St. Joseph's Living Ctr. v. Town of Windham

• Decision Date: 24 March 2009
• Docket Number: No. 17916.,17916.
• Citation: 290 Conn. 695,966 A.2d 188
• Court: Connecticut Supreme Court
• Parties: ST. JOSEPH'S LIVING CENTER, INC. v. TOWN OF WINDHAM.

966 A.2d 188

290 Conn. 695

ST. JOSEPH'S LIVING CENTER, INC. v. TOWN OF WINDHAM.

No. 17916.

Supreme Court of Connecticut.

Argued September 12, 2008.

Decided March 24, 2009.

Aaron S. Bayer, with whom were Seth L. Huttner, Hartford and, on the brief, Bennett J. Bernblum, New Haven, for the appellant (plaintiff).

Thomas J. Londregan, with whom was Jeffrey T. Londregan, New London, for the appellee (defendant).

Daniel J. Foster, Hartford, filed a brief for the Connecticut Association of Not-for-Profit Providers for the Aging as amicus curiae.

NORCOTT, KATZ, VERTEFEUILLE, ZARELLA and SCHALLER, Js.

ZARELLA, J.

The primary issue raised in this appeal is whether the defendant, the town of Windham (town), properly denied the application of the plaintiff, St. Joseph's Living Center, Inc. (Center), a skilled nursing home facility, for a property tax exemption under General Statutes (Rev. to 2003) § 12-81(7)¹ and General Statutes § 12-88. ² On appeal, the Center claims that the trial court improperly concluded that its property was ineligible for tax-exempt status under § 12-81(7).³ The Center also claims that the trial court improperly relied on irrelevant and clearly erroneous facts in denying its appeal.⁴ Finally, the Center asserts that the trial court improperly concluded that the Center's chapel was not exempt from property tax pursuant to §§ 12-81(13)⁵ and 12-88. The town responds that the trial court correctly determined that the Center's property was not eligible for a tax exemption under § 12-81(7) because the Center does not perform a charitable function and is not organized or operated exclusively for a charitable purpose. The town further contends that the trial court incorrectly determined that the Center is a § 501(c)(3) corporation⁶ under the Internal Revenue Code and that this fact is relevant because it precludes the Center from satisfying the requirements of General Statutes § 12-89a. We agree with the Center that many of the trial court's factual findings are clearly erroneous. We also conclude that the trial court's statement of the law is incomplete, and, as a result, its application of the law to the facts is flawed. Consequently, we reverse in part the judgment of the trial court.

The record reveals the following relevant facts and procedural history.⁷ The Center's nursing home facility was constructed in 1987 on approximately ten acres of cemetery land owned by the Roman Catholic Diocese of Norwich (diocese), which eventually was transferred to the Center via a quitclaim deed. The facility was built with the financial assistance of a for-profit partner pursuant to an agreement granting the Center an option to buy out the partner after five years. Despite the financial partnership, the diocese and the Center maintained complete operational control over the facility. In 1994, the Center exercised its option and bought out the partner by obtaining a $13,385,000 loan financed through the Connecticut Health and Educational Facilities Authority (CHEFA), which raised the funds through a tax-exempt bond issuance. Upon assuming sole ownership of the facility, the Center applied to the town for a property tax exemption. The town tax assessor (assessor) denied the application on the ground that the facility did not provide free care to any of its patients and thus was not used exclusively for a charitable purpose. The assessor also determined that the Center's facility was ineligible under § 12-81(7) because it constituted "long term and permanent housing," which specifically is denied exemption under the statute.⁸

Subsequently, in 2003, the Center reapplied for a property tax exemption for the 2003, 2004 and 2005 tax years, claiming an exemption under § 12-81(7) and (75).⁹ This application again was denied by the assessor, who considered the use of the property not to be entirely charitable.¹⁰ The town's board of assessment appeals denied the Center's appeal from the assessor's decision, and the Center appealed to the Superior Court.

At trial, the Center claimed that its property was exempt from property tax under § 12-81(7), (12)¹¹ and (13). The trial court disagreed, concluding that it was not exempt from property tax because, "although [the Center is] operated efficiently and with the best of intentions, [it] is simply not a charity nor are its uses charitable." After setting out what it deemed to be the applicable legal framework, the trial court found eleven characteristics that distinguished the Center from the organizations that we found to be tax-exempt under § 12-81(7) in Camp Isabella Freedman of Connecticut, Inc. v. Canaan, 147 Conn. 510, 162 A.2d 700 (1960), and Isaiah 61:1, Inc. v. Bridgeport, 270 Conn. 69, 851 A.2d 277 (2004).¹² The Center appealed to the Appellate Court from the trial court's judgment denying the Center's appeal, and we transferred the appeal to this court pursuant to General Statutes § 51-199(c) and Practice Book § 65-1.

We begin our analysis with a brief review of the following additional undisputed facts regarding the organization and operation of the Center. St. Joseph's Living Center, Inc., was organized in 1987 as a nonstock, nonprofit Connecticut corporation exempt from federal income taxes under § 501(c)(3) of the Internal Revenue Code. See footnote 6 of this opinion. The Center operates a 120 bed skilled nursing facility licensed by the state for both long-term chronic care and short-term rehabilitative services. The facility also houses a large chapel that holds a daily mass and is the nucleus of spiritual life at the Center. The Center is affiliated with the diocese and the St. Joseph's Roman Catholic Parish of Willimantic (St. Joseph's Parish). The Bishop of Norwich (bishop) is the Center's chairman and appoints the other three members of the Center's board of directors.

The Center employs approximately 200 individuals in operating the nursing home facility, including an administrator, medical and nursing directors, registered and licensed practical nurses, certified nursing assistants, social workers, physical, speech and occupational therapists, a chaplain, dietary staff, and maintenance and housekeeping personnel. All staff salaries are slightly below market rates. In addition to this paid staff, the Center also maintains an active list of seventy to ninety volunteers who perform various functions including taking the residents to daily mass, running the gift shop, helping with the chapel, accompanying residents on day trips and participating in "vigil teams."¹³ More volunteer services are provided by priests from St. Joseph's Church, who visit the Center regularly to support the spiritual life at the facility.

The Center derives most of its revenue from the health care services that it provides from Medicaid and Medicare reimbursement and payments from private paying patients. Between 2000 and 2005, the Center's census went from 50 percent Medicaid patients, 17 percent Medicare patients and 33 percent private paying patients, to 64 percent Medicaid patients, 17 percent Medicare patients, and 19 percent private paying patients. The substantial and steady increase in the number of Medicaid patients during this period is financially significant, as Medicaid does not fully reimburse the Center for actual patient costs.¹⁴ The Center generally does not provide free care, although there are circumstances in which patients do not pay or there is a period of time during which there is no payment from any source.

The record indicates that the Center received charitable contributions during the period of 2000 to 2005 in the amounts of $41,136, $18,584, $56,563, $33,706, $30,668 and $51,755, respectively. In addition, the Center reported making contributions out of its excess revenue to the diocese and St. Joseph's Church during the period of 2001 to 2005 in the amounts of $42,000, $72,000, $84,000, $84,000 and $63,000, respectively.¹⁵ In addition to the charitable contributions flowing to the Center through annual fundraisers and occasional testamentary gifts, the Center receives material and financial support from the diocese and St. Joseph's Church. The diocese donated the land for the Center's facility, valued at $1.22 million in 1994, in addition to outfitting the chapel and furnishing all of the religious objects adorning the facility.¹⁶ Moreover, the diocese supports the Center financially by reducing its costs for employee health insurance by $120,000 per year.¹⁷ The diocese also provides a rebate to the Center staff for health insurance copayments in the amount of $250 per person, as they are incurred.¹⁸

In accordance with state law, the Center's admission policy does not discriminate between potential patients on the basis of their ability to pay.¹⁹ The record also indicates that the Center has never forced a patient to leave the facility for a failure or inability to pay. Furthermore, the Center does not give any admissions preference to those individuals who are covered by private health insurance or who otherwise are able to pay from private sources. Because there is no way for the Center to control how many Medicaid patients are admitted, it is impossible for it to know with certainty what the Medicaid funding gap will be in any given year. In developing a budget, the facility administrator, therefore, must rely on an estimated patient census based on previous years in order to forecast what revenue might be available for expenses.

The Center pays approximately $950,000 to $1 million annually to service the principal and interest of its mortgage. In addition, the terms of its agreement with CHEFA require the Center to maintain a surplus of revenue over its total expenses that is 25 percent greater than its required mortgage payment (debt service coverage ratio). Pursuant to the CHEFA financing arrangement, this money must be set aside in various trust accounts and cannot be used for operational expenses, except that certain of the...