Supervisor of Assessments of Montgomery County v. Asbury Methodist Home, Inc.

• Citation: 313 Md. 614,547 A.2d 190
• Decision Date: 01 September 1987
• Docket Number: No. 155,155
• Parties: SUPERVISOR OF ASSESSMENTS OF MONTGOMERY COUNTY v. ASBURY METHODIST HOME, INC. ,
• Court: Court of Appeals of Maryland

Page 614

313 Md. 614

547 A.2d 190

SUPERVISOR OF ASSESSMENTS OF MONTGOMERY COUNTY v. ASBURY METHODIST HOME, INC.

No. 155, Sept. Term, 1987.

Court of Appeals of Maryland.

Sept. 16, 1988.

Motion for Reconsideration Denied Oct. 31, 1988.

Kaye Brooks Bushel, Asst. Atty. Gen. (J. Joseph Curran, Jr., Atty. Gen., Jane E. Pilliod, Asst. Atty. Gen., all on brief), Baltimore, for appellant.

James L. Thompson and Joseph V. Truhe, Jr. (Miller, Miller & Canby, all on brief), Rockville, for appellee.

Argued before MURPHY, C.J., ELDRIDGE, COLE, RODOWSKY, McAULIFFE, ADKINS, JJ., and MARVIN H. SMITH, Associate Judge of the Court of Appeals of Maryland (retired) Specially Assigned.

MURPHY, Chief Judge.

The issues in this case arise from a Maryland Tax Court decision denying exemption from property tax for the 1983-84 tax year to three apartment buildings for elderly residents, which were owned and operated by a nonprofit, charitable corporation.

I

The record before us discloses that, in 1926, the Baltimore Conference of the Methodist Episcopal Church South built a home for the Conference's elders in Gaithersburg, Maryland. The home, known as the Asbury Methodist Home, opened its doors to five residents, grew quickly to its initial capacity of 70 residents, and after renovation and expansion in the 1950s reached a capacity of 175 residents. By this time the home had been incorporated as the Asbury Methodist Home, Inc. (the Corporation), a nonprofit organization dedicated, according to its articles of incorporation, exclusively to the charitable purposes of providing homes for aged members of the Conference and such other members of society as space would permit. In the 1970s the Corporation began to build other facilities, in addition to the home, on the 128 acres of land it owned in Gaithersburg, as it expanded into what is now known as the Asbury Methodist Village. The first wing of a health center was erected in the mid-1970s; the second half of the center was completed in 1981. Three buildings, known as the Asbury Apartments, were erected in 1972, 1977, and 1980. Thus, as of the end of 1982, the Asbury Village campus comprised three basic facilities: the home, which, providing domiciliary care only, housed approximately 175 residents in older style single room accommodations with shared baths; the health center, a 279 bed facility providing comprehensive and modern nursing care; and the three modern eight story apartment buildings, containing 393 apartment units, which altogether housed approximately 500 residents. Applicants to the home and health center, but not to the apartments, were eligible for admission regardless of ability to pay. ¹

Until 1983, the Asbury Apartments, along with the home and the health center, enjoyed a real property tax exemption under Maryland Code (1957, 1980 Repl.Vol.) Art. 81, § 9(a) and (e). ² These subsections provided, in pertinent part:

"(a) ... The following real and tangible personal property are exempt from assessment and from State, county, and city ordinary taxation, except as otherwise stated, which exemptions shall be strictly construed:

....

(e) ... Property owned by ... (2) any nonprofit charitable, fraternal or sororal, benevolent, educational, or literary institutions or organizations when ... actually used exclusively for and necessary for charitable, benevolent, or educational purposes (including athletic programs and activities of an educational institution) in the promotion of the general public welfare of the people of the State."

In early 1983 the State Department of Assessments and Taxation (SDAT), as part of a review of the taxation of all nonprofit nursing home facilities in Maryland, examined the Asbury Apartments' tax exempt status. Reasoning that the Corporation needed to justify the exemption for the apartments separately and not by reference to the home and health care facilities, and that the apartments when viewed separately did not meet the statutory requirements for exemption, SDAT concluded that the apartments should be taxable. ³ The Supervisor of Assessments of Montgomery County, the appellant in this case, was directed to assess property tax on the apartments beginning July 1, 1983.

The Corporation appealed the assessment to the Property Tax Assessment Appeals Board for Montgomery County, which reversed. The Supervisor then appealed to the Maryland Tax Court. That agency in August 1984 conducted an evidentiary hearing. Most of the basic facts concerning the apartments adduced at the hearing were uncontroverted ⁴; they showed that to be eligible for entrance to the apartments, applicants were required to be age 65 or over (a spouse of a qualifying applicant could be as young as 60) and to have letters of recommendation from their pastor, priest, or rabbi. A physical examination was necessary immediately before admission. Admission policy was not to admit those who needed nursing care prior to admission, though apartment residents had priority for admission to the health care center if the need for nursing care arose after they had occupied the apartments. They were, however, expected to pay their own costs at the health center. At the end of 1982 about 8% of the residents at the health center had come from the apartments; about 17% from the home; and about 75% from the general public.

Financial requirements for admission to the Asbury apartments included an entrance fee, which varied with the size of the apartment, and a monthly maintenance charge. Entrance fees in 1982 ranged from $21,000 for a single studio apartment to $43,800 for a large two bedroom apartment. In 1982, the monthly charge, which covered utilities, food service (one meal each day), maintenance of buildings and grounds, and various other operating expenses, ranged from $323 for one person in a small studio apartment to $659 for two persons in a large two bedroom apartment. The monthly charge was calibrated from year to year to equal the total operating costs; consequently, there was neither profit nor loss from the operation of the apartments. The apartments received little support from charitable contributions. ⁵

The contract between the Corporation and the apartment resident contained a "Financial Misfortune" provision, which stated:

"If, through financial misfortune, beyond the control of the Resident, a Resident becomes unable to meet the monthly maintenance charges, health care costs and living costs, then the Corporation agrees to provide for the necessary housing, health care and financial assistance for the Resident at no charge, or partial charge depending upon individual circumstances, so long as the Resident continues to be a resident of the Asbury Methodist Village and the Resident needs this financial assistance, provided such assistance does not impair the ability of the Corporation to operate on a sound financial basis and maintain the facilities for other Residents. The Resident agrees to exhaust all sources of public and private financial assistance as a condition precedent to requesting or being granted financial assistance by the Corporation. During the time that the Resident continues to reside in the Asbury Methodist Village Apartment Community and is unable to meet the full monthly maintenance charge, the Corporation will absorb the difference between the amount of such monthly maintenance charge and the amount paid by the Resident, and will not pass through any resulting deficit to the other apartment Residents. Such continued inability to meet the monthly maintenance charge may cause severe hardship as to the future financial structure of the Apartments, therefore, the Corporation reserves the right, after consultation with the Resident's family, to transfer the Resident to whatever other facility located within Asbury Methodist Village that will best meet the needs and situation of the Resident."

As of 1982, no resident of the apartments had ever invoked the protection of this provision.

Construction of the apartments was financed by a loan, with an interest rate of approximately 6%, from the Corporation's capital fund. This fund had been accumulated over the years from various sources, including donations. The money received by the Corporation as entrance fees to the apartments was first, as an accounting matter, segregated into the apartments' capital fund; from there it was paid to the Corporation's capital fund as debt retirement, becoming available as part of the Corporation's total capital. This total capital was then available for such things as major repairs for all the Corporation's facilities, construction, and for subsidizing deficits from the home and health center, both of which operated at a loss.

In its December 1984 decision the Tax Court said that the question before it was whether the apartments "fall within the category of property owned by a charitable institution which is actually used exclusively for and necessary for charitable ... purposes." It noted that the Corporation's facilities provided continuing care to the aged in three different stages: "(1) nonprofit apartment housing for those who are self-sufficient, (2) intermediate nursing care or domiciliary services and (3) comprehensive care/medical facility." The Tax Court said that the "entrance fees [to the apartments] are used to repay the loan from the Home's capital fund that was used to construct the Apartments, to fund operating deficits at the other two parts, the Home and the Health Care Center, and to subsidize apartment residents who are unable to pay full charges." It concluded that "taking the three-pronged functions of ... [the Corporation's] facilities as an integrated whole," the apartments were tax-exempt under § 9(e) for the 1983-84 tax year.

The Supervisor moved for reconsideration. After hearing argument, the Tax Court in July 1985 issued a new order reversing the Board's decision, thus denying the apartments' exemption. In its memorandum on...