloosa v. Bd. of Review, 490 N.W.2d 542, 544 (Iowa 1992) (citations omitted). There is no dispute that Landsmeer is municipally owned. The fighting issues on appeal concern the public use and pecuniary profit requirements.
In order to satisfy the public use prong of section 427.1(2), "the property must be devoted to a use that comes within the duty of the governmental subdivision." City of Oskaloosa, 490 N.W.2d at 544. The test we employ in this determination is whether the property in dispute is primarily used to carry on "reasonably necessary or essential facilities to the efficient operation and maintenance" of the public use for which the exemption is authorized. Van Buren County Hospital and Clinics v. Bd. of Review, 650 N.W.2d 580, 587 (Iowa 2002). If municipal property is used for a "predominately public purpose and only incidentally for a private purpose," it is exempt. Id. (quoting 71 Am. Jur. 2d State and Local Taxation § 280, at 560 (2001)).
A municipality primarily using public property as a private corporation foregoes the tax exemption benefit of section 427.1(2). For example, a city building leased to the United States Postal Service to process and deliver mail is not exempt from taxation under the municipal exception because the use of the building is outside the city's obligation to its citizens. City of Oskaloosa, 490 N.W.2d at 545. Similarly, a city may be taxed for electrical lines when they are used to provide power outside the city's borders. City of Muscatine v. Swickard, 232 Iowa 1175, 1186, 6 N.W.2d 23, 28 (Iowa 1942). This is so because a city has no obligation to provide electrical power to citizens beyond its borders. Id. These uses do not conform to the letter and spirit of section 427.1(2).
The municipal tax exemption provided for in section 427.1(2) is not neatly compartmentalized. Municipal property may have characteristics of both a public and private use yet still qualify for tax-exempt status. In City of Osceola v. Bd. of Review, our supreme court held that the portion of a city airport terminal used as a residence for the airport manager constituted a public use because the duties of the manager required round-the-clock services. City of Osceola, 490 N.W.2d at 542. While the use of the private residence served a private purpose, it was incidental to the predominate public purpose. Id. Likewise, in City of Osceola v. Bd. of Equalization, 188 Iowa 278, 281, 176 N.W. 284, 285 (Iowa 1920), the collection of rent from a pasture used essentially as a watershed did not except the property from the exemption. The primary purpose of the property was a watershed for its municipal waterworks system and the rental activities were incidental to that use. Id.
Our supreme court discussed the municipal exemption provided for in section 427.1(2) in an opinion filed while this appeal was pending. In Van Buren, the district court denied a hospital's claims for tax exemptions on four property areas. The supreme court reversed. It concluded that employee-physician clinics and specialty clinics owned and operated by a county hospital were exempt from taxation under the municipal use exemption. The court also concluded property used by the hospital to provide farm health and safety information was exempt. Finally, the court concluded property used by the hospital for employment and a job opportunities division, served primarily a public purpose and was exempt. Van Buren, 650 N.W.2d at 590-93. The court's decision was based, in part, on the changing demographics of rural Iowa, where communities struggle to attract physicians. Id. at 589. With a critical shortage of physicians necessary to staff a functioning hospital, Van Buren County Hospital implemented the construction of the employee-physician clinics to retain local physicians with the ultimate goal of providing quality health care to the community. Id. Additionally, the court reasoned the specialty clinics, which were constructed by the hospital and leased by University of Iowa specialty physicians for a limited number of days each month, were arranged for the benefit of the community. Id. at 592. The private benefit to the physicians was incidental to the greater public purpose of providing quality health care to the community. Id. The court also found the purposes served by the Job Opportunities division and the Farm Health and Safety divisions of the hospital constituted a public use. The supreme court acknowledged these purposes do not relate to the traditional role of health care, but clearly relate to the overall health and welfare of the community.
In the present case, we conclude Landsmeer's primary use fits the public purpose requirement of section 427.1(2). The Landsmeer facility is an authorized municipal function pursuant to Iowa Code section 392.6. That section grants municipal hospital boards the powers necessary for the management, control, and government of hospitals, including powers granted boards under any other code provision relating to hospitals. Iowa Code § 392.6. Iowa Code section 347.14(11) grants county hospital boards the power to operate assisted and independent living services. Thus, the operation of Landsmeer comes within the legislatively authorized functions of the Orange City Hospital. The Orange City Hospital is also licensed pursuant to chapter 135B. As a chapter 135B hospital, it is granted the specific authority to operate an assisted living facility in a separate structure under Code section 231C.5(2). The Code therefore authorizes a municipal hospital to operate an...
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