Rideout Hospital Foundation, Inc. v. County of Yuba

• Citation: 10 Cal.Rptr.2d 141,8 Cal.App.4th 214
• Court: California Court of Appeals Court of Appeals
• Decision Date: 20 July 1992
• Parties: RIDEOUT HOSPITAL FOUNDATION INC. etc., Plaintiff and Respondent, v. COUNTY OF YUBA et al., Defendants and Appellants. C011614.

Page 141

10 Cal.Rptr.2d 141

8 Cal.App.4th 214

RIDEOUT HOSPITAL FOUNDATION INC. etc., Plaintiff and Respondent, v. COUNTY OF YUBA et al., Defendants and Appellants.

C011614.

Court of Appeal, Third District, California.

July 20, 1992.

Rehearing Denied Aug. 17, 1992.

[8 Cal.App.4th 216] Daniel G. Montgomery, County Counsel and James W. Calkins, Chief Deputy County Counsel, for defendants and appellants.

McCutchen, Doyle, Brown and Enersen, John R. Reese and Gerald R. Peters, San Francisco, for plaintiff and respondent.

DAVIS, Associate Justice.

In this action to recover property taxes paid under protest, County of Yuba (County) appeals from a decision in favor of the taxpayer, Rideout Memorial Hospital (Rideout). There is but one issue on appeal: can a nonprofit hospital that earned surplus revenue in excess of ten percent (for a given year) still qualify for the "welfare exemption" from property taxation in light of Revenue and Taxation Code section 214, subdivision (a)(1)? We hold that it can.

BACKGROUND

Revenue and Taxation Code section 214 (section 214) sets forth the "welfare exemption" from property taxation. For the tax years in question [8 Cal.App.4th 217] here, the section provided in pertinent part: "(a) Property used exclusively for religious, hospital, scientific, or charitable purposes owned and operated by community chests, funds, foundations or corporations organized and operated for religious, hospital, scientific, or charitable purposes is exempt from taxation if:

"(1) The owner is not organized or operated for profit; provided, that in the case of hospitals, such organization shall not be deemed to be organized or operated for profit, if during the immediate preceding fiscal year the excess of operating revenues, exclusive of gifts, endowments and grants-in-aid, over operating expenses shall not have exceeded a sum equivalent to 10 percent of such operating expenses. As used herein, operating expenses shall include depreciation based on cost of replacement and amortization of, and interest on, indebtedness.

"(2) No part of the net earnings of the owner inures to the benefit of any private shareholder or individual.

"(3) The property is used for the actual operation of the exempt activity, and does not exceed an amount of property reasonably necessary to the accomplishment of the exempt purpose.

"(4) The property is not used or operated by the owner or by any other person so as to benefit any officer, trustee, director, shareholder, member, employee, contributor, or bondholder of the owner or operator, or any other person, through the distribution of profits, payment of excessive charges or compensations or the more advantageous pursuit of their business or profession.

"(5) The property is not used by the owner or members thereof for fraternal or lodge purposes, or for social club purposes except where such use is clearly incidental to a primary religious, hospital, scientific, or charitable purpose.

"(6) The property is irrevocably dedicated to religious, charitable, scientific, or hospital purposes and upon the liquidation, dissolution or abandonment of the owner will not inure to the benefit of any private person except a fund, foundation or corporation organized and operated for religious, hospital, scientific, or charitable purposes....

"The exemption provided for herein shall be known as the 'welfare exemption.' "

[8 Cal.App.4th 218] Our concern centers on section 214, subdivision (a)(1) (hereafter, section 214(a)(1)). ¹

County denied Rideout's applications for the welfare exemption for the tax years 1986-1987 and 1987-1988. Rideout paid the taxes under protest and applied for a refund. After County denied the refund, Rideout sued County.

County contends that Rideout had excess revenues, under section 214, of 24 and 21 percent for the two years in question. Rideout concedes that its net operating revenues under section 214 exceeded ten percent in each of those two years.

In summary judgment proceedings, the parties narrowed the issues to the single issue stated above and the trial court ruled in favor of Rideout. County argues that Rideout is automatically ineligible for the welfare exemption for the years in question because its net revenues exceeded the ten percent limitation of section 214(a)(1). Rideout counters that the ten percent provision constitutes a "safe harbor" for nonprofit hospitals by which the hospital can be deemed to satisfy section 214(a)(1), but that a nonprofit hospital with revenues over ten percent can still meet the condition of section 214(a)(1) by showing, pursuant to the general rule, that it is not organized or operated for profit. We conclude that Rideout's position is essentially correct.

DISCUSSION

The issue in this case presents a question of law that we consider independently. (See Rudd v. California Casualty Gen. Ins. Co. (1990) 219 Cal.App.3d 948, 951-952, 268 Cal.Rptr. 624; Burke Concrete Accessories, Inc. v. Superior Court (1970) 8 Cal.App.3d 773, 774-775, 87 Cal.Rptr. 619.)

All property in California is subject to taxation unless exempted under federal or California law. (Cal. Const., art. XIII, § 1; Rev. & Tax.Code, § 201; all further references to undesignated sections are to the Revenue and Taxation Code unless otherwise specified.) The constitutional basis for the "welfare exemption" was added to the California Constitution in 1944; as revised nonsubstantively in 1974, it now provides: "The Legislature may exempt from property taxation in whole or in part: [p] ... Property used exclusively for religious, hospital, or charitable purposes and owned or held in trust by corporations or other entities (1) that are organized and operating for those purposes, (2) that are nonprofit, and (3) no part of whose net earnings inures to the benefit of any private shareholder or individual." (Cal. Const., art. XIII, § 4, subd. (b); formerly art. XIII, § 1c.) The rationale for the welfare exemption is that the exempt property is being used either to provide a government-like service or to accomplish some desired social objective. (Ehrman & Flavin, Taxing Calif.Prop. (3d ed. 1989) Exempt Property, § 6.05, p. 9.)

Pursuant to this constitutional authorization, the Legislature in 1945 enacted section 214 and labeled that exemption the "welfare exemption." In this appeal, we are asked to interpret subdivision (a)(1) of section 214.

Certain general principles guide our interpretation. "Our function is to ascertain the intent of the Legislature so as to effectuate the purpose of the law. (California Teachers Assn. v. San Diego Community College Dist. (1981) 28 Cal.3d 692, 698 [170 Cal.Rptr. 817, 621 P.2d 856].) To ascertain such intent, courts turn first to the words of the statute itself (ibid.), and seek to give the words employed by the Legislature their usual and ordinary meaning. (Lungren v. Deukmejian (1988) 45 Cal.3d 727, 735 [248 Cal.Rptr. 115, 755 P.2d 299].) When interpreting statutory language, we may neither insert language which has been omitted nor ignore language which has been inserted. (Code Civ.Proc., § 1858.) The language must be construed in the context of the statutory framework as a whole, keeping in mind the policies and purposes of the statute (West Pico Furniture Co. v. Pacific Finance Loans (1970) 2 Cal.3d 594, 608 [86 Cal.Rptr. 793, 469 P.2d 665] ), and where possible the language should be read so as to conform to the spirit of the enactment. (Lungren v. Deukmejian, supra, 45 Cal.3d at p. 735 [248 Cal.Rptr. 115, 755 P.2d 299].)" (Rudd v. California Casualty Gen. Ins. Co., supra, 219 Cal.App.3d at p. 952, 268 Cal.Rptr. 624.) If the statute is ambiguous or uncertain, courts employ various rules of construction to assist in the interpretation. (See 58 Cal.Jur.3d, Statutes, §§ 82-118, [8 Cal.App.4th 220] pp. 430-508.) Finally, "[t]he welfare exemption, like all tax exemption statutes, is to be strictly construed to the end that the exemption allowed is not extended beyond the plain meaning of the language employed. However, the rule of strict construction does not mean that the narrowest possible interpretation be given; ' "strict construction must still be a reasonable construction." ' (Cedars of Lebanon Hosp. v. County of L.A. (1950) 35 Cal.2d 729, 734-735 [221 P.2d 31, 15 A.L.R.2d 1045]; English v. County of Alameda (1977) 70 Cal.App.3d 226, 234 .)" (Peninsula Covenant Church v. County of San Mateo (1979) 94 Cal.App.3d 382, 392, 156 Cal.Rptr. 431.)

We therefore first consider the language of section 214(a)(1), which stated at the relevant times herein: "(a) Property used exclusively for religious, hospital, scientific, or charitable purposes owned and operated by community chests, funds, foundations or corporations organized and operated for religious, hospital, scientific, or charitable purposes is exempt from taxation if: [p] (1) The owner is not organized or operated for profit; provided, that in the case of hospitals, such organization shall not be deemed to be organized or operated for profit, if during the immediate preceding fiscal year the excess of operating revenues, exclusive of gifts, endowments and grants-in-aid, over operating expenses shall not have exceeded a sum equivalent to 10 percent of such operating expenses. As used herein, operating expenses shall include depreciation based on cost of replacement and amortization of, and interest on, indebtedness." (See footnote 1, ante.)

As we immediately see, the proviso presents somewhat of a "knotty" problem, being cast as a double negative--if revenues did not exceed ten percent, the hospital shall not be deemed to be organized or operated for profit. ² Under the language of section 214(a)(1), the Legislature did not automatically exclude nonprofit hospitals earning more than ten percent surplus revenues from the welfare exemption. The proviso does not address this situation on its face; it concerns only the hospital earning ten percent or under. In...