South Iowa Methodist Homes, Inc. v. Board of Review of City of Des Moines, 53612

• Decision Date: 13 January 1970
• Docket Number: No. 53612,53612
• Citation: 173 N.W.2d 526
• Parties: SOUTH IOWA METHODIST HOMES, INC., Appellant, v. BOARD OF REVIEW OF the CITY OF DES MOINES, Appellee.
• Court: Iowa Supreme Court

Page 526

173 N.W.2d 526

SOUTH IOWA METHODIST HOMES, INC., Appellant, v. BOARD OF REVIEW OF the CITY OF DES MOINES, Appellee.

No. 53612.

Supreme Court of Iowa.

Jan. 13, 1970.

Rehearing Denied March 9, 1970.

Dickinson, Throckmorton, Parker, Mannheimer & Raife, by John R. Mackaman, Des Moines, for appellant.

Herrick, Langdon, Belin & Harris, by Jeffrey E. Lamson, Des Moines, for appellee.

SNELL, Justice.

This is a church-related retirement home property tax case. It is a de novo appeal from the decision of the trial court, sitting in equity, which in effect affirmed the decision of the defendant Board of Review in placing plaintiff's property, known as Wesley Acres, on the tax rolls as of January 1, 1967.

The issues before the trial court were:

1. Is the plaintiff a charitable, religious and benevolent institution within the meaning of section 427.1(9), Code of Iowa 1966, and is its real property, known as 'Wesley Acres', and the personal property used by it being used for its appropriate objects, and 2. Was plaintiff deprived of equal protection of the laws by the action of the defendant Board of Review.

The trial court filed findings, ruling and order which had the effect of sustaining the action of the defendant Board.

The issues on appeal are the same as those before the trial court.

Except for a difference of opinion as to allocation of assets to different funds there is little dispute as to the facts.

Plaintiff was originally organized in 1947, under the name of 'Wesley Acres', pursuant to the provisions of chapter 504 of the Code as a corporation not for pecuniary profit. It was existing under the provisions of that chapter on January 1, 1967. Its property had been exempt from about 1948 until the defendant's clerk, the city assessor, denied its claim for exemption in 1967.

In May of 1967, plaintiff voluntarily elected to adopt the Iowa Nonprofit Corporation Act, chapter 504A of the Code. Restated Articles of Incorporation with concurrent amendments were adopted and filed.

Plaintiff was organized at the instigation of the South Iowa Annual Conference of the Methodist Church, then known as the Iowa Des Moines Annual Conference of the Methodist Church. That body originally purchased the property which is the subject matter of this action. It has always operated under the discipline of the Methodist Church. The Methodist Church in 1946 had purchased the former Chamberlain residence on Grand Avenue in Des Moines, which was then conveyed to plaintiff in 1948 after plaintiff's organization. The trustees (now directors) of plaintiff have always included the resident Bishop of the Methodist Church and other church officials, and laymen elected by the Conference of the Methodist Church.

The Methodist Church has committed its credit to the repayment of mortgage used to finance an addition to the plaintiff's property.

The Methodist Church, both its Conference and individual churches, has always supported the plaintiff financially. The property was originally purchased with church funds at a cost of $52,500. In addition to plaintiff's receiving a part of the South Iowa Annual Conference dollar, which in the year ending April 30, 1968, amounted to $5,500, the plaintiff has received quite substantial contributions for its building fund from the South Iowa Annual Conference. In the year ended April 30, 1967, it received $57,313 from that source, and in the year ended April 30, 1968, it received $69,227.98 from that source. These funds come from individuals among the 300,000 Methodists. The Annual Conference votes on how the money will be divided, and it allocated to the plaintiff a total of $500,000 over a ten year period for capital expansion to be used by plaintiff to add a convalescent wing.

The general manager of plaintiff is an ordained minister in the Methodist Church. He was assigned to that position by the Bishop of the Methodist Church. The general manager of plaintiff considers his assignment as general manager as a part of his ministry. The Methodist Church likewise considers his work part of the ministry.

There is a chapel at Wesley Acres. Regular chapel services are held each Wednesday afternoon and are often conducted by guest preachers. The sacraments of the church are administered regularly, there are Sunday School classes, and there are regular mealtime devotions.

Plaintiff is subject to the discipline of the Methodist Church, a book of Church Government, and would be denied the use of the name Methodist if it violated that discipline. Being a Methodist is not a condition of residency at Wesley Acres. More than 59% Of the members have not been Methodists.

The Wesley Acres property consists of the original Tudor type mansion, not now used for residence, a two-story addition constructed in 1954, containing 16 residence rooms and the 1960 addition which is a four-story building with a full basement, containing 85 rooms for residents, and infirmary space for 20 people, a kitchen, dining room, chapel, lounge and basement recreational area. Plaintiff had intended to use the capital fund allocation from the Methodist Church, with other funds, to add a convalescent wing to accommodate 50 to 60 people. FHA had indicated mortgage money would be available to help with that project. That project was shelved when the tax question arose.

Plaintiff provides the services of a house physician. Plaintiff also provides drugs and medicines for its residents which are likewise paid for by it.

No application for membership has ever been turned down because of financial reasons. It has always been plaintiff's policy to admit not less than 10% Of its residents without a room gift. Through December of 1966, 17% Of its residents had paid no room gift, and an additional 11% Had paid only a partial room gift. Plaintiff has never denied continued residency to an old age recipient.

Those who cannot pay the current monthly charges are subsidized through the Good Samaritan Fund which consist of deceased members' prepaid care and contributions.

Plaintiff enjoys the services of a Guild with an active membership of about 150 women. The Guild assists the residents in finding satisfaction in group living and in community activities. It has helped the members with various community projects, such as sacks for Good Will Industries, envelopes for March of Dimes and Easter Seals, bandages for a hospital in Rhodesia, Except for voluntary, nonpaid help, plaintiff's operating loss would be very large.

The Iowa Home for Sightless formerly operated a home for blind ladies. It was 'a fire trap.' In 1960 the Home was merged with plaintiff. The blind residents were moved to remodeled quarters in plaintiff's home. Plaintiff assumed the assets and labilities including liability for caring for the residents.

Prior to 1960 the Home for the Aged operated a facility for the elderly. It was merged with plaintiff and the residents moved to Wesley Acres. None has paid any of his own funds to plaintiff. The assets of the corporation were transferred to plaintiff.

According to the plaintiff's books, there is a deficit as a result of the Home for the Aged amalgamation. The computation of that deficit does not consider possibility of realizing funds from the sale of Trust property, or the possibility of the Home for the Aged being the beneficiary under ambulatory wills.

By using different assumptions and bookkeeping allocations defendant estimates an ultimate gain.

There was an excess of expenses over income for the years ended April 30, 1968, in the amount of $8,941.22, and a similar excess of expense over income in the year ended April 30, 1967, in the amount of $19,441.00. This is computed by including as income all payments, including room gifts, from members. The deficit is made up by contributions. Again by using different allocation of receipts defendant challenges the assumption of an operating loss. No officers or committees are paid for any service, and no excess of income over expenses is distributed to any person at all.

Plaintiff's income is exempt from Federal income tax under section 501(c)(3) of the Internal Revenue Code and consequently is exempt from the State income tax. It is listed as an organization to which contributions are deductible under section 170(c) of the Internal Revenue Code. It is recognized as an organization to which bequests are exempt from the Iowa Inheritance Tax by the State Department of Revenue.

The assessed valuation of the property for the year 1967 was.$348,330 which, at the 1967 millage rate would produce taxes of $43,525.58. The assessed valuation of the personal property was $19,500, which would produce at the 1967 millage rate of taxes $2,434.62, or total taxes of $45,962.20. Assuming 127 residents, that would amount to $361.91 per year per resident, or $30.16 per month per resident.

Applicants for membership at Wesley Acres are expected to fill out a preliminary application form. No independent effort is made to verify financial information given; it is needed to determine whether or not the person will be able to himself take care of his financial needs. Applications are accepted even though the financial statement is null. They are accepted by superintendents. They are acted upon by the Management Committee, and eventually the Executive Committee of the Board of Trustees. Criteria used in determining acceptability include personality traits, character, needs of the applicant, possible conditions of senility, and chronic illness. The only physical qualification for membership is reasonably good health and being ambulatory.

A regular infirmary is maintained for residents who develop a need for such care. The patient census is about 27. However, Wesley Acres is a retirement home as distinguished from a nursing home.

Once admitted, people are taken care of as long as they live with the exception of mental breakdowns which seldom occur. No person has even been dismissed because...