Perham Hosp. Dist. v. Cnty. of Otter Tail
| Decision Date | 24 January 2022 |
| Docket Number | A21-0619 |
| Citation | 969 N.W.2d 366 |
| Parties | PERHAM HOSPITAL DISTRICT, Respondent, v. COUNTY OF OTTER TAIL, Relator. |
| Court | Minnesota Supreme Court |
Masha M. Yevzelman, Lynn S. Linné, Fredrickson & Byron, P.A., Minneapolis, Minnesota, for respondent.
Michelle M. Eldien, Otter Tail County Attorney, Benjamin G.A. Olson, Assistant County Attorney, Fergus Falls, Minnesota, for relator.
This appeal concerns the exemption from property tax provided for hospital districts. See Minn. Stat. § 447.31, subd. 6 (2020) (). At issue is whether to classify medical clinics that are owned and operated by respondent, Perham Hospital District (District), as taxable or exempt. The District owns and operates Perham Hospital (Hospital) and in 2011, acquired three clinics: Perham Clinic, Ottertail Clinic, and New York Mills Clinic (collectively, Clinics). Relator Otter Tail County classified the Clinics as commercial and thus subject to property tax, determining that the tax exemption provided in section 447.31 for hospital districts is available only to hospitals and not to clinics. The District filed refund claims, contending that the Clinics are properly classified as exempt property. The County denied those claims, and the District filed timely appeals with the tax court for each tax year at issue, challenging the County's classification. Before the tax court, the District asserted that the Clinics are exempt under Minn. Stat. § 447.31, subd. 6.1 The tax court agreed with the District, concluding that the District used the Clinics to improve and run Perham Hospital during the tax years at issue, and in the alternative, operated the Clinics as hospital facilities. The County sought review of the tax court's ruling by writ of certiorari. We affirm.
The District was formed in 1976 as a public, nonprofit healthcare organization to provide health care to rural communities near Perham, Minnesota. The District is a municipal corporation and political subdivision of the State. Minn. Stat. § 447.31, subd. 6. Its mission is to promote health and wellness and to improve the health of the community it serves.
Since its formation, the District has owned and operated the Hospital, a 25-bed, critical access hospital that provides a full continuum of care on an annual basis for more than 900 inpatients, 6,500 emergency room patients, and 40,000 clinic visits. During the years at issue, the Hospital was organized into approximately 20 operational departments—including a department for the Clinics. Most of the departments provide patient care; only medical/surgical and obstetrics offer inpatient, overnight care.2 The remaining departments offer outpatient services only. Although each department has a physical location in the Hospital or clinic facilities, each provides services in many different spaces throughout those facilities.
In 2011, the District acquired the business, assets, and real property of the Clinics to serve the needs of Perham Health and its surrounding communities, concluding that the Clinics would be convenient or necessary to running and improving the Hospital. In 2012, the District completed construction of a new hospital facility in Perham, then relocated the Perham Clinic to a space within the Hospital. During the tax years at issue here (2014-2018), the District operated the Hospital and the three Clinics under the brand name, Perham Health. The District governs and controls Perham Health; neither Perham Health nor the individual clinics are separate entities, but instead operate under the Hospital's license.
After the County denied the tax refund claims, the District appealed to the tax court. Before trial, the tax court construed the language in Minn. Stat. § 447.31, subd. 6, which provides an exemption for property that is used by the District "for the purposes of sections 447.31 to 447.37," to mean property that is used "to acquire, improve, and run" the Hospital. Perham Hosp. Dist. v. County of Otter Tail (Perham I) , 2019 WL 3210638, at *3-5, (Minn. T.C. July 10, 2019). The tax court reached this conclusion by tracing the statutory language in 447.33, subdivision 1 that uses this phrase ("to acquire, improve, and run" a hospital) in describing a hospital district's purposes, and as further "supported by the text of related provisions in the specified statutory range that likewise refer to these same purposes." Id. Thus, according to the tax court, the clause, "for the purposes of sections 447.31 to 447.37," Minn. Stat. § 447.31, subd. 6, means that for the property to be exempt, the hospital district must own, use, or occupy that property "to acquire, improve and run" the district's hospital. Perham I , 2019 WL 3210638, at *5.
Based upon this statutory interpretation, the tax court denied the parties’ respective motions for summary judgment, concluding that disputed factual issues existed regarding the District's use of the Clinics and whether that use was to improve and run the Hospital. Id. at *7 ; Perham Hosp. Dist. v. County of Otter Tail (Perham II) , 2020 WL 2517002, at *6-7 (Minn. T. C., May 12, 2020).
The evidence presented at trial addressed the organization and operations of the Hospital, the Clinics, and the District; the reasons for and the decision to acquire the Clinics; and relevant policies for the District, the Clinics, and the facilities. Because the District is entitled to an exemption only if the property is used for statutory purposes, the tax court began by "identify[ing] those purposes."
Perham Hosp. Dist. v. Cnty. of Otter Tail (Perham III) , 2021 WL 1099500, at *10 (Minn. T.C. Mar. 18, 2021). Based on the evidence presented at trial, the tax court concluded that the Clinics are exempt from tax under section 447.31, subdivision 6, because the District used the Clinics for a statutory purpose. Id. at *22–28. The tax court recognized that this determination rested, in the first instance, upon the meaning of the term "hospital," and the extent to which a hospital is distinct from a clinic. Id. at *18. Drawing upon the analysis used in constitutional tax exemption cases, the tax court analyzed this threshold issue by focusing on the "empirical" question of "what hospitals actually did—and were required to do—during the tax periods in issue," rather than on "dictionary definitions." Id. at *19–20 (citing Chisago Health Services v. Commissioner of Revenue , 462 N.W.2d 386, 389-90 (Minn. 1990) ). To the extent the Hospital and Clinics are distinct, the tax court framed the "critical question [a]s whether a district occupied and used (non-hospital) property to improve and run its hospital." Id. *20. The tax court found that standard met, "finding that the District occupied and used the Clinic Properties to improve and run the Perham Hospital during the tax years at issue." Id. at *22-25. The tax court also alternatively concluded that the District's clinics were exempt because they were not distinct from the Hospital, but rather were fully integrated with the Hospital, were used as mere arms of the Hospital, and thus were operated as "[h]ospital facilities" to improve and run Perham Hospital. Id. at *25 (); id. at *28. The tax court therefore concluded that for both of these independent reasons, the Clinics are exempt from tax under Minn. Stat. § 447.31, subd. 6. Perham III , 2021 WL 1099500, at *28.
The County filed a timely petition for writ of certiorari, requesting review of the tax court's decision.
Our review of the final order of the tax court is limited. Hutchinson Tech., Inc. v. Comm'r of Revenue , 698 N.W.2d 1, 6 (Minn. 2005). We review de novo whether the tax court committed an error of law, including with respect to the interpretation of a statute. Marks v. Comm'r of Revenue , 875 N.W.2d 321, 324 (Minn. 2016). We will not disturb the tax court's factual findings unless they are clearly erroneous, that is, when "the evidence as a whole does not reasonably support the decision." Menard, Inc. v. County of Clay , 886 N.W.2d 804, 811 (Minn. 2016) (quoting Lewis v. County of Hennepin , 623 N.W.2d 258, 261 (Minn. 2001) ).
At issue in this appeal is whether the Clinics are exempt from property tax. Real, personal, or mixed property that is "acquired, owned, leased, controlled, used, or occupied by" a hospital district "for the purposes of sections 447.31 to 447.37" is exempt from tax. Minn. Stat. § 447.31, subd. 6. Section 447.33, subdivision 1, states that a hospital district "has the powers necessary and convenient to acquire, improve, and run the hospital ... as the hospital board finds expedient." Minn. Stat. § 447.33, subd. 1. The tax court construed these provisions to mean that the District must use the property at issue here—the Clinics—to improve and run a hospital. Perham I , 2019 WL 3210638, at *7. Then, based on this interpretation and the evidence in the record, the tax court concluded, as is relevant to this appeal, that the District used the Clinics in the years at issue to improve and run Perham Hospital. Perham III , 2021 WL 1099500, at *25.
The County states in its appeal to our court that the parties’ dispute centers on what constitutes a hospital—what it is that a hospital does and whether a clinic can operate as a hospital. Before we turn to that specific dispute, it will be helpful to explain first what is not before us in this appeal.
First, the County does not challenge the Tax Court's interpretation of the statutory language that provides the exemption from tax, in section 447.31, subdivision 6, that for the property to be exempt, the hospital district must own, use, or occupy that property "to acquire, improve and run" the district's hospital. Thus, we will not review that...
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