Village North, Inc. v. State Tax Com'n of Missouri

• Decision Date: 13 November 1990
• Docket Number: No. 57689,57689
• Citation: 799 S.W.2d 197
• Parties: VILLAGE NORTH, INC., Plaintiff-Respondent, v. STATE TAX COMMISSION OF MISSOURI, et al., Defendants-Appellants.
• Court: Missouri Court of Appeals

Page 197

799 S.W.2d 197

VILLAGE NORTH, INC., Plaintiff-Respondent, v. STATE TAX COMMISSION OF MISSOURI, et al., Defendants-Appellants.

No. 57689.

Missouri Court of Appeals,

Eastern District,

Division Three.

Nov. 13, 1990.

John Ford Cowling, Ann Elizabeth Buckley, St. Louis, for defendants-appellants.

Dennis C. Affolter, Clayton, for plaintiff-respondent.

REINHARD, Presiding Judge.

The State Tax Commission appeals an order by the Circuit Court granting taxpayer an exemption from ad valorem tax on a portion of taxpayer's property and a residential rather than commercial classification on the rest. We reverse and remand in part and affirm in part.

Village North, Inc. (taxpayer) is a not-for-profit Missouri corporation that was created to construct and operate certain types of facilities for the elderly. It is wholly owned by the Christian Health Services Development Corporation (CHSDC) a not-for-profit corporation which also owns Christian Hospital Northeast-Northwest. The real property that is the subject of this dispute is Village North, a "life-care community" for persons who are 62 years of age and older. The property has six buildings, four of which contain a total of 214 apartments. The fifth building is a 60 bed skilled nursing facility and the sixth is used for administration.

Each resident of Village North pays an entrance endowment fee, and a monthly service fee that covers such items as maintenance, linen, transportation and one meal per day in the dining room. In exchange for payment of these fees, which vary according to the size of the unit selected, the resident is entitled to lifetime tenancy in his or her chosen apartment and unlimited care in the nursing facility whenever necessary.

The facility is governed by a Board of Directors who are also closely connected to CHSDC with the exception of one board member who must be, by law, a resident of the facility. In addition, the facility has an elected Residents' Council which advises the Board on issues of interest to residents.

While the screening process for the selection of residents includes analysis of financial ability to pay, no such requirement exists with respect to non-residents who seek admission to the skilled nursing facility. The only prerequisites for a non-resident to be admitted are that a doctor refer them and that some improvement in their physical condition be foreseeable. Mentally ill patients are not accepted because of the lack of required security safeguards in the facility. Approximately 50% of the beds in the facility are, at any one time, occupied by non-residents. There was some evidence that if the facility were full and a resident needed a bed a non-resident would be transferred to make room. Lack of ability to pay has never caused a transfer.

The St. Louis County Assessor's office classified all of the property as commercial. After an unsuccessful appeal to the County Board of Adjustment, Village North filed Complaints for Review of Assessment with the Missouri State Tax Commission for 1985 and 1986. An evidentiary hearing was held in 1987.

Village North contended that the nursing care facility should be exempt from taxation as a charitable institution and that the rest of the facility should be classified as residential rather than commercial property. In support of its position Village North offered substantial documentary evidence about the operations of Village North. The executive director and chief financial officer also testified about the structure and finances of the facility. The County Assessor insisted that the entire facility must be considered as an integrated whole and that all portions of it existed solely for the benefit of the relatively well-to-do residents. In addition, to justify the commercial classification rather than residential the Assessor cited § 137.016, RSMo 1986, which limited a residential classification to dwellings of four (4) units or less or to condominiums and housing cooperatives. In his order the hearing officer accepted the county's reasoning as to classification but found the nursing facility to be exempt. Both Village North and the County appealed to the full Commission.

The Commission denied both of Village North's claims. Village North appealed to the Circuit Court which reversed the Commission on both points. This appeal by the Commission followed.

This court reviews the findings and decision of the agency and not the judgment of the circuit court when sitting in review of an administrative agency. City of Cabool v. Mo. State Bd. of Mediation, 689 S.W.2d 51, 53 (Mo. banc 1985). In addition, we are mindful of the fact that the law disfavors claims for exemption. Mo. Church of Scientology v. State Tax Comm'n., 560 S.W.2d 837, 844 (Mo. banc 1978) and that we must give due weight "to the expertness and experience of the particular agency." § 536.140.3, RSMo 1986.

The first issue is whether the skilled nursing facility meets the requirements for a charitable exemption articulated in § 137.100, RSMo 1986 and explained in the leading case on this issue, Franciscan Tertiary Prov. v. State Tax Comm'n., 566 S.W.2d 213 (Mo. banc 1978). Section 137.100 states that "[t]he following subjects are exempt from taxation for state, county or local purposes: ... (5) All property, real and personal, actually and regularly used exclusively for religious worship, for schools and colleges, or for purposes purely charitable and not held for private or corporate profit." Franciscan has identified three specific elements that must be satisfied:

1) The property must be owned and operated on a not-for-profit basis;

2) the property must be unconditionally dedicated to the charitable use, and no private profit may result;

3) the dominant use of the property must benefit society generally as an indefinite number of people. 566 S.W.2d at 224.

The Commission agreed that the Nursing facility met parts one and two of the Franciscan test because the ownership and operation of the facility is wholly not-for-profit. It gave great weight, however, to the possibility of exclusion of a non-resident in favor of a resident and cited this as its reason for determining that Village North did not meet the requirements of the third element of the Franciscan test: "Village North's policy of allowing non-residents access to their facilities is admirable. However, because many people are 'systematically denied' health care because of the facilities being full or a resident needing care and receiving priority over the non-resident, the charitable exemption elements are not met." The record shows that the denial of services relied upon by the Commission had occurred twice during the past five years. This must be contrasted with the fact that approximately thirty out of the sixty beds available have been used for non-residents. The Commission seems to have misinterpreted the case law to require that every member of the public who desires space at Village North must be admitted. This requirement has been expressly disallowed in a case from this court, Affiliated Medical Transport v. Tax Comm'n., 755 S.W.2d 646 (Mo.App.1988) in which an ambulance service had, at times, screened its clients based on their ability to pay.

"Even if on occasion Affiliated denied medical services in isolated cases solely on the basis of the patient's financial status, Affiliated rendered nonprofit medical services to the community at large, including the provision of its services to the usual and ordinary number of indigent patients...." 755 S.W.2d at 653.

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