Utah County, By and Through County Bd. of Equalization of Utah County v. Intermountain Health Care, Inc., 17699

• Citation: 709 P.2d 265
• Decision Date: 26 June 1985
• Docket Number: No. 17699,17699
• Parties: UTAH COUNTY, a body politic, By and Through the COUNTY BOARD OF EQUALIZATION OF UTAH COUNTY, State of Utah, Plaintiff, v. INTERMOUNTAIN HEALTH CARE, INC., and Tax Commission of the State of Utah, Defendants.
• Court: Supreme Court of Utah

Page 265

709 P.2d 265

UTAH COUNTY, a body politic, By and Through the COUNTY BOARD

OF EQUALIZATION OF UTAH COUNTY, State of Utah, Plaintiff, v. INTERMOUNTAIN HEALTH CARE, INC., and Tax Commission of the

State of Utah, Defendants.

No. 17699.

Supreme Court of Utah.

June 26, 1985.

Rehearing Denied Sept. 26, 1985.

David L. Wilkinson, Atty. Gen., Noall T. Wootton, Utah County Atty., Lynn W. Davis, Deputy County Atty., Provo, Ted Cannon, Salt Lake County Atty., Bill Thomas Peters, Sp. Asst. County Atty., Salt Lake City, for plaintiff.

Daniel M. Allred, Michael D. Dazey, Salt Lake City, for St. Marks.

Jonathan A. Dibble, Salt Lake City, for Holy Cross.

Alan L. Sullivan, S. David Colton, A. Jaynne Allison, Salt Lake City for Intermountain Health Care.

John H. McDonald, Craig S. Cook, Salt Lake City, for Pathology.

DURHAM, Justice:

Utah County seeks review of a decision of the Utah State Tax Commission reversing a ruling of the Utah County Board of Equalization. The Tax Commission exempted Utah Valley Hospital, owned and operated by Intermountain Health Care (IHC), and American Fork Hospital, leased and operated by IHC, from ad valorem Amici curiae have entered the case. St. Mark's Hospital and Holy Cross Hospital have filed briefs supporting IHC's position, and Salt Lake County has filed a brief supporting that of Utah County. Pathology Associates Laboratories (PAL) supports Utah County and argues that allowing nonprofit hospitals such as those operated by IHC to enjoy a tax exemption, in addition to their nonprofit status, gives them an unfair advantage over competitors such as PAL, a for-profit corporation. By minute entry of this Court, IHC's motion to strike the brief of PAL was granted to the extent that the brief deals with factual issues not raised in the proceedings below. We set forth hereafter those pertinent facts that have been established in the somewhat limited record before us.

property taxes. At issue is whether such a tax exemption is constitutionally permissible. We hold that, on the facts in this record, it is not, and we reverse.

IHC is a nonprofit corporation that owns and operates or leases and operates twenty-one hospitals throughout the intermountain area, including Utah Valley Hospital and American Fork Hospital. IHC also owns other subsidiaries, including at least one for-profit entity. It is supervised by a board of trustees who serve without pay. It has no stock, and no dividends or pecuniary profits are paid to its trustees or incorporators. Upon dissolution of the corporation, no part of its assets can inure to the benefit of any private person.

IHC's policy with respect to all of its hospitals is to make charges to patients for hospital services whenever it is possible to do so. Hospital charges are paid either by patients, by private insurance companies such as Blue Cross and Blue Shield, or by governmental programs such as Medicare and Medicaid. IHC and its individual hospitals also are the recipients of private bequests, endowments, and contributions in amounts not established in the record.

Utah County seeks the resolution of two issues: (1) whether U.C.A., 1953, §§ 59-2-30 (1974) and 59-2-31 (1974), ¹ which exempt from taxation hospitals meeting certain requirements, constitute an unconstitutional expansion of the charitable exemption in article XIII, section 2 of the Utah Constitution; and (2) whether Utah Valley Hospital and American Fork Hospital are exempt from taxation under article XIII, section 2 of the Utah Constitution.

Utah County does not seriously dispute that the two hospitals in this case comply with sections 59-2-30 and 59-2-31, but contends instead that these statutes unlawfully expand the charitable exemption granted by article XIII, section 2 of the Utah Constitution (1895, amended 1982), which provides in pertinent part:

The property of the state, cities, counties, towns, school districts, municipal In ruling upon the validity of a statute which purports to define the meaning of a constitutional provision, we are obligated to scrutinize the language of the Constitution with considerable care. It is true, as explained in Justice Howe's dissent, that a significant degree of deference is due to a legislative construction of the meaning of a constitutional term. But his opinion itself, in accord with well-established principles of judicial review, acknowledges that this Court's obligation is to serve as the "final arbiter" of the question of what constitutes "charitable purposes." "Section 2 of art. XIII grants a charitable exemption and our statutes cannot expand or limit the scope of the exemption or defeat it. To the extent the statutes have that effect, they are not valid." Loyal Order of Moose, # 259 v. County Board of Equalization, Utah, 657 P.2d 257, 261 (1982) (emphasis in the original). ²

corporations and public libraries, lots with the buildings thereon used exclusively for either religious worship or charitable purposes, ... shall be exempt from taxation.

The power of state and local governments to levy property taxes has traditionally been limited by constitutional and statutory provisions such as those at issue in this case that exempt certain property from taxation. These exemptions confer an indirect subsidy and are usually justified as the quid pro quo for charitable entities undertaking functions and services that the state would otherwise be required to perform. ³ A concurrent rationale, used by some courts, is the assertion that the exemptions are granted not only because charitable entities relieve government of a burden, but also because their activities enhance beneficial community values or goals. ⁴ Under this theory, the benefits received by the community are believed to offset the revenue lost by reason of the exemption.

A consideration of the reasons for exemption provisions is important in determining the proper standards under which they should be reviewed.

A liberal construction of exemption provisions results in the loss of a major source of municipal revenue and places a greater burden on nonexempt taxpayers, thus, these provisions have generally been strictly construed. For the same reasons parties seeking an exemption bear the burden of proving their entitlement to it. The doctrine of strict construction and the difficulties taxpayers have in bearing the burden of proof explain why taxation has been the rule and exemption has been the exception. In some jurisdictions, however, the doctrine of strict construction has been eroding. Courts in these jurisdictions pay "lip service" to the doctrine but fail to apply it to exemption provisions.

Comment, Real Estate Tax Exemption for Federally Subsidized Housing Corporations, 64 Minn.L.Rev. 1094, 1096-97 (1980) (footnotes omitted). ⁵ Unlike the courts described in the foregoing comment, this Court recently reaffirmed its commitment to the doctrine of strict construction as applied to the charitable exemption provision contained in the Utah Constitution. In Loyal Order of Moose, 657 P.2d at 264, we determined that the clause exempting property "used exclusively for ... charitable purposes" is to be strictly construed, Utah Const. art. XIII, § 2. Accord Salt Lake County v. Tax Commission ex rel. Laborers Local No. 295, Utah, 658 P.2d 1192, 1194 (1983).

An entity may be granted a charitable tax exemption for its property under the Utah Constitution only if it meets the definition of a "charity" or if its property is used exclusively for "charitable" purposes. Essential to this definition is the element of gift to the community.

Charity is the contribution or dedication of something of value ... to the common good.... By exempting property used for charitable purposes, the constitutional convention sought to encourage individual or group sacrifice for the welfare of the community. An essential element of charity is an act of giving.

Salt Lake County v. Tax Commission ex rel. Greater Salt Lake Recreational Facilities, Utah, 596 P.2d 641, 643 (1979) (emphasis added). A gift to the community can be identified either by a substantial imbalance in the exchange between the charity and the recipient of its services or in the lessening of a government burden through the charity's operation. Laborers Local No. 295, 658 P.2d at 1198 (Oaks, J., concurring). In Friendship Manor Corp. v. Tax Commission, 26 Utah 2d 227, 487 P.2d 1272 (1971), this Court declined to exempt from taxation property used as a home for the elderly because the alleged givers of the charity also constituted its sole beneficiaries. We were unable in that case to find any gift to the general public. We there quoted with approval United Presbyterian Association v. Board of County Commissioners, 167 Colo. 485, 503, 448 P.2d 967, 976 (1968): "[W]here material reciprocity between alleged recipients and their alleged donor exists--then charity does not." Friendship Manor, 26 Utah 2d at 238, 487 P.2d at 1279. Similarly, in Laborers Local No. 295, 658 P.2d at 1196, we held that a union was not entitled to a tax exemption for condominium office space because the primary purpose of this use was to benefit union members, and there was no gift to the general public.

Given the complexities of institutional organization, financing, and impact on modern community life, there are a number of factors which must be weighed in determining whether a particular institution is in fact using its property "exclusively for ... charitable purposes." Utah Const. art. XIII, § 2 (1895, amended 1982). These factors are: (1) whether the stated purpose of the entity is to provide a significant service to others without immediate expectation of material reward; (2) whether the entity is supported, and to what extent, by donations and gifts; (3) whether the recipients of the "charity" are required to pay for the assistance received, in whole or in part; (4) whether the income received from all sources (gifts, donations, and payment from...