Supervisor of Assessments of Montgomery County v. Group Health Ass'n, Inc.

• Decision Date: 28 November 1986
• Docket Number: No. 99,99
• Citation: 517 A.2d 1076,308 Md. 151
• Parties: SUPERVISOR OF ASSESSMENTS OF MONTGOMERY COUNTY v. GROUP HEALTH ASSOCIATION, INC. Sept. Term 1985.
• Court: Maryland Court of Appeals

Page 151

308 Md. 151

517 A.2d 1076

SUPERVISOR OF ASSESSMENTS OF MONTGOMERY COUNTY v. GROUP HEALTH ASSOCIATION, INC.

No. 99 Sept. Term 1985.

Court of Appeals of Maryland.

Nov. 28, 1986.

Diana G. Motz, Asst. Atty. Gen. (Stephen H. Sachs, Atty. Gen., Jane E. Pilliod, Asst. Atty. Gen. and Andrew H. Baida, Sp. Asst. Atty. Gen., on the brief), Baltimore, for appellant.

R. Kenly Webster (Martin D. Krall, P.C., Pamela H. Anderson and Shaw, Pittman, Potts & Trowbridge, on the brief), Washington, D.C., for appellee.

Argued before SMITH, ^* ELDRIDGE, COLE, RODOWSKY, COUCH, McAULIFFE, JJ., and CHARLES E. ORTH, Jr., Associate Judge of the Court of Appeals (retired), specially assigned.

COLE, Judge.

The question we must decide in this case is whether a nonprofit health maintenance organization (HMO), which operates primarily to provide health care services to its prepaid members, is a "charitable organization" for purposes of the property tax exemption provided by Maryland Code (1957, 1980 Repl.Vol.), Art. 81, § 9(e)(2).

We summarize the salient facts as follows. Appellee, Group Health Association, Inc. (GHA), is a nonprofit HMO and is exempt from federal income tax under § 501(c)(3) of the Internal Revenue Code. GHA operates seven health centers in the Washington, D.C., metropolitan area. Each of these centers provides health services to GHA members on a prepaid basis, primarily through physicians who are employed directly by GHA. An individual may join GHA either through a group employment plan or on an individual basis. Under a group employment plan, an employer offers the option of joining GHA to its employees as part of a health benefits package. If an employee chooses to join GHA, the cost of his membership is paid through a series of payroll deductions. Approximately ninety percent of GHA's total membership have joined through this type of group plan. Unlike group applicants, a person applying for membership on an individual basis may be denied if he has certain preexisting medical conditions. ¹

In 1983, the cost of membership ranged from $66.00 per month to $218.80 per month, depending on the type of coverage provided. GHA maintains a Special Assistance Fund that is used to help GHA members who cannot afford to continue paying membership costs because of some unusual financial difficulty. ² This fund, however, is not available to aid nonmembers in paying the initial cost of membership.

Besides general health care services, GHA also engages in other activities. GHA conducts educational programs on various health topics, which are open to members and nonmembers. The registration information for these programs indicates, however, that GHA members have a preference if space is limited. GHA advertises its programs by posting brochures in its facilities. GHA also participates in internship programs with area medical schools as well as operates a Minor Injury Unit in downtown Washington, D.C., which provides treatment to both members and nonmembers.

For the 1983-84 tax year, GHA sought a property tax exemption for its Rockville facility pursuant to Maryland Code (1957, 1980 Repl.Vol.), Art. 81, § 9(e)(2). ³ Appellant, the Supervisor of Assessments of Montgomery County (Supervisor), denied the exemption to GHA. The Property Tax Assessment Appeals Board for Montgomery County affirmed the denial of the exemption. A hearing was then conducted on October 17, 1984, by the Maryland Tax Court.

At the proceedings before the Tax Court, both parties put on witnesses and introduced documentary evidence. GHA asserted that it was a charitable organization and sought to show this by proving the following: (1) it provides health care to 50,000-60,000 Maryland residents; (2) it provides individuals and employees with a means to obtain comprehensive health care while simultaneously curbing costs; (3) it benefits all Maryland residents by exerting substantial downward pressure on the costs of health care; and (4) it benefits Maryland residents through its various professional, educational, and emergency programs. The Supervisor attempted to prove that GHA is merely a cooperative organization providing services to its members. The Supervisor maintained that GHA is supported almost exclusively by membership charges, not donations, and that GHA does not benefit any nonmembers, even those who are indigent or infirm.

In rendering its decision, the Tax Court began by reviewing the applicable statute, Art. 81, § 9(e)(2). That section grants an exemption from real property taxation to property owned by any nonprofit charitable, benevolent, or educational organizations, when such property is actually used for and is necessary for charitable, benevolent, or educational purposes. The court also recognized that Maryland law requires these exemptions to be strictly construed. Before the Tax Court set forth its findings of fact, it noted that the "facts are really not in dispute." First, the court found that GHA's purpose is "to provide medical care for a reasonable price, ... more or less it's a prepaid medical care facility." The court then found that GHA provides some educational services to its members, but that "from a factual standpoint ... the primary purpose of this organization is to provide high quality medical care, and I emphasize high quality, to its members for a fee." (Emphasis added). Further, the court declared:

The charitable and educational aspect and benevolent aspects of Group Health Association's activities, the Court finds are only incidental to its main function, and that is to provide high quality medical care.

This Court does not intend to in any way minimize the value of the organization, in its attempt to help the public welfare, in very general terms. But we think that the benefit to the general public is certainly secondary to the benefit afforded to its members and its doctors and its employees.

The Tax Court pointed out that GHA's exemption from federal income taxation is not determinative in this case and is, instead, merely another factor to consider. After expressing its doubt as to whether the legislature intended to afford GHA relief from real property taxes, the Tax Court concluded that GHA is not a charitable organization and thus not entitled to an exemption from real property taxation.

The Tax Court's decision was appealed and reversed by the Circuit Court for Montgomery County. The circuit court noted the absence of any real factual dispute between the parties and ruled that the issue to be decided was solely a question of law. The Supervisor filed a notice of appeal from the circuit court's decision in the Court of Special Appeals and also filed a petition for a writ of certiorari in this Court. We granted certiorari before the intermediate appellate court reviewed the case.

Both parties maintain, and we agree, that judicial review of decisions of the Maryland Tax Court is severely limited. Maryland Code (1957, 1980 Repl.Vol., 1986 Cum.Supp.), Art. 81, § 229(o ), provides that on appeal "[t]he circuit court shall affirm the Tax Court order if it is not erroneous as a matter of law and if it is supported by substantial evidence appearing in the record." When this Court reviews a Tax Court decision, the narrow scope of review set forth in § 229(o ) is equally applicable. See, e.g., Ramsay, Scarlett & Co. v. Comptroller, 302 Md. 825, 834, 490 A.2d 1296, 1303 (1985); Comptroller v. Haskin, 298 Md. 681, 689-90, 472 A.2d 70, 76-77 (1984); Comptroller v. Diebold, Inc., 279 Md. 401, 407, 369 A.2d 77, 81 (1977).

GHA maintains that the Tax Court construed the term charitable incorrectly and thus erred as a matter of law. GHA also maintains that because the facts are undisputed, the determination of its charitable status is a question of law. The Supervisor responds by arguing that the Tax Court applied the correct legal standard and that the determination of an organization's charitable status is a question of fact notwithstanding the lack of disputed facts. We agree with the Supervisor and explain.

The Tax Court did not make an error of law. The court reviewed § 9(e)(2) and recognized that the section provides a tax exemption from real property that is (1) owned by a charitable, benevolent, or educational organization and (2) actually used and necessary for the charitable, benevolent, or educational purposes. We do not at this time attempt to establish a hard-and-fast rule as to the meaning of "charitable" for purposes of § 9(e)(2). Indeed, we doubt whether such a rule can be formulated. See, e.g., Evangelical Retirement Homes v. State Tax Commission, 669 S.W.2d 548 (Mo.1984); Appeal of Sunny Ridge Manor, Inc., 106 Idaho 98, 675 P.2d 813 (1984); In re Doctor's Hospital, 51 Pa.Commw. 31, 414 A.2d 134 (1980). Clearly, however, a determination of whether an institution is charitable must include a careful examination of the stated purposes of the organization, the actual work performed, the extent to which the work performed benefits the community and the public welfare in general, and the support provided by donations. See, e.g., Appeal of Sunny Ridge Manor, Inc., supra, 106 Idaho at 100, 675 P.2d at 815; Harvard Community Health Plan, Inc. v. Board of Assessors, 384 Mass. 536, 540-44, 427 N.E.2d 1159, 1162-64 (1981); Massachusetts Medical Society v. Assessors of Boston, 340 Mass. 327, 332-33, 164 N.E.2d 325, 328-29 (1960). The Tax Court considered all of these factors, and we think the Tax Court understood the law and applied it correctly to the facts.

We must next determine whether the Tax court's factual finding is supported. We have recently rejected the contention that the absence of a factual dispute between the parties necessarily requires resolution of the case as a matter of law. In Board of Education v. Paynter, 303 Md. 22, 491 A.2d 1186 (1985), § 6(a) of the Maryland Unemployment Insurance Law was at issue. That section provides that an individual is disqualified for all benefits...