South Dakota State Medical Ass'n v. Jones

• Decision Date: 25 November 1966
• Docket Number: No. 10257,10257
• Parties: SOUTH DAKOTA STATE MEDICAL ASSOCIATION, Plaintiff and Respondent, v. Lloyd L. W. JONES, Clifford J. Hansen, George R. Barnett, Bert T. Yeager, Nils Aspaas, as members of the Board of County Commissioners of Minnehaha County, South Dakota, and Minnehaha County, South Dakota, Defendants and Appellants.
• Court: South Dakota Supreme Court

Page 725

146 N.W.2d 725

82 S.D. 374

SOUTH DAKOTA STATE MEDICAL ASSOCIATION, Plaintiff and Respondent, v. Lloyd L. W. JONES, Clifford J. Hansen, George R. Barnett Bert T. Yeager, Nils Aspaas, as members of the Board of County Commissioners of Minnehaha County, South Dakota, and Minnehaha County, South Dakota, Defendants and Appellants.

No. 10257.

Supreme Court of South Dakota.

Nov. 25, 1966.

Roger A. Schiager, John P. McQuillen, Sioux Falls, for defendants and appellants.

Zimmer & Connelly, Parker, for plaintiff and respondent.

ROBERTS, Judge.

The South Dakota State Medical Association, hereafter called the association, claiming to be a benevolent organization made application to the board of commissioners of Minnehaha County for the abatement of taxes for the year 1960 and subsequent years on real property described as Lots 11 and 12 of Block 52, Airport Addition to the City of Sioux Falls, upon which there is an office building. The association appealed to the circuit court from the decision of the board denying its application. After hearing evidence the court found that a proportionate part of the real property, consisting of the lots and building, was exempt from taxation. The judgment decreed that the taxes for the years in question be abated except the amounts found payable on proportionate value of the part of the property subject to taxation. From the judgment, defendants have appealed.

The question presented is whether respondent association comes within the exempting provisions of SDC 57.0311: 'All property described in this section to the extent herein limited shall be exempt from taxation: * * * (3) All property belonging to any charitable, benevolent, or religious society and used exclusively for charitable, benevolent, or religious purposes. * * * The term benevolent society as used herein shall include all lodges, patriotic organizations, memorail associations, educational associations, cemetery associations, and similar instituions, operating without profit and devoting their resources to the promotion of virtue by charitable, educational, ritualistic, ceremonial, literary or other similar methods, or by any or all of such methods. * * * (b) If the property above referred to, other than farm lands, shall be occupied partly by a charitable, benevolent, or religious society, and the remaining part is occupied, rented, or used for purposes other than the object for which such society or institution was primarily organized, such portion of property as is so occupied, rented, or used for other than the purposes for which the society or institution owning the same or having the exclusive use of the same was organized, shall be taxed as other property of the same class is taxed, in the proportion as the value of such part shall bear to the entire property'.

The articles of incorporation of the association state that its objects and purposes are 'to advance the medical and collateral sciences and to assist in acquiring a knowledge of the same; to work for the benefit of community health and welfare; to bring together the physicians of this state into one organization and unite with similar organizations to form the American Medical Association; to elevate the standards of medical education; to assist in establishing high standards of medical care in all public programs and to advise persons or agencies in the administration of such programs; and to lease, hold, purchase, buy or sell such property, real, personal, or mixed, as may be necessary or reasonably incidental to the conduct of its business, its purposes and objects; and to acquire such property or any part of it by gift, devise, or purchase.' The articles also provide: 'In the event this Corporation shall be dissolved, voluntarily or involuntarily, all of the corporate assets of this Corporation, wherever situated and of whatsoever character, remaining after the payment of all of its obligations, in the manner provided by law, shall be paid or conveyed to the School of Medicine of the University of South Dakota and in the event such School of Medicine is unable or unwilling to accept, said assets shall be distributed to the State of South Dakota to be used for the betterment of public health.'

Respondent association is a nonprofit corporation having no stockholders. Members of the association are doctors of medicine licensed in this state. It appears to be conceded that the association was incorporated under the provisions of SDC 11.14 providing for the organization of benevolent corporations. In Dakota Lodge No. 1, I.O.O.F. v. Yankton County, 56 S.D. 234, 228 N.W. 238, cited by respondent, it was held that the meaning of 'benevolent' as used in the statute relative to incorporation of benevolent societies had controlling effect as to its meaning in a statute providing for exemption of benevolent societies from taxation. It is to be observed that the plaintiff lodge in that case was specifically included with other named societies in the incorporating statute. The statute there considered exempted from taxation all property 'belonging to any * * * benevolent * * * society, or used exclusively for * * * benevolent * * * purposes.' Subd. 3 of Sec. 6670, R. Code 1919, as amended by Ch. 106, Laws 1919. The right to exemption was alternatively stated. Use became immaterial if property belonged to a benevolent society. The 1929 legislature amended this statute by Ch. 243, Laws 1929, which became a part of Section 57.0311, supra. Under its language a property owning organization is not entitled to exemption solely on the basis of ownership. The property itself must also be 'used exclusively for charitable, benevolent, or religious purposes.'

In South Dakota Sigma Chapter House Ass'n v. Clay County, 65 S.D. 559, 276 N.W. 258, this court had before it the question whether or not plaintiff association incorporated for the purpose of acquiring lots and erecting and furnishing a house thereon for use as a residence by members of a university fraternity was entitled to exemption of the property from taxation and held that it was not. It was the conclusion of this court that an organization properly incorporated as a charitable or benevolent society must be denied tax exemption if from its activities it appears that the property is not devoted to charitable or benevolent purposes. The fact then that respondent association was not organized for profit and that in the event of dissolution the corporate assets will not inure to any prohibited person is not of controlling importance.

The respondent argues, and the trial court held, that the activities of the association result in more or less direct benefits to the public, such as providing medical scholarships, assistance to medical students, distribution of public health literature, assistance to the South Dakota Board of Medical Examiners, a physician placement service, maintenance of a medical grievance committee, and assistance in the establishment and operation of clinics free to the public.

The South Dakota Medical Service, Inc., South Dakota Nurses Association, the State Board of Medical and Osteopathic Examiners and the National Polio Foundation rent and occupy offices in the building of the respondent. The South Dakota Medical Service, Inc. is a corporation organized under the Medical and Surgical Plan law, SDC 1960 Supp. 31.17B. A corporation organized under this act is therein declared to be subject to taxation. It enters into contracts with subscribers to furnish prepaid medical and surgical services in the nature of insurance. This so-called Blue Shield pays claims to members of the association for medical services rendered to subscribers. The court found that the other tenants are either benevolent organizations or agencies of government and that their operations are compatible with the purposes and objectives of the respondent association. It was held that the proportionate value of the part of the building leased to the South Dakota Medical Service, Inc. is subject to taxation. The remaining part of the building, including space occupied by the association, was found to be exempt from taxation.

The association renders a service to its members under agreements negotiated with federal and state agencies in providing medical care for veterans and dependents of persons in military service and recipients of old age assistance.

The annual reports of the transactions of the association and annual audits of its books and records for the years 1947 to 1963 were received in evidence. As of April 30, 1962, a year covered by the taxes in question, receipts totaled $134,520.59 and disbursements $135,370.29. ¹ Fiscal programs sponsored by the association are not therein included. These operations are referred to in the annual report of the executive secretary for the same year as follows: 'BLUE SHIELD During the past twelve months, we have seen a continued gain in the size and statute of our Blue Shield program. A year ago we had 14,966 subscribers; on April 30, 1962, we had approximately 18,000. Total persons in the state covered by Blue Shield is now in excess of 60,000. Our annual earned income rose from $435,000.00 to $655,368.68. During the year, we paid medical and surgical claims totaling $530,759.54. OLD AGE ASSISTANCE MEDICAL CARE This program was started August 1st, administered through the Association and Blue Shield office. As in any new programs, there have been numerous 'bugs' to iron out. However, the major problems have been or are being solved. The program brought in $187,222.08 in payments for services rendered during the first nine months. Of this amount, $11,621.46 was retained in the office for administrative purposes. MEDICARE The Medical Care Program for dependents of military personnel held fairly constant during the year. In 1960--1961 the program totaled $54,990.00, this year $53,581.57. Administrative costs were reduced from 6% To 5.6%.'

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