University of Kansas School of Medicine-Wichita Medical Practice Ass'n from a Decision of Dist. Court of Shawnee County, Kansas, In re

• Decision Date: 05 February 1999
• Docket Number: No. 79,672,MEDICINE--WICHITA,79,672
• Citation: 266 Kan. 737,973 P.2d 176
• Parties: . Supreme Court of Kansas
• Court: Kansas Supreme Court

Page 176

973 P.2d 176

266 Kan. 737

In The Matter of the Appeal of UNIVERSITY OF KANSAS SCHOOL

OF MEDICINE--WICHITA MEDICAL PRACTICE ASSOCIATION

FROM A DECISION OF THE DISTRICT COURT OF

SHAWNEE COUNTY, KANSAS.

No. 79,672

Supreme Court of Kansas.

Feb. 5, 1999.

Syllabus by the Court

1. The Board of Tax Appeals (BOTA) is a state agency, and under K.S.A. 74-2426(c), it is subject to judicial review under the Act for Judicial Review and Civil Enforcement of Agency Actions, K.S.A. 77-601 et seq. In reviewing a decision of BOTA, the appellate court makes the same review as the district court in its review of BOTA's final order.

2. BOTA is a specialized agency that exists to decide taxation issues, and its decisions should be given great weight and deference when it is acting in its area of expertise. However, if the Supreme Court finds that BOTA's interpretation is erroneous as a matter of law, it will take corrective steps.

3. The fundamental rule of statutory construction is that the intent of the legislature, where it can be ascertained, governs, and it is the function of the court to interpret a statute to give it the effect intended by the legislature.

4. In construing statutes, the legislative intention is to be determined from a general consideration of the entire act. Effect must be given, if possible, to the entire act and every part thereof. To this end, it is the duty of the court, as far as practicable, to reconcile the different provisions so as to make them consistent, harmonious, and sensible.

5. When a statute is plain and unambiguous, a court must give effect to the intention of the legislature as expressed rather than determine what the law should or should not be. However, where the face of the statute leaves its construction uncertain, the court may properly look into the historical background of the enactment, the circumstances attending its passage, the purpose to be accomplished, and the effect the statute may have under various constructions suggested.

6. K.S.A. 79-201 Ninth provides a tax exemption for property actually and regularly used by a community service organization for the predominant purpose of providing humanitarian services. In order to qualify for this exemption, the property must be owned and operated by a not-for-profit corporation and meet the following conditions: (a) The directors of the corporation must serve without pay for such services; (b) the corporation must be operated in a manner which does not result in the accrual of distributable profits, realization of private gain resulting from the payment of compensation in excess of a reasonable allowance for salary or other compensation for services rendered, or the realization of any other form of private gain; (c) no officer, director, or member of such corporation may have a pecuniary interest in the property for which exemption is claimed; (d) the corporation must be organized for the purpose of providing humanitarian services; (e) the actual use of the property for which the exemption is claimed must be predominantly related to the purpose of providing humanitarian services, except that an incidental nonexempt use may be made of the property as long as the use is minimal in scope and insubstantial in nature; (f) the corporation must be exempt from federal income taxation under 501(c)(3) of the Internal Revenue Code; and (g) contributions to the corporation must be deductible under the Kansas Income Tax Act.

7. The threshold requirement in K.S.A. 79-201 Ninth that the property claimed as exempt must be owned and operated by a not-for-profit corporation, does not require that the property be owned and operated by the same entity.

8. The requirement in K.S.A. 79-201 Ninth (a) that the directors of the not-for-profit corporation serve without pay for such services, means any payment for the services which they provide as directors; it does not prohibit directors from receiving reasonable compensation for other services which they provide to the corporation.

9. The requirement in K.S.A. 79-201 Ninth (c) prohibiting any officer, director, or member of the corporation from having a pecuniary interest in the property is designed to prevent officers, directors, or members of the corporation claiming an exemption from individually profiting from the tax exempt status of property in which they have a pecuniary interest. It prohibits an actual interest in the property for which exemption is claimed rather than simply an interest in the continued operation of the corporation.

10. The provisions of K.S.A. 79-201 Ninth are examined and applied. We hold that where the property for which exemption is claimed is owned and leased by a corporation fulfilling all requirements of K.S.A. 79-201 Ninth to another separate corporation that operates the property and also fulfills all statutory requirements of K.S.A. 79-201 Ninth, exemption is appropriate where it is established that (1) profit was not a dominant motive in the leasing arrangement, (2) any surplus revenue generated by the lease is substantially and predominantly related to the purpose of providing humanitarian services as defined by K.S.A. 79-201 Ninth, and (3) the property claimed as exempt is actually and regularly used by a community service organization for the predominant purpose of providing humanitarian services.

Richard D. Greene, of Morris, Laing, Evans, Brock & Kennedy, Chtd., of Wichita, argued the cause and was on the brief for appellant University of Kansas School of Medicine--Wichita Medical Practice Association.

Patricia J. Parker, assistant county counselor, argued the cause and was on the brief for appellee Board of County Commissioners of Sedgwick County.

DAVIS, J.:

The issue raised by this appeal is one of first impression involving a claimed property tax exemption under the provisions of K.S.A. 79-201 Ninth. Specifically, the question is whether a not-for-profit corporation which leases property to another not-for-profit corporation for below fair market value, which second not-for-profit corporation then uses the property for predominantly humanitarian purposes, is entitled to exemption where both the owner-lessor and lessee satisfy all the requirements of K.S.A. 79-201 Ninth. Contrary to the decision of Board of Tax Appeals (BOTA) and the district court, we conclude that under the particular facts here, exemption is warranted.

The case presents itself in a rather unusual fashion. Before BOTA, before the district court, and before this court on petition for review, the Sedgwick County Commissioners agreed with the appellant that the property was entitled to tax exemption. In its brief before this court, the county commissioners note:

"when the evidence regarding the use of the subject property is analyzed within the perimeters of K.S.A. 79-201 Ninth, and applicable case law, it appears the Appellant's property is entitled to said exemption. It should be noted that the Courts have not construed K.S.A. 79-201 Ninth's provisions regarding 'substantial and predominant use' and BOTA acknowledged it lacked guidance from the Courts in its effort to define substantial and predominant use. However, it is also noteworthy to consider the Kansas Courts' relaxation of the 'exclusive use' test, and the expanding definition of 'educational use' found in other exemption statutes. See e.g. K.S.A. 79-201 Second, and K.S.A. 79-201b First and Second."

The University of Kansas School of Medicine--Wichita Medical Practice Association (WMPA) is the owner-lessor of the property for which exemption is claimed. It is a Kansas not-for-profit corporation and certified by the Internal Revenue Service (IRS) as a 501(c)(3) charitable organization. Its board of directors consists of doctors who teach medicine at the University of Kansas School of Medicine--Wichita (University). The WMPA is not part of the University. However, the WMPA was set up to further the mission of the University in providing health care, teaching medical students and residents of the University, and providing the faculty of the University the opportunity to maintain their skills while teaching.

The WMPA operates its own primary care clinic upon University property which is open to the public. The clinic provides primary care for approximately 105 patients a day. In addition, the WMPA fosters the creation of other clinics in the Wichita area for primary and preventive care, and aids in the operation of the clinics established. Its articles of incorporation provide in part that the WMPA is to

"engage in the continuous active conduct of medical education, medical research and medical care primarily in space located within the University of Kansas School of Medicine--Wichita in conjunction with and utilizing the facilities of such School of Medicine (including equipment, case studies, etc.) on a continuing basis. The principal purposes or functions of the corporation shall include the instruction and training of students, undergraduate, graduate and enrolled in the University of Kansas School of Medicine--Wichita Medical Practice Association pursuing a course of medical education offered by the University of Kansas, the conduct of investigations, research, experiments and studies to discover, develop or verify knowledge relating to the causes, diagnosis, treatment and the prevention or control of physical or mental diseases and impairments to man and the providing of medical care through its professional staff performing clinical services."

The Wichita Primary Care Center (Center) is the lessee of the property for which exemption is claimed. It is also a Kansas not-for-profit corporation and an IRS-certified 501(c)(3) charitable organization. The Center was created by the WMPA as an extension of the WMPA mission. The Center is a separate entity with a separate board of directors. However, one member of the board of directors of the WMPA serves as a board member of the Center. The Center...