Upper Valley Cmty. Health Serv., Inc. v. Madison Cty.

• Court: Idaho Supreme Court
• Writing for the Court: MEYER, Justice.
• Citation: Upper Valley Cmty. Health Serv., Inc. v. Madison Cty., 554 P.3d 574 (Idaho 2024)
• Docket Number: Docket No. 49856
• Decision Date: 16 August 2024
• Parties: UPPER VALLEY COMMUNITY HEALTH SERVICES, INC., dba Grand Peaks Medical, Dental, Behavioral Health and Pharmacy, Petitioner-Appellant, v. MADISON COUNTY, a political subdivision of the State of Idaho, THROUGH the MADISON COUNTY BOARD OF EQUALIZATION, and the Madison County Assessor, Respondents.

554 P.3d 574

UPPER VALLEY COMMUNITY HEALTH SERVICES, INC., dba Grand Peaks Medical, Dental, Behavioral Health and Pharmacy, Petitioner-Appellant,

v.MADISON COUNTY, a political subdivision of the State of Idaho, THROUGH the MADISON COUNTY BOARD OF EQUALIZATION, and the Madison County Assessor, Respondents.

Docket No. 49856

Supreme Court of Idaho, Boise, May 2024 Term.

Opinion Filed: August 16, 2024

Appeal from the District Court of the Seventh Judicial District, State of Idaho, Madison County. Steven W. Boyce, District Judge.

The order of the district court is reversed, and this case is remanded for further proceedings.

Smith + Malek, PLLC, Coeur d’Alene, for Appellant, Upper Valley Community Health Services, Inc. Kolby K. Reddish argued.

Madison County, Rexburg, for Respondents Madison County. Troy D. Evans argued.

MEYER, Justice.

This is an appeal by Upper Valley Community Health Services, Inc., dba Grand Peaks Medical, Dental, Behavioral Health and Pharmacy ("Grand Peaks"). Grand Peaks appeals the district court’s decision to deny its request for a full tax exemption under Idaho Code section 63-602C, and the court’s order to remand the case to the Madison County Board of Equalization for further proceedings. Grand Peaks argues that the district court correctly vacated the Board’s award of a sixty-five percent partial tax exemption because that decision was "arbitrary and capricious," but contends that the district court erred by remanding the case for further factfinding by the Board. Grand Peaks maintains that the district court should have awarded it a full tax exemption because the record supports a finding that Grand Peaks is a charitable organization that uses its property exclusively for charitable purposes. Madison County counters that the district court’s decision to remand was correct and was within the district court’s discretion under Idaho Code section 63-511. For the reasons discussed below, we reverse the district court’s order for remand and hold that Grand Peaks is entitled to a full tax exemption under Idaho Code section 63-602C because it is a charitable organization and uses its property exclusively for the charitable purposes for which it was organized.

I. FACTUAL AND PROCEDURAL BACKGROUND

Grand Peaks applied to the Madison County Assessor for a property tax exemption for parcel numbers RPRRXB10383613, RPRRXB10385350, and RPRRXB10384570. All three properties are in Rexburg, Idaho, and comprise Grand Peaks’ clinics and administrative offices. Grand Peaks’ mission is to provide "quality primary and preventative health care as well as health related services to medically underserved communities and/or populations, regardless of a patient’s ability to pay." Grand Peaks was originally founded as a free clinic, staffed by volunteer doctors and support staff. It later became a Federally Qualified Health Center under section 330(e) of the Public Health Service Act, 42 U.S.C. § 254b(e). See also 42 U.S.C. § 1395x(aa)(4) (defining "Federally qualified health center"). Grand Peaks is also a federally tax exempt organization under section 501(c)(3) of the Internal Revenue Code, 26 U.S.C. § 501(c)(3).

Grand Peaks sought tax exempt status for the 2019-2020 fiscal year under Idaho Code section 63-602C. Grand Peaks’s revenue for the 2019-2020 fiscal year was $8,258,084, which included grant revenues. Its expenses for that period were $7,981,008. In the application for tax exempt status, Grand Peaks stated that "about 40% of our patients receive Medicaid benefits and 20% of our patients have no insurance coverage at all." Grand Peaks explained it received revenue from federal grants, and "[o]ur grant revenue amounted to about 30% of our total revenues for [the] last fiscal year." In a letter to the Madison County Assessor’s Office, Grand Peaks stated that "[a]ll of Grand Peaks’ fees are calculated based on family sized [sic] and income as it relates to the Federal Poverty Guidelines. We receive Federal Grant dollars that help to supplement patients not able or required to pay full fee for services received."

The Madison County Commissioners reviewed Grand Peaks’ request for a full tax exemption and awarded Grand Peaks a partial tax exemption of sixty-five percent for the 2019-2020 fiscal year. A partial tax exemption was suggested by the Madison County Assessor, Mr. Boice, after one of the commissioners, who was a dentist, opined that when he had his dentistry practice, he "never received a penny from the U.S. government," but "always paid his property taxes without any exemption." The commissioners "like[d] the idea of a partial exemption" as they did not "want to create unfair business practices" and they determined "there is a healthy revenue realized by Grand Peaks but there is an exemption that should be allowed for Medicare patients."

Grand Peaks then appealed to the Madison County Board of Equalization seeking a full tax exemption under Idaho Code section 63-602C. Grand Peaks sent a letter to the Madison County Board of Equalization in advance of the hearing, which included information about Grand Peaks’ organization and the requirements for a tax exemption under Idaho Code section 63-602C. In the letter, Grand Peaks explained that it "was organized to provide healthcare services to underserved communities in Eastern Idaho," and that its Articles of Incorporation state Grand Peaks "is organized and operated exclusively for charitable and educational purposes, and exclusively in furtherance of such purposes shall carry out and promote only such activi- ties and projects as are consistent with these articles." Grand Peaks stated it filed for tax exempt status "for the three parcels it owns" and that it "uses the real property as clinics to provide healthcare to Madison County residents[.]"

At the hearing, the Madison County Commissioners, sitting as the Madison County Board of Equalization, heard Grand Peaks’ arguments as to why it should be granted a full tax exemption under Idaho Code section 63-602C. Grand Peaks explained to the Board how it met the requirements of a charitable organization under the statute, and clarified that "the work that is done here in Rexburg is charitable work. Some of it is discounted fully. Some of it is discounted partially. But for those who are in need, there is a discount, and it is a charitable organization or a charitable function." Grand Peaks’ attorney also explained that Grand Peaks’ business model is "dictated by the federal government as to whether or not somebody pays. The philosophy behind that being folks should have a vested interest in having responsibility for their own health care. … It’s based on their income."

The Board also heard arguments related to whether Grand Peaks produced a profit. Grand Peaks’ attorney contended that "there is no such thing as a profit when it comes to being a nonprofit organization. Are there times in which revenue exceeds expenses? Absolutely. But again, that is invested directly back into the care of the patients." Grand Peaks directed the Board to its Articles of Incorporation in support of its argument that the claimed properties were being used exclusively for charitable purposes.

During the hearing, several board members questioned Grand Peaks about competition with for-profit providers for patients:

[MR. [D.] SMITH¹:] Our issue came with the competition of the fully insured people that should be going to someone who is not a nonprofit. We have a lot of for-profit places in town that pay property tax, that risk that every year, right? And I don’t want to sound down here, but your advertising, for example, for patients, that bothered me just a little, honestly.

CHAIRMAN [T.] SMITH: …[T]hat’s where it kind of got me a little bit, when I see you doing a billboard, or whatever. And I can understand if you’re just trying to get to those people that are uninsured so you can help them. But when, you know, me as a fully insured, capable, paying person can go to your place and take business away from one of our other doctors, that was my problem. That’s—that’s why we felt like 65 percent was—was more than fair.

One board member asked Grand Peaks’ attorney: "How do you say that it’s exclusively exempt property for charitable purposes when you accept paying patients, fully-paying patients, and you don’t see emergencies over the weekend? Do you call that a charity?" The same board member then asked: "[W]ho pays the property tax for that guy that goes in and takes care of that patient, your patients (inaudible)? They’re paying their property taxes. Why don’t you have to pay your property taxes?" Grand Peaks countered that its business model requires a mix of insured and uninsured patients. Grand Peaks’ attorney acknowledged that sometimes the business model could have a "competitive impact," but noted "that’s not the mission of the organization. The mission of the organization is to serve the uninsured underserved population." The Board subsequently affirmed the sixty-five percent partial tax exemption to Grand Peaks.

Grand Peaks filed a petition for judicial review under Idaho Code section 63-511. The district court treated the petition as a review of an agency decision based on the parties’ stipulation to forego a trial de novo. Grand Peaks emphasized to the district court that to qualify for a tax exemption, it would need to show that it was a charitable organization and that it used its property exclusively for charitable purposes. During oral arguments, Grand Peaks’ attorney explained to the district court that "over 90 percent of the people who receive services at Grand Peaks receive some sort of discount on their services, and that’s because it’s on a sliding scale based on a person’s ability to pay." Grand Peaks’ attorney explained: "it’s meant to be accessible, while also encouraging, obviously, people’s investment in their own health care," as "Grand Peaks does not charge patients fees equal to the cost of their care."...