Richards v. Iowa Dept. of Revenue

• Decision Date: 21 October 1987
• Docket Number: No. 86-1121,86-1121
• Citation: 414 N.W.2d 344
• Parties: R.K. RICHARDS, Appellant, v. IOWA DEPARTMENT OF REVENUE, Appellee.
• Court: Iowa Supreme Court

Page 344

414 N.W.2d 344

R.K. RICHARDS, Appellant, v. IOWA DEPARTMENT OF REVENUE, Appellee.

No. 86-1121.

Supreme Court of Iowa.

Oct. 21, 1987.

R.K. Richards, Ames, pro se.

Thomas J. Miller, Atty. Gen., Harry M. Griger, Sp. Asst. Atty. Gen., and James D. Miller, Asst. Atty. Gen., for appellee.

Considered by HARRIS, P.J., and LARSON, SCHULTZ, CARTER, and LAVORATO, JJ.

LAVORATO, Justice.

In this judicial review proceeding we must decide whether the district court erred in upholding the decision of the director of revenue to allow a property tax exemption to Northcrest, Inc. Upon our review under the substantial evidence standard of Iowa Code section 17A.19(8)(f) (1981), ¹ we conclude the court was correct and affirm.

Northcrest is the operator of a nonprofit community for elderly people in Ames. ² Since its inception in 1962 Northcrest has received exemptions under both the federal and state tax laws because of its charitable status. See 26 U.S.C. § 501(c)(3); Iowa Code § 427.1(9). ³

In 1982 R.K. Richards, the pro se appellant here, challenged Northcrest's state exemption for the 1981 tax year under Iowa Code section 427.1(26), ⁴ which allows any taxpayer to request revocation by the director of an improperly granted exemption.

Richards argued before the Department of Revenue ⁵ that there were three basic reasons that Northcrest was not a charitable institution and therefore did not deserve a tax exemption. First, Northcrest does not provide its residents with a wide enough scope of care. Second, Northcrest's expenses are supported largely by payments from residents rather than by charitable contributions. Third, of the contributions Northcrest does receive, a large proportion is from residents rather than outside donors.

After the director decided to uphold the exemption granted by the Ames Board of Review, Richards filed a petition for judicial review. See Iowa Code § 427.1(26). We said on interlocutory appeal that this petition was served in a manner permitted by statute, reversing the district court's ruling on the department's special appearance. Richards v. Iowa Dep't of Revenue, 362 N.W.2d 486 (Iowa 1985). In a decision on the merits, the district court then upheld the director's decision by finding it to be supported by substantial evidence. See Iowa Code § 17A.19(8)(f).

In this court the department argues for the first time that Richards does not have standing to bring a judicial review action, and Richards asks, in addition to his arguments regarding the exemption, that we tax costs to the department regardless of our decision on the merits.

The director's findings of fact, which were adopted in full by the district court, reveal that Northcrest was organized in 1962 as a nonprofit corporation under chapter 504 of the 1958 Iowa Code. Northcrest's articles of incorporation state its "purpose and objects ... shall be exclusively for religious, charitable, literary and scientific purposes in the care of the physical, social, psychological, religious, and intellectual needs of ... elderly persons." The articles go on to say that to achieve these ends, Northcrest will build and operate residence facilities for such persons and that Northcrest's income shall be used exclusively for the stated purposes. Northcrest's operations are governed by a board of directors who serve without compensation.

The Director of Revenue noted that "[g]ifts of service, money and goods played a large role in the founding of Northcrest." These contributions took several forms. Approximately $50,000 in cash donations was received during Northcrest's early days both from individual donors and from civic clubs, public utilities, the city of Ames, and various local merchants. In addition, by the end of 1966 about $50,000 more in charges for architectural services, materials, supplies, travel, and other expenses was either waived or paid by donors. After the Northcrest residence facilities were opened, local doctors initially excused portions of medical fees charged to residents.

By 1981 Northcrest was a complex of interconnected buildings containing eighty-six residential apartments of three sizes, common areas for the use of the residents, guest rooms which could be rented to visitors at a nominal charge, and a twenty-eight-bed health care center. In addition, fifty-two garages were available at a small fee for residents' automobiles. Northcrest sits on twenty-two and one-third acres "located in a desirable section of Ames," as the director described it. The assessed value of this real property in 1981 was $2,475,600; thus, Northcrest's property tax liability for that year without the exemption would be approximately $50,000.

Northcrest had 125 residents in 1981, and their incomes varied from under $7000 to over $20,000, with assets ranging from under $20,000 to over $200,000. This financial information is provided to Northcrest by each applicant for residency, who must also disclose how the individual plans to pay Northcrest's fees and what potential sources of alternative financial support exist should the applicant's own resources become exhausted. Northcrest, however, does not have any policy of refusing applicants who are unable to pay full fees.

Each applicant must also undergo a physical examination so a physician can certify that the applicant can live without any special assistance. Northcrest does not accept applicants in poor health because it is not a nursing home; its health care center is intended only for residents who become ill after entering Northcrest.

In addition to the health and financial information each applicant must disclose, Northcrest also requires that applicants be over sixty-two years old, unless an accompanying spouse is of that age, and requests a fifty dollar application fee, which may be waived for those unable to pay. While Northcrest has refused applicants because of poor health, it has granted admission to seven people who could not pay the full fees.

A number of fees are required of those persons accepted as residents. The largest sum is the "resident endowment," a one-time payment of between $23,600 and $52,500, depending on the size of the apartment the resident desires. The resident also pays a monthly charge based on apartment size, ranging from $260 to $526. The final mandatory fee is a monthly payment of $43.50 for Northcrest's health plan.

In addition to the mandatory fees, a resident may choose to rent a garage or storage unit, to take meals in a dining hall for a fee, and to make the suggested contribution of $4200 to Northcrest's "development fund" upon admission. The director indicated in his findings of fact that it was apparently this last sum which was waived for the seven applicants unable to pay the full fees.

Many entering residents, however, have contributed more than the suggested amount, and the Internal Revenue Service considers the development fund contribution to be charitable and thus deductible. The director noted that the IRS classification of these contributions and the excess amounts given by some entering residents indicated that the development fund contributions were, in fact, "made of the individual's own free will," despite the "inherently coercive" nature of Northcrest's request at the time of admission.

Although the residents' regular fees pay for most of Northcrest's operating expenses, the director found that "donations play a role in its operations as well." The total value of money and gifts received in 1980 was $14,400, and in 1981, $12,000, exclusive of development fund contributions.

While many of the gifts came from residents, these donations, according to the director, were not coerced from the residents or made in return for any special services. For example, residents contributed money for the purchase of medical equipment to be used for all residents' benefit.

In addition, Northcrest established a "permanent endowment fund" in late 1981, the investment of which produces income to be used for charitable disbursals to residents. This fund has received about $45,000 in donations since its creation.

Finally, besides gifts of goods and money, several individuals and groups have donated services. The donors include the residents themselves; girl scouts; various church groups; and the board of directors, who serve without compensation. According to Northcrest's treasurer, donated services have been worth perhaps "half a million dollars or more" since Northcrest's inception.

The director found that "the evidence is suitable to indicate ... the donations did result in a reduction in the payments which each and every resident was required to make," which is in keeping with Northcrest's stated policy of granting charitable assistance to the residents.

These donations and the residents' fees pay for a wide variety of services. Perhaps the most substantial of the services offered by Northcrest is the guarantee of lifetime care. Residents receive complete care, including housing and payment of all medical expenses not covered by insurance, for the duration of their lives, even if they are totally unable to pay Northcrest's fees.

In addition, Northcrest provides many things to aid the residents in enjoying life to its fullest extent: a library; exercise equipment; dietary advice; garden plots; laundry and meeting rooms; facilities for artistic pursuits; transportation to the university campus in Ames; minor repair of personal appliances; organization of residents' bills; reminders of when to take medication; a security system; and "buddy" arrangements between residents, who check on each other to make sure no one has fallen ill.

Summarizing one expert's testimony, the director noted that "Northcrest creates an environment for its residents which enables them to maintain their self-sufficiency and independence for as long as possible and promotes their feelings of security and safety, matters of special concern to the elderly."...